##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 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




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##### 



Orion Energy Systems, Inc.
 Quarterly Report On Form 10-Q
 For The Quarter Ended December 31, 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 December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31,
2008 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 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
    
    
    27ITEM 4. Submission Of Matters To A Vote of Security Holders
    
    
    28ITEM 5. Other Information
    
    
    28ITEM 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EX-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,
    
    
    December 31,2009
    
    
    2009AssetsCash and cash equivalents
    
    $
    36,163
    
    
    $
    31,936Short-term investments
    
    
    6,490
    
    
    
    1,000Accounts receivable, net of allowances of $222 and $347
    
    
    11,572
    
    
    
    13,397Inventories, net
    
    
    20,232
    
    
    
    24,517Deferred tax assets
    
    
    548
    
    
    
    549Prepaid expenses and other current assets
    
    
    3,369
    
    
    
    1,955Total current assets
    
    
    78,374
    
    
    
    73,354Property and equipment, net
    
    
    22,999
    
    
    
    30,732Patents and licenses, net
    
    
    1,404
    
    
    
    1,509Deferred tax assets
    
    
    593
    
    
    
    1,826Other long-term assets
    
    
    352
    
    
    
    74Total assets
    
    $
    103,722
    
    
    $
    107,495Liabilities and Shareholders EquityAccounts payable
    
    $
    7,817
    
    
    $
    13,010Accrued expenses
    
    
    2,315
    
    
    
    2,792Current maturities of long-term debt
    
    
    815
    
    
    
    650Total current liabilities
    
    
    10,947
    
    
    
    16,452Long-term debt, less current maturities
    
    
    3,647
    
    
    
    3,372Other long-term liabilities
    
    
    433
    
    
    
    574Total liabilities
    
    
    15,027
    
    
    
    20,398Commitments and contingencies (See Note F)Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2009 and
December 31, 2009; no shares issued and outstanding at March 31, 2009 and December 31, 2009
    
    
    
    
    
    
    Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2009 and December
31, 2009; shares issued: 28,875,879 and 29,408,301 at March 31, 2009 and December 31, 2009;
shares outstanding: 21,528,783 and 21,956,562 at March 31, 2009 and December 31, 2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    118,907
    
    
    
    121,042Treasury stock: 7,347,096 and 7,451,739 common shares at March 31, 2009 and December 31, 2009
    
    
    (31,536
    )
    
    
    (31,936
    )Accumulated other comprehensive loss
    
    
    (32
    )
    
    
    Retained earnings (deficit)
    
    
    1,356
    
    
    
    (2,009
    )Total shareholders equity
    
    
    88,695
    
    
    
    87,097Total liabilities and shareholders equity
    
    $
    103,722
    
    
    $
    107,495
  3




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
 Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009Product revenue
    
    $
    20,671
    
    
    $
    17,205
    
    
    $
    50,840
    
    
    $
    41,645Service revenue
    
    
    1,704
    
    
    
    2,090
    
    
    
    6,401
    
    
    
    4,897Total revenue
    
    
    22,375
    
    
    
    19,295
    
    
    
    57,241
    
    
    
    46,542Cost of product revenue
    
    
    13,644
    
    
    
    10,633
    
    
    
    33,724
    
    
    
    27,727Cost of service revenue
    
    
    1,311
    
    
    
    1,568
    
    
    
    4,565
    
    
    
    3,455Total cost of revenue
    
    
    14,955
    
    
    
    12,201
    
    
    
    38,289
    
    
    
    31,182Gross profit
    
    
    7,420
    
    
    
    7,094
    
    
    
    18,952
    
    
    
    15,360Operating expenses:General and administrative
    
    
    2,438
    
    
    
    3,051
    
    
    
    7,946
    
    
    
    9,357Sales and marketing
    
    
    2,741
    
    
    
    3,063
    
    
    
    8,164
    
    
    
    9,176Research and development
    
    
    347
    
    
    
    404
    
    
    
    1,138
    
    
    
    1,315Total operating expenses
    
    
    5,526
    
    
    
    6,518
    
    
    
    17,248
    
    
    
    19,848Income (loss) from operations
    
    
    1,894
    
    
    
    576
    
    
    
    1,704
    
    
    
    (4,488
    )Other income (expense):Interest expense
    
    
    (33
    )
    
    
    (67
    )
    
    
    (141
    )
    
    
    (197
    )Dividend and interest income
    
    
    325
    
    
    
    49
    
    
    
    1,492
    
    
    
    248Total other income (expense)
    
    
    292
    
    
    
    (18
    )
    
    
    1,351
    
    
    
    51Income (loss) before income tax
    
    
    2,186
    
    
    
    558
    
    
    
    3,055
    
    
    
    (4,437
    )Income tax expense (benefit)
    
    
    1,032
    
    
    
    (249
    )
    
    
    1,414
    
    
    
    (1,072
    )Net income (loss)
    
    $
    1,154
    
    
    $
    807
    
    
    $
    1,641
    
    
    $
    (3,365
    )Basic net income (loss) per share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    (0.15
    )Weighted-average common shares outstanding
    
    
    25,203,827
    
    
    
    21,792,175
    
    
    
    26,398,338
    
    
    
    21,709,799Diluted net income (loss) per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    (0.15
    )Weighted-average common shares and share
equivalents outstanding
    
    
    26,414,750
    
    
    
    22,567,575
    
    
    
    28,710,765
    
    
    
    21,709,799
  4




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months Ended December 31,2008
    
    
    2009Operating activitiesNet income (loss)
    
    $
    1,641
    
    
    $
    (3,365
    )Adjustments to reconcile net income (loss) to net cash used in operating
activities:Depreciation and amortization
    
    
    1,337
    
    
    
    1,956Stock-based compensation expense
    
    
    1,204
    
    
    
    1,064Deferred income tax expense (benefit)
    
    
    1,340
    
    
    
    (1,234
    )Change in allowance for notes and accounts receivable
    
    
    32
    
    
    
    384Other
    
    
    78
    
    
    
    15Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,516
    )
    
    
    (1,950
    )Inventories
    
    
    (1,804
    )
    
    
    (4,285
    )Prepaid expenses and other current assets
    
    
    (2,473
    )
    
    
    1,414Accounts payable
    
    
    1,442
    
    
    
    5,193Accrued expenses
    
    
    (1,749
    )
    
    
    633Net cash used in operating activities
    
    
    (468
    )
    
    
    (175
    )Investing activitiesPurchase of property and equipment
    
    
    (10,530
    )
    
    
    (4,268
    )Purchase of property and equipment leased to customers under operating leases
    
    
    (100
    )
    
    
    (5,328
    )Purchase of short-term investments
    
    
    (22,270
    )
    
    
    Sale of short-term investments
    
    
    
    
    
    
    5,522Additions to patents and licenses
    
    
    (1,090
    )
    
    
    (186
    )Proceeds from sales of long-term assets
    
    
    860
    
    
    
    6Gain on sale of long-term investment
    
    
    (361
    )
    
    
    Net cash used in investing activities
    
    
    (33,491
    )
    
    
    (4,254
    )Financing activitiesPayment of long-term debt
    
    
    (633
    )
    
    
    (640
    )Proceeds from long-term debt
    
    
    
    
    
    
    200Repurchase of common stock into treasury
    
    
    (22,441
    )
    
    
    (400
    )Excess tax benefits from stock-based compensation
    
    
    1,453
    
    
    
    95Deferred financing costs and offering costs
    
    
    7
    
    
    
    Proceeds from issuance of common stock
    
    
    1,436
    
    
    
    947Net cash provided by (used in) financing activities
    
    
    (20,178
    )
    
    
    202Net decrease in cash and cash equivalents
    
    
    (54,137
    )
    
    
    (4,227
    )Cash and cash equivalents at beginning of period
    
    
    78,312
    
    
    
    36,163Cash and cash equivalents at end of period
    
    $
    24,175
    
    
    $
    31,936Supplemental cash flow information:Cash paid for interest
    
    $
    272
    
    
    $
    215Cash paid for income taxes
    
    
    121
    
    
    
    30Supplemental disclosure of non-cash investing and financing activitiesLong-term note receivable received on sale of investment
    
    $
    298
    
    
    $
    
  5




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  DESCRIPTION OF BUSINESS
 Organization
  NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of consolidation
  Basis of presentation
    Evaluation of Subsequent Events
  Use of estimates
  Cash and cash equivalents
  Short-term investments available for sale
 6




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##### Table of Contents



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
 December 31, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    27,148
    
    
    $
    
    
    
    $
    
    
    
    $
    27,148
    
    
    $
    27,148
    
    
    $
    Bank certificate of deposit
    
    
    3,032
    
    
    
    
    
    
    
    
    
    
    
    3,032
    
    
    
    2,032
    
    
    
    1,000Total
    
    $
    30,180
    
    
    $
    
    
    
    $
    
    
    
    $
    30,180
    
    
    $
    29,180
    
    
    $
    1,000
  Level 1  Quoted prices in active markets for identical assets or liabilities.
 Level 2  Inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
 Level 3  Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
  Fair value of financial instruments
  Accounts receivable
  7




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##### Table of Contents



Fiscal 2010
    
    $
    14Fiscal 2011
    
    
    25Total gross receivable
    
    
    39Less: amount representing interest
    
    
    (3
    )Net contracts receivable
    
    $
    36
 Inventories
    March 31,
    
    
    December 31,2009
    
    
    2009Raw materials and components
    
    $
    9,629
    
    
    $
    11,427Work in process
    
    
    1,753
    
    
    
    587Finished goods
    
    
    8,850
    
    
    
    12,503$
    20,232
    
    
    $
    24,517
 Property and Equipment
  March 31,
    
    
    December 31,2009
    
    
    2009Land and land improvements
    
    $
    822
    
    
    $
    1,436Buildings
    
    
    5,435
    
    
    
    14,060Furniture, fixtures and office equipment
    
    
    3,432
    
    
    
    8,119Plant equipment
    
    
    6,882
    
    
    
    7,389Construction in progress
    
    
    11,366
    
    
    
    6,67327,937
    
    
    
    37,677Less: accumulated depreciation and amortization
    
    
    (4,938
    )
    
    
    (6,945
    )Net property and equipment
    
    $
    22,999
    
    
    $
    30,732
  March 31,
    
    
    December 31,2009
    
    
    2009Equipment
    
    $
    1,104
    
    
    $
    645Less: accumulated amortization
    
    
    (477
    )
    
    
    (333
    )Net equipment
    
    $
    627
    
    
    $
    312
 8




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##### Table of Contents



Patents and Licenses
  Investment
  Other Long-Term Assets
  Accrued Expenses
    Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009Beginning of period
    
    $
    46
    
    
    $
    42
    
    
    $
    69
    
    
    $
    55Provision to cost of revenue
    
    
    10
    
    
    
    40
    
    
    
    35
    
    
    
    60Charges
    
    
    (1
    )
    
    
    (44
    )
    
    
    (49
    )
    
    
    (77
    )End of period
    
    $
    55
    
    
    $
    38
    
    
    $
    55
    
    
    $
    38
 Revenue Recognition
 9




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
    
    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,
    
    
    December 31,2009
    
    
    2009Deferred revenue  current liability
    
    $
    103
    
    
    $
    98Deferred revenue  long-term liability
    
    
    36
    
    
    
    176Total deferred revenue
    
    $
    139
    
    
    $
    274
 Income Taxes
   10




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Nine Months Ended,December 31, 2008
    
    December 31, 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
    
    
    10
    
    
    
    1Unrecognized tax benefits as of end of period
    
    $
    397
    
    
    $
    398
   Nine Months EndedDecember 31, 2008
    
    December 31, 2009Statutory federal tax rate
    
    
    34.00
    %
    
    
    (34.00
    )%State taxes, net
    
    
    5.89
    %
    
    
    0.18
    %Incentive stock options
    
    
    6.05
    %
    
    
    6.62
    %Federal tax credit and other, net
    
    
    0.36
    %
    
    
    3.00
    %Effective income tax rate
    
    
    46.30
    %
    
    
    (24.20
    )%
   Stock Option Plans
  Three Months Ended December 31,
    
    Nine Months Ended December 31,2008
    
    2009
    
    2008
    
    2009Weighted average expected term
    
    5.2
    years
    
    5.9
    years
    
    5.6
    years
    
    6.4
    yearsRisk-free interest rate
    
    
    2.19
    %
    
    
    2.33
    %
    
    
    3.15
    %
    
    
    2.56
    %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
  11




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009Numerator:Net income (loss)
    
    $
    1,154
    
    
    $
    807
    
    
    $
    1,641
    
    
    $
    (3,365
    )Denominator:Weighted-average common shares outstanding
    
    
    25,203,827
    
    
    
    21,792,175
    
    
    
    26,398,338
    
    
    
    21,709,799Weighted-average effect of restricted
stock, and assumed conversion of stock
options and warrants
    
    
    1,210,923
    
    
    
    775,400
    
    
    
    2,312,427
    
    
    
    810,315Weighted-average common shares and common
share equivalents outstanding
    
    
    26,414,750
    
    
    
    22,567,575
    
    
    
    28,710,765
    
    
    
    22,520,114
 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
 Accounting and Reporting for Decreases in Ownership of a Subsidiary
 12




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Accounting for Distributions
to Shareholder with Components of Stock and Cash
 NOTE C  RELATED PARTY TRANSACTIONS
      NOTE D  LONG-TERM DEBT
  March 31,
    
    
    December 31,2009
    
    
    2009Term note
    
    $
    1,235
    
    
    $
    1,073First mortgage note payable
    
    
    990
    
    
    
    944Debenture payable
    
    
    885
    
    
    
    857Lease obligations
    
    
    227
    
    
    
    22Other long-term debt
    
    
    1,125
    
    
    
    1,126Total long-term debt
    
    
    4,462
    
    
    
    4,022Less current maturities
    
    
    (815
    )
    
    
    (650
    )Long-term debt, less current maturities
    
    $
    3,647
    
    
    $
    3,372
 13




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##### Table of Contents



Revolving Credit Agreement
     NOTE E  INCOME TAXES
   14




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##### Table of Contents



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




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##### Table of Contents



NOTE H  STOCK OPTIONS AND WARRANTS
    Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009Cost of product revenue
    
    $
    68
    
    
    $
    51
    
    
    $
    198
    
    
    $
    163General and administrative
    
    
    121
    
    
    
    135
    
    
    
    546
    
    
    
    400Sales and marketing
    
    
    157
    
    
    
    205
    
    
    
    428
    
    
    
    472Research and development
    
    
    12
    
    
    
    10
    
    
    
    32
    
    
    
    29Total
    
    $
    358
    
    
    $
    401
    
    
    $
    1,204
    
    
    $
    1,064
   16




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##### Table of Contents



Options OutstandingWeightedWeighted
    
    AverageShares
    
    
    
    
    
    Average
    
    Remaining
    
    AggregateAvailable for
    
    Number
    
    Exercise
    
    Contractual
    
    IntrinsicGrant
    
    of Shares
    
    Price
    
    Term (in years)
    
    valueBalance at March 31, 2009
    
    
    1,070,954
    
    
    
    3,680,945
    
    
    $
    3.40
    
    
    
    6.82Granted stock options
    
    
    (624,518
    )
    
    
    624,518
    
    
    
    3.38Granted shares in lieu of cash compensation
    
    
    (7,764
    )
    
    
    
    
    
    
    Forfeited
    
    
    347,965
    
    
    
    (347,965
    )
    
    
    5.07Exercised
    
    
    
    
    
    
    (393,298
    )
    
    
    1.64Balance at December 31, 2009
    
    
    786,637
    
    
    
    3,564,200
    
    
    $
    3.43
    
    
    
    6.71
    
    
    $
    5,712,982Exercisable at December 31, 2009
    
    
    
    
    
    
    1,742,831
    
    
    $
    2.67
    
    
    
    5.25
    
    
    $
    3,535,649
   Non-vested at March 31, 2009
    
    
    1,821,827Granted
    
    
    624,518Vested
    
    
    (277,011
    )Forfeited
    
    
    (347,965
    )Non-vested at December 31, 2009
    
    
    1,821,369
   WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at March 31, 2009
    
    
    488,504
    
    
    $
    2.31Issued
    
    
    
    
    
    
    Exercised
    
    
    (131,360
    )
    
    $
    2.30Cancelled
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    357,144
    
    
    $
    2.32
  Number ofExercise Price
    
    Warrants
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2014$2.30
    
    
    280,904
    
    
    Fiscal 2010$2.50
    
    
    37,260
    
    
    Fiscal 2011Total
    
    
    357,144
 17




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




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##### Table of Contents



Revenue and Expense Components
 Revenue.
     19




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##### 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




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##### Table of Contents



Results of Operations
  Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2008
    
    
    2009
    
    
    
    
    
    
    2008
    
    
    2009% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Change
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    ChangeProduct revenue
    
    $
    20,671
    
    
    
    92.4
    %
    
    $
    17,205
    
    
    
    89.2
    %
    
    
    (16.8
    )%
    
    $
    50,840
    
    
    
    88.8
    %
    
    $
    41,645
    
    
    
    89.5
    %
    
    
    (18.1
    )%Service revenue
    
    
    1,704
    
    
    
    7.6
    %
    
    
    2,090
    
    
    
    10.8
    %
    
    
    22.7
    %
    
    
    6,401
    
    
    
    11.2
    %
    
    
    4,897
    
    
    
    10.5
    %
    
    
    (23.5
    )%Total revenue
    
    
    22,375
    
    
    
    100.0
    %
    
    
    19,295
    
    
    
    100.0
    %
    
    
    (13.8
    )%
    
    
    57,241
    
    
    
    100.0
    %
    
    
    46,542
    
    
    
    100.0
    %
    
    
    (18.7
    )%Cost of product revenue
    
    
    13,644
    
    
    
    61.0
    %
    
    
    10,633
    
    
    
    55.1
    %
    
    
    (22.1
    )%
    
    
    33,724
    
    
    
    58.9
    %
    
    
    27,727
    
    
    
    59.6
    %
    
    
    (17.8
    )%Cost of service revenue
    
    
    1,311
    
    
    
    5.9
    %
    
    
    1,568
    
    
    
    8.1
    %
    
    
    19.6
    %
    
    
    4,565
    
    
    
    8.0
    %
    
    
    3,455
    
    
    
    7.4
    %
    
    
    (24.3
    )%Total cost of revenue
    
    
    14,955
    
    
    
    66.8
    %
    
    
    12,201
    
    
    
    63.2
    %
    
    
    (18.4
    )%
    
    
    38,289
    
    
    
    66.9
    %
    
    
    31,182
    
    
    
    67.0
    %
    
    
    (18.6
    )%Gross profit
    
    
    7,420
    
    
    
    33.2
    %
    
    
    7,094
    
    
    
    36.8
    %
    
    
    (4.4)
    %
    
    
    18,952
    
    
    
    33.1
    %
    
    
    15,360
    
    
    
    33.0
    %
    
    
    (19.0
    )%General and administrative expenses
    
    
    2,438
    
    
    
    10.9
    %
    
    
    3,051
    
    
    
    15.8
    %
    
    
    25.1
    %
    
    
    7,946
    
    
    
    13.9
    %
    
    
    9,357
    
    
    
    20.1
    %
    
    
    17.8
    %Sales and marketing expenses
    
    
    2,741
    
    
    
    12.3
    %
    
    
    3,063
    
    
    
    15.9
    %
    
    
    11.7
    %
    
    
    8,164
    
    
    
    14.3
    %
    
    
    9,176
    
    
    
    19.7
    %
    
    
    12.4
    %Research and development expenses
    
    
    347
    
    
    
    1.6
    %
    
    
    404
    
    
    
    2.1
    %
    
    
    16.4
    %
    
    
    1,138
    
    
    
    2.0
    %
    
    
    1,315
    
    
    
    2.8
    %
    
    
    15.6
    %Income (loss) from operations
    
    
    1,894
    
    
    
    8.4
    %
    
    
    576
    
    
    
    3.0
    %
    
    
    (69.6
    )%
    
    
    1,704
    
    
    
    2.9
    %
    
    
    (4,488
    )
    
    
    (9.6
    )%
    
    NMInterest expense
    
    
    33
    
    
    
    0.1
    %
    
    
    67
    
    
    
    0.4
    %
    
    
    103.0
    %
    
    
    141
    
    
    
    0.2
    %
    
    
    197
    
    
    
    0.4
    %
    
    
    39.7
    %Dividend and interest income
    
    
    325
    
    
    
    1.5
    %
    
    
    49
    
    
    
    0.3
    %
    
    
    (84.9
    )%
    
    
    1,492
    
    
    
    2.6
    %
    
    
    248
    
    
    
    0.5
    %
    
    
    (83.4
    )%Income (loss) before income tax
    
    
    2,186
    
    
    
    9.8
    %
    
    
    558
    
    
    
    2.9
    %
    
    
    (74.5
    )%
    
    
    3,055
    
    
    
    5.3
    %
    
    
    (4,437
    )
    
    
    (9.5
    )%
    
    
    (245.2
    )%Income tax expense (benefit)
    
    
    1,032
    
    
    
    4.6
    %
    
    
    (249
    )
    
    
    (1.3
    )%
    
    
    124.1
    %
    
    
    1,414
    
    
    
    2.5
    %
    
    
    (1,072
    )
    
    
    (2.3
    )%
    
    
    (175.8
    )%Net income (loss)
    
    $
    1,154
    
    
    
    5.2
    %
    
    $
    807
    
    
    
    4.2
    %
    
    
    (30.1
    )%
    
    $
    1,641
    
    
    
    2.8
    %
    
    $
    (3,365
    )
    
    
    (7.2
    )%
    
    
    (305.1
    )%
 
 NM = Not Meaningful Revenue.
 Cost of Revenue and Gross Margin.
 Operating Expenses
 General and Administrative.
  22




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##### Table of Contents



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




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##### Table of Contents



Cash Flows
  Nine Months EndedDecember 31,2008
    
    
    2009Operating activities
    
    $
    (468
    )
    
    $
    (175
    )Investing activities
    
    
    (33,491
    )
    
    
    (4,254
    )Financing activities
    
    
    (20,178
    )
    
    
    202Decrease in cash and cash equivalents
    
    $
    (54,137
    )
    
    $
    (4,227
    )
 Cash Flows Related to Operating Activities.
   Cash Flows Related to Investing Activities.
  Cash Flows Related to Financing Activities.
  24




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##### Table of Contents



Working Capital
  Indebtedness
 Revolving Credit Agreement
    Capital Spending
  25




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##### Table of Contents



Contractual Obligations and Commitments
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsBank debt obligations
    
    $
    4,022
    
    
    $
    650
    
    
    $
    1,245
    
    
    $
    943
    
    
    $
    1,184Cash interest payments on debt
    
    
    1,014
    
    
    
    200
    
    
    
    301
    
    
    
    176
    
    
    
    337Operating lease obligations
    
    
    3,040
    
    
    
    925
    
    
    
    1,702
    
    
    
    261
    
    
    
    152Purchase order and cap-ex commitments (1)
    
    
    11,716
    
    
    
    11,422
    
    
    
    294
    
    
    
    
    
    
    
    Total
    
    $
    19,792
    
    
    $
    13,197
    
    
    $
    3,542
    
    
    $
    1,380
    
    
    $
    1,673
 
 (1)
    
    Reflects non-cancellable purchase order commitments in the amount of $11.1 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
our 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




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##### Table of Contents



PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
     
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (b) Use of Proceeds
 27




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##### Table of Contents



ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (I)
    
    The name of each director elected at the Annual Meeting and the name of each
other director whose term of office as a director continued after the Annual Meeting is
as follows:
 Class I Directors
    
    Class II Directors
    
    Class III DirectorsThomas A. Quadracci
    
    Roland G. Stephenson
    
    Neal R. VerfuerthMichael J. Potts
    
    Mark C. Williamson
    
    James R. KackleyMichael W. Altschaefl
 (II)
    
    The election of three Class II directors named below to serve until the 2012
Annual Meeting of Shareholders. There was no solicitation in opposition to the nominees
listed in the proxy statement, and the nominees were elected.
 VotesNominee
    
    For
    
    WithheldRoland G. Stephenson
    
    
    14,547,440
    
    
    
    2,437,079Mark C. Williamson
    
    
    15,589,537
    
    
    
    1,394,982Michael W. Altschaefl
    
    
    15,876,491
    
    
    
    1,108,028
 (III)
    
    The approval of the ratification of Grant Thornton LLP to serve as our
independent registered public accounting firm for our fiscal year 2010.
 VotesFirm
    
    For
    
    
    Against
    
    
    AbstainGrant Thornton LLP
    
    
    16,617,317
    
    
    
    173,427
    
    
    
    193,775
 
 ITEM 5.
    
    OTHER INFORMATION
 Statistical Data
  Cumulative FromDecember 1, 2001Through December 31, 2009(in thousands, unaudited)HIF lighting systems sold(1)
    
    
    1,667Total units sold (including HIF lighting systems)
    
    
    2,156Customer kilowatt demand reduction(2)
    
    
    504
 28




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##### Table of Contents



Cumulative FromDecember 1, 2001Through December 31, 2009(in thousands, unaudited)Customer kilowatt hours saved(2)(3)
    
    
    10,158,182Customer electricity costs saved(4)
    
    $
    782,180Indirect carbon dioxide emission reductions from customers energy savings (tons)(5)
    
    
    6,752Square footage retrofitted(6)
    
    
    850,644
 
 (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.(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 2.16 million total units sold, which contain a total of approximately 10.8 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. 
 ITEM 6.
    
    EXHIBITS
 (a) Exhibits
 10.1
    
    Second Amendment, dated December 18, 2009, to the Credit Agreement, dated as of March
18, 2008, among Orion Energy Systems, Inc., Great Lakes Energy Technologies, LLC, and Wells
Fargo Bank, National Association (incorporated by reference to the Exhibit 10.1 to the
Current Report on Form 8-K dated December 18, 2009 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.
 29




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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) 30




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##### Table of Contents



Exhibit Index to Form 10-Q for the Period Ended December 31, 2009
 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.
 31