##### 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 September 30, 2009
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



Orion Energy Systems, Inc.
 Quarterly Report On Form 10-Q
 For The Quarter Ended September 30, 2009
 Table Of Contents
 Page(s)PART I FINANCIAL INFORMATION
    
    
    3ITEM 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30,
2008 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2008 and 2009
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26ITEM 4. Controls and Procedures
    
    
    26PART II OTHER INFORMATION
    
    
    27ITEM 1. Legal Proceedings
    
    
    27ITEM 1A. Risk Factors
    
    
    27ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29ITEM 5. Other Information
    
    
    30ITEM 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### 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,
    
    
    September 30,2009
    
    
    2009AssetsCash and cash equivalents
    
    $
    36,163
    
    
    $
    33,413Short-term investments
    
    
    6,490
    
    
    
    1,000Accounts receivable, net of allowances of $222 and $316
    
    
    11,572
    
    
    
    12,742Inventories, net
    
    
    20,232
    
    
    
    19,672Deferred tax assets
    
    
    548
    
    
    
    765Prepaid expenses and other current assets
    
    
    3,369
    
    
    
    1,520Total current assets
    
    
    78,374
    
    
    
    69,112Property and equipment, net
    
    
    22,999
    
    
    
    25,739Patents and licenses, net
    
    
    1,404
    
    
    
    1,482Deferred tax assets
    
    
    593
    
    
    
    1,886Other long-term assets
    
    
    352
    
    
    
    88Total assets
    
    $
    103,722
    
    
    $
    98,307Liabilities and Shareholders EquityAccounts payable
    
    $
    7,817
    
    
    $
    5,479Accrued expenses
    
    
    2,315
    
    
    
    2,885Current maturities of long-term debt
    
    
    815
    
    
    
    693Total current liabilities
    
    
    10,947
    
    
    
    9,057Long-term debt, less current maturities
    
    
    3,647
    
    
    
    3,337Other long-term liabilities
    
    
    433
    
    
    
    507Total liabilities
    
    
    15,027
    
    
    
    12,901Commitments and contingencies (See Note F)Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2009 and
September 30, 2009; no shares issued and outstanding at March 31, 2009 and September 30, 2009
    
    
    
    
    
    
    Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2009 and September 30,
2009; shares issued: 28,875,879 and 29,173,406 at March 31, 2009 and September 30, 2009;
shares outstanding: 21,528,783 and 21,721,667 at March 31, 2009 and September 30, 2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    118,907
    
    
    
    120,098Treasury stock: 7,347,096 and 7,451,739 common shares at March 31, 2009 and September 30, 2009
    
    
    (31,536
    )
    
    
    (31,936
    )Accumulated other comprehensive (loss) income
    
    
    (32
    )
    
    
    61Retained earnings (deficit)
    
    
    1,356
    
    
    
    (2,817
    )Total shareholders equity
    
    
    88,695
    
    
    
    85,406Total liabilities and shareholders equity
    
    $
    103,722
    
    
    $
    98,307
  3




---



##### 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 September 30,
    
    
    Six Months Ended September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Product revenue
    
    $
    17,280
    
    
    $
    13,763
    
    
    $
    30,169
    
    
    $
    24,440Service revenue
    
    
    1,480
    
    
    
    856
    
    
    
    4,697
    
    
    
    2,807Total revenue
    
    
    18,760
    
    
    
    14,619
    
    
    
    34,866
    
    
    
    27,247Cost of product revenue
    
    
    11,467
    
    
    
    9,222
    
    
    
    20,080
    
    
    
    17,094Cost of service revenue
    
    
    958
    
    
    
    632
    
    
    
    3,254
    
    
    
    1,887Total cost of revenue
    
    
    12,425
    
    
    
    9,854
    
    
    
    23,334
    
    
    
    18,981Gross profit
    
    
    6,335
    
    
    
    4,765
    
    
    
    11,532
    
    
    
    8,266Operating expenses:General and administrative
    
    
    2,893
    
    
    
    3,143
    
    
    
    5,508
    
    
    
    6,307Sales and marketing
    
    
    2,771
    
    
    
    2,962
    
    
    
    5,423
    
    
    
    6,113Research and development
    
    
    373
    
    
    
    491
    
    
    
    791
    
    
    
    910Total operating expenses
    
    
    6,037
    
    
    
    6,596
    
    
    
    11,722
    
    
    
    13,330Income (loss) from operations
    
    
    298
    
    
    
    (1,831
    )
    
    
    (190
    )
    
    
    (5,064
    )Other income (expense):Interest expense
    
    
    (41
    )
    
    
    (74
    )
    
    
    (108
    )
    
    
    (130
    )Dividend and interest income
    
    
    550
    
    
    
    76
    
    
    
    1,167
    
    
    
    198Total other income
    
    
    509
    
    
    
    2
    
    
    
    1,059
    
    
    
    68Income (loss) before income tax
    
    
    807
    
    
    
    (1,829
    )
    
    
    869
    
    
    
    (4,996
    )Income tax expense (benefit)
    
    
    354
    
    
    
    (430
    )
    
    
    382
    
    
    
    (824
    )Net income (loss)
    
    $
    453
    
    
    $
    (1,399
    )
    
    $
    487
    
    
    $
    (4,172
    )Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.19
    )Weighted-average common shares outstanding
    
    
    26,959,790
    
    
    
    21,707,477
    
    
    
    26,998,857
    
    
    
    21,648,246Diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.19
    )Weighted-average common shares and share
equivalents outstanding
    
    
    29,018,991
    
    
    
    21,707,477
    
    
    
    29,613,684
    
    
    
    21,648,246
  4




---



##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Six Months Ended September 30,2008
    
    
    2009Operating activitiesNet income (loss)
    
    $
    487
    
    
    $
    (4,172
    )Adjustments to reconcile net income (loss) to net cash used
in operating activities:Depreciation and amortization
    
    
    856
    
    
    
    1,325Stock-based compensation expense
    
    
    846
    
    
    
    663Deferred income tax (benefit) expense
    
    
    193
    
    
    
    (1,510
    )Change in allowance for notes and accounts receivable
    
    
    20
    
    
    
    353Other
    
    
    62
    
    
    
    (3
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,275
    
    
    
    (1,264
    )Inventories
    
    
    (2,096
    )
    
    
    560Prepaid expenses and other current assets
    
    
    (1,504
    )
    
    
    1,845Accounts payable
    
    
    (43
    )
    
    
    (2,338
    )Accrued expenses
    
    
    (467
    )
    
    
    651Net cash used in operating activities
    
    
    (371
    )
    
    
    (3,890
    )Investing activitiesPurchase of property and equipment
    
    
    (6,865
    )
    
    
    (2,501
    )Purchase of property and equipment held under operating leases
    
    
    
    
    
    
    (1,501
    )Purchase of short-term investments
    
    
    (17,415
    )
    
    
    Sale of short-term investments
    
    
    
    
    
    
    5,583Additions to patents and licenses
    
    
    (1,074
    )
    
    
    (131
    )Proceeds from sales of long term assets
    
    
    860
    
    
    
    6Gain on sale of long term investment
    
    
    (361
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (24,855
    )
    
    
    1,456Financing activitiesPayment of long-term debt
    
    
    (405
    )
    
    
    (433
    )Repurchase of common stock into treasury
    
    
    (8,138
    )
    
    
    (400
    )Excess tax benefits from stock-based compensation
    
    
    505
    
    
    
    Deferred financing costs and offering costs
    
    
    7
    
    
    
    Proceeds from issuance of common stock
    
    
    1,352
    
    
    
    517Net cash used in financing activities
    
    
    (6,679
    )
    
    
    (316
    )Net decrease in cash and cash equivalents
    
    
    (31,905
    )
    
    
    (2,750
    )Cash and cash equivalents at beginning of period
    
    
    78,312
    
    
    
    36,163Cash and cash equivalents at end of period
    
    $
    46,407
    
    
    $
    33,413Supplemental cash flow information:Cash paid for interest
    
    $
    186
    
    
    $
    149Cash paid for income taxes
    
    
    83
    
    
    
    30Supplemental disclosure of non-cash investing and financing
activitiesLong term note receivable received on sale of investment
    
    $
    298
    
    
    $
    
  5




---



##### 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
  Basis of presentation
     Use of estimates
  6




---



##### Table of Contents



Cash and cash equivalents
  Short-term investments available for sale
  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 certificate 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
 September 30, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    22,107
    
    
    $
    
    
    
    $
    
    
    
    $
    22,107
    
    
    $
    22,107
    
    
    $
    Bank certificate of deposit
    
    
    7,282
    
    
    
    
    
    
    
    
    
    
    
    7,282
    
    
    
    6,282
    
    
    
    1,000Commercial paper
    
    
    3,639
    
    
    
    61
    
    
    
    
    
    
    
    3,700
    
    
    
    3,700
    
    
    
    Total
    
    $
    33,028
    
    
    $
    61
    
    
    $
    
    
    
    $
    33,089
    
    
    $
    32,089
    
    
    $
    1,000
      Fair value of financial instruments
  7




---



##### Table of Contents



Accounts receivable
   Fiscal 2010
    
    $
    36Fiscal 2011
    
    
    25Total gross receivable
    
    
    61Less: amount representing interest
    
    
    (4
    )Net contracts receivable
    
    $
    57
 Inventories
    March 31,
    
    
    September 30,2009
    
    
    2009Raw materials and components
    
    $
    9,629
    
    
    $
    9,383Work in process
    
    
    1,753
    
    
    
    574Finished goods
    
    
    8,850
    
    
    
    9,715$
    20,232
    
    
    $
    19,672
 Property and Equipment
  March 31,
    
    
    September 30,2009
    
    
    2009Land and land improvements
    
    $
    822
    
    
    $
    1,435Buildings
    
    
    5,435
    
    
    
    14,127Furniture, fixtures and office equipment
    
    
    3,432
    
    
    
    6,955Plant equipment
    
    
    6,882
    
    
    
    7,190Construction in progress
    
    
    11,366
    
    
    
    2,26327,937
    
    
    
    31,970Less: accumulated depreciation and amortization
    
    
    (4,938
    )
    
    
    (6,231
    )Net property and equipment
    
    $
    22,999
    
    
    $
    25,739
 8




---



##### Table of Contents



March 31,
    
    
    September 30,2009
    
    
    2009Equipment
    
    $
    1,104
    
    
    $
    1,104Less: accumulated amortization
    
    
    (477
    )
    
    
    (535
    )Net equipment
    
    $
    627
    
    
    $
    569
  Patents and Licenses
  Investment
  Other Long-Term Assets
  Accrued Expenses
   9




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Beginning of period
    
    $
    63
    
    
    $
    65
    
    
    $
    69
    
    
    $
    55Provision to cost of revenue
    
    
    17
    
    
    
    10
    
    
    
    20
    
    
    
    20Charges
    
    
    (34
    )
    
    
    (33
    )
    
    
    (43
    )
    
    
    (33
    )End of period
    
    $
    46
    
    
    $
    42
    
    
    $
    46
    
    
    $
    42
 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,
    
    
    September 30,2009
    
    
    2009Deferred revenue  current liability
    
    $
    103
    
    
    $
    98Deferred revenue  long term liability
    
    
    36
    
    
    
    109Total deferred revenue
    
    $
    139
    
    
    $
    207
 10




---



##### Table of Contents



Income Taxes
   Six Months Ended,September 30, 2008
    
    September 30, 2009Unrecognized tax benefits as of beginning of period
    
    $
    392
    
    
    $
    397Decreases relating to settlements with tax authorities
    
    
    (5
    )
    
    
    Additions based on tax positions related to the current period positions
    
    
    6
    
    
    
    1Unrecognized tax benefits as of end of period
    
    $
    393
    
    
    $
    398
   Six Months EndedSeptember 30, 2008
    
    September 30, 2009Statutory federal tax rate
    
    
    34.00
    %
    
    
    (34.00
    )%State taxes, net
    
    
    5.47
    %
    
    
    0.84
    %Incentive stock options
    
    
    4.16
    %
    
    
    12.03
    %Federal tax credit and other, net
    
    
    0.35
    %
    
    
    4.65
    %Effective income tax rate
    
    
    43.98
    %
    
    
    (16.48
    )%
   Stock Option Plans
  11




---



##### Table of Contents



Three months Ended September 30,
    
    Six months Ended September 30,2008
    
    2009
    
    2008
    
    2009Weighted average expected term
    
    6.0 years
    
    
    7.3 years
    
    
    5.7 years
    
    
    6.5 yearsRisk-free interest rate
    
    
    3.35
    %
    
    
    2.77
    %
    
    
    3.24
    %
    
    
    2.57
    %Expected volatility
    
    
    60
    %
    
    
    60
    %
    
    
    60
    %
    
    
    60
    %Expected forfeiture rate
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Net Income (Loss) per Common Share
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Numerator:Net income (loss)
    
    $
    453
    
    
    $
    (1,399
    )
    
    $
    487
    
    
    $
    (4,172
    )Denominator:Weighted-average common shares outstanding
    
    
    26,959,790
    
    
    
    21,707,477
    
    
    
    26,998,857
    
    
    
    21,648,246Weighted-average effect of restricted
stock, and assumed conversion of stock
options and warrants
    
    
    2,059,201
    
    
    
    644,920
    
    
    
    2,614,827
    
    
    
    788,723Weighted-average common shares and common
share equivalents outstanding
    
    
    29,018,991
    
    
    
    22,352,397
    
    
    
    29,613,684
    
    
    
    22,436,969
 Concentration of Credit Risk and Other Risks and Uncertainties
     Segment Information
   Recent Accounting Pronouncements
 Subsequent Events.
 12




---



##### Table of Contents



The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
 Multiple-Deliverable
Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force
 NOTE C  RELATED PARTY TRANSACTIONS
      NOTE D  LONG-TERM DEBT
  13




---



##### Table of Contents



March 31,
    
    
    September 30,2009
    
    
    2009Term note
    
    $
    1,235
    
    
    $
    1,128First mortgage note payable
    
    
    990
    
    
    
    956Debenture payable
    
    
    885
    
    
    
    867Lease obligations
    
    
    227
    
    
    
    87Other long-term debt
    
    
    1,125
    
    
    
    992Total long-term debt
    
    
    4,462
    
    
    
    4,030Less current maturities
    
    
    (815
    )
    
    
    (693
    )Long-term debt, less current maturities
    
    $
    3,647
    
    
    $
    3,337
 Revolving Credit Agreement
      NOTE E  INCOME TAXES
  14




---



##### Table of Contents



NOTE F  COMMITMENTS AND CONTINGENCIES
 Operating Leases and Purchase Commitments
  Litigation
    NOTE G  SHAREHOLDERS EQUITY
 Share Repurchase Program
  15




---



##### Table of Contents



Shareholder Rights Plan
     NOTE H  STOCK OPTIONS AND WARRANTS
    Three Months Ended September 30,
    
    
    Six Months Ended September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Cost of product revenue
    
    $
    65
    
    
    $
    53
    
    
    $
    130
    
    
    $
    112General and administrative
    
    
    171
    
    
    
    145
    
    
    
    425
    
    
    
    267Sales and marketing
    
    
    145
    
    
    
    136
    
    
    
    271
    
    
    
    265Research and development
    
    
    7
    
    
    
    9
    
    
    
    20
    
    
    
    19Total
    
    $
    388
    
    
    $
    343
    
    
    $
    846
    
    
    $
    663
 16




---



##### Table of Contents



Options OutstandingWeightedWeighted
    
    AverageShares
    
    
    
    
    
    Average
    
    Remaining
    
    AggregateAvailable for
    
    Number
    
    Exercise
    
    Contractual
    
    IntrinsicGrant
    
    of Shares
    
    Price
    
    Term (in years)
    
    valueBalance at March 31, 2009
    
    
    1,070,954
    
    
    
    3,680,945
    
    
    $
    3.40
    
    
    
    6.82Granted stock options
    
    
    (549,227
    )
    
    
    549,227
    
    
    
    3.38Granted shares in lieu of cash compensation
    
    
    (2,843
    )
    
    
    
    
    
    
    Forfeited
    
    
    212,360
    
    
    
    (212,360
    )
    
    
    5.22Exercised
    
    
    
    
    
    
    (265,498
    )
    
    
    1.70Balance at September 30, 2009
    
    
    731,244
    
    
    
    3,752,314
    
    
    $
    3.41
    
    
    
    6.89
    
    
    $
    2,871,547Exercisable at September 30, 2009
    
    
    
    
    
    
    1,702,251
    
    
    $
    2.65
    
    
    
    5.21
    
    
    $
    1,999,824
   Non-vested at March 31, 2009
    
    
    1,821,827Granted
    
    
    549,227Vested
    
    
    (108,631
    )Forfeited
    
    
    (212,360
    )Non-vested at September 30, 2009
    
    
    2,050,063
   WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at March 31, 2009
    
    
    488,504
    
    
    $
    2.31Issued
    
    
    
    
    
    
    Exercised
    
    
    (29,186
    )
    
    $
    2.30Cancelled
    
    
    
    
    
    
    Balance at September 30, 2009
    
    
    459,318
    
    
    $
    2.31
  Number ofExercise Price
    
    Warrants
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2014$2.30
    
    
    383,078
    
    
    Fiscal 2010$2.50
    
    
    37,260
    
    
    Fiscal 2011Total
    
    
    459,318
 17




---



##### 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, 2009.
 Cautionary Note Regarding Forward-Looking Statements
  Overview
      Recent Developments
  18




---



##### Table of Contents



Revenue and Expense Components
 Revenue.
     19




---



##### Table of Contents



Bookings.
 Backlog.
 Cost of Revenue.
 Gross Margin.
 Operating Expenses.
  20




---



##### Table of Contents



Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
  21




---



##### Table of Contents



Results of Operations
  Three Months Ended September 30,
    
    
    Six Months Ended September 30,2008
    
    
    2009
    
    
    
    
    
    
    2008
    
    
    2009% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Change
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    ChangeProduct revenue
    
    $
    17,280
    
    
    
    92.1
    %
    
    $
    13,763
    
    
    
    94.1
    %
    
    
    (20.4
    )%
    
    $
    30,169
    
    
    
    86.5
    %
    
    $
    24,440
    
    
    
    89.7
    %
    
    
    (19.0
    )%Service revenue
    
    
    1,480
    
    
    
    7.9
    %
    
    
    856
    
    
    
    5.9
    %
    
    
    (42.2
    )%
    
    
    4,697
    
    
    
    13.5
    %
    
    
    2,807
    
    
    
    10.3
    %
    
    
    (40.2
    )%Total revenue
    
    
    18,760
    
    
    
    100.0
    %
    
    
    14,619
    
    
    
    100.0
    %
    
    
    (22.1
    )%
    
    
    34,866
    
    
    
    100.0
    %
    
    
    27,247
    
    
    
    100.0
    %
    
    
    (21.9
    )%Cost of product revenue
    
    
    11,467
    
    
    
    61.1
    %
    
    
    9,222
    
    
    
    63.1
    %
    
    
    (19.6
    )%
    
    
    20,080
    
    
    
    57.6
    %
    
    
    17,094
    
    
    
    62.8
    %
    
    
    (14.9
    )%Cost of service revenue
    
    
    958
    
    
    
    5.1
    %
    
    
    632
    
    
    
    4.3
    %
    
    
    (34.0
    )%
    
    
    3,254
    
    
    
    9.3
    %
    
    
    1,887
    
    
    
    6.9
    %
    
    
    (42.0
    )%Total cost of revenue
    
    
    12,425
    
    
    
    66.2
    %
    
    
    9,854
    
    
    
    67.4
    %
    
    
    (20.7
    )%
    
    
    23,334
    
    
    
    66.9
    %
    
    
    18,981
    
    
    
    69.7
    %
    
    
    (18.7
    )%Gross profit
    
    
    6,335
    
    
    
    33.8
    %
    
    
    4,765
    
    
    
    32.6
    %
    
    
    (24.8
    )%
    
    
    11,532
    
    
    
    33.1
    %
    
    
    8,266
    
    
    
    30.3
    %
    
    
    (28.3
    )%General and administrative expenses
    
    
    2,893
    
    
    
    15.4
    %
    
    
    3,143
    
    
    
    21.5
    %
    
    
    8.6
    %
    
    
    5,508
    
    
    
    15.8
    %
    
    
    6,307
    
    
    
    23.1
    %
    
    
    14.5
    %Sales and marketing expenses
    
    
    2,771
    
    
    
    14.8
    %
    
    
    2,962
    
    
    
    20.2
    %
    
    
    6.9
    %
    
    
    5,423
    
    
    
    15.6
    %
    
    
    6,113
    
    
    
    22.4
    %
    
    
    12.7
    %Research and development expenses
    
    
    373
    
    
    
    2.0
    %
    
    
    491
    
    
    
    3.4
    %
    
    
    31.9
    %
    
    
    791
    
    
    
    2.3
    %
    
    
    910
    
    
    
    3.3
    %
    
    
    15.0
    %Income (loss) from operations
    
    
    298
    
    
    
    1.6
    %
    
    
    (1,831
    )
    
    
    (12.5
    )%
    
    
    (714.4
    )%
    
    
    (190
    )
    
    
    (0.5
    )%
    
    
    (5,064
    )
    
    
    (18.5
    )%
    
    NMInterest expense
    
    
    41
    
    
    
    0.2
    %
    
    
    74
    
    
    
    0.5
    %
    
    
    80.5
    %
    
    
    108
    
    
    
    0.3
    %
    
    
    130
    
    
    
    0.5
    %
    
    
    20.4
    %Dividend and interest income
    
    
    550
    
    
    
    2.9
    %
    
    
    76
    
    
    
    0.5
    %
    
    
    (86.2
    )%
    
    
    1,167
    
    
    
    3.3
    %
    
    
    198
    
    
    
    0.7
    %
    
    
    (83.0
    )%Income (loss) before income tax
    
    
    807
    
    
    
    4.3
    %
    
    
    (1,829
    )
    
    
    (12.5
    )%
    
    
    (326.6
    )%
    
    
    869
    
    
    
    2.5
    %
    
    
    (4,996
    )
    
    
    (18.3
    )%
    
    
    (674.9
    )%Income tax expense (benefit)
    
    
    354
    
    
    
    1.9
    %
    
    
    (430
    )
    
    
    (2.9
    )%
    
    
    221.5
    %
    
    
    382
    
    
    
    1.1
    %
    
    
    (824
    )
    
    
    (3.0
    )%
    
    
    315.7
    %Net income (loss)
    
    $
    453
    
    
    
    2.4
    %
    
    $
    (1,399
    )
    
    
    (9.6
    )%
    
    
    (408.8
    )%
    
    $
    487
    
    
    
    1.4
    %
    
    $
    (4,172
    )
    
    
    (15.3
    )%
    
    
    (956.7
    )%
 
 NM
    
    = Not Meaningful Revenue.
 Cost of Revenue and Gross Margin.
 Operating Expenses
 General and Administrative.
 22




---



##### Table of Contents



Sales and Marketing.
  Research and Development.
 Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
 Liquidity and Capital Resources
 Overview
   23




---



##### Table of Contents



Cash Flows
  Six Months EndedSeptember 30,2008
    
    
    2009Operating activities
    
    $
    (371
    )
    
    $
    (3,890
    )Investing activities
    
    
    (24,855
    )
    
    
    1,456Financing activities
    
    
    (6,679
    )
    
    
    (316
    )Decrease in cash and cash equivalents
    
    $
    (31,905
    )
    
    $
    (2,750
    )
 Cash Flows Related to Operating Activities.
   Cash Flows Related to Investing Activities.
  Cash Flows Related to Financing Activities.
  Working Capital
  24




---



##### Table of Contents



Indebtedness
 Revolving Credit Agreement
      Capital Spending
  25




---



##### Table of Contents



Contractual Obligations and Commitments
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsBank debt obligations
    
    $
    4,030
    
    
    $
    693
    
    
    $
    1,200
    
    
    $
    926
    
    
    $
    1,211Cash interest payments on debt
    
    
    1,063
    
    
    
    208
    
    
    
    316
    
    
    
    189
    
    
    
    350Operating lease obligations
    
    
    3,660
    
    
    
    938
    
    
    
    1,914
    
    
    
    601
    
    
    
    207Purchase order and cap-ex commitments (1)
    
    
    11,637
    
    
    
    10,462
    
    
    
    1,175
    
    
    
    
    
    
    
    Total
    
    $
    20,390
    
    
    $
    12,301
    
    
    $
    4,605
    
    
    $
    1,716
    
    
    $
    1,768
 
 (1)
    
    Reflects non-cancellable purchase order commitment in the amount of $10.7 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 $0.9 million for improvements to
information technology systems and manufacturing equipment and tooling. Off-Balance Sheet Arrangements
  Inflation
  Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  26




---



##### Table of Contents



PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 1A. RISK FACTORS
  Our potential addition of new renewable energy technologies into our product, application or
service offerings involves many risks and uncertainties. Many technologies do not become
commercially profitable products, applications or services despite extensive development and
commercialization efforts.
  27




---



##### Table of Contents




    
    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.
  OTV 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 OTV
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.
 28




---



##### Table of Contents



We have no operating history in the solar photovoltaic or wind energy industries that can be used
to evaluate our potential prospects for success in these industries.
   OTV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 over the past year, 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.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (b) Use of Proceeds
  (c) Purchases of Equity Securities
  29




---



##### Table of Contents



Total Number ofTotal
    
    
    
    
    
    Shares Purchased as
    
    Approximate Dollar ValueNumber of
    
    
    
    
    
    Part of Publicly
    
    of Shares that May Yet BeShares
    
    Average Price
    
    Announced Plans
    
    Purchased Under thePeriod
    
    Purchased
    
    Paid per Share
    
    or Programs(1)
    
    Plans or Programs(1)July 1  July 31, 2009
    
    
    46,667
    
    
    $
    3.75
    
    
    
    46,667
    
    
    $
    335,000August 1  August 31, 2009
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    $
    335,000September 1  September 30, 2009
    
    
    23,962
    
    
    $
    3.13
    
    
    
    23,962
    
    
    $
    260,00070,629
    
    
    
    
    
    
    
    70,629
 
 (1)
    
    On December 15, 2008, we announced that our board of directors had authorized the
repurchase of up to an additional $10 million of our outstanding common stock. The action
supplemented the $20 million share repurchase authorization announced on July 17, 2008.
Unless terminated earlier by resolution of our board of directors, this repurchase program
will expire when we have repurchased all shares authorized for repurchase thereunder. 
 ITEM 5. OTHER INFORMATION
 Statistical Data
  Cumulative FromDecember 1, 2001Through September 30, 2009(in thousands, unaudited)HIF lighting systems sold(1)
    
    
    1,572Total units sold (including HIF lighting systems)
    
    
    2,037Customer kilowatt demand reduction(2)
    
    
    477Customer kilowatt hours saved(2)(3)
    
    
    9,230,379Customer electricity costs saved(4)
    
    $
    710,739Indirect carbon dioxide emission reductions from customers energy savings (tons)(5)
    
    
    6,135Square footage retrofitted(6)
    
    
    806,946
 
 (1)
    
    HIF lighting systems includes all HIF units sold under the brand name Compact Modular and
its predecessor, Illuminator.(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
2.0 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. 30




---



##### Table of Contents



(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 2008, which is the most current full year for which this information is
available, was $0.098 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 2.04 million total units sold, which contain a total of approximately 10.2 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. 
 ITEM 6. EXHIBITS
 (a) Exhibits
 10.1
    
    Letter Agreement, dated as of August 27, 2009, between Orion Energy Systems, Inc. and
John H. Scribante, filed as Exhibit 10.1 to Orion Energy Systems, Inc.s Form 8-K filed on
September 2, 2009, is hereby incorporated by reference as Exhibit 10.1. *10.2
    
    Executive Employment and Severance Agreement, dated September 8, 2009, by and between
Stuart L. Ralsky and Orion Energy Systems, Inc. *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.
 
 *
    
    Management contract or compensatory plan or arrangement. 31




---



##### Table of Contents



SIGNATURE
  ORION ENERGY SYSTEMS, INC.
RegistrantBy
    /s/ Scott R. JensenScott R. JensenChief Financial Officer
(Principal Financial Officer and Authorized Signatory) 32




---



##### Table of Contents



Exhibit Index to Form 10-Q for the Period Ended September 30, 2009
 10.2
    
    Executive Employment and Severance Agreement, dated September 8, 2009, by and between Stuart
L. Ralsky and Orion Energy Systems, Inc.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.
 33