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




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##### 



Orion Energy Systems, Inc.
 Quarterly Report On Form 10-Q
 For The Quarter Ended June 30, 2010
 Table Of Contents
 Page(s)PART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2010 and June 30, 2010
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2009 and 2010
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2009 and 2010
    
    5Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    26ITEM 4. Controls and Procedures
    
    26PART II OTHER INFORMATIONITEM 1. Legal Proceedings
    
    26ITEM 1A. Risk Factors
    
    27ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    27ITEM 5. Other Information
    
    27ITEM 6. Exhibits
    
    28SIGNATURES
    
    29EX-31.1EX-31.2EX-32.1EX-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,
    
    
    June 30,2010
    
    
    2010AssetsCash and cash equivalents
    
    $
    23,364
    
    
    $
    16,196Short-term investments
    
    
    1,000
    
    
    
    1,007Accounts receivable, net of allowances of $382 and $335
    
    
    14,617
    
    
    
    11,653Inventories, net
    
    
    25,991
    
    
    
    30,027Deferred tax assets
    
    
    
    
    
    
    170Prepaid expenses and other current assets
    
    
    2,974
    
    
    
    4,561Total current assets
    
    
    67,946
    
    
    
    63,614Property and equipment, net
    
    
    30,500
    
    
    
    31,923Patents and licenses, net
    
    
    1,590
    
    
    
    1,595Deferred tax assets
    
    
    2,610
    
    
    
    3,152Other long-term assets
    
    
    975
    
    
    
    1,268Total assets
    
    $
    103,621
    
    
    $
    101,552Liabilities and Shareholders EquityAccounts payable
    
    $
    7,761
    
    
    $
    6,452Accrued expenses and other
    
    
    3,844
    
    
    
    3,449Deferred tax liabilities
    
    
    44
    
    
    
    Current maturities of long-term debt
    
    
    562
    
    
    
    583Total current liabilities
    
    
    12,211
    
    
    
    10,484Long-term debt, less current maturities
    
    
    3,156
    
    
    
    3,002Deferred revenue, long-term
    
    
    186
    
    
    
    648Other long-term liabilities
    
    
    398
    
    
    
    400Total liabilities
    
    
    15,951
    
    
    
    14,534Commitments and contingencies (See Note F)Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2010
and June 30, 2010; no shares issued and outstanding at March 31, 2010 and June 30, 2010
    
    
    
    
    
    
    Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2010 and June
30, 2010; shares issued: 29,911,203 and 30,080,634 at March 31, 2010 and June 30, 2010;
shares outstanding: 22,442,380 and 22,595,903 at March 31, 2010 and June 30, 2010
    
    
    
    
    
    
    Additional paid-in capital
    
    
    122,515
    
    
    
    122,969Treasury stock: 7,468,823 and 7,484,731 common shares at March 31, 2010 and June 30, 2010
    
    
    (32,011
    )
    
    
    (32,062
    )Accumulated deficit
    
    
    (2,834
    )
    
    
    (3,889
    )Total shareholders equity
    
    
    87,670
    
    
    
    87,018Total liabilities and shareholders equity
    
    $
    103,621
    
    
    $
    101,552
   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 June 30,2009
    
    
    2010Product revenue
    
    $
    10,677
    
    
    $
    13,469Service revenue
    
    
    1,951
    
    
    
    1,219Total revenue
    
    
    12,628
    
    
    
    14,688Cost of product revenue
    
    
    7,872
    
    
    
    8,525Cost of service revenue
    
    
    1,255
    
    
    
    917Total cost of revenue
    
    
    9,127
    
    
    
    9,442Gross profit
    
    
    3,501
    
    
    
    5,246Operating expenses:General and administrative
    
    
    3,163
    
    
    
    2,945Sales and marketing
    
    
    3,152
    
    
    
    3,590Research and development
    
    
    419
    
    
    
    610Total operating expenses
    
    
    6,734
    
    
    
    7,145Loss from operations
    
    
    (3,233
    )
    
    
    (1,899
    )Other income (expense):Interest expense
    
    
    (56
    )
    
    
    (70
    )Dividend and interest income
    
    
    123
    
    
    
    10Total other income (expense)
    
    
    67
    
    
    
    (60
    )Loss before income tax
    
    
    (3,166
    )
    
    
    (1,959
    )Income tax benefit
    
    
    (393
    )
    
    
    (904
    )Net loss
    
    $
    (2,773
    )
    
    $
    (1,055
    )Basic net loss per share attributable to
common shareholders
    
    $
    (0.13
    )
    
    $
    (0.05
    )Weighted-average common shares outstanding
    
    
    21,588,364
    
    
    
    22,523,107Diluted net loss per share attributable
to common shareholders
    
    $
    (0.13
    )
    
    $
    (0.05
    )Weighted-average common shares outstanding
    
    
    21,588,364
    
    
    
    22,523,107
   4




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ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended June 30,2009
    
    
    2010Operating activitiesNet loss
    
    $
    (2,773
    )
    
    $
    (1,055
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    679
    
    
    
    908Stock-based compensation expense
    
    
    320
    
    
    
    248Deferred income tax benefit
    
    
    (997
    )
    
    
    (756
    )Change in allowance for notes and accounts receivable
    
    
    22
    
    
    
    (47
    )Other
    
    
    5
    
    
    
    19Changes in operating assets and liabilities:Accounts receivable
    
    
    76
    
    
    
    3,011Inventories
    
    
    (758
    )
    
    
    (4,036
    )Prepaid expenses and other
    
    
    872
    
    
    
    (1,153
    )Accounts payable
    
    
    (3,432
    )
    
    
    (1,309
    )Accrued expenses
    
    
    (331
    )
    
    
    (395
    )Net cash used in operating activities
    
    
    (6,317
    )
    
    
    (4,565
    )Investing activitiesPurchase of property and equipment
    
    
    (1,795
    )
    
    
    (580
    )Purchase of property and equipment held under operating leases
    
    
    (509
    )
    
    
    (1,721
    )Purchase of short-term investments
    
    
    (669
    )
    
    
    (7
    )Additions to patents and licenses
    
    
    (12
    )
    
    
    (35
    )Long term investments
    
    
    
    
    
    
    (206
    )Net cash used in investing activities
    
    
    (2,985
    )
    
    
    (2,549
    )Financing activitiesPayment of long-term debt
    
    
    (215
    )
    
    
    (133
    )Repurchase of common stock into treasury
    
    
    (150
    )
    
    
    Deferred financing costs
    
    
    
    
    
    
    (57
    )Proceeds from issuance of common stock
    
    
    365
    
    
    
    136Net cash provided by (used in) financing activities
    
    
    
    
    
    
    (54
    )Net decrease in cash and cash equivalents
    
    
    (9,302
    )
    
    
    (7,168
    )Cash and cash equivalents at beginning of period
    
    
    36,163
    
    
    
    23,364Cash and cash equivalents at end of period
    
    $
    26,861
    
    
    $
    16,196Supplemental cash flow information:Cash paid for interest
    
    $
    73
    
    
    $
    63Cash paid for income taxes
    
    
    30
    
    
    
    28Supplemental disclosure of non-cash investing and financing
activities:Shares surrendered into treasury for stock option exercise
    
    $
    
    
    
    $
    51
   5




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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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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 certificate of deposit
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Total
    
    $
    23,297
    
    
    $
    
    
    
    $
    
    
    
    $
    23,297
    
    
    $
    22,297
    
    
    $
    1,000
 June 30, 2010Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    553
    
    
    $
    
    
    
    $
    
    
    
    $
    553
    
    
    $
    553
    
    
    $
    Bank certificate of deposit
    
    
    1,007
    
    
    
    
    
    
    
    
    
    
    
    1,007
    
    
    
    
    
    
    
    1,007Total
    
    $
    1,560
    
    
    $
    
    
    
    $
    
    
    
    $
    1,560
    
    
    $
    553
    
    
    $
    1,007
  Fair value of financial instruments
  Accounts receivable
   Fiscal 2011
    
    $
    178Fiscal 2012
    
    
    338Fiscal 2013
    
    
    338Fiscal 2014
    
    
    270Fiscal 2015
    
    
    135Total gross receivable
    
    
    1,259Less: amount representing interest
    
    
    (190
    )Net contracts receivable
    
    $
    1,069
 Inventories
   7




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March 31,
    
    
    June 30,2010
    
    
    2010Raw materials and components
    
    $
    11,107
    
    
    $
    10,525Work in process
    
    
    669
    
    
    
    834Finished goods
    
    
    14,215
    
    
    
    18,668$
    25,991
    
    
    $
    30,027
 Property and Equipment
  March 31,
    
    
    June 30,2010
    
    
    2010Land and land improvements
    
    $
    1,436
    
    
    $
    1,436Buildings
    
    
    14,072
    
    
    
    14,205Furniture, fixtures and office equipment
    
    
    8,201
    
    
    
    12,683Plant equipment
    
    
    7,627
    
    
    
    7,665Construction in progress
    
    
    6,777
    
    
    
    4,43838,113
    
    
    
    40,427Less: accumulated depreciation and amortization
    
    
    (7,613
    )
    
    
    (8,504
    )Net property and equipment
    
    $
    30,500
    
    
    $
    31,923
  March 31,
    
    
    June 30,2010
    
    
    2010Equipment
    
    $
    25
    
    
    $
    25Less: accumulated amortization
    
    
    (20
    )
    
    
    (21
    )Net equipment
    
    $
    5
    
    
    $
    4
  Patents and Licenses
  Other Long-Term Assets
  Accrued Expenses
    8




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Three Months EndedJune 30,2009
    
    
    2010Beginning of period
    
    $
    55
    
    
    $
    60Provision to cost of product revenue
    
    
    10
    
    
    
    48Charges
    
    
    
    
    
    
    (49
    )End of period
    
    $
    65
    
    
    $
    59
 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,
    
    
    June 30,2010
    
    
    2010Deferred revenue  current liability
    
    $
    338
    
    
    $
    267Deferred revenue  long-term liability
    
    
    186
    
    
    
    648Total deferred revenue
    
    $
    524
    
    
    $
    915
 Income Taxes
  Income Taxes
  Stock Option Plans
  Three
Months Ended
June 30,2009
    
    
    2010Weighted average expected term
    
    5.3 years
    
    
    5.7 yearsRisk-free interest rate
    
    
    2.23
    %
    
    
    2.25
    %Expected volatility
    
    
    60
    %
    
    
    60
    %Expected forfeiture rate
    
    
    3
    %
    
    
    10
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 Net Income (Loss) per Common Share
  Three Months EndedJune 30,2009
    
    
    2010Net loss (in thousands)
    
    $
    (2,773
    )
    
    $
    (1,055
    )Net loss per common share:Basic
    
    $
    (0.13
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.13
    )
    
    $
    (0.05
    )Weighted-average common shares outstanding used in:Basic
    
    
    21,588,364
    
    
    
    22,523,107Diluted
    
    
    21,588,364
    
    
    
    22,523,107
   10




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June 30,
    
    
    June 30,2009
    
    
    2010Warrants
    
    
    467,318
    
    
    
    76,240Stock Options
    
    
    3,676,007
    
    
    
    3,769,2824,143,325
    
    
    
    3,845,522
 Concentration of Credit Risk and Other Risks and Uncertainties
     Segment Information
   Recent Accounting Pronouncements
 Multiple-Deliverable
Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force
 NOTE C  RELATED PARTY TRANSACTIONS
   11




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NOTE D  LONG-TERM DEBT
  March 31,
    
    
    June 30,2010
    
    
    2010Term note
    
    $
    1,017
    
    
    $
    960First mortgage note payable
    
    
    926
    
    
    
    908Debenture payable
    
    
    847
    
    
    
    838Lease obligations
    
    
    7
    
    
    
    5Other long-term debt
    
    
    921
    
    
    
    874Total long-term debt
    
    
    3,718
    
    
    
    3,585Less current maturities
    
    
    (562
    )
    
    
    (583
    )Long-term debt, less current maturities
    
    $
    3,156
    
    
    $
    3,002
 Revolving Credit Agreement
     NOTE E  INCOME TAXES
   12




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Three
Months Ended
June 30,2009
    
    
    2010Statutory federal tax rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%State taxes, net
    
    
    0.1
    %
    
    
    (4.7
    )%Stock-based compensation expense
    
    
    18.5
    %
    
    
    (8.4
    )%Federal tax credit
    
    
    0.0
    %
    
    
    3.2
    %State tax credit
    
    
    0.0
    %
    
    
    0.0
    %Other, net
    
    
    3.0
    %
    
    
    (2.3
    )%Effective income tax rate
    
    
    (12.4
    )%
    
    
    (46.2
    )%
     Uncertain tax positions
   Three Months Ended
    
    
    Three Months EndedJune 30, 2009
    
    
    June 30, 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
  13




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NOTE F  COMMITMENTS AND CONTINGENCIES
 Operating Leases and Purchase Commitments
  Litigation
     NOTE G  SHAREHOLDERS EQUITY
 Share Repurchase Program
   14




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Shareholder Rights Plan
     NOTE H  STOCK OPTIONS AND WARRANTS
    Three months ended June 30,2009
    
    
    2010Cost of product revenue
    
    $
    59
    
    
    $
    36General and administrative
    
    
    122
    
    
    
    98Sales and marketing
    
    
    129
    
    
    
    109Research and development
    
    
    10
    
    
    
    5Total
    
    $
    320
    
    
    $
    248
  15




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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
    
    
    
    6.87Granted stock options
    
    
    (471,165
    )
    
    
    471,165
    
    
    
    3.77Granted shares
    
    
    (5,419
    )
    
    
    Forfeited
    
    
    84,120
    
    
    
    (84,120
    )
    
    
    3.32Exercised
    
    
    
    
    
    
    (164,012
    )
    
    
    1.14Balance at June 30, 2010
    
    
    177,226
    
    
    
    3,769,282
    
    
    $
    3.76
    
    
    
    7.20
    
    
    $
    1,997,686Exercisable at June 30, 2010
    
    
    
    
    
    
    1,707,842
    
    
    $
    3.21
    
    
    
    5.68
    
    
    $
    1,492,906
   Non-vested at March 31, 2010
    
    
    1,789,119Granted
    
    
    471,165Vested
    
    
    (114,724
    )Forfeited
    
    
    (84,120
    )Non-vested at June 30, 2010
    
    
    2,061,440
   WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at March 31, 2010
    
    
    76,240
    
    
    $
    2.37Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Balance at June 30, 2010
    
    
    76,240
    
    
    $
    2.37
  Number ofExercise Price
    
    Warrants
    
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2014$2.50
    
    
    37,260
    
    
    Fiscal 2011Total
    
    
    76,240
  16




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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
       17




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Revenue and Expense Components
 Revenue.
  18




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##### Table of Contents



Contracted
revenue, or bookings.
  19




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##### Table of Contents



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




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##### Table of Contents



Compensation  Stock Compensation
 Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
   21




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,2009
    
    
    2010% of
    
    
    
    
    
    
    % of
    
    
    %Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    ChangeProduct revenue
    
    $
    10,677
    
    
    
    84.6
    %
    
    $
    13,469
    
    
    
    91.7
    %
    
    
    26.1
    %Service revenue
    
    
    1,951
    
    
    
    15.4
    %
    
    
    1,219
    
    
    
    8.3
    %
    
    
    (37.5
    )%Total revenue
    
    
    12,628
    
    
    
    100.0
    %
    
    
    14,688
    
    
    
    100.0
    %
    
    
    16.3
    %Cost of product revenue
    
    
    7,872
    
    
    
    62.4
    %
    
    
    8,525
    
    
    
    58.0
    %
    
    
    8.3
    %Cost of service revenue
    
    
    1,255
    
    
    
    9.9
    %
    
    
    917
    
    
    
    6.3
    %
    
    
    (26.9
    )%Total cost of revenue
    
    
    9,127
    
    
    
    72.3
    %
    
    
    9,442
    
    
    
    64.3
    %
    
    
    3.5
    %Gross profit
    
    
    3,501
    
    
    
    27.7
    %
    
    
    5,246
    
    
    
    35.7
    %
    
    
    49.8
    %General and administrative expenses
    
    
    3,163
    
    
    
    25.0
    %
    
    
    2,945
    
    
    
    20.0
    %
    
    
    (6.9
    )%Sales and marketing expenses
    
    
    3,152
    
    
    
    25.0
    %
    
    
    3,590
    
    
    
    24.4
    %
    
    
    13.9
    %Research and development expenses
    
    
    419
    
    
    
    3.3
    %
    
    
    610
    
    
    
    4.2
    %
    
    
    45.6
    %Loss from operations
    
    
    (3,233
    )
    
    
    (25.6
    )%
    
    
    (1,899
    )
    
    
    (12.9
    )%
    
    
    41.3
    %Interest expense
    
    
    56
    
    
    
    0.4
    %
    
    
    70
    
    
    
    0.5
    %
    
    
    25.0
    %Interest income
    
    
    123
    
    
    
    1.0
    %
    
    
    10
    
    
    
    0.1
    %
    
    
    (91.9
    )%Loss before income tax
    
    
    (3,166
    )
    
    
    (25.0
    )%
    
    
    (1,959
    )
    
    
    (13.3
    )%
    
    
    38.1
    %Income tax (benefit)
    
    
    (393
    )
    
    
    (3.1
    )%
    
    
    (904
    )
    
    
    (6.1
    )%
    
    
    130.0
    %Net loss
    
    $
    (2,773
    )
    
    
    (21.9
    )%
    
    $
    (1,055
    )
    
    
    (7.2
    )%
    
    
    62.0
    %
 Contracted
Revenue, or Bookings.
 Revenue.
 Cost of Revenue and Gross Margin.
 Operating Expenses
 General and Administrative.
 Sales and Marketing.
 Research and Development.
  22




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##### Table of Contents



Interest Expense.
 Interest Income.
 Income Taxes.
 Liquidity and Capital Resources
 Overview
  Cash Flows
  Three Months EndedJune 30,2009
    
    
    2010Operating activities
    
    $
    (6,317
    )
    
    $
    (4,565
    )Investing activities
    
    
    (2,985
    )
    
    
    (2,549
    )Financing activities
    
    
    
    
    
    
    (54
    )Increase (decrease) in cash and cash equivalents
    
    $
    (9,302
    )
    
    $
    (7,168
    )
 Cash Flows Related to Operating Activities.
    23




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##### Table of Contents



Cash Flows Related to Investing Activities.
  Cash Flows Related to Financing Activities.
  Working Capital
    Indebtedness
 Revolving Credit Agreement
    24




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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
    
    $
    3,580
    
    
    $
    578
    
    
    $
    1,154
    
    
    $
    754
    
    
    $
    1,094Capital lease obligations
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Cash interest payments on debt
    
    
    906
    
    
    
    181
    
    
    
    269
    
    
    
    155
    
    
    
    301Operating lease obligations
    
    
    2,633
    
    
    
    1,003
    
    
    
    1,289
    
    
    
    265
    
    
    
    76Purchase order and cap-ex commitments (1)
    
    
    12,702
    
    
    
    12,408
    
    
    
    294
    
    
    
    
    
    
    
    Total
    
    $
    19,826
    
    
    $
    14,175
    
    
    $
    3,006
    
    
    $
    1,174
    
    
    $
    1,471
 
 (1)
    
    Reflects non-cancellable purchase order commitment in the amount of $12.1 million for certain
inventory items entered into in order to secure better pricing and ensure materials on hand
and capital expenditure commitments in the amount of $0.6 million for improvements to
information technology systems, renewable energy products and manufacturing equipment and
tooling. Off-Balance Sheet Arrangements
  Inflation
  Critical Accounting Policies and Estimates
   25




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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
      26




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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 5. OTHER INFORMATION
 Statistical Data
  Cumulative FromDecember 1, 2001Through June 30, 2010(in thousands, unaudited)HIF lighting systems sold(1)
    
    
    1,810Total units sold (including HIF lighting systems)
    
    
    2,353Customer kilowatt demand reduction(2)
    
    
    552Customer kilowatt hours saved(2)(3)
    
    
    12,146,316Customer electricity costs saved(4)
    
    $
    935,266Indirect carbon dioxide emission reductions from customers energy savings (tons)(5)
    
    
    8,073Square footage retrofitted(6)
    
    
    923,459
  27




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##### Table of Contents



(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
2.35 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 2.35 million total units sold, which contain a total of approximately 11.75 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
    
    Credit Agreement, dated June 30, 2010, by and among Orion Energy Systems, Inc., Orion
Asset Management LLC, Clean Energy Solutions, LLC and JP Morgan Chase Bank, N.A.
(Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated June 28,
2010 of 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.
  28




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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)  29




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##### Table of Contents



Exhibit Index to Form 10-Q for the Period Ended June 30, 2010
 10.1
    
    Credit Agreement, dated June 30, 2010, by and among Orion Energy Systems, Inc., Orion Asset
Management LLC, Clean Energy Solutions, LLC and JP Morgan Chase Bank, N.A. (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K dated June 28, 2010 of 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.
  30