##### 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 June 30, 2008
 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)1204 Pilgrim Road, Plymouth, Wisconsin
    
    53073(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (920) 892-9340
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    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 June 30, 2008
Table Of Contents
 Page(s)PART I FINANCIAL INFORMATION
    
    
    3ITEM 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets (Unaudited) as of March 31,
2008 and June 30, 2008
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months Ended June 30, 2007 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) For the
Three Months Ended June 30, 2007 and 2008
    
    
    5Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    20ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29ITEM 4. Controls and Procedures
    
    
    29PART II OTHER INFORMATION
    
    
    29ITEM 1. Legal Proceedings
    
    
    30ITEM 1A. Risk Factors
    
    
    30ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30ITEM 3. Defaults Upon Senior Securities
    
    
    30ITEM 4. Submission Of Matters To A Vote Of Security Holders
    
    
    31ITEM 5. Other Information
    
    
    31ITEM 6. Exhibits
    
    
    32SIGNATURES
    
    
    33Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 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
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except
share and per share amounts)
(Unaudited)
 March 31,
    
    
    June 30,2008
    
    
    2008AssetsCash and cash equivalents
    
    $
    78,312
    
    
    $
    54,215Short-term investments
    
    
    2,404
    
    
    
    24,971Accounts receivable, net of allowances of $79 and $80
    
    
    17,666
    
    
    
    12,464Inventories
    
    
    16,789
    
    
    
    19,951Deferred tax assets
    
    
    286
    
    
    
    578Prepaid expenses and other current assets
    
    
    1,439
    
    
    
    2,234Total current assets
    
    
    116,896
    
    
    
    114,413Property and equipment, net
    
    
    11,539
    
    
    
    14,218Patents and licenses, net
    
    
    388
    
    
    
    1,386Investment
    
    
    794
    
    
    
    Deferred tax assets
    
    
    1,000
    
    
    
    977Other long-term assets
    
    
    85
    
    
    
    362Total assets
    
    $
    130,702
    
    
    $
    131,356Liabilities and Shareholders EquityAccounts payable
    
    $
    7,521
    
    
    $
    6,845Accrued expenses
    
    
    4,242
    
    
    
    3,946Current maturities of long-term debt
    
    
    843
    
    
    
    854Total current liabilities
    
    
    12,606
    
    
    
    11,645Long-term debt, less current maturities
    
    
    4,473
    
    
    
    4,263Other long-term liabilities
    
    
    433
    
    
    
    419Total liabilities
    
    
    17,512
    
    
    
    16,327Commitments and contingencies (See Note F)
Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares
at March 31, 2008 and June 30, 2008Common stock, no par value: Shares authorized: 200,000,000 at March 31,
2008 and June 30, 2008; shares issued: 27,339,414 and 27,745,880 at
March 31, 2008 and June 30, 2008; shares outstanding: 26,963,408 and
27,369,874 at March 31, 2008 and June 30, 2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    114,090
    
    
    
    115,990Treasury stock: 376,006 common shares at March 31, 2008 and June 30, 2008
    
    
    (1,739
    )
    
    
    (1,739
    )Accumulated other comprehensive loss
    
    
    (6
    )
    
    
    (101
    )Retained earnings
    
    
    845
    
    
    
    879Total shareholders equity
    
    
    113,190
    
    
    
    115,029Total liabilities and shareholders equity
    
    $
    130,702
    
    
    $
    131,356
  3




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share amounts)
(Unaudited)
 Three Months Ended June 30,2007
    
    
    2008Product revenue
    
    $
    14,505
    
    
    $
    12,889Service revenue
    
    
    2,216
    
    
    
    3,217Total revenue
    
    
    16,721
    
    
    
    16,106Cost of product revenue
    
    
    9,446
    
    
    
    8,613Cost of service revenue
    
    
    1,672
    
    
    
    2,296Total cost of revenue
    
    
    11,118
    
    
    
    10,909Gross profit
    
    
    5,603
    
    
    
    5,197Operating expenses:General and administrative
    
    
    1,571
    
    
    
    2,615Sales and marketing
    
    
    2,111
    
    
    
    2,652Research and development
    
    
    437
    
    
    
    418Total operating expenses
    
    
    4,119
    
    
    
    5,685Income (loss) from operations
    
    
    1,484
    
    
    
    (488
    )Other income (expense):Interest expense
    
    
    (295
    )
    
    
    (67
    )Dividend and interest income
    
    
    40
    
    
    
    617Total other income (expense)
    
    
    (255
    )
    
    
    550Income before income tax
    
    
    1,229
    
    
    
    62Income tax expense
    
    
    481
    
    
    
    28Net income
    
    
    748
    
    
    
    34Accretion of redeemable preferred stock and
preferred stock dividends
    
    
    (75
    )
    
    
    Participation rights of preferred stock in
undistributed earnings
    
    
    (219
    )
    
    
    Net income attributable to common shareholders
    
    $
    454
    
    
    $
    34Basic net income per share attributable to
common shareholders
    
    $
    0.05
    
    
    $
    0.00Weighted-average common shares outstanding
    
    
    9,950,486
    
    
    
    27,038,353Diluted net income per share attributable to
common shareholders
    
    $
    0.04
    
    
    $
    0.00Weighted-average common shares and share
equivalents outstanding
    
    
    18,087,951
    
    
    
    30,015,198
  4




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
(Unaudited)
 Three Months Ended June 30,2007
    
    
    2008Operating activitiesNet income
    
    $
    748
    
    
    $
    34Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    270
    
    
    
    401Stock-based compensation expense
    
    
    146
    
    
    
    458Deferred income tax benefit (provision)
    
    
    440
    
    
    
    (242
    )Other
    
    
    10
    
    
    
    55Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,372
    )
    
    
    5,212Inventories
    
    
    (1,176
    )
    
    
    (3,163
    )Prepaid expenses and other current assets
    
    
    315
    
    
    
    (679
    )Accounts payable
    
    
    2,509
    
    
    
    (676
    )Accrued expenses
    
    
    932
    
    
    
    (451
    )Net cash provided by operating activities
    
    
    1,822
    
    
    
    949Investing activitiesPurchase of property and equipment
    
    
    (614
    )
    
    
    (3,045
    )Purchase of short-term investments
    
    
    
    
    
    
    (22,663
    )Additions to patents and licenses
    
    
    (78
    )
    
    
    (1,024
    )Proceeds from sales of long term asset
    
    
    
    
    
    
    1,155Gain on sale of long term investment
    
    
    
    
    
    
    (361
    )Note receivable from sale of long term investment
    
    
    
    
    
    
    (297
    )Net (increase) in amount due from shareholder
    
    
    (14
    )
    
    
    Net cash used in investing activities
    
    
    (706
    )
    
    
    (26,235
    )Financing activitiesPayment of long-term debt
    
    
    (175
    )
    
    
    (198
    )Net activity in revolving line of credit
    
    
    (460
    )
    
    
    Excess benefit for deferred taxes on stock-based compensation
    
    
    33
    
    
    
    819Deferred financing costs and offering costs
    
    
    (479
    )
    
    
    7Proceeds from issuance of common stock
    
    
    376
    
    
    
    561Net cash provided by (used in) financing activities
    
    
    (705
    )
    
    
    1,189Net increase (decrease) in cash and cash equivalents
    
    
    411
    
    
    
    (24,097
    )Cash and cash equivalents at beginning of period
    
    
    285
    
    
    
    78,312Cash and cash equivalents at end of period
    
    $
    696
    
    
    $
    54,215Supplemental cash flow information:Cash paid for interest
    
    $
    267
    
    
    $
    94Cash paid for income taxes
    
    
    10
    
    
    
    83Supplemental disclosure of non-cash investing and financing
activitiesLong term note receivable received on sale of investment
    
    $
    
    
    
    $
    298Preferred stock accretion
    
    
    75
    
    
    
    
  5




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  DESCRIPTION OF BUSINESS
 Organization
  Initial Public Offering
  NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Basis of Presentation
    Use of Estimates
  Cash and cash equivalents
  Short-term investments available for sale
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    14,697
    
    
    $
    
    
    
    $
    
    
    
    $
    14,697
    
    
    $
    14,697
    
    
    $
    Commercial paper
    
    
    37,904
    
    
    
    
    
    
    
    
    
    
    
    37,904
    
    
    
    37,904
    
    
    
    Corporate obligations
    
    
    4,511
    
    
    
    
    
    
    
    (10
    )
    
    
    4,501
    
    
    
    
    
    
    
    4,501Government agency obligations
    
    
    20,561
    
    
    
    1
    
    
    
    (92
    )
    
    
    20,470
    
    
    
    
    
    
    
    20,470Total
    
    $
    77,673
    
    
    $
    1
    
    
    $
    (102
    )
    
    $
    77,572
    
    
    $
    52,601
    
    
    $
    24,971
 6




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Fair value of financial instruments
  Accounts receivable
   2009
    
    $
    732010
    
    
    25Total gross receivable
    
    
    98Less: amount representing interest
    
    
    (5
    )Net contracts receivable
    
    $
    93
 Inventories
    March 31,
    
    
    June 30,2008
    
    
    2008Raw materials and components
    
    $
    9,948
    
    
    $
    11,500Work in process
    
    
    680
    
    
    
    1,335Finished goods
    
    
    6,161
    
    
    
    7,116$
    16,789
    
    
    $
    19,951
 7




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Property and Equipment
  March 31,
    
    
    June 30,2008
    
    
    2008Land and land improvements
    
    $
    703
    
    
    $
    708Buildings
    
    
    4,803
    
    
    
    5,087Furniture, fixtures and office equipment
    
    
    2,256
    
    
    
    2,508Plant equipment
    
    
    4,543
    
    
    
    6,055Construction in progress
    
    
    2,918
    
    
    
    3,91615,223
    
    
    
    18,274Less: accumulated depreciation and amortization
    
    
    3,684
    
    
    
    4,056Net property and equipment
    
    $
    11,539
    
    
    $
    14,218
  March 31,
    
    
    June 30,2008
    
    
    2008Equipment
    
    $
    1,206
    
    
    $
    1,206Less: accumulated amortization
    
    
    433
    
    
    
    467Net equipment
    
    $
    773
    
    
    $
    739
  Land improvements
    
    10  15 yearsBuildings
    
    10  39 yearsFurniture, fixtures and office equipment
    
    3  10 yearsPlant equipment
    
    3  10 years
  Patents and Licenses
  Investment
  8




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Other Long-Term Assets
  Accrued Expenses
    Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2008Beginning of period
    
    $
    45
    
    
    $
    69Provision to cost of revenue
    
    
    170
    
    
    
    3Charges
    
    
    (38
    )
    
    
    (9
    )End of period
    
    $
    177
    
    
    $
    63
 Revenue Recognition
 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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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Revenue Arrangements With Multiple Deliverables
      March 31,
    
    
    June 30,2008
    
    
    2008Deferred
revenue  current liability
    
    $
    134
    
    
    $
    141Deferred
revenue  long term liability
    
    
    41
    
    
    
    26Total deferred revenue
    
    $
    175
    
    
    $
    167
 Income Taxes
 Accounting for Income
Taxes
  10




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Year Ended
    
    Three Months EndedMarch 31, 2008
    
    June 30, 2008Statutory federal tax rate
    
    
    34.00
    %
    
    
    34.00
    %State taxes, net
    
    
    4.20
    %
    
    
    5.14
    %Incentive stock options
    
    
    2.70
    %
    
    
    2.99
    %Federal tax credit
    
    
    (1.50
    )%
    
    
    0.00
    %State tax credit
    
    
    (1.00
    )%
    
    
    0.00
    %Other, net
    
    
    (0.30
    )%
    
    
    0.08
    %Effective income tax rate
    
    
    38.10
    %
    
    
    42.21
    %
   Stock Option Plans
  For the Three Months EndedJune 30, 2007
    
    June 30, 2008Weighted average expected term
    
    7.6 years
    
    6.0 yearsRisk-free interest rate
    
    
    4.58
    %
    
    
    3.24
    %Expected volatility
    
    
    60
    %
    
    
    60
    %Expected forfeiture rate
    
    
    6
    %
    
    
    2
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 Net Income per Common Share
  Participating Securities and the Two-Class Method under FASB Statement
No. 128
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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Three Months EndedJune 30,2007
    
    
    2008Numerator:Net income
    
    $
    748
    
    
    $
    34Accretion of redeemable preferred stock and
preferred stock dividends
    
    
    (75
    )
    
    
    Participation rights of preferred stock in
undistributed earnings
    
    
    (219
    )
    
    
    Numerator for basic net income per common share
    
    
    454
    
    
    
    34Preferred stock dividends and participation
rights of preferred stock
    
    
    294
    
    
    
    Numerator for diluted net income per common share
    
    $
    748
    
    
    $
    34Denominator:Weighted-average common shares outstanding
    
    
    9,950,486
    
    
    
    27,038,353Weighted-average effect of preferred stock,
restricted stock, convertible notes and assumed
conversion of stock options and warrants
    
    
    8,137,465
    
    
    
    2,976,845Weighted-average common shares and common share
equivalents outstanding
    
    
    18,087,951
    
    
    
    30,015,198
 Concentration of Credit Risk and Other Risks and Uncertainties
     Segment Information
 Disclosures about Segments of an Enterprise and Related Information
 12




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Recent Accounting Pronouncements
 Fair Value Measurement
      The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  An Amendment to ARB No. 51
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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Disclosures about Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
 Determination of Useful
Life of Intangible Assets
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of
Presented Fairly in Conformity with Generally Accepted Accounting Principles
 NOTE C  RELATED PARTY TRANSACTIONS
      14




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE D  LONG-TERM DEBT
  March 31,
    
    
    June 30,2008
    
    
    2008Term note
    
    $
    1,440
    
    
    $
    1,390First mortgage note payable
    
    
    1,045
    
    
    
    1,033Debenture payable
    
    
    922
    
    
    
    913Lease obligations
    
    
    536
    
    
    
    464Other long-term debt
    
    
    1,373
    
    
    
    1,317Total long-term debt
    
    
    5,316
    
    
    
    5,117Less current maturities
    
    
    (843
    )
    
    
    (854
    )Long-term debt, less current maturities
    
    $
    4,473
    
    
    $
    4,263
 Revolving Credit Agreement
     NOTE E  INCOME TAXES
  15




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE F  COMMITMENTS AND CONTINGENCIES
 Operating Leases and Purchase Commitments
  Litigation
   NOTE G  SHAREHOLDERS EQUITY
 Conversion of Preferred Stock Upon Completion of Initial Public Offering
  NOTE H  STOCK OPTIONS AND WARRANTS
  16




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Three months ended June 30,2007
    
    
    2008Cost of product revenue
    
    $
    21
    
    
    $
    65General and administrative
    
    
    65
    
    
    
    254Sales and marketing
    
    
    53
    
    
    
    126Research and development
    
    
    8
    
    
    
    13Total
    
    $
    147
    
    
    $
    458
   Options OutstandingWeightedWeighted
    
    AverageShares
    
    
    
    
    
    Average
    
    Remaining
    
    AggregateAvailable for
    
    Number
    
    Exercise
    
    Contractual
    
    Intrinsic(In thousands, except per share amounts)
    
    Grant
    
    of Shares
    
    Price
    
    Term (in years)
    
    valueBalance at March 31, 2008
    
    
    1,482
    
    
    
    4,716
    
    
    $
    2.30Authorized
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (238
    )
    
    
    238
    
    
    
    11.54Cancelled or expired
    
    
    114
    
    
    
    (114
    )
    
    
    2.73Exercised
    
    
    
    
    
    
    (336
    )
    
    
    1.21Balance at June 30, 2008
    
    
    1,358
    
    
    
    4,504
    
    
    
    2.86
    
    
    
    6.6
    
    
    $
    32,153Exercisable at June 30, 2008
    
    
    
    
    
    
    2,086
    
    
    
    1.25
    
    
    
    4.3
    
    
    $
    18,258
  17




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Non-vested at March 31, 2008
    
    
    2,307Granted
    
    
    238Vested
    
    
    (13
    )Forfeited
    
    
    (114
    )Non-vested at June 30, 2008
    
    
    2,418
  18




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  WeightedAverageNumber of
    
    ExerciseShares
    
    PriceBalance at March 31, 2008
    
    
    578,788
    
    
    $
    2.31Issued
    
    
    
    
    
    
    Exercised
    
    
    (65,580
    )
    
    
    2.33Cancelled
    
    
    
    
    
    
    Balance at June 30, 2008
    
    
    513,208
    
    
    $
    2.31
  June 30,Exercise Price
    
    2008
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2014$2.30
    
    
    436,968
    
    
    Fiscal 2010$2.50
    
    
    37,260
    
    
    Fiscal 2011Total
    
    
    513,208
 NOTE I  SUBSEQUENT EVENTS
  19




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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, 2008.
 Cautionary Note Regarding Forward-Looking Statements
  Overview
     Revenue and Expense Components
 Revenue.
 20




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Backlog.
 Cost of Revenue.
 21




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Gross Margin.
 Operating Expenses.
     22




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Share-Based
Payment Accounting for
Stock Issued to Employees
 Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
  23




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Accretion of Preferred Stock and Preferred Stock Dividends.
 Results of Operations
  Three Months Ended June 30,2007
    
    2008% of
    
    
    
    
    
    % of
    
    %Amount
    
    Revenue
    
    Amount
    
    Revenue
    
    ChangeProduct revenue
    
    $
    14,505
    
    
    
    86.7
    %
    
    $
    12,889
    
    
    
    80.0
    %
    
    
    (11.1
    )%Service revenue
    
    
    2,216
    
    
    
    13.3
    %
    
    
    3,217
    
    
    
    20.0
    %
    
    
    45.2
    %Total revenue
    
    
    16,721
    
    
    
    100.0
    %
    
    
    16,106
    
    
    
    100.0
    %
    
    
    (3.7
    )%Cost of product revenue
    
    
    9,446
    
    
    
    56.5
    %
    
    
    8,613
    
    
    
    53.5
    %
    
    
    (8.8
    )%Cost of service revenue
    
    
    1,672
    
    
    
    10.0
    %
    
    
    2,296
    
    
    
    14.3
    %
    
    
    37.3
    %Total cost of revenue
    
    
    11,118
    
    
    
    66.5
    %
    
    
    10,909
    
    
    
    67.7
    %
    
    
    (1.9
    )%Gross profit
    
    
    5,603
    
    
    
    33.5
    %
    
    
    5,197
    
    
    
    32.3
    %
    
    
    (7.2
    )%General and administrative expenses
    
    
    1,571
    
    
    
    9.4
    %
    
    
    2,615
    
    
    
    16.2
    %
    
    
    66.5
    %Sales and marketing expenses
    
    
    2,111
    
    
    
    12.6
    %
    
    
    2,652
    
    
    
    16.4
    %
    
    
    25.6
    %Research and development expenses
    
    
    437
    
    
    
    2.7
    %
    
    
    418
    
    
    
    2.6
    %
    
    
    (4.3
    )%Income (loss) from operations
    
    
    1,484
    
    
    
    8.8
    %
    
    
    (488
    )
    
    
    (3.0
    )%
    
    
    (132.9
    )%Interest expense
    
    
    295
    
    
    
    1.8
    %
    
    
    67
    
    
    
    0.4
    %
    
    
    (77.3
    )%Dividend and interest income
    
    
    40
    
    
    
    0.2
    %
    
    
    617
    
    
    
    3.8
    %
    
    NMIncome before income tax
    
    
    1,229
    
    
    
    7.2
    %
    
    
    62
    
    
    
    0.4
    %
    
    
    (95.0
    )%Income tax expense
    
    
    481
    
    
    
    2.9
    %
    
    
    28
    
    
    
    0.2
    %
    
    
    (94.2
    )%Net income
    
    
    748
    
    
    
    4.3
    %
    
    
    34
    
    
    
    0.2
    %
    
    
    (95.5
    )%Accretion of redeemable preferred stock and
preferred stock dividends
    
    
    (75
    )
    
    
    (.4
    )%
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %Participation rights of preferred stock in
undistributed earnings
    
    
    (219
    )
    
    
    (1.3
    )%
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %Net income attributable to common shareholders
    
    $
    454
    
    
    
    2.6
    %
    
    $
    34
    
    
    
    0.2
    %
    
    
    (92.5
    )%
 
 NM =
    
    Not meaningful
 Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
 Revenue.
 24




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Cost of Revenue and Gross Margin.
 Operating Expenses
 General and Administrative.
 Sales and Marketing.
 Research and Development.
 Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
 Accretion of Preferred Stock and Preferred Stock Dividends.
 25




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Liquidity and Capital Resources
 Overview
    Cash Flows
  Three Months EndedJune 30,2007
    
    
    2008Operating activities
    
    $
    1,822
    
    
    $
    949Investing activities
    
    
    (706
    )
    
    
    (26,235
    )Financing activities
    
    
    (705
    )
    
    
    1,189Increase (decrease) in cash and cash equivalents
    
    $
    411
    
    
    $
    (24,097
    )
 Cash Flows Related to Operating Activities.
   26




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Cash Flows Related to Investing Activities.
  Cash Flows Related to Financing Activities.
  Working Capital
   Indebtedness
  27




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Capital Spending
  Contractual Obligations and Commitments
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Cash interest payments on debt
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsBank debt obligations
    
    $
    5,117
    
    
    $
    854
    
    
    $
    1,368
    
    
    $
    1,079
    
    
    $
    1,816Cash interest payments on debt
    
    
    1,397
    
    
    
    285
    
    
    
    436
    
    
    
    237
    
    
    
    439Operating lease obligations
    
    
    2,252
    
    
    
    662
    
    
    
    1,044
    
    
    
    546
    
    
    
    Purchase order and cap-ex commitments (1)
    
    
    7,797
    
    
    
    7,797
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    16,563
    
    
    $
    9,598
    
    
    $
    2,848
    
    
    $
    1,862
    
    
    $
    2,255
 
 (1)
    
    Reflects non-cancellable purchase order commitment in the amount of $1.6 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 $6.2 million for construction of the new
technology center at our Manitowoc facility and improvements to information technology systems. Off-Balance Sheet Arrangements
  28
    Table of Contents   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
    29




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PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 1A. RISK FACTORS
 During the three months ended June 30, 2008 there were no material changes to the risk factors set
forth and discussed in Part I, Item 1A. Risk Factors in our 2008 Annual Report filed on Form 10-K
for the year ended March 31, 2008 as filed with the SEC on June 27, 2008.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (a) Unregistered Sales of Equity Securities
  (b) Use of Proceeds
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  30




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
 Statistical Data
  Cumulative FromDecember 1, 2001Through June 30, 2008(in thousands, unaudited)HIF lighting systems sold(1)
    
    
    1,204Total units sold (including HIF lighting systems)
    
    
    1,554Customer kilowatt demand reduction(2)
    
    
    357Customer kilowatt hours saved(2)(3)
    
    
    5,215,555Customer electricity costs saved(4)
    
    $
    401,598Indirect carbon dioxide emission reductions from customers energy savings (tons)(5)
    
    
    3,554Square footage retrofitted(6)
    
    
    621,046
 
 (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 1.55 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 2006,
which is the most current full year for which this information is
available, was $0.089 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. Using the
prior eGrid data, cumulative indirect carbon emission reductions from
customers energy savings from December 1, 2001 through June 30, 2008
would have equaled 5,084,957 tons.(6)
    
    Based on 1.554 million total units sold, which contain a total of
approximately 7.8 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. 31




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Executive Employment Agreement
       Fiscal
    
    Pre-Change of 
Control
    
    Post-Change of
 ControlYear
    
    Renewal
    
    
    
    
    
    Renewal2009 Base
    
    Period
    
    Severance
    
    Period
    
    SeveranceName
    
    Position
    
    Salary ($)
    
    (years)
    
    Multiplier
    
    (years)
    
    MultiplierScott R. Jensen
    

Chief Financial Officer and Treasurer
    
    
    165,000
    
    
    
    1
    
    
    
    1/2
    
    
    
    1
    
    
    
    1
   
 ITEM 6. EXHIBITS
 (a) Exhibits
 10.1
    
    Executive Employment and Severance Agreement, dated
August 12, 2008, by and between Orion Energy Systems,
Inc. and Scott R. Jensen.10.2
    
    Executive Employment and Severance Agreement, dated
August 12, 2008, by and between Orion Energy Systems,
Inc. and Daniel J. Waibel.10.3
    
    Executive Employment and Severance Agreement, dated
August 12, 2008, by and between Orion Energy Systems,
Inc. and Erik G. Birkerts.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.
 32




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SIGNATURE
  ORION ENERGY SYSTEMS, INC.
RegistrantBy  /s/ Scott R. JensenScott R. JensenChief Financial Officer 33




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Exhibit Index to Form 10-Q for the Period Ended June 30, 2008
 10.1
    
    Executive Employment and
Severance Agreement,
dated August 12, 2008, by
and between Orion Energy
Systems, Inc. and Scott
R. Jensen.10.2
    
    Executive Employment and
Severance Agreement,
dated August 12, 2008, by
and between Orion Energy
Systems, Inc. and Daniel
J. Waibel.10.3
    
    Executive Employment and
Severance Agreement,
dated August 12, 2008, by
and between Orion Energy
Systems, Inc. and Erik G.
Birkerts.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.
 34