UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No.1)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~December 31, 2010~~September 30, 2009


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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

There were ~~22,818,902~~21,808,480 shares of the Registrant’s common stock outstanding on ~~February 7, 2011.~~November 4, 2009.

EXPLANATORY NOTE

As used herein, unless otherwise expressly stated or the context otherwise requires, all references to “Orion,” “we,” “us,” “our,” “Company” and similar references are to Orion Energy Systems, Inc. and its consolidated subsidiaries.

As previously disclosed, in this Quarterly Report on Form 10-Q/A, we have restated our previously issued unaudited consolidated financial statements and related disclosures for the quarter ended September 30, 2009 to reclassify our transactions under our Orion Throughput Agreements, or OTAs, as sales-type leases instead of as operating leases.

Our prior method of accounting for OTA transactions as operating leases deferred revenue recognition over the full term of the OTA contracts, only recognizing revenue on a monthly basis as customer payments became due, while the upfront sales, general and administrative expenses related to these OTA contracts were recognized immediately. On June 9, 2011, we concluded that generally accepted accounting principles, or GAAP, required us to reclassify our transactions under our OTAs as sales-type leases instead of as operating leases. We voluntarily submitted our determination of the proper accounting treatment for the OTAs for confirmation with the Office of the Chief Accountant of the Securities and Exchange Commission, which did not object to our conclusion.

This Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2009, initially filed with the SEC on November 9, 2009 (“Original Filing”), is being filed to reflect the financial statement restatement. Generally, for the quarterly and year-to-date periods ended September 30, 2009, this change in accounting treatment and financial statement restatements has resulted in:

• No impact to our cash, cash equivalents, short-term investments; or overall cash flow;

• Increases in our revenue of $1.5 million (11%), a decrease in our net loss of $0.5 million (33%) and a reduction in our loss per share of $0.02 (33%) for the quarter ended September 30, 2009, and an increase in our revenue of $2.7 million (11%), a decrease in our net loss of $1.2 million (28%) and a reduction in our loss per share of $0.05 (26%) for the six months ended September 30, 2009; and

• Increases in our current assets of $1.4 million (2%), our total assets of $1.3 million (1%), our total liabilities of $0.1 million (1%) and a reduction in our retained deficit of $1.2 million (41%).

For a more detailed description of this financial statement restatement, see Note B, “Restatement of Financial Statements” to our consolidated financial statements and the section entitled “Restatement of Previously Issued Consolidated Financial Statements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-Q/A.

This Form 10-Q/A only amends and restates Items 1, 2, and 4 of Part I of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1, and 32.2, respectively.

Except for the foregoing amended information, this Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and we have not updated the disclosures contained herein to reflect events that occurred at a later date. Throughout this Quarterly Report on Form 10-Q/A, all amounts presented from prior periods and prior period comparisons that have been revised are labeled “As Restated” and reflect the balances and amounts on a restated basis.

PART I — FINANCIAL INFORMATION


Item 1:		Financial Statements

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

March 31, December 31,
2010 2010
Assets

Cash and cash equivalents $ 23,364 $ 9,858
Short-term investments �� 1,000 1,010
Accounts receivable, net of allowances of $382 and $467 14,617 24,326
Inventories, net 25,991 32,230
Deferred tax assets — 502
Prepaid expenses and other current assets 2,974 3,140

Total current assets 67,946 71,066
Property and equipment, net 30,500 37,741
Patents and licenses, net 1,590 1,634
Deferred tax assets 2,610 2,662
Other long-term assets 975 2,963

Total assets $ 103,621 $ 116,066

Liabilities and Shareholders’ Equity

Accounts payable $ 7,761 $ 15,363
Accrued expenses and other 3,844 4,190
Deferred tax liabilities 44 —
Current maturities of long-term debt 562 1,261

Total current liabilities 12,211 20,814
Long-term debt, less current maturities 3,156 4,618
Deferred revenue, long-term 186 1,599
Other long-term liabilities 398 399

Total liabilities 15,951 27,430

Commitments and contingencies (See Note F)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2010 and December 31, 2010; no shares issued and outstanding at March 31, 2010 and December 31, 2010 — —
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2010 and December 31, 2010; shares issued: 29,911,203 and 30,224,199 at March 31, 2010 and December 31, 2010; shares outstanding: 22,442,380 and 22,792,302 at March 31, 2010 and December 31, 2010 — —
Additional paid-in capital 122,515 123,965
Shareholder notes receivable — (157 )
Treasury stock: 7,468,823 and 7,431,897 common shares at March 31, 2010 and December 31, 2010 (32,011 ) (31,767 )
Accumulated deficit (2,834 ) (3,405 )

Total shareholders’ equity 87,670 88,636

Total liabilities and shareholders’ equity $ 103,621 $ 116,066

~~The accompanying notes are an integral part of these condensed consolidated statements.~~

~~ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(in thousands, except share and per share amounts)~~

Three Months Ended December 31, Nine Months Ended December 31,
2009 2010 2009 2010
Product revenue $ 17,205 $ 27,663 $ 41,645 $ 54,080
Service revenue 2,090 2,008 4,897 3,994

Total revenue 19,295 29,671 46,542 58,074
Cost of product revenue 10,633 18,784 27,727 35,566
Cost of service revenue 1,568 1,674 3,455 3,089

Total cost of revenue 12,201 20,458 31,182 38,655

Gross profit 7,094 9,213 15,360 19,419
Operating expenses:
General and administrative 3,051 2,709 9,357 8,642
Sales and marketing 3,063 3,235 9,176 10,124
Research and development 404 614 1,315 1,797

Total operating expenses 6,518 6,558 19,848 20,563

Income (loss) from operations 576 2,655 (4,488 ) (1,144 )
Other income (expense):
Interest expense (67 ) (99 ) (197 ) (223 )
Dividend and interest income 49 3 248 19

Total other income (expense) (18 ) (96 ) 51 (204 )

Income (loss) before income tax 558 2,559 (4,437 ) (1,348 )

Income tax expense (benefit) (249 ) 1,915 (1,072 ) (777 )

Net income (loss) $ 807 $ 644 $ (3,365 ) $ (571 )

Basic net income (loss) per share $ 0.04 $ 0.03 $ (0.15 ) $ (0.03 )
Weighted-average common shares outstanding 21,792,175 22,726,426 21,709,799 22,629,776
Diluted net income (loss) per share $ 0.04 $ 0.03 $ (0.15 ) $ (0.03 )
Weighted-average common shares and share equivalents outstanding 22,567,575 23,110,633 21,709,799 22,629,776


	March 31,			September 30,
	2009			2009
				(As Restated)

Assets
Cash and cash equivalents	$	36,163		$	33,413
Short-term investments		6,490			1,000
Accounts receivable, net of allowances of $222 and $316		11,572			13,447
Inventories, net		20,232			19,672
Deferred tax assets		548			1,629
Prepaid expenses and other current assets		3,369			1,396

Total current assets		78,374			70,557
Property and equipment, net		22,999			23,974
Patents and licenses, net		1,404			1,482
Deferred tax assets		593			1,068
Long-term accounts receivable		—			2,432
Other long-term assets		352			88

Total assets	$	103,722		$	99,601

Liabilities and Shareholders’ Equity
Accounts payable	$	7,817		$	5,479
Accrued expenses		2,315			3,018
Current maturities of long-term debt		815			693

Total current liabilities		10,947			9,190
Long-term debt, less current maturities		3,647			3,337
Other long-term liabilities		433			507

Total liabilities		15,027			13,034

Commitments and contingencies (See Note F)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2009 and September 30, 2009; no shares issued and outstanding at March 31, 2009 and September 30, 2009		—			—
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2009 and September 30, 2009; shares issued: 28,875,879 and 29,173,406 at March 31, 2009 and September 30, 2009; shares outstanding: 21,528,783 and 21,721,667 at March 31, 2009 and September 30, 2009		—			—
Additional paid-in capital		118,907			120,098
Treasury stock: 7,347,096 and 7,451,739 common shares at March 31, 2009 and September 30, 2009		(31,536	)		(31,936	)
Accumulated other comprehensive (loss) income		(32	)		61
Retained earnings (deficit)		1,356			(1,656	)

Total shareholders’ equity		88,695			86,567

Total liabilities and shareholders’ equity	$	103,722		$	99,601

The accompanying notes are an integral part of these condensed consolidated statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS

(in ~~thousands)~~thousands, except share and per share amounts)

Nine Months Ended December 31,
2009 2010
Operating activities

Net loss $ (3,365 ) $ (571 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,956 3,145
Stock-based compensation expense 1,064 931
Deferred income tax benefit (1,234 ) (597 )
Change in allowance for notes and accounts receivable 384 85
Other 15 25
Changes in operating assets and liabilities:
Accounts receivable (1,950 ) (9,794 )
Inventories (4,285 ) (6,239 )
Prepaid expenses and other assets 1,414 (350 )
Accounts payable 5,193 7,602
Accrued expenses 633 346

Net cash used in operating activities
(175 ) (5,417 )
Investing activities

Purchase of property and equipment (4,268 ) (2,885 )
Purchase of property and equipment leased to customers under operating leases (5,328 ) (7,375 )
Purchase of short-term investments — (10 )
Sale of short-term investments 5,522 —
Additions to patents and licenses (186 ) (158 )
Proceeds from sales of long-term assets 6 1
Long-term assets — (330 )

Net cash used in investing activities
(4,254 ) (10,757 )
Financing activities

Payment of long-term debt (640 ) (528 )
Proceeds from long-term debt 200 2,689
Proceeds from shareholder notes — 1
Repurchase of common stock into treasury (400 ) —
Excess tax benefits from stock-based compensation 95 193
Deferred financing costs and offering costs — (61 )
Proceeds from issuance of common stock 947 374

Net cash provided by financing activities
202 2,668

Net decrease in cash and cash equivalents (4,227 ) (13,506 )
Cash and cash equivalents at beginning of period 36,163 23,364

Cash and cash equivalents at end of period $ 31,936 $ 9,858

Supplemental cash flow information:

Cash paid for interest $ 215 $ 192
Cash paid for income taxes 30 31
Supplemental disclosure of non-cash investing and financing activities

Shares issued from treasury for stock note receivable $ — $ 158
Shares surrendered into treasury for stock option exercise $ — $ 51


	Three Months Ended September 30,						Six Months Ended September 30,
	2008			2009			2008			2009
				(As Restated)						(As Restated)
Product revenue	$	17,280		$	15,219		$	30,169		$	27,143
Service revenue		1,480			856			4,697			2,807

Total revenue		18,760			16,075			34,866			29,950
Cost of product revenue		11,467			10,122			20,080			18,870
Cost of service revenue		958			632			3,254			1,887

Total cost of revenue		12,425			10,754			23,334			20,757

Gross profit		6,335			5,321			11,532			9,193
Operating expenses:
General and administrative		2,893			3,143			5,508			6,307
Sales and marketing		2,771			2,962			5,423			6,113
Research and development		373			491			791			910

Total operating expenses		6,037			6,596			11,722			13,330


Income (loss) from operations		298			(1,275	)		(190	)		(4,137	)
Other income (expense):
Interest expense		(41	)		(73	)		(108	)		(127	)
Dividend and interest income		550			147			1,167			383

Total other income		509			74			1,059			256

Income (loss) before income tax		807			(1,201	)		869			(3,881	)

Income tax expense (benefit)		354			(269	)		382			(869	)

Net income (loss)	$	453		$	(932	)	$	487		$	(3,012	)


Basic net income (loss) per share	$	0.02		$	(0.04	)	$	0.02		$	(0.14	)
Weighted-average common shares outstanding		26,959,790			21,707,477			26,998,857			21,648,246
Diluted net income (loss) per share	$	0.02		$	(0.04	)	$	0.02		$	(0.14	)
Weighted-average common shares and share equivalents outstanding		29,018,991			21,707,477			29,613,684			21,648,246

The accompanying notes are an integral part of these condensed consolidated statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended September 30,
	2008			2009
				(As Restated)

Operating activities
Net income (loss)	$	487		$	(3,012	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		856			1,325
Stock-based compensation expense		846			663
Deferred income tax (benefit) expense		193			(1,556	)
Change in allowance for notes and accounts receivable		20			353
Other		62			(3	)
Changes in operating assets and liabilities:
Accounts receivable		1,275			(1,969	)
Inventories		(2,096	)		560
Prepaid expenses and other assets and liabilities		(1,504	)		(383	)
Accounts payable		(43	)		(2,338	)
Accrued expenses		(467	)		703

Net cash used in operating activities		(371	)		(5,657	)
Investing activities
Purchase of property and equipment		(6,865	)		(2,235	)
Purchase of property and equipment held under operating leases		—			—
Purchase of short-term investments		(17,415	)		—
Sale of short-term investments		—			5,583
Additions to patents and licenses		(1,074	)		(131	)
Proceeds from sales of long term assets		860			6
Gain on sale of long term investment		(361	)		—

Net cash provided by (used in) investing activities		(24,855	)		3,223
Financing activities
Payment of long-term debt		(405	)		(433	)
Repurchase of common stock into treasury		(8,138	)		(400	)
Excess tax benefits from stock-based compensation		505			—
Deferred financing costs and offering costs		7			—
Proceeds from issuance of common stock		1,352			517

Net cash used in financing activities		(6,679	)		(316	)

Net decrease in cash and cash equivalents		(31,905	)		(2,750	)
Cash and cash equivalents at beginning of period		78,312			36,163

Cash and cash equivalents at end of period	$	46,407		$	33,413

Supplemental cash flow information:
Cash paid for interest	$	186		$	149
Cash paid for income taxes		83			30
Supplemental disclosure of non-cash investing and financing activities
Long-term note receivable received on sale of investment	$	298		$	—

The accompanying notes are an integral part of these condensed consolidated statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — DESCRIPTION OF BUSINESS

Organization

The Company includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. The Company is a developer, manufacturer and seller of lighting and energy management ~~systems and a seller and integrator of renewable energy technologies to commercial and industrial businesses, predominantly in North America.~~

~~In August 2009, we created Orion Engineered Systems, a new operating division offering additional alternative renewable energy~~ systems. During the quarter ended December 31, 2010, the new division exceeded the thresholds for segment reporting and, accordingly, the Company has introduced the presentation of operating segments in this quarter. See Note I “Segment Reporting” of these financial statements for further discussion of our reportable segments.

The corporate offices and manufacturing operations are located in Manitowoc, Wisconsin and an operations facility is located in Plymouth, Wisconsin.

NOTE B — RESTATEMENT OF FINANCIAL STATEMENTS

The Company accounts for the correction of an error in previously issued financial statements in accordance with the provisions of ASC Topic 250, Accounting Changes and Error Corrections. In accordance with the disclosure provisions of ASC 250, when financial statements are restated to correct an error, an entity is required to disclose that its previously issued financial statements have been restated along with a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings or other appropriate component of equity or net assets in the statement of financial position, as of the beginning of the earliest period presented.

As previously disclosed in a Current Report on Form 8-K, on June 14, 2011, the Company’s management, with concurrence from the Audit & Finance Committee of the Company’s Board of Directors, concluded that the financial statements contained in the Form 10-Q for the quarterly period ended September 30, 2009 should no longer be relied upon and must be restated to properly record revenue from its OTAs as sales-type lease contracts.

In accordance with ASC Topic 840, Leases, the Company’s prior method of accounting for OTA transactions as operating leases deferred revenue recognition over the full term of the OTA contracts, only recognizing revenue on a monthly basis as customer payments became due, while the upfront sales, general and administrative expenses related to these OTA contracts were recognized immediately. On June 9, 2011, the Company concluded that generally accepted accounting principles, or GAAP, required the Company to reclassify its transactions under its OTAs as sales-type leases instead of as operating leases. Accounting for OTA contracts as sales-type leases under GAAP requires the Company to record revenue at the net present value of the future payments at the time customer acceptance of its installed and operating energy management system is complete, rather than deferring revenue recognition over the full term of the OTA contracts.

Throughout this Form 10-Q/A, all amounts presented from prior periods and prior period comparisons that have been revised are labeled “As Restated” and reflect the balances and amounts on a restated basis.

The specific line-item effect of the restatement on the Company’s previously issued unaudited condensed consolidated financial statements as of and for the three and six months ended September 30, 2009 as filed on Form 10-Q on November 9, 2009 are as follows (in thousands, except share and per share data):


	Consolidated Balance Sheets as of September 30, 2009
	As Previously
	reported			Adjustments			As Restated
Assets:
Accounts receivable	$	12,742		$	705		$	13,447
Deferred tax assets, current		765			864			1,629
Prepaid expenses and other current assets		1,520			(124	)		1,396
Total current assets		69,112			1,445			70,557
Property and equipment, net		25,739			(1,765	)		23,974
Deferred tax assets, long-term		1,886			(818	)		1,068
Accounts receivable, long-term		—			2,432			2,432
Total assets		98,307			1,294			99,601

Liabilities and Shareholders’ Equity:
Accrued expenses		2,885			133			3,018

Shareholders’ equity:
Retained deficit		(2,817	)		1,161			(1,656	)


	Consolidated Statements of Operations
	Three months ended September 30, 2009								Six months ended September 30, 2009
	As Previously								As Previously
	reported			Adjustments		As Restated			reported			Adjustments			As Restated

Product revenue	$	13,763		$	1,456	$	15,219		$	24,440		$	2,703		$	27,143
Cost of product revenue		9,222			900		10,122			17,094			1,776			18,870
Interest expense		(74	)		1		(73	)		(130	)		3			(127	)
Dividend and interest income		76			71		147			198			185			383
Income tax benefit		(430	)		161		(269	)		(824	)		(45	)		(869	)
Net loss		(1,399	)		467		(932	)		(4,172	)		1,161			(3,012	)

Net loss per share attributable to common shareholders — basic and diluted	$	(0.06	)	$	0.02	$	(0.04	)	$	(0.19	)	$	0.05		$	(0.14	)
Weighted average common shares outstanding — basic and diluted		21,707,477			—		21,707,477			21,648,246			—			21,648,246


	Consolidated Statements of Cash Flows
	Six months ended September 30, 2009
	As Previously
	Reported			Adjustments			As Restated
Net loss	$	(4,172	)	$	1,161		$	(3,012	)
Deferred income tax benefit		(1,510	)		(46	)		(1,556	)
Accounts receivable		(1,264	)		(705	)		(1,969	)
Prepaid expenses and other assets and liabilities		1,845			(2,228	)		(383	)
Accrued expenses		651			52			703
Net cash used in operating activities		(3,890	)		(1,767	)		(5,657	)

Purchase of property and equipment		(2,501	)		266			(2,235	)
Purchase of property and equipment held under operating leases		(1,501	)		1,501			—
Other long-term assets
Net cash provided by investing activities		1,456			1,767			3,223

NOTE C — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The condensed consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company’s accounting and disclosures for short-term investments are in accordance with the requirements of the Fair Value Measurements and Disclosure, Financial Instrument, and Investments: Debt and Security Topics of the FASB Accounting Standards Codification. The Fair Value Measurements and Disclosure Topic defines fair value, establishes a framework for measuring fair value under GAAP and requires certain disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

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.

As of ~~March 31, 2010 and December 31, 2010,~~September 30, 2009, the Company’s financial assets described in the table above were measured at fair value ~~on a recurring basis~~ employing ~~quoted prices in active markets for identical assets (level~~level 1 ~~inputs).~~

~~The Company’s certificate of deposit is pledged as security for an equipment lease.~~inputs.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable, and accounts payable, ~~and deferred revenue,~~ approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is also approximately equal to its fair value.

Accounts receivable

The majority of the Company’s accounts receivable are due from companies in the commercial, industrial and agricultural industries, ~~as well as~~and wholesalers. Credit is extended based on an evaluation of a customer’s financial condition. Generally, collateral is not required for end users; however, the payment of certain trade accounts receivable from wholesalers is secured by irrevocable standby letters of credit. Accounts receivable are due within 30-60 days. Accounts receivable are stated at the amount the Company expects to collect from outstanding balances. The Company provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable.

Included in accounts receivable are amounts due from a third party finance company to which the Company has sold, without recourse, the future cash flows from lease arrangements entered into with customers. Such receivables are recorded at the present value of the future cash flows discounted at 10.25%. As of September 30, 2009, the following amounts were due from the third party finance company in future periods (in thousands):


Fiscal 2010	$	36
Fiscal 2011		25

Total gross receivable		61
Less: amount representing interest		(4	)

Net contracts receivable	$	57

Long-Term Receivables

The Company records a long-term receivable for the non-current portion of its sales-type capital lease OTA contracts. The receivable is recorded at the net present value of the future cash flows from scheduled customer payments. The Company uses the implied cost of capital from each individual contract as the discount rate. Long-term receivables from OTA contracts were $2.4 million as of September 30, 2009.

Investment

In June 2008, the Company sold its long-term investment consisting of 77,000 shares of preferred stock of a manufacturer of specialty aluminum products. The investment was originally acquired in July 2006 by exchanging products with a fair value of $794,000. The Company received cash proceeds from the sale in the amount of $986,000, which included accrued dividends of $128,000, and also received a promissory note in the amount of $298,000.

Other Long-Term Assets

Other long-term assets include ~~$27,000~~$33,000 and ~~$68,000~~$30,000 of deferred financing costs as of March 31, ~~2010~~2009 and ~~December~~September 30, 2009 and $298,000 and $39,000 of a note receivable as of March 31, ~~2010,~~2009 and September 30, 2009, respectively.

~~Also included~~ Upon the sale of the long-term investment noted above, the Company received a promissory note. The note provides for interest only payments at 7% for the first year and 15% for the second year and thereafter. The full principal amount of the note is due in ~~other~~June 2011. The note is secured by a personal guarantee from the CEO of the specialty aluminum products company. Based upon an assessment of the long-term ~~assets are amounts due from a third party finance company to which~~note receivable, the Company has ~~sold, without recourse,~~determined that a portion of the ~~future cash flows from OTAs entered into with customers. Such receivables are recorded at~~note receivable may not be collectible and accordingly, has established a reserve allowance of $259,000 of the ~~present~~original face value of the ~~future cash flows discounted at 7.5%. As~~promissory note. For the three and six months ended September 30, 2009, the Company recorded an expense of ~~December 31, 2010, the following amounts were due from the third party finance company in future periods (in thousands):~~$259,000.

Fiscal 2013 $ 336
Fiscal 2014 336
Fiscal 2015 403

Total gross long-term receivable 1,075
Less: amount representing interest (164 )

Net long-term receivable $ 911

To determine the selling price in multiple-element arrangements, the Company established VSOE of selling price for its HIF lighting and energy management system products using the price charged for a deliverable when sold separately. In addition, the Company determines the selling price for its installation and recycling services through establishing TPE by obtaining independent quotes from installation contractors and evaluating similar services in standalone arrangements with similarly situated customers. Service revenue is recognized when services are complete and customer acceptance has been received. Recycling services provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. The Company’s service revenuesServices other than ~~for~~ installation and recycling that are completed prior to delivery of the product are recognized upon shipment and are included in product revenue ~~using management’s best estimate~~as evidence of ~~selling price, as VSOE or TPE evidence~~fair value does not exist. These services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, and project management. ~~For these~~

Service revenue includes revenue earned from installation, which includes recycling services. Service revenue is recognized when services ~~management’s best estimate~~are complete and customer acceptance has been received. The Company primarily contracts with third-party vendors for the installation services provided to customers and, therefore, determines fair value based upon negotiated pricing with such third-party vendors. Recycling services provided in connection with installation entail disposal of ~~selling price is determined by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, competition, geographies in which~~the customer’s legacy lighting fixtures.

In October 2008, the Company offers its products and services and internal costs. The determination of estimated selling price is made through consultation with and approval by management, taking into account all of the preceding factors.

~~To determine the selling price~~introduced a financing program, called an OTA, for solar renewable product and services sold through the Company’s Engineered Systems group, the Company uses management’s best estimate of selling price giving consideration to external and internal factors including, but not limited to, pricing practices, margin objectives, competition, scope and size of individual projects, geographies in which the Company offers its products and services and internal costs. The Company has completed a ~~limited number of renewable project sales and accordingly, does not have sufficient VSOE or TPE evidence.~~

~~The nature~~customer’s lease of the Company’s ~~multiple element arrangements are similar to~~energy management systems. The OTA is structured as a ~~construction project with materials being delivered~~sales-type capital lease and ~~contracting~~upon successful installation of the system and ~~project management activities occurring according to an installation schedule. The significant deliverables include~~customer acknowledgement that the shipment of products and related transfer of title and the installation. The Company’s manufactured technologies are typically delivered within two weeks of receipt of a customer’s purchase order. The timing of delivery on renewable projects throughproduct is operating as specified, revenue is recognized at the Company’s ~~Engineered Systems division~~net investment in the lease which typically is ~~dependent upon a contractual schedule agreed upon with~~ the ~~customer and executed in advance~~net present value of the project start date. Installation for lighting and energy management projects is typically completed within four to six weeks, but can be longer dependent upon the size of the project, the complexity of the interior facility layout and the availability of the customer’s schedule to complete the project. Installation for renewable projects completed through the Company’s Engineered Systems division can often take three to six months to complete and can be longer dependent upon weather issues during installation.

Costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance are deferred and recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. These deferred costs are expensed at the time the related revenue is recognized. Deferred costs amounted to $415,000 and $436,000 as of March 31, 2010 and December 31, 2010, respectively.future cash flows.

Deferred revenue relates to ~~advance customer billings, energy efficiency rebates received related to OTAs, investment tax grants received related to PPAs and a separate~~an obligation to provide maintenance on ~~OTAs~~certain sales and is classified as a liability on the ~~Condensed Consolidated~~ Balance Sheet. The fair value of the maintenance is readily determinable based upon pricing from third-party vendors. Deferred revenue ~~related to maintenance services~~ is recognized when the services are delivered, which occurs in excess of a year after the original ~~OTA is executed.~~contract.

Deferred revenue was comprised of the following (in thousands):


	March 31,		December 31,		March 31,		September 30,
	2010		2010		2009		2009
Deferred revenue — current liability	$	338	$	518	$	103	$	98
Deferred revenue — long term liability		186		1,599		36		109

Total deferred revenue	$	524	$	2,117	$	139	$	207

~~Deferred~~Below is a reconciliation of the statutory federal income tax ~~benefits have~~rate and the effective income tax rate:


	Six Months Ended
	September 30, 2008			September 30, 2009
				(As Restated)
Statutory federal tax rate		34.00	%		(34.0	)%
State taxes, net		5.47	%		2.6	%
Stock-based compensation expense		4.16	%		5.0	%
Federal tax credit		0.00	%		(3.5	)%
State tax credit		0.00	%		(0.4	)%
Permanent items		0.00	%		0.1	%
Change in valuation reserve		0.00	%		5.1	%
Other, net		0.35	%		2.7	%

Effective income tax rate		43.98	%		(22.4	)%

The Company has issued incentive stock options for which stock compensation expense is not ~~been recognized~~deductible currently for tax purposes. The non-deductible expense is considered permanent in nature. A disqualifying disposition occurs when a shareholder sells shares from an option exercise within 12 months of the exercise date or within 24 months of the option grant date. In the event of a disqualifying disposition, the option and related stock compensation expense take on the characteristics of a non-qualified stock option grant, and is deductible for income tax ~~effects resulting from the exercise of~~purposes. This deduction is a permanent tax rate differential. The Company could incur significant changes in its effective tax rate in future periods based upon incentive stock option compensation expense and disqualifying disposition events. Since July 30, 2008, all stock option grants have been issued as non-qualified stock options. These benefits will be recognized in the period in which the benefits are realized as a reduction in taxes payable and an increase in additional paid-in capital. For the nine months ended December 31, 2009 and 2010, realized tax benefits from the exercise of stock options were $0.1 million and $0.2 million, respectively.

Stock Option Plans

The fair value of each option grant for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2009 ~~and 2010~~ was determined using the assumptions in the following table:


	Three Months Ended December 31,						Nine Months Ended December 31,						Three months Ended September 30,						Six months Ended September 30,
	2009			2010			2009			2010			2008			2009			2008			2009
Weighted average expected term	5.9 years			6.0 years			6.4 years			5.6 years			6.0 years			7.3 years			5.7 years			6.5 years
Risk-free interest rate		2.33	%		1.47	%		2.56	%		2.06	%		3.35	%		2.77	%		3.24	%		2.57	%
Expected volatility		60	%		74.8	%		60	%		60% – 74.8	%		60	%		60	%		60	%		60	%
Expected forfeiture rate		3	%		10	%		3	%		10	%		2	%		3	%		2	%		3	%
Expected dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%

The Company currently depends on one supplier for a number of components necessary for its products, including ballasts and lamps. If the supply of these components were to be disrupted or terminated, or if this supplier were unable to supply the quantities of components required, the Company may have short-term difficulty in locating alternative suppliers at required volumes. Purchases from this supplier accounted for ~~47%~~14.9% and ~~17%~~20.6% of total cost of revenue for the three months ended ~~December 31,~~September 30, 2008 and 2009 and ~~2010, respectively,~~22.1% and ~~28%~~14.9% of total cost of revenue for ~~both~~ the ~~nine~~six months ended ~~December 31, 2009~~September 30, 2008 and ~~2010, respectively.~~2009.

For the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and September 30, 2009, no customers accounted for more than 10% of revenue. ~~For the three and nine months ended December 31, 2010, one customer accounted for 20% and 10% of revenue, respectively.~~

As of March 31, ~~2010,~~2009 and September 30, 2009, no customer accounted for more than 10% of the accounts receivable balance. ~~As of December 31, 2010,~~

Segment Information

The Company has determined that it operates in only one ~~customer accounted for more than 10%~~segment in accordance with the Segment Reporting Topic of the ~~accounts receivable balance.~~FASB Accounting Standards Codification as it does not disaggregate profit and loss information on a segment basis for internal management reporting purposes to its chief operating decision maker.

The Company’s revenue and long-lived assets outside the United States are insignificant.

Recent Accounting Pronouncements

In ~~July 2010,~~May 2009, the FASB issued ASC 855-10 (formerly “SFAS No. 165”),Subsequent Events.ASC 855-10 sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The pronouncement is effective with interim and annual financial periods ending after June 15, 2009. The Company adopted ASC 855-10 at the beginning of its 2009 second quarter. The adoption did not have a significant impact on the subsequent events that the Company reports, either through recognition or disclosure, in its consolidated financial statements.

In June 2009, the FASB issued ASC 105-10 (formerly “SFAS 168”),The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. ASC 105-10 will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernment entities. It also modifies the GAAP hierarchy to include only two levels of GAAP; authoritative and non-authoritative. ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted ASC 105-10 for the 2009 second quarter reporting. The adoption did not have a significant impact on the reporting of the Company’s financial position, results of operations or cash flows.

In October 2009, the FASB issued Accounting Standards Update ~~2010-20,~~~~Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses~~(ASU 2010-20). ASU 2010-20 requires further disaggregated disclosures that improve financial statement users’ understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The new and amended disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The adoption of ASU 2010-20 did not have a material impact on the Company’s consolidated results of operations and financial condition.

~~Effective April 1, 2010, the Company adopted ASU~~ 2009-13,Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force(Topic 605), which amends the revenue guidance under ASC ~~Subtopic 650-25 Revenue Recognition—Multiple-Element Arrangements~~605. This update requires entities to ~~eliminate the requirement that all undelivered elements have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) before~~allocate revenue in an ~~entity can recognize the portion of an overall~~ arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate theusing estimated selling prices of ~~those elements. The overall arrangement fee will~~the delivered goods and services based on a selling price hierarchy. This guidance eliminates the residual method of revenue allocation and requires revenue to be allocated ~~to each element (both delivered and undelivered items) based on their~~using the relative selling ~~prices, regardless~~price method. This update is effective for fiscal years ending after June 15, 2010, and may be applied prospectively for revenue arrangements entered into or materially modified after the date of ~~whether those selling prices are evidenced by VSOE~~adoption or ~~TPE or are based~~retrospectively for all revenue arrangements for all periods presented. The Company is currently evaluating the impact this update will have on the entity’s estimated selling price. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. The adoption of this ASU did not result in a material change in either the units of accounting or a change in the pattern or timing of revenue recognition. Additionally, the adoption of this ASU did not have a material impact on the Company’sour consolidated financial statements.

NOTE CD — RELATED PARTY TRANSACTIONS

The Company incurred fees of $12,000 for the six months ended September 30, 2008 for intellectual property fees paid to an executive pursuant to an employment agreement. In April 2008, the intellectual property rights were purchased from the executive for a cash payment of $950,000. Please refer to “Patents and Licenses” under footnote C for additional disclosure.

During the ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2009, ~~and 2010,~~ the Company recorded revenue of ~~$27,000~~$8,000 and ~~$18,000~~$25,000 for products and services sold to an entity for which a director of the Company was formerly the executive chairman. ~~The Company also entered into an OTA finance contract with such entity in September 2010 with future expected gross contracted revenue to the Company of $2.9 million.~~ During the same ~~nine~~six month periods, the Company purchased goods and services from the same entity in the amounts of ~~$30,000~~$114,000 and ~~none.~~$30,000. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party.

During the ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2009, ~~and 2010,~~ the Company recorded revenue of ~~$705,000~~$1,000 and ~~$183,000~~$116,000 for products and services sold to an entity for which a member of the board of directors previously served as an executive vice president. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party.

During the six months ended September 30, 2008 and 2009, the Company recorded revenue of $52,000 and $41,000 for products and services sold to an entity for which a member of the board of directors serves as the chief executive officer. During the six months ended September 30, 2008 and 2009, the Company purchased goods and services from the same entity in the amounts of $42,000 and $14,000.

During the six months ended September 30, 2008 and 2009, the Company recorded revenue of $382,000 and $526,000 for products and services sold to various entities affiliated or associated with an entity for which ~~a director~~an executive officer of the Company ~~previously served~~serves as a member of the board of directors. The Company is not able to identify the respective amount of revenues attributable to specifically identifiable entities within such group of affiliated or associated entities or the extent to which any such individual entities are related to the entity on whose board of directors the Company’s executive officer serves. ~~The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party.~~

NOTE DE — LONG-TERM DEBT

Long-term debt as of March 31, ~~2010~~2009 and ~~December 31, 2010~~September 30, 2009 consisted of the following (in thousands):

March 31, December 31,
2010 2010
Term note $ 1,017 $ 843
Customer equipment finance note payable — 2,318
First mortgage note payable 926 872
Debenture payable 847 817
Lease obligations 7 2
Other long-term debt 921 1,027

Total long-term debt 3,718 5,879
Less: current maturities (562 ) (1,261 )

Long-term debt, less current maturities $ 3,156 $ 4,618

~~New Debt Arrangements~~

In September 2010, the Company entered into a note agreement with a financial institution that provided the Company with $2.4 million to fund completed customer contracts under the Company’s OTA finance program. This note is included in the table above as customer equipment finance note payable. The note is collateralized by the OTA-related equipment and the expected future monthly payments under the supporting 57 individual OTA customer contracts. The note bears interest at 7% and matures in September 2015. The note agreement includes certain prepayment penalties and a covenant that the Company maintain at least $5 million in cash liquidity. The Company was in compliance with all covenants in the note agreement as of December 31, 2010.

In September 2010, the Company entered into a note agreement with the Wisconsin Department of Commerce that provided the Company with $0.3 million to fund the Company’s rooftop solar project at its Manitowoc manufacturing facility. This note is included in the table above as other long-term debt. The note is collateralized by the related solar equipment. The note allows for two years without interest accruing or principal payments due. Beginning in June 2012, the note bears interest at 2%. The note matures in June 2017. The note agreement requires the Company to maintain a certain number of jobs at its Manitowoc facilities during the note’s duration. The Company was in compliance with all covenants in the note agreement as of December 31, 2010.


	March 31,			September 30,
	2009			2009
Term note	$	1,235		$	1,128
First mortgage note payable		990			956
Debenture payable		885			867
Lease obligations		227			87
Other long-term debt		1,125			992

Total long-term debt		4,462			4,030
Less current maturities		(815	)		(693	)

Long-term debt, less current maturities	$	3,647		$	3,337

Revolving Credit Agreement

On ~~June 30, 2010,~~March 18, 2008, the Company entered into a ~~new~~ credit agreement ~~(Credit Agreement) with JP Morgan Chase~~(“Credit Agreement”) to replace a previous agreement between the Company and Wells Fargo Bank, N.A. ~~(JP Morgan). The Credit Agreement replaced the Company’s former credit agreement with a different bank.~~

The Credit Agreement provides for a revolving credit facility ~~(Credit Facility)~~(“Line of Credit”) that matures on ~~June 30, 2012. Borrowings~~August 31, 2010. The initial maximum aggregate amount of availability under the Line of Credit ~~Facility~~is $25.0 million. The Company has a one-time option to increase the maximum aggregate amount of availability under the Line of Credit to up to $50.0 million, although any advance from the Line of Credit over $25.0 million is discretionary to Wells Fargo even if no event of default has occurred. Borrowings are limited to ~~(i) $15.0~~a percentage of eligible trade accounts receivables and inventories, less any borrowing base reserve that may be established from time to time. In December 2008, the Company briefly drew $4.0 million ~~or (ii) during periods~~on the line of credit due to the timing of treasury repurchases and funds available in ~~which~~ the ~~outstanding principal balance of outstanding loans under~~Company’s operating account. In May 2009, the Company completed an amendment to the Credit ~~Facility is greater than $5.0 million,~~Agreement, effective as of March 31, 2009, which formalized Wells Fargo’s prior consent to the ~~lesser~~Company’s treasury repurchase program, increased the capital expenditures covenant for fiscal 2009 and revised certain financial covenants by adding a minimum requirement for unencumbered liquid assets, increasing the quarterly rolling net income requirement and modifying the merger and acquisition covenant exemption. As of ~~(A) $15.0 million~~March 31, 2009 and September 30, 2009, there was no outstanding balance due on the Line of Credit.

The Company must currently pay a fee of 0.20% on the average daily unused amount of the Line of Credit and fees upon the issuance of each letter of credit equal to 1.25% per annum of the principal amount thereof.

The Credit Agreement provides that the Company has the option to select the interest rate applicable to all or ~~(B) the sum of 75%~~a portion of the outstanding principal balance of ~~certain accounts receivable~~the Line of Credit either (i) at a fluctuating rate per annum one percent (1.00%) below the ~~Company~~prime rate in effect from time to time, or (ii) at a fixed rate per annum determined by Wells Fargo to be one and ~~45%~~one quarter percent (1.25%) above LIBOR. Interest is payable on the last day of ~~certain inventory of the Company.~~ each month.

The Credit Agreement contains certain financial covenants including minimum ~~unencumbered liquidity~~net income requirements, fixed charge coverage ratio and requirements that the Company maintain a ~~total liabilities to tangible~~ net worth ratio ~~not to exceed 0.50 to 1.00 as of the last day of any fiscal quarter.~~at prescribed levels. The Credit Agreement also contains certain restrictions on the ability of the Company to make capital or lease expenditures over prescribed limits, incur additional indebtedness, consolidate or merge, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on its stock, redeem or repurchase shares of its stock, or pledge assets. ~~The~~

As of September 30, 2009, the Company ~~also may cause JP Morgan to issue letters of credit for the Company’s account~~was not in ~~the aggregate principal amount of up to $2.0 million,~~technical compliance with the ~~dollar amount of each issued letter of credit counting against~~rolling quarterly net income and the overall limit on borrowings under the Credit Facility. As of December 31, 2010, the Company had outstanding letters of credit totaling $1.7 million, primarily for securing collateral requirements under equipment operating leases. The Company incurred $61,000 of deferred financing costs related tofixed charge coverage ratio covenants in the Credit Agreement, ~~which will be amortized over the two-year term of the Credit Agreement. There were~~although because it had no borrowings byoutstanding under its Line of Credit, no immediately foreseeable need to utilize its Line of Credit and the ~~Company under the Credit Agreement as~~benefit of ~~December 31, 2010.~~$34.4 million of available cash and short-term liquid investment securities, it does not believe such technical noncompliance is material or otherwise adversely affects its liquidity or capital resources. The Company ~~was~~is currently in ~~compliance~~discussions with ~~all of its covenants under the Credit Agreement as of December 31, 2010.~~

The Credit Agreement is secured by a first lien security interest in the Company’s accounts receivable, inventory and general intangibles, and a second lien priority in the Company’s equipment and fixtures. All OTAs, PPAs, leases, supply agreements and/or similar agreements relating to solar photovoltaic and wind turbine systems or facilities,Wells Fargo, as well as ~~all accounts receivable and assets of the Company related to the foregoing, are excluded from these liens.~~

~~The Company must pay~~with other banks, on a fee of 0.25% on the average daily unused amount of the Credit Facility and a fee of 2.00% on the daily average face amount of undrawn issued letters of credit. The fee on unused amounts is waived if the Companyfurther amended or ~~its affiliates maintain funds on deposit with JP Morgan or its affiliates above a specified amount. The deposit threshold requirement was not met as of December 31, 2010.~~

~~NOTE E — INCOME TAXES~~

The income tax provision for the nine months ended December 31, 2010 was determined by applying an estimated annual effective tax rate of 57.9% to income before taxes. The estimated effective income tax rate was determined by applying statutory tax rates to pretax income adjusted for certain permanent book to tax differences and tax credits.

~~Below is a reconciliation of the statutory federal income tax rate and the effective income tax rate:~~

Nine Months Ended December 31,
2009 2010
Statutory federal tax rate (34.0 )% (34.0 )%
State taxes, net 0.2 % (5.5 )%
Stock-based compensation expense 6.6 % (19.8 )%
Federal tax credit 4.0 % 20.0 %
State tax credit 0.0 % 0.0 %
State valuation allowance 0.0 % (7.9 )%
Permanent items (1.1 )% (9.6 )%
Other, net 0.1 % (1.1 )%

Effective income tax rate (24.2 )% (57.9 )%

The Company is eligible for tax benefits associated with the excess of the tax deduction available for exercises of non-qualified stock options over the fair value determined at the grant date. The amount of the benefit is based on the ultimate deduction reflected in the applicable income tax return. Benefits of $0.1 million were recorded in fiscal 2010 as a reduction in taxes payable and anew credit to additional paid in capital based on the amount that was utilized during the year. Benefits of $0.1 million and $0.2 million were recorded for the nine-month periods ended December 31, 2009 and 2010, respectively.

The Company has issued incentive stock options for which stock compensation expense is not deductible currently for tax purposes. The non-deductible expense is considered permanent in nature. A disqualifying disposition occurs when a shareholder sells shares from an option exercise within 12 months of the exercise date or within 24 months of the option grant date. In the event of a disqualifying disposition, the option and related stock compensation expense take on the characteristics of a non-qualified stock option grant, and is deductible for income tax purposes. This deduction is a permanent tax rate differential. The Company could incur significant changes in its effective tax rate in future periods based upon incentive stock option compensation expense and disqualifying disposition events. Since July 30, 2008, all stock option grants have been issued as non-qualified stock options.

As of December 31, 2010, the Company had federal net operating loss carryforwards of approximately $13.4 million, of which $6.1 million are associated with the exercise of non-qualified stock options that have not yet been recognized by the Company in its financial statements. The Company also has state net operating loss carryforwards of approximately $7.9 million, of which $3.2 million are associated with the exercise of non-qualified stock options. The Company also has federal tax credit carryforwards of approximately $712,000, but it does not currently record any state tax credit carryforwards after giving effect to its related valuation allowance of $572,000. The Company has not recorded a valuation allowance for federal loss carryforwards or tax credits. Both the net operating losses and tax credit carryforwards expire between 2014 and 2030.

In 2007, the Company’s past issuances and transfers of stock caused an ownership change. As a result, the Company’s ability to use its net operating loss carryforwards, attributable to the period prior to such ownership change, to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for the Company. The Company does not believe the ownership change affects the use of the full amount of the net operating loss carryforwards.

~~Uncertain tax positions~~

As of December 31, 2010, the balance of gross unrecognized tax benefits was approximately $399,000, all of which would reduce the Company’s effective tax rate if recognized. The Company does not expect this amount to change in the next 12 months as none of the issues are currently under examination, the statutes of limitations do not expire within the period, and the Company is not aware of any pending litigation. Due to the existence of net operating loss and credit carryforwards, all years since 2002 are open to examination by tax authorities.

The Company has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. The Company recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits. For the nine months ended December 31, 2009 and 2010, the Company had the following unrecognized tax benefit activity (in thousands):

Nine Months Ended Nine Months Ended
December 31, 2009 December 31, 2010
Unrecognized tax benefits as of beginning of period $ 397 $ 398
Decreases relating to settlements with tax authorities — —
Additions based on tax positions related to the current period positions 1 1

Unrecognized tax benefits as of end of period $ 398 $ 399

facility.

NOTE F — COMMITMENTS AND CONTINGENCIES

Operating Leases and Purchase Commitments

The Company leases vehicles and equipment under operating leases. Rent expense under operating leases was ~~$385,000~~$318,000 and ~~$483,000~~$336,000 for the three months ended ~~December 31, 2009~~September 30, 2008 and ~~2010;~~2009; and ~~$1.0 million~~$581,000 and ~~$1.3 million~~$623,000 for the ~~nine~~six months ended ~~December 31, 2009~~September 30, 2008 and ~~2010.~~2009. In addition, the Company enters into non-cancellable purchase commitments for certain inventory items in order to secure better pricing and ensure materials on hand, as well as for capital expenditures. As of ~~December 31, 2010,~~September 30, 2009, the Company had entered into ~~$22.7~~$11.4 million of purchase commitments related to fiscal 2010, including ~~$0.1~~$0.9 million related to the remaining capital committed for information technology improvements and other manufacturing equipment, ~~$9.2~~$0.9 million for commitments under operating leases and ~~$13.4~~$9.6 million for inventory purchases.

Litigation

In February and March 2008, three class action lawsuits were filed in the United States District Court for the Southern District of New York against the Company, several of its officers, all members of its then existing board of directors, and certain underwriters relating to the Company’s December 2007 initial public offering ~~(IPO)~~(“IPO”). The plaintiffs ~~claimed~~claim to represent those persons who purchased shares of the Company’s common stock from December 18, 2007 through February 6, 2008. The plaintiffs ~~alleged,~~allege, among other things, that the defendants made misstatements and failed to disclose material information in the Company’s IPO registration statement and prospectus. The complaints ~~alleged~~allege various claims under the Securities Act of 1933, as amended. The complaints ~~sought,~~seek, among other relief, class certification, unspecified damages, fees, and such other relief as the court may deem just and proper.

On August 1, 2008, the court-appointed lead plaintiff filed a consolidated amended complaint in the United States District Court for the Southern District of New York. On September 15, 2008, the Company and the other director and officer defendants filed a motion to dismiss the consolidated complaint, and the underwriters filed a separate motion to dismiss the consolidated complaint on January 16, 2009. After oral argument on August 19, 2009, the ~~court~~Court granted in part and denied in part the motions to dismiss. The plaintiff filed a second consolidated amended complaint on September 4, 2009, and the defendants filed an answer to the complaint on October 9, 2009.

In the fourth quarter of fiscal 2010, the Company reached a preliminary agreement to settle the class action lawsuits and on January 3, 2011, the court issued an order granting preliminary approval of the settlement. The court has scheduled a fairness hearing for April 14, 2011. Substantially all of the proposed preliminary settlement amount will be covered by the Company’s insurance. However, for the Company’s share of the proposed preliminary settlement not covered by insurance, the Company recorded an after-tax charge in the fourth quarter of fiscal 2010 of approximately $0.02 per share. The Company ~~deposited its uninsured share of the settlement amount in escrow on February 1, 2011.~~

~~If the preliminary settlement is not finally approved or the other conditions are not met, the Company will continue to defend against the lawsuits and~~ believes that it and the other defendants have substantial legal and factual defenses to the claims and allegations contained in the consolidated ~~complaint. In such a case,~~complaint, and the Company ~~would intend~~intends to pursue these defenses vigorously. There can be no assurance, however, that the Company ~~would~~will be successful, and an adverse resolution of the ~~lawsuits~~lawsuit could have a material adverse effect on the Company’s consolidated financial ~~condition,~~position, results of operations and cash flow. In addition, although the Company carries insurance for these types of claims, a judgment significantly in excess of the Company’s insurance coverage or any costs, claims or judgment which are disputed or not covered by insurance could materially and adversely affect the Company’s financial condition, results of operations and cash flow. ~~If the preliminary settlement is not finally approved or the other conditions are not met, the~~The Company is not presently able to reasonably estimate potential costs and/or losses, if any, related to the lawsuit.

1517

NOTE G — SHAREHOLDERS’ EQUITY

~~Employee Stock Purchase Plan~~Share Repurchase Program

In ~~August 2010,~~July 2008, the Company’s board of directors approved a ~~non-compensatory employee~~share repurchase program authorizing the Company to repurchase in the aggregate up to a maximum of $20 million of the Company’s outstanding common stock. In December 2008, the Company’s board of directors supplemented the share repurchase program authorizing the Company to repurchase up to an additional $10 million of the Company’s outstanding common stock. As of September 30, 2009, the Company had repurchased 7,075,733 shares of common stock ~~purchase plan, or ESPP. The ESPP authorizes 2,500,000~~at a cost of $29.7 million ~~shares to be issued from treasury or authorized shares to satisfy employee share purchases~~ under the ~~ESPP. All full-time employees~~program.

Shareholder Rights Plan

On January 7, 2009, the Company’s Board of Directors adopted a shareholder rights plan and declared a dividend distribution of one common share purchase right (a “Right”) for each outstanding share of the ~~Company are eligible~~Company’s common stock. The issuance date for the distribution of the Rights was February 15, 2009 to ~~be granted a non-transferable purchase right each calendar quarter~~shareholders of record on February 1, 2009. Each Right entitles the registered holder to purchase ~~directly~~ from the Company ~~up to $20,000~~one share of the Company’s common stock at a ~~purchase~~ price ~~equal~~of $30.00 per share, subject to ~~100%~~adjustment (the “Purchase Price”).

The Rights will not be exercisable (and will be transferable only with the Company’s common stock) until a “Distribution Date” occurs (or the Rights are earlier redeemed or expire). A Distribution Date generally will occur on the earlier of a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 20% or more of the ~~closing sale price~~Company’s outstanding common stock (a “Shares Acquisition Date”) or 10 business days after the commencement of, or the announcement of an intention to make, a tender offer or exchange offer that would result in any such person or group of persons acquiring such beneficial ownership.

If a person becomes an Acquiring Person, holders of Rights (except as otherwise provided in the shareholder rights plan) will have the right to receive that number of shares of the Company’s common stock onhaving a market value of two times the ~~NYSE Amex exchange on the last trading day of each quarter. The ESPP allows for employee loans from~~then-current Purchase Price, and all Rights beneficially owned by an Acquiring Person, or by certain related parties or transferees, will be null and void. If, after a Shares Acquisition Date, the Company ~~except for Section 16 officers, limited~~is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (except as otherwise provided in the shareholder rights plan) will thereafter have the right to ~~20%~~receive that number of ~~an individual’s annual income and no more than $250,000 outstanding at any one time. Interest on~~shares of the ~~loans is charged~~acquiring company’s common stock which at the ~~10-year loan IRS rate and~~time of such transaction will have a market value of two times the then-current Purchase Price.

Until a Right is ~~payable at~~exercised, the ~~end~~holder thereof, as such, will have no rights as a shareholder of ~~each calendar year or upon loan maturity. The loans are secured by~~the Company. At any time prior to a ~~pledge~~person becoming an Acquiring Person, the Board of ~~any and all the Company’s shares purchased by the participant under the ESPP and~~Directors of the Company ~~has full recourse against~~may redeem the ~~employee, including offset against compensation payable. The Company had~~Rights in whole, but not in part, at a price of $0.001 per Right. Unless they are extended or earlier redeemed or exchanged, the ~~following shares issued from treasury for the first nine months of fiscal 2011:~~

As of December 31, 2010
Shares Issued Closing Shares Issued Dollar Value Repayment
Period Under ESPP Plan Market Price Under Loan Program Of Loans Issued Of Loans
Quarter Ended September 30, 2010 40,560 $ 3.17 38,202 $ 121,100 $ —
Quarter Ended December 31, 2010 12,274 3.34 10,898 36,400 844

Total 52,834 $ 3.21 49,100 $ 157,500 $ 844

~~Loans issued to employees are reflected~~Rights will expire on ~~the Company’s balance sheet as a contra-equity account.~~January 7, 2019.

NOTE H — STOCK OPTIONS AND WARRANTS

The Company grants stock options and restricted stock awards under its 2003 Stock Option and 2004 Stock and Incentive Awards Plans (the ~~Plans)~~“Plans”). Under the terms of the Plans, the Company has reserved ~~12,000,000~~10,500,000 shares for issuance to key employees, consultants and directors. The Company’s board of directors approved an increase to the number of shares available under the 2004 Stock and Incentive Awards Plan of 1,500,000 shares, and such share increase was approved by the Company’s shareholders at the 2010 annual shareholders meeting and such shares are included above. The options generally vest and become exercisable ratably between one month and five years although longer vesting periods have been used in certain circumstances. In August and September of 2009, the Company granted stock option awards which vest based upon market or service conditions. The Company determined the vesting period for these option awards based upon an analysis of employment conditions and simulations of market conditions. Exercisability of the options granted to employees are contingent on the employees’ continued employment and non-vested options are subject to forfeiture if employment terminates for any reason. Options under the Plans have a maximum life of 10 years. In the past, the Company has granted both incentive stock options and non-qualified stock options, although in July 2008, the Company adopted a policy of thereafter only granting non-qualified stock options. Restricted stock awards have no vesting period and have been issued to certain non-employee directors in lieu of cash compensation pursuant to elections made under the Company’s non-employee director compensation program. The Plans also provide to certain employees accelerated vesting in the event of certain changes of control of the ~~Company as well as under other special circumstances.~~Company.

~~For the three and nine months ended December 31, 2010,~~In fiscal 2009, the Company granted ~~none and 11,976~~16,627 shares from the 2004 Stock and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued at the market price as of the grant date, ranging from ~~$2.86~~$3.00 to ~~$3.46~~$11.61 per share. For the three months and six months ended September 30, 2009, the Company granted 1,323 and 2,843 shares from the 2004 Stock Incentive Awards Plan to a non-employee director who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $3.29 to $3.78 per share, the market prices as of the grant dates.

~~NOTE I — SEGMENTS~~

During the fiscal 2011 third quarter, certain activity of the Company’s Engineered Systems division exceeded the thresholds required for segment reporting. As such, descriptions of the Company’s segments and their summary financial information are presented below.

~~Energy Management~~

~~The Energy Management division develops, manufactures and sells commercial high intensity fluorescent, or HIF, lighting systems and energy management systems.~~

~~Engineered Systems~~

The Engineered Systems division sells and integrates alternative renewable energy systems, such as solar and wind, and provides technical services for the Company’s sale of HIF lighting systems and energy management systems.

~~Corporate and Other~~

Corporate and Other is comprised of selling, general and administrative expenses not directly allocated to the Company’s segments and adjustments to reconcile to consolidated results, which primarily include intercompany eliminations.

Revenues Operating (Loss) Profit
For the Three Months Ended December 31, For the Three Months Ended December 31,
(dollars in thousands) 2009 2010 2009 2010
Segments:
Energy Management $ 16,672 $ 19,354 $ 2,384 $ 3,262
Engineered Systems 2,623 10,317 (199 ) 976
Corporate and Other — — (1,609 ) (1,583 )

$ 19,295 $ 29,671 $ 576 $ 2,655

Revenues Operating (Loss) Profit
For the Nine Months Ended December 31, For the Nine Months Ended December 31,
(dollars in thousands) 2009 2010 2009 2010
Segments:
Energy Management $ 40,447 $ 44,696 $ 928 $ 3,698
Engineered Systems 6,095 13,378 (511 ) 135
Corporate and Other — — (4,905 ) (4,977 )

$ 46,542 $ 58,074 $ (4,488 ) $ (1,144 )

Total Assets Deferred Revenue
(dollars in thousands) March 31, 2010 December 31, 2010 March 31, 2010 December 31, 2010
Segments:
Energy Management $ 55,771 $ 70,003 $ 390 $ 1,341
Engineered Systems 3,962 12,199 134 776
Corporate and Other 43,888 33,864 — —

$ 103,621 $ 116,066 $ 524 $ 2,117

~~The Company’s revenue and long-lived assets outside the United States are insignificant.~~

1820


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~~in conjunction with our unaudited ~~condensed~~ consolidated financial statements and related notes, included elsewhere in this Quarterly Report on Form 10-Q/A. The information below has been adjusted to reflect the ~~Form 10-Q. It should also be read~~impact of the restatement of our financial results which is more fully described in ~~conjunction with our audited~~Note B —Restatement to the unaudited consolidated financial statements ~~and related notes included~~contained in ~~our Annual~~this Quarterly Report on Form ~~10-K for~~10-Q/A and under the ~~year ended March 31, 2010.~~paragraph “Restatement of Previously Issued Consolidated Financial Statements” below and does not reflect any subsequent information or events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events.

Cautionary Note Regarding Forward-Looking Statements

Any statements in this Quarterly Report on Form ~~10-Q~~10-Q/A about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our ~~2010~~2009 Annual Report filed on Form 10-K for the year ended March 31, ~~2010~~2009 and elsewhere in this Quarterly Report. We urge you not to place undue reliance on these forward-looking statements, which speak only as the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.

Restatement of Previously Issued Consolidated Financial Statements

As discussed in the explanatory note to this Form 10-Q/A, we have restated our previously issued unaudited consolidated financial statements and related disclosures for the quarter ended September 30, 2009 to account for our transactions under our Orion Throughput Agreements, or OTAs, as sales-type leases instead of as operating leases.

• No impact to our cash, cash equivalents, short-term investments; or overall cash flow;

The specific line-item effect of the restatement on our previously issued unaudited condensed consolidated financial statements as of and for the six months ended September 30, 2009 as filed on Form 10-Q on November 9, 2009 are as follows (in thousands, except share and per share data):


	Consolidated Balance Sheets as of September 30, 2009
	As Previously
	reported			Adjustments			As Restated
Assets:
Accounts receivable	$	12,742		$	705		$	13,447
Deferred tax assets, current		765			864			1,629
Prepaid expenses and other current assets		1,520			(124	)		1,396
Total current assets		69,112			1,445			70,557
Property and equipment, net		25,739			(1,765	)		23,974
Deferred tax assets, long-term		1,886			(818	)		1,068
Accounts receivable, long-term		—			2,432			2,432
Total assets		98,307			1,294			99,601

Liabilities and Shareholders’ Equity:
Accrued expenses		2,885			133			3,018

Shareholders’ equity:
Retained deficit		(2,817	)		1,161			(1,656	)


	Consolidated Statements of Operations
	Three months ended September 30, 2009								Six months ended September 30, 2009
	As Previously								As Previously
	reported			Adjustments		As Restated			reported			Adjustments			As Restated

Product revenue	$	13,763		$	1,456	$	15,219		$	24,440		$	2,703		$	27,143
Cost of product revenue		9,222			900		10,122			17,094			1,776			18,870
Interest expense		(74	)		1		(73	)		(130	)		3			(127	)
Dividend and interest income		76			71		147			198			185			383
Income tax benefit		(430	)		161		(269	)		(824	)		(45	)		(869	)
Net loss		(1,399	)		467		(932	)		(4,172	)		1,161			(3,012	)

Net loss per share attributable to common shareholders — basic and diluted	$	(0.06	)	$	0.02	$	(0.04	)	$	(0.19	)	$	0.05		$	(0.14	)
Weighted average common shares outstanding — basic and diluted		21,707,477			—		21,707,477			21,648,246			—			21,648,246


	Consolidated Statements of Cash Flows
	Six months ended September 30, 2009
	As Previously
	Reported			Adjustments			As Restated
Net loss	$	(4,172	)	$	1,161		$	(3,012	)
Deferred income tax benefit		(1,510	)		(46	)		(1,556	)
Accounts receivable		(1,264	)		(705	)		(1,969	)
Prepaid expenses and other assets and liabilities		1,845			(2,228	)		(383	)
Accrued expenses		651			52			703
Net cash used in operating activities		(3,890	)		(1,767	)		(5,657	)

Purchase of property and equipment		(2,501	)		266			(2,235	)
Purchase of property and equipment held under operating leases		(1,501	)		1,501			—
Other long-term assets
Net cash provided by (used in) investing activities		1,456			1,767			3,223

Overview

We design, manufacture and implement energy management systems consisting primarily of high-performance, energy-efficient lighting systems, controls and related services.

We currently generate the substantial majority of our revenue from sales of high intensity fluorescent, or HIF, lighting systems and related services to commercial and industrial customers. We typically sell our HIF lighting systems in replacement of our customers’ existing high intensity discharge, or HID, fixtures. We call this replacement process a “retrofit.” We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our HIF lighting systems on a wholesale basis, principally to electrical contractors and value-added resellers ~~that~~to sell to their own customer bases.

We have sold and installed more than ~~1,972,000~~1,571,000 of our HIF lighting systems in over ~~6,500~~5,000 facilities from December 1, 2001 through ~~December 31, 2010.~~September 30, 2009. We have sold our products to ~~130~~120 Fortune 500 companies, many of which have installed our HIF lighting systems in multiple facilities. Our top direct customers by revenue in fiscal ~~2010~~2009 included Coca-Cola Enterprises Inc., Anheuser-Busch Companies, Inc., Kraft Foods Inc., Ben E. Keith Co., SYSCO Corp., Americold Logistics, LLC and U.S. Foodservice. Our top direct customers by revenue for the six months ended September 30, 2009 included Coca-Cola Enterprises Inc., U.S. Foodservice, SYSCO Corp., ~~Ball Corporation, MillerCoors~~Americold Logistics, LLC and Pepsico, Inc. and ~~its~~it’s affiliates.

Our fiscal year ends on March 31. We call our prior fiscal year which ended on March 31, ~~2010,~~2009, “fiscal ~~2010”~~2009”. We call our current fiscal year, which will end on March 31, ~~2011,~~2010, “fiscal ~~2011.~~2010.” Our fiscal ~~2011~~ first quarter ~~ended~~ends on June 30, our fiscal ~~2011~~ second quarter ~~ended~~ends on September 30, our fiscal ~~2011~~ third quarter ~~ended~~ends on December 31 and our fiscal ~~2011~~ fourth quarter ~~will end~~ends on March 31.

Because of the current recessed state of the global economy, especially as it relates to capital equipment manufacturers, our ~~fiscal 2011~~ first half ~~results~~of fiscal 2010 continued to be impacted by lengthened customer sales cycles and sluggish customer capital spending. ~~During the fiscal 2011 third quarter, capital equipment purchases were slightly improved and we continue to remain optimistic regarding customer behaviors heading into calendar year 2011.~~ To address ~~the economic~~these conditions, we implemented $3.2 million of annualized cost reductions, ~~during the first quarter of~~which are beginning to be realized over fiscal 2010. These cost containment initiatives included reductions related to headcount, work hours and discretionary ~~spending and began to show results~~spending. We believe these cost reduction efforts will better position us for profitability in the second half of fiscal 2010, and the first half of fiscal 2011. During the second quarter of fiscal 2011, we identified an additional $2 million of annualized cost reductions related to decreased product costs, improved manufacturing efficiencies and reduced operating expenses. We began to realize some of these cost reductions during the fiscal 2011 third quarter through reduction in general and administrative expenses and improved product margins for our HIF lighting systems.

Despite the recent economic challenges, we remain optimistic about our near-term and long-term financial performance. Our near- term optimism is based upon our record level of revenue and operating income for the third quarter of fiscal 2011, our increased backlog of cash orders at the end of our fiscal 2011 third quarter versus our backlog at the end of our fiscal 2010 third quarter, the increase in the number of our value-added resellers and their sales staffs and our cost reduction plans for the remainder of fiscal 2011. Our long-term optimism is baseddependent upon the ~~considerable size of the existing market opportunity for lighting retrofits, the continued development of our new products~~economic environment, customer capital spending and product enhancements, the opportunity for additional revenue from sales of renewable technologies through our Orion Engineered Systems division, the opportunity for our participation in the replacement part aftermarket and the increasing national recognition of the importance of environmental stewardship, including legislation within the State of Wisconsin passed earlier this fiscal year that recognized our solar Apollo Light Pipe as a renewable product offering and qualified it for incentives currently offered to other ~~renewable technologies.~~factors.

Recent Developments

In August 2009, we created Orion ~~Engineered Systems,~~Technology Ventures (“OTV”), a new operating division ~~which has been offering~~to explore whether we should offer our customers additional alternative renewable energy ~~systems. In fiscal 2010,~~systems, such as those using wind and solar technologies. This division will conduct research on various renewable energy technologies that we ~~sold~~may be able to add to our menu of products, applications and ~~installed~~services offered, make recommendations to our senior management regarding the technologies’ viability, develop commercialization tactics, and if determined commercially viable, ultimately add the technology into our menu of products, applications and services offered through our distribution channels. We are currently researching three test solar photovoltaic ~~or PV,~~ electricity generating projects. These projects completing our test analysis on two of the three in the fiscal 2010 third quarter, and executed our first cash sale and our first Power Purchase Agreement, or PPA, as a result of the successful testing of these systems. We completed theare expected to help us answer technological, installation and ~~customer acceptance of the third system, a cash sale, during~~commercial feasability questions before determining how this technology may fit into our fiscal 2011 first quarter. During the quarter ended September 30, 2010, we received an $8.2 million cash order for a solar PV generating system for which we recognized $6.0 million of revenue in the third quarter. Additionally, Orion Engineered Systems is responsible for our project management activities and related service revenues for both HIF lighting and renewable technology projects.overall business plan.

In response to the constraints on our customers’ capital spending budgets, we have more aggressively promoted the advantages to our customers of purchasing our energy management systems through our Orion Throughput Agreement, or OTA, financing program, as well as our solar PPA, as an alternative to purchasing our systems for cash. Our OTA financing program provides for our customer’s purchase of our energy management systems without an up-front capital outlay. The OTA is structured as a supply agreement in which we receive monthly rental payments over the life of the contract, typically 12 months, with an annual renewable agreement with a maximum term between two and five years. The PPA is a supply side agreement for the generation of electricity and subsequent sale to the end user. We expect that the number of customers who choose to purchase our systems by using our OTA financing program will continue to increase in future periods. While our OTA program creates a recurring revenue stream over the term of the annually renewable OTA, it results in a mis-match between the timing of our recognition of revenues and expenses under generally accepted accounting principles, or GAAP. This consequence has negatively impacted our near-term revenue and net income. Under GAAP, all of our selling, marketing and administrative expenses related to new OTAs are expensed up front as incurred, while the related OTA revenue is recognized on a monthly basis over the life of the contract. We are in the process of revising our existing OTA contract to conform to a more traditional capital lease document, eliminating the annual renewable component of the contract and replacing it with standard capital lease end-of-term contract language. Customer acceptance of this document would reduce the mis-match between revenue and expenses on our GAAP financial statements. We expect that it will take approximately two quarters for this change to impact our financial statements from the time these new contracts are introduced to our customers to the time that the projects become implemented and we recognize revenue. With the expectation that these changes will result in near-term revenue recognition changes for us and allow for immediate GAAP revenue recognition upon successful installation of an OTA project, we will no longer provide non-GAAP financial disclosures, other than reporting our contracted revenues which are described below.

Revenue.We sell our energy management products and services directly to commercial and industrial customers, and indirectly to end users through wholesale sales to electrical contractors and value-added resellers. We currently generate the substantial majority of our revenue from sales of HIF lighting systems and related services to commercial and industrial customers. While our services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, project management, installation and recycling in connection with our retrofit installations, we separately recognize service revenue only for our installation and recycling services. ~~Our service revenues are recognized when~~Except for our installation and recycling services, all other services are ~~complete~~completed prior to product shipment and ~~customer acceptance has been received.~~revenue from such services is included in product revenue because evidence of fair value for these services does not exist. In the first half of fiscal 2010, ~~and continuing into fiscal 2011,~~ we ~~increased~~maintained our efforts ~~to expand~~in selling through our contractor and value-added reseller channels ~~including~~with marketing through ~~developing a partner standard operating procedural kit, providing our partners with product marketing materials~~mass mailings, participating in national trade organizations and providing training to channel partners on our sales methodologies. These wholesale channels accounted for approximately ~~43%~~38% of our total cash order revenue volume in the first half of fiscal 2010 which was ~~an increase from~~comparable to the 40% of total ~~revenue~~cash order revenues contributed in fiscal 2009. ~~This growth trend in our wholesale mix of total revenue continued~~

~~Our OTA~~market a financing program, ~~provides~~called an OTA, for our customer’s ~~purchase~~lease of our energy management systems without an up-front capital outlay. Our OTA is structured as a supply agreement in which we receive monthly rental payments over the life of the contract, typically 12 months, with an annual renewable agreement with a maximum term between two and five years. This program creates an ongoing recurring revenue stream, but reduces near-term revenue as the payments are recognized as revenue on a monthly basis over the life of the contract versus upfront upon product shipment or project completion. However, we do retain the option to sell the payment stream to a third party finance company, in which case the revenue is recognized at the net present value of the total future payments from the finance company upon completion of the sale transaction.systems. The OTA program was established to assist customers who are interested in purchasing our energy management systems but who have capital expenditure budget limitations. Our OTA contracts are capital leases under GAAP and we record revenue at the present value of the future payments at the time customer acceptance of the installed and operating system is complete. Our OTA contracts under this sales-type capital lease financing are one year in duration and, at the completion of the initial one-year term, provide for (i) one to four automatic one-year renewals at agreed upon pricing; (ii) an early buyout for cash; or (iii) the return of the equipment at the customer’s expense. The revenue that we are entitled to receive from the sale of our lighting fixtures under our OTA financing program is fixed and is based on the cost of the lighting fixtures and applicable profit margin. Our revenue from agreements entered into under this program is not dependent upon our customers’ actual energy savings. Upon completion of the installation, we may choose to sell the future cash flows and residual rights to the equipment on a non-recourse basis to an unrelated third party finance company in exchange for cash and future payments. We recognize revenue from OTA contracts at the net present value of the future cash flows at the completion date of the installation of the energy management systems and the customers acknowledgement that they system is operating as specified.

For the ~~first nine~~six months ~~of fiscal 2010,~~ended September 30, 2009, we recognized ~~$0.5~~$2.4 million of revenue from completed ~~OTAs. For the first nine months of fiscal 2011, we recognized $1.3 million of revenue from completed OTAs.~~OTA contracts. As of ~~December 31, 2010,~~September 30, 2009, we had signed ~~167~~67 customers to ~~OTAs~~OTA contracts representing future ~~potential~~ gross revenue streams of ~~$16.6~~$6.2 million. We report the gross value of future revenue from OTAs due to the short-term nature of the contracts and because we often receive cash energy efficiency rebates from utilities which is recorded as deferred revenue on our balance sheet. In the future, we expect an increase in the volume of ~~OTAs~~OTA contracts as our customers take advantage of our value proposition without incurring an up-front capital cost. The timing of expected future GAAP product revenue recognition and the resulting operating cash inflows from OTAs, assuming all renewal periods will be exercised over the term of the contracts, was as follows as of December 31, 2010 (in thousands):

Fiscal 2011 remainder $ 735
Fiscal 2012 4,171
Fiscal 2013 4,055
Fiscal 2014 3,447
Beyond 4,239

Total expected future gross revenue from OTAs $ 16,647

Our PPA financing program provides for our customer’s purchase of electricity from our renewable energy generating assets without an upfront capital outlay. Our PPA is a longer-term contract, typically in excess of 10 years, in which we receive monthly payments over the life of the contract. This program creates an ongoing recurring revenue stream, but reduces near-term revenue as the payments are recognized as revenue on a monthly basis over the life of the contract versus upfront upon product shipment or project completion. For the first nine months of fiscal 2010, we did not recognize any revenue from completed PPAs. For the first nine months of fiscal 2011, we recognized $0.3 million of revenue from completed PPAs. As of December 31, 2010, we had signed one customer to two separate PPAs representing future potential discounted revenue streams of $3.4 million. We discount the future revenue from PPAs due to the long-term nature of the contracts, typically in excess of 10 years. The timing of expected future discounted GAAP revenue recognition and the resulting operating cash inflows from PPAs, assuming the systems perform as designed, was as follows as of December 31, 2010 (in thousands):

Fiscal 2011 remainder $ 130
Fiscal 2012 432
Fiscal 2013 432
Fiscal 2014 431
Beyond 1,896

Total expected future discounted revenue from PPAs $ 3,321

~~Other than for OTA and PPA revenue, we~~ recognize revenue on product only sales at the time of shipment. For projects consisting of multiple elements of revenue, such as a combination of product sales and services, we separate the project into separate units of accounting based on their relative fair values for revenue recognition purposes. Additionally, the deferral of revenue on a delivered element may be required if such revenue is contingent upon the delivery of the remaining undelivered elements. We recognize revenue at the time of product shipment on product sales and on services completed prior to product shipment. We recognize revenue associated with services provided after product shipment, based on their ~~selling price,~~fair value, when the services are completed and customer acceptance has been received. When other significant obligations or acceptance terms remain after products are delivered, revenue is recognized only after such obligations are fulfilled or acceptance by the customer has occurred.

Our dependence on individual key customers can vary from period to period as a result of the significant size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately ~~38%~~29% and ~~29%~~38% of our total revenue for the first ~~nine months~~half of fiscal ~~2011~~2010 and fiscal ~~2010,~~2009, respectively. ~~One customer accounted for 10% of our total revenue for our first nine months of fiscal 2011 and no~~No single customer accounted for more than 10% of our total revenue for ~~the~~either our first ~~nine months~~half of fiscal ~~2010.~~2010 or fiscal 2009. To the extent that large retrofit and roll-out projects become a greater component of our total revenue, we may experience more customer concentration in given periods. The loss of, or substantial reduction in sales volume to, any of our significant customers could have a material adverse effect on our total revenue in any given period and may result in significant annual and quarterly revenue variations.

Our level of total revenue for any given period is dependent upon a number of factors, including (i) the demand for our products and systems, including our OTA ~~and PPA programs~~program and any new products, applications and ~~service~~services that we may introduce through our ~~Orion Engineered Systems~~new OTV division; (ii) the number and timing of large retrofit and multi-facility retrofit, or “roll-out,” projects; (iii) the level of our wholesale sales; (iv) our ability to realize revenue from our ~~services; (v) the relative mix of our sales that are completed through~~services and our OTA program, ~~and the impact of such OTA program sales on our revenue recognition under GAAP,~~ including whether we decide to either retain or resell the expected future cash flows under our OTA program and the relative timing of the resultant revenue recognition; ~~(vi)~~(v) market conditions; ~~(vii)~~(vi) our execution of our sales process; ~~(viii)~~(vii) our ability to compete in a highly competitive market and our ability to respond successfully to market competition; ~~(ix)~~(viii) the selling price of our products and services; ~~(x)~~(ix) changes in capital investment levels by our customers and prospects; and ~~(xi)~~(x) customer sales cycles. As a result, our total revenue may be subject to quarterly variations and our total revenue for any particular fiscal quarter may not be indicative of future results.

Contracted Revenue.Although “Contracted Revenue” is not a term recognized under GAAP, since the volume of our OTA ~~and PPA~~ business is expected to continue to increase and because ~~of the deferred revenue recognition of~~ our ~~retained~~ OTA ~~and PPA projects,~~revenues are not recognized until project completion occurs, we believe Contracted Revenue provides our management and investors with an informative measure of our relative order activity for any particular period. We define Contracted Revenue as the total contractual value of all firm purchase orders received for our products and services and the expected future potential gross ~~revenue streams,~~cash flows, including all renewal periods, for all OTAs upon the execution of the ~~contract and the discounted value~~contract. For cash Contracted Revenue, we generally expect that we will begin to recognize GAAP revenue within 30 days from receipt of future potential revenue from energy generation over the life of all PPAs along with the discounted value of revenue for renewable energy credits, or RECs, for as long as the REC programs are currently defined to be in existence with the governing body.purchase order. For OTA ~~and cash~~ Contracted Revenue, we generally expect that we will begin to recognize GAAP revenue under the terms of the agreements within ~~90 days from the firm contract date. For PPA Contracted Revenue, we generally expect that we will begin to recognize GAAP revenue under the terms of the PPAs within 180~~90-120 days from the firm contract date. We believe that total Contracted Revenues are a key financial metric for evaluating and measuring our performance because the measure is an indicator of our success in our customers’ adoption and acceptance of our energy products and services as it measures firm contracted revenue value, regardless of the contract’s cash or deferred financial structure and the related different GAAP revenue recognition treatment. For the three months ended September 30, 2008 and 2009, our ~~first nine months of fiscal 2010, total Contracted Revenue~~contracted revenue was ~~$57.2~~$20.2 million and $20.3 million, which for the September 30, 2009 quarter included ~~$6.4~~$2.4 million of future ~~expected potential~~ gross ~~revenue streams~~cash flows associated with ~~OTAs~~OTA contracts. For the six months ended September 30, 2008 and ~~$1.7~~2009, our contracted revenue was $33.6 million and $35.8 million, which for the September 30, 2009 first half included $4.7 million of potential discounted revenue streams from PPAs. For our fiscal first nine months of fiscal 2011, total Contracted Revenue was $74.8 million, an increase of 31% compared to the same period in fiscal 2010, which included of $10.9 million of expected future ~~potential~~ gross ~~revenue streams~~cash flows associated with OTAs and $1.9 million of potential discounted revenue streams from PPAs. A reconciliation of our Contracted Revenue to our GAAP revenue for the three and nine months ended December 31, 2010 is as follows:OTA contracts.

Three months ended Nine months ended
December 31, 2010 December 31, 2010

Total Contracted Revenues $ 26.7 $ 74.8

Change in backlog (1) 5.1 (5.4 )

Contracted Revenue from OTAs and PPAs (2) (3.4 ) (12.8 )

OTA and PPA GAAP revenue recognized 0.7 1.7

Other miscellaneous 0.6 (0.2 )

Revenue — GAAP basis $ 29.7 $ 58.1


~~(1)~~		Change in backlog reflects the (increase) or decrease in cash orders at the end of the respective period where product delivery or service performance has not yet occurred. GAAP revenue will be recognized when the performance conditions have been satisfied, typically within 90 days from the end of the period.

~~(2)~~		~~Contracted Revenue from OTAs and PPAs are subtracted to reconcile the GAAP revenue as recognition of GAAP revenue will occur in future periods.~~

Backlog.We define backlog as the total contractual value of all firm orders received for our lighting products and ~~services where delivery of product or completion of services has not yet occurred as of the end of any particular reporting period.~~services. Such orders must be evidenced by a signed proposal acceptance or purchase order from the customer. Our backlog does not include ~~OTAs, PPAs~~OTA contracts or national account contracts that have been negotiated, but ~~under~~for which we have not yet received a purchase order for the specific location. As of ~~December 31, 2010,~~September 30, 2009, we had a backlog of firm purchase orders of approximately ~~$8.6 million, which included $3.9 million of solar PV orders, compared to a backlog of firm purchase orders of approximately $5.1 million as of December 31, 2009.~~$4.0 million. We generally expect this level of firm purchase order backlog ~~related to HIF lighting systems~~ to be converted into revenue within the following ~~quarter and our firm purchase order backlog related to solar PV systems to be recognized within the following two quarters.~~quarter. Principally as a result of the continued lengthening of our customer’s purchasing decisions because of current ~~recessed~~ economic conditions and related factors, the continued shortening of our installation cycles and the number of projects sold through national and ~~OTAs,~~OTA contracts, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of actual revenue recognized in future periods.

Cost of Revenue.Our total cost of revenue consists of costs for: (i) raw materials, including sheet, coiled and specialty reflective aluminum; (ii) electrical components, including ballasts, power supplies and lamps; (iii) wages and related personnel expenses, including stock-based compensation charges, for our fabricating, coating, assembly, logistics and project installation service organizations; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, taxes, insurance and utilities; (v) warranty expenses; (vi) installation and integration; and (vii) shipping and handling. Our cost of aluminum can be subject to commodity price fluctuations, which we attempt to mitigate with forward fixed-price, minimum quantity purchase commitments with our suppliers. We also purchase many of our electrical components through forward purchase contracts. We buy most of our specialty reflective aluminum from a single supplier, and most of our ballast and lamp components from a single supplier, although we believe we could obtain sufficient quantities of these raw materials and components on a price and quality competitive basis from other suppliers if necessary. Purchases from our current primary supplier of ballast and lamp components constituted ~~17%~~15% of our total cost of revenue for the first ~~nine~~six months of fiscal ~~2011~~2010 and were ~~28%~~22% of total cost of revenue for the first ~~nine~~six months of fiscal ~~2010. Our cost of revenue from OTA projects is recorded as an asset on our balance sheet with the related costs amortized monthly over the life of the contract.~~2009. Our production labor force is non-union and, as a result, our production labor costs have been relatively stable. We have been expanding our network of qualified third-party installers to realize efficiencies in the installation process. ~~During~~Toward the end of fiscal 2008, we began to vertically integrate some of our processes performed at outside suppliers to help us better manage delivery lead time, control process quality and inventory supply. We installed a coating line and acquired production fabrication equipment. In fiscal 2009, we installed a power cord assembly line. Each of these production lines provide us with additional capacity and we expect that these additions will help to reduce overall unit costs upon the equipment becoming more fully utilized. In the first ~~nine months~~half of fiscal 2010, we reduced headcounts and improved production product flow through reengineering of our assembly stations.

Gross Margin.Our gross profit has been, and will continue to be, affected by the relative levels of our total revenue and our total cost of revenue, and as a result, our gross profit may be subject to quarterly variation. Our gross profit as a percentage of total revenue, or gross margin, is affected by a number of factors, including: (i) our ~~level of solar PV sales which generally have substantially lower relative gross margins than our traditional energy management systems; (ii) our~~ mix of large retrofit and multi-facility roll-out projects with national accounts; ~~(iii)~~(ii) the level of our wholesale sales (which generally have historically resulted in ~~lower~~higher relative gross margins, but ~~higher~~lower relative net margins, than our sales to direct customers); ~~(iv)~~(iii) our realization rate on our billable services; ~~(v)~~(iv) our project pricing; ~~(vi)~~(v) our level of warranty claims; ~~(vii)~~(vi) our level of utilization of our manufacturing facilities and production equipment and related absorption of our manufacturing overhead costs; ~~(viii)~~(vii) our level of efficiencies in our manufacturing operations; and ~~(ix)~~(viii) our level of efficiencies from our subcontracted installation service providers.

Operating Expenses.Our operating expenses consist of: (i) general and administrative expenses; (ii) sales and marketing expenses; and (iii) research and development expenses. Personnel related costs are our largest operating expense. While we have recently focused on reducing our personnel costs and headcount in certain functional areas, we do nonetheless believe that future opportunities within our business remain strong. As a result, we may choose to selectively add to our sales staff based upon opportunities in regional markets.

2325

Our general and administrative expenses consist primarily of costs for: (i) salaries and related personnel expenses, including stock-based compensation charges related to our executive, finance, human resource, information technology and operations organizations; (ii) public company costs, including investor relations and audit; (iii) occupancy expenses; (iv) professional services fees; (v) technology related costs and amortization; (vi) bad debt and asset impairment charges; and (vii) corporate-related travel.

Our sales and marketing expenses consist primarily of costs for: (i) salaries and related personnel expenses, including stock-based compensation charges related to our sales and marketing organization; (ii) internal and external sales commissions and bonuses; (iii) travel, lodging and other out-of-pocket expenses associated with our selling efforts; (iv) marketing programs; (v) pre-sales costs; and (vi) other related overhead.

Our research and development expenses consist primarily of costs for: (i) salaries and related personnel expenses, including stock-based compensation charges, related to our engineering organization; (ii) payments to consultants; (iii) the design and development of new energy management products and enhancements to our existing energy management system; (iv) quality assurance and testing; and (v) other related overhead. We expense research and development costs as incurred.

In fiscal ~~2010,~~2009, we incurred increased general and administrative expenses in connection with our becoming a public company, including increased accounting, audit, investor relations, legal and support services and Sarbanes-Oxley compliance fees and expenses. Our operating expenses ~~increased~~continued to increase in the first half of fiscal 2010 as a result of the completion of our new technology center and the related building occupancy costs. During fiscal 2011, we have invested in marketing efforts to our direct end customers and to our channel partners through increasing advertising, marketing collateral materials and participating in national industry and customer trade shows. We expense all pre-sale costs incurred in connection with our sales process prior to obtaining a purchase order. These pre-sale costs may reduce our net income in a given period prior to recognizing any corresponding revenue. We also intend to continue to invest in our research and development of new and enhanced energy management products and services.

We recognize compensation expense for the fair value of our stock option awards granted over their related vesting period. We recognized ~~$0.9~~$0.7 million in the first ~~nine~~six months of fiscal ~~2011~~2010 and ~~$1.1~~$1.6 million of stock-based compensation expense in ~~the same period in~~ fiscal ~~2010.~~2009. As a result of prior option grants, we expect to recognize an additional ~~$4.3~~$4.6 million of stock-based compensation over a weighted average period of approximately seven years, including ~~$0.4~~$0.7 million in the ~~fourth quarter~~last six months of fiscal ~~2011.~~2010. These charges have been, and will continue to be, allocated to cost of product revenue, general and administrative expenses, sales and marketing expenses and research and development expenses based on the departments in which the personnel receiving such awards have primary responsibility. A substantial majority of these charges have been, and likely will continue to be, allocated to general and administrative expenses and sales and marketing expenses.

Interest Expense.Our interest expense is comprised primarily of interest expense on outstanding borrowings under long-term debt obligations described under “— Liquidity and Capital Resources — Indebtedness” below, including the amortization of previously incurred financing costs. We amortize deferred financing costs to interest expense over the life of the related debt instrument, ranging from ~~two~~six to fifteen years.

Dividend and Interest Income.Our dividend income consists of dividends paid on preferred shares that we acquired in July 2006. The terms of these preferred shares provided for annual dividend payments to us of $0.1 million. The preferred shares were sold back to the issuer in June 2008 and all dividends accrued were paid upon sale. We also report interest income earned on our cash and cash equivalents and short term investments. For the first ~~nine months~~half of fiscal ~~2011,~~2010, our interest income declined ~~compared to the first nine months of fiscal 2010~~ as a result of the decrease in our cash and cash equivalents and ~~lower~~declining market ~~rates of return on our investments.~~rates.

Income Taxes.As of December 31, 2010, we had net operating loss carryforwards of approximately $13.4 million for federal tax purposes and $7.9 million for state tax purposes. Included in these loss carryforwards were $6.1 million for federal and $3.2 million for state tax purposes of compensation expenses that were associated with the exercise of nonqualified stock options. The benefit from our net operating losses created from these compensation expenses has not yet been recognized in our financial statements and will be accounted for in our shareholders’ equity as a credit to additional paid-in capital as the deduction reduces our income taxes payable. We ~~also~~ had federal ~~tax credit carryforwards of approximately $712,000, but we have not currently recorded any~~and state credit carryforwards ~~after giving effect to our related state valuation allowance~~that each total approximately $0.5 million as of ~~$572,000.~~March 31, 2009. We believe it is more likely than not that we will realize the benefits of ~~our federal loss carryforwards. We~~most of these assets and have ~~reserved~~recorded for an allowance ~~on our state carryforwards~~of $45,000 due to ~~a reduction in~~ our ~~Wisconsin~~ state apportioned income ~~as our business has grown nationally~~ and ~~for~~ the potential expiration of the state tax credits due to the carryforwards period. These federal and state net operating losses and credit carryforwards are available, subject to the discussion in the following paragraph, to offset future taxable income and, if not utilized, will begin to expire in varying amounts between ~~2014~~2020 and ~~2030.~~2029.

Generally, a change of more than 50% in the ownership of a company’s stock, by value, over a three year period constitutes an ownership change for federal income tax purposes. An ownership change may limit a company’s ability to use its net operating loss carryforwards attributable to the period prior to such change. In fiscal 2007 and prior to our IPO, past issuances and transfers of stock caused an ownership change for certain tax purposes. When certain ownership changes occur, tax laws require that a calculation be made to establish a limitation on the use of net operating loss carryforwards created in periods prior to such ownership change. For fiscal year 2008, utilization of our federal loss carryforwards was limited to $3.0 million. There was no limitation that occurred for fiscal ~~2010.~~2009. For fiscal ~~2011,~~2010, we do not anticipate a limitation on the use of our net operating loss carryforwards.

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Results of Operations

The following table sets forth the line items of our consolidated statements of operations on an absolute dollar basis and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods set forth below (dollars in thousands):


																															Three Months Ended September 30,														Six Months Ended September 30,
	Three Months Ended December 31,															Nine Months Ended December 31,															2008					2009									2008						2009
	2009						2010									2009						2010														(As Restated)			(As Restated)			(As Restated)									(As Restated)			(As Restated)			(As Restated)
				% of						% of			%						% of						% of			%					% of						% of			%						% of						% of			%
	Amount			Revenue			Amount			Revenue			Change			Amount			Revenue			Amount			Revenue			Change			Amount		Revenue			Amount			Revenue			Change			Amount			Revenue			Amount			Revenue			Change
Product revenue	$	17,205			89.2	%	$	27,663			93.2	%		60.8	%	$	41,645			89.5	%	$	54,080			93.1	%		29.9	%	$	17,280		92.1	%	$	15,219			94.7	%		(11.9	)%	$	30,169			86.5	%	$	27,143			90.6	%		(10.0	)%
Service revenue		2,090			10.8	%		2,008			6.8	%		(3.9	)%		4,897			10.5	%		3,994			6.9	%		(18.4	)%		1,480		7.9	%		856			5.3	%		(42.2	)%		4,697			13.5	%		2,807			9.4	%		(40.2	)%

Total revenue		19,295			100.0	%		29,671			100.0	%		53.8	%		46,542			100.0	%		58,074			100.0	%		24.8	%		18,760		100.0	%		16,075			100.0	%		(14.3	)%		34,866			100.0	%		29,950			100.0	%		(14.1	)%
Cost of product revenue		10,633			55.1	%		18,784			63.3	%		76.7	%		27,727			59.6	%		35,566			61.3	%		28.3	%		11,467		61.1	%		10,122			63.0	%		(11.7	)%		20,080			57.6	%		18,870			63.0	%		(6.0	)%
Cost of service revenue		1,568			8.1	%		1,674			5.6	%		6.8	%		3,455			7.4	%		3,089			5.3	%		(10.6	)%		958		5.1	%		632			3.9	%		(34.0	)%		3,254			9.3	%		1,887			6.3	%		(42.0	)%

Total cost of revenue		12,201			63.2	%		20,458			68.9	%		67.7	%		31,182			67.0	%		38,655			66.6	%		24.0	%		12,425		66.2	%		10,754			66.9	%		(13.4	)%		23,334			66.9	%		20,757			69.3	%		(11.0	)%

Gross profit		7,094			36.8	%		9,213			31.1	%		29.9	%		15,360			33.0	%		19,419			33.4	%		26.4	%		6,335		33.8	%		5,321			33.1	%		(16.0	)%		11,532			33.1	%		9,193			30.7	%		(20.3	)%
General and administrative expenses		3,051			15.8	%		2,709			9.2	%		(11.2	)%		9,357			20.1	%		8,642			14.9	%		(7.6	)%		2,893		15.4	%		3,143			19.6	%		8.6	%		5,508			15.8	%		6,307			21.1	%		14.5	%
Sales and marketing expenses		3,063			15.9	%		3,235			10.9	%		5.6	%		9,176			19.7	%		10,124			17.4	%		10.3	%		2,771		14.8	%		2,962			18.4	%		6.9	%		5,423			15.6	%		6,113			20.4	%		12.7	%
Research and development expenses		404			2.1	%		614			2.1	%		52.0	%		1,315			2.8	%		1,797			3.1	%		36.7	%		373		2.0	%		491			3.1	%		31.6	%		791			2.3	%		910			3.0	%		15.0	%

Income (loss) from operations		576			3.0	%		2,655			8.9	%		360.9	%		(4,488	)		(9.6	)%		(1,144	)		(2.0	)%		(74.5	)%		298		1.6	%		(1,275	)		(7.9	)%		(527.9	)%		(190	)		(0.5	)%		(4,137	)		(13.8	)%	NM
Interest expense		(67	)		0.4	%		(99	)		0.3	%		47.8	%		(197	)		0.4	%		(223	)		0.3	%		13.2	%		41		0.2	%		73			0.5	%		78.0	%		108			0.3	%		127			0.4	%		17.6	%
Dividend and interest income		49			0.3	%		3			0.0	%		(93.9	)%		248			0.5	%		19			0.0	%		(92.3	)%		550		2.9	%		147			0.9	%		(73.3	)%		1,167			3.3	%		383			1.3	%		(67.2	)%

Income (loss) before income tax		558			2.9	%		2,559			8.6	%		358.6	%		(4,437	)		(9.5	)%		(1,348	)		(2.3	)%		69.6	%		807		4.3	%		(1,201	)		(7.5	)%		(248.8	)%		869			2.5	%		(3,881	)		(13.0	)%		(546.6	)%
Income tax expense (benefit)		(249	)		(1.3	)%		1,915			6.4	%		(869.1	)%		(1,072	)		(2.3	)%		(777	)		(1.3	)%		(27.5	)%		354		1.9	%		(269	)		(1.7	)%		(176.0	)%		382			1.1	%		(869	)		(2.9	)%		(327.5	)%

Net income (loss)	$	807			4.2	%	$	644			2.2	%		(20.2	)%	$	(3,365	)		(7.2	)%	$	(571	)		(1.0	)%		83.0	%	$	453		2.4	%	$	(932	)		(5.8	)%		(305.7	)%	$	487			1.4	%	$	(3,012	)		(10.1	)%		(718.5	)%

Revenue.Product revenue ~~increased $10.5~~decreased from $17.3 million ~~or 61%, from $17.2~~for the fiscal 2009 second quarter ended September 30, 2008 to $15.2 million for the fiscal 2010 ~~third~~second quarter ~~to $27.7~~ended September 30, 2009, a decrease of $2.1 million, or 12%. Product revenue decreased from $30.2 million for the ~~fiscal 2011 third quarter.~~first half ended September 30, 2008 to $27.1 million for the first half ended September 30, 2009, a decrease of $3.1 million, or 10%. The ~~increase~~decrease in product revenue was a result of ~~$8.0 million of revenue from sales of renewable solar PV systems through our Orion Engineered Systems division and increased~~decreased sales of our HIF lighting ~~systems to both our national account and wholesale customers. Product~~systems. Service revenue ~~increased $12.5 million, or 30%,~~decreased from ~~$41.6~~$1.5 million for the ~~first nine months of~~ fiscal ~~2010~~2009 second quarter to ~~$54.1 million for the first nine months of fiscal 2011. Service revenue decreased $0.1 million, or 5%, from $2.1~~$0.9 million for the fiscal 2010 ~~third~~second quarter, ~~to $2.0~~a decrease of $0.6 million, or 42%. Service revenue decreased from $4.7 million for the fiscal ~~2011 third quarter. Service revenue decreased $0.9 million, or 18%, from $4.9~~2009 first half to $2.8 million for the ~~first nine months of~~ fiscal 2010 ~~to $4.0~~first half, a decrease of $1.9 million, ~~for the first nine months of fiscal 2011.~~or 40%. The decrease in service revenue was a result of the decreased sales of our HIF lighting systems. Our first half fiscal 2010 revenue continued ~~percentage increase of total revenue~~to be impacted by a lengthening sales cycle in the marketplace. We attribute this circumstance to general conservatism in the marketplace concerning capital spending and purchase decisions due to continuing adverse economic and credit market conditions. In our fiscal 2010 second quarter, we realized a slight improvement in our order volumes in relation to our ~~wholesale channels where services are~~fiscal 2010 first quarter, including the receipt of orders from customers who have not ~~provided.~~purchased product from us during the preceding 12-month period. We believe that this trend will likely continue during the fiscal 2010 third quarter, depending upon economic conditions, capital spending budgets and other factors.

Cost of Revenue and Gross Margin.Our cost of product revenue ~~increased $8.2~~decreased from $11.5 million ~~or 77%, from $10.6~~for the fiscal 2009 second quarter to $10.1 million for the fiscal 2010 ~~third~~second quarter, ~~to $18.8~~a decrease of $1.4 million, ~~for the fiscal 2011 third quarter.~~or 12%. Our cost of product revenue ~~increased $7.9 million, or 29%,~~decreased from ~~$27.7~~$20.1 million for the fiscal 2009 first ~~nine months of fiscal 2010~~half to ~~$35.6~~$18.9 million for the fiscal 2010 first ~~nine months~~half, a decrease of ~~fiscal 2011.~~$1.2 million, or 6%. Our cost of service revenues ~~increased $0.1~~decreased from $1.0 million ~~or 6%, from $1.6~~for the fiscal 2009 second quarter to $0.6 million for the fiscal 2010 ~~third~~second quarter, ~~to $1.7~~a decrease of $0.4 million, or 40%. Total gross margin increased from 33.8% for the fiscal ~~2011 third quarter. Our cost of service revenue decreased $0.4 million, or 11%, from $3.5 million for the first nine months of fiscal 2010~~2009 second quarter to ~~$3.1 million for the first nine months of fiscal 2011. Total gross margin decreased from 36.8%~~33.1% for the fiscal 2010 ~~third~~second quarter ~~to 31.1%~~and decreased from 33.1% for the fiscal ~~2011 third quarter and increased from 33.0% for the~~2009 first ~~nine months of fiscal 2010~~half to 33.4% for the first nine months of fiscal 2011. For the fiscal 2011 third quarter, our gross margins declined due to a higher mix of renewable product revenue from our Orion Engineered Systems division. Our gross margin percentage30.7% for the fiscal ~~2011 third quarter on renewable product revenue from this division was 17.2%. Gross margin from our HIF integrated systems revenue for the fiscal 2011 third quarter was 38.2%. For the~~2010 first ~~nine months of fiscal 2011, our increase~~half. The decrease in gross margin ~~on product revenues versus the first nine months of fiscal 2010~~ was attributable to ~~cost containment efforts through~~unabsorbed manufacturing capacity costs related to the ~~reduction of direct and indirect headcounts, improved production efficiencies~~decline in product revenues. During the fiscal 2010 second quarter, we saw improvements in our product gross margins, relative to the volume decline, resulting from ~~the reengineering of~~our efforts to reengineer our assembly ~~process, negotiated price decreases on raw materials~~processes, including the implementation of cell manufacturing stations, a reduction in headcount and ~~reductions~~a reduction in ~~discretionary spending.~~work hours.

Sales and ~~Marketing Expense.~~Marketing.Our sales and marketing expenses increased ~~$0.1~~from $2.8 million ~~or 3%, from $3.1~~for the fiscal 2009 second quarter to $3.0 million for the fiscal 2010 ~~third~~second quarter, ~~to $3.2~~an increase of $0.2 million, ~~for the fiscal 2011 third quarter.~~or 7%. The increase was a result of increased employee compensation and benefit costs ~~for headcount additions and increased travel for customer site visits. Sales~~resulting from our hiring additional sales and marketing ~~expenses increased $0.9 million, or 10%, from $9.2 million for the first nine months of~~personnel during our fiscal 2010 ~~to $10.1 million for the~~ first ~~nine months of fiscal 2011. The increase was a result of $0.2 million for advertising~~quarter. We increased our sales and marketing ~~expenses~~headcount to further develop opportunities for our exterior lighting products within the utility and ~~$0.2 million in business development expenses related~~governmental markets, expanded sales and sales support personnel dedicated to our ~~efforts to expand~~in-market sales programs and added technical expertise for our partner channels, $0.3 million in increased travel costs for customer site visits and $0.1 million for additional technology costs, including depreciation, for improvements to our customer relationship management system and computer investments to improve our sales presentation process.control product lines. Total sales and marketing headcount as of ~~December 31, 2010~~September 30, 2009 was 8778 compared to 7862 at ~~December 31, 2009.~~September 30, 2008.

Sales and marketing expenses increased from $5.4 million for the fiscal 2009 first half to $6.1 million for the fiscal 2010 first half, an increase of $0.7 million, or 13%. The increase was a result of compensation and benefit costs for additional sales and marketing personnel.

Research and ~~Development Expense.~~Development.Our research and development expenses increased ~~$0.2 million, or 50%,~~ from $0.4 million for the fiscal ~~2010 third~~2009 second quarter to ~~$0.6~~$0.5 million for the fiscal ~~2011 third quarter.~~2010 second quarter by $0.1 million, or 32%. Research and development expenses increased ~~$0.5 million, or 38%,~~ from ~~$1.3~~$0.8 million for the fiscal 2009 first ~~nine months~~half to $0.9 million for the fiscal 2010 first half. Expenses incurred for the first half of fiscal 2010 to $1.8 million for the first nine months of fiscal 2011. The increase was a result of headcount additions in our engineering and product development group and materials for new product development and testing. Expenses incurred within the fiscal 2011 third quarter related to compensation costs for the development and support of new products, depreciation expenses for lab and research equipment and ~~sample and~~ testing costs related to our new wireless controls and exterior lighting ~~and our light emitting diode, or LED,~~ product initiatives.

Interest Expense.Our interest expense increased ~~$32,000, or 48%,~~ from ~~$67,000~~$41,000 for the fiscal 2009 second quarter to $73,000 for the fiscal 2010 ~~third~~second quarter, ~~to $99,000 for the fiscal 2011 third quarter.~~an increase of $32,000, or 78%. Our interest expense increased ~~$26,000, or 13%,~~ from ~~$197,000~~$108,000 for the first ~~nine months~~half of fiscal 2009 to $127,000 for the first half of fiscal 2010, ~~to $223,000 for the first nine months~~an increase of ~~fiscal 2011.~~$19,000, or 18%. The increase in interest expense ~~for the fiscal 2011 third quarter~~ was due to the ~~additional debt funding completed during~~elimination of capitalized interest resulting from the completion of our ~~fiscal 2010 second quarter for the purpose of financing our OTA projects.~~corporate technology center. For the first ~~nine months~~half of fiscal ~~2010~~2009 and fiscal ~~2011,~~2010, we capitalized ~~$21,000~~$96,000 and $0$21,000 of interest for construction in progress, respectively.

Dividend and Interest Income.~~Interest~~Our dividend and interest income decreased ~~$46,000, or 94%,~~for both the three and six months ended September 30, 2009 from ~~$49,000 for~~ the ~~fiscal 2010 third quarter to $3,000 for the fiscal 2011 third quarter. Interest income decreased $0.2 million, or 100%, from $0.2 million for the first nine~~three and six months ~~of fiscal 2010 to $19,000 for the first nine months of fiscal 2011. The decrease in investment income was~~ended September 30, 2008 as a result of ~~less cash invested and a decrease in~~declining market interest rates onand the reduction in our ~~short-term investments.~~cash balances year over year due to cash used for our common share repurchase.

Income Taxes.Our income tax expense ~~increased~~decreased for both the three and six months ended September 30, 2009 from ~~a benefit of $0.2 million for~~ the ~~fiscal 2010 third quarter~~three and six months ended September 30, 2008 due to ~~income tax expense of $1.9 million for~~ the fiscal 2011 third quarter. Our income tax benefit decreased from a benefit of $1.1 million for the first nine months of fiscal 2010 to a benefit of $0.8 million for the first nine months of fiscal 2011.reduction in our taxable income. Our effective income tax rate for the fiscal 2009 first ~~nine months of fiscal 2010~~half was ~~a benefit rate of 24.2%~~44.0%, compared to a benefit rate of 57.9% for the first nine months of fiscal 2011. The change in tax rate versus the prior year is due to the difference between expected taxable losses during fiscal 2010 and expected taxable income during fiscal 2011, along with the impact of non-deductible expenses incurred for incentive stock option compensation expense. Our estimated annual effective tax rate decreased from a benefit rate of 68.9% for our fiscal 2011 second quarter to the benefit rate of 57.9% for our fiscal 2011 third quarter. The effective tax rate is based upon estimates of annualized temporary and permanent tax differences along with our estimated annualized taxable income. The decrease in our estimated effective tax rate as of the end of our fiscal 2011 third quarter was primarily due to additional federal research and development credits made available to us with the passage of the tax bill by Congress during December 2010. As a result of this decrease in our estimated annual tax rate and based upon our taxable loss as of the end of our fiscal 2011 third quarter, our third quarter income tax expense included the impact of this reduced benefit on a cumulative year-to-date basis which resulted in a higher than expected income tax expense for the fiscal 2011 third quarter.

~~Contracted Revenue.~~Total Contracted Revenue increased $5.3 million, or 25%, from $21.4 million (which included $1.7 million of future potential revenue streams associated with OTAs and $1.7 million of future potential revenue streams associated with PPAs)(22.4)% for the fiscal 2010 ~~third quarter to $26.7 million (which included $3.4 million of future potential revenue streams associated with OTAs) for the fiscal 2011 third quarter.~~first half. The ~~increase~~change in ~~Contracted Revenue~~our effective tax rate was due to ~~increased order activity~~a reduction of benefits for ~~our integrated lighting systems, increased orders for renewable technologies through our Orion Engineered Systems division~~non-deductible stock compensation expense, a mix change in state rates and an increase in new customer OTA contracts completed. Total Contracted Revenue increased $17.6 million, or 31%, from $57.2 million (which included $6.4 million of future potential revenue streams associated with OTAs and $1.7 million of future potential revenue streams associated with PPAs) for the first nine months of fiscal 2010 to $74.8 million (which included $10.9 million of future potential revenue streams associated with OTAs and $1.9 million of future potential revenue streams associated with PPAs) for the first nine months of fiscal 2011. This improvement in Contracted Revenue was attributable to an increase in the number of OTAs and renewable project sales through our Orion Engineered Systems division, along with an improved economic environment during the third quarter of fiscal 2011.

~~Energy Management Segment~~federal tax credits available.

~~The following table summarizes the Energy Management segment operating results:~~

For the Three Months Ended December 31, For the Nine Months Ended December 31,
(dollars in thousands) 2009 2010 2009 2010
Revenues $ 16,672 $ 19,354 $ 40,447 $ 44,696
Operating income 2,384 3,262 928 3,698
Operating margin 14.3 % 16.9 % 2.3 % 8.3 %

Energy Management segment revenue increased $2.7 million, or 16%, from $16.7 million for the fiscal 2010 third quarter to $19.4 million for the fiscal 2011 third quarter. The increase was due to increased sales of our HIF lighting systems to our national account and wholesale customers, increased revenue from new product offerings, including exterior lighting and LED fixtures. Energy Management segment revenue increased $4.3 million, or 11%, from $40.4 million for the first nine months of fiscal 2010 to $44.7 million for the first nine months of fiscal 2011.

Energy Management segment operating income increased $0.9 million, or 38%, from $2.4 million for the fiscal 2010 third quarter to $3.3 million for the fiscal 2011 third quarter. Energy Management segment operating income increased $2.8 million, or 311%, from $0.9 million for the first nine months of fiscal 2010 to $3.7 million for the first nine months of fiscal 2011. The increase in operating income for both the quarter and year-to-date, was a result of improved gross margins on HIF lighting product sales due to cost reduction efforts to reduce labor costs and plant reengineering of our manufacturing processes to improve production efficiencies.

~~Engineered Systems Segment~~

~~The following table summarizes the Engineered Systems segment operating results:~~

For the Three Months Ended December 31, For the Nine Months Ended December 31,
(dollars in thousands) 2009 2010 2009 2010
Revenues $ 2,623 $ 10,317 $ 6,095 $ 13,378
Operating (loss) income (199 ) 976 (511 ) 135
Operating margin (7.6 )% 9.5 % (8.4 )% 1.0 %

Engineered Systems segment revenue increased $7.7 million, or 296%, from $2.6 million for the fiscal 2010 third quarter to $10.3 million for the fiscal 2011 third quarter. Energy Systems segment revenue increased $7.3 million, or 120%, from $6.1 million for the first nine months of fiscal 2010 to $13.4 million for the first nine months of fiscal 2011. The increase was due to increased sales of solar renewable technologies for the fiscal 2011 third quarter and the first nine months of fiscal 2011. During the same periods of fiscal 2010, our Engineered Systems segment efforts were primarily focused on research of renewable technology products and understanding if there was a market for these technologies within our customer base.

Engineered Systems segment operating income increased $1.2 million from an operating loss of $0.2 million for the fiscal 2010 third quarter to operating income of $1.0 million for the fiscal 2011 third quarter. Energy Systems segment operating income increased $0.6 million from an operating loss of $0.5 million for the first nine months of fiscal 2010 to operating income of $0.1 million for the first nine months of fiscal 2011. The increase in operating income for both the quarter and year-to-date, was a result of the increased revenue volume and resulting contribution margin from sales of solar renewable energy systems.

Liquidity and Capital Resources

Overview

On December 24, 2007, we completed our initial public offering, or IPO. Net proceeds to us from the IPO were approximately $82.8 million (net of underwriting discounts and commissions but before the deduction of offering expenses). We invested the net proceeds from the IPO in money market funds and short-term government agency bonds.

We had approximately ~~$9.9~~$33.4 million in cash and cash equivalents and $1.0 million in short-term investments as of ~~December 31, 2010,~~September 30, 2009, compared to ~~$23.4~~$36.2 million and ~~$1.0~~$6.5 million at March 31, ~~2010.~~2009. Our cash equivalents are invested in money market accounts, bank certificates of deposit and a high-grade government agency bond with maturities of less than 90 days and an average yield of ~~0.2%~~0.7%. Our short-term investment account consists of a single bank certificate of deposit ~~in the amount of $1.0 million~~ with an expiration date of ~~March 2011~~June 2010 and a yield of ~~0.50%~~1.0%.

2728

Working Capital

Our net working capital as of ~~December 31, 2010~~September 30, 2009 was ~~$50.3~~$61.4 million, consisting of ~~$71.1~~$70.6 million in current assets and ~~$20.8~~$9.2 million in current liabilities. Our net working capital as of March 31, ~~2010~~2009 was ~~$55.7~~$67.5 million, consisting of ~~$67.9~~$78.4 million in current assets and ~~$12.2~~$10.9 million in current liabilities. Our ~~accounts receivables~~inventories have ~~increased~~decreased from our prior fiscal ~~2010~~ year-end by ~~$9.8~~$0.6 million as a result of efforts to reduce purchases and carrying levels of our ~~increased sales activity and related revenue during our fiscal 2011 third quarter. Our inventories~~HIF inventory components. We have ~~increased from fiscal 2010 year-end by $6.2 million due to an increase in~~been increasing the level of our wireless control inventories ~~of $1.8 million~~ based upon our Phase 2 ~~initiatives and a $4.4 million increase in ballast component inventories to avoid potential supply disruptions.~~initiatives. The vast ~~majority~~majorities of ~~our wireless~~these components are assembled overseas, ~~and~~ require longer delivery lead ~~times. In addition, overseas~~times and suppliers require deposit payments at time of purchase order. As of August 2010, we had completed our initial purchase and investment in wireless component inventories. Since that period, we have been reducing our wireless inventories as we sell the products to our customers. During the first nine months of fiscal 2011, we continued to increase our inventory levels of key electronic components, specifically electronic ballasts, to avoid potential shortages and customer service issues as a result of lengthening supply lead times and product availability issues. We continue to monitor supply side concerns within the electronic components market and believe that our current inventory levels are sufficient to protect us against the risk of being unable to deliver product as specified by our customers’ requirements. We also are continually monitoring supply side concerns through conversations with our key vendors and currently believe that supply availability concerns, previously thought to be improving, have not diminished to the point where we anticipate reducing safety stock to the levels that existed prior to the electrical components supply issues. Accordingly, we expect to reduce inventories by approximately $4.0 million during our fiscal 2011 fourth quarter by selling wireless control inventory and through the shipment of our remaining solar panel inventories to customers during our fiscal 2011 fourth quarter. We generally attempt to maintain ~~at least~~ a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.

We historically have funded the system costs of our OTAs and PPAs with our own cash. However, we have more recently begun obtaining debt financing alternatives to support our OTA growth. During the fiscal 2011 second quarter, we entered into a note agreement with a financial institution that provided us with $2.4 million of funding for our OTA projects. We expect to close a second round of funding with the same financial institution during the fourth fiscal quarter that will provide us with an additional $1.3 million for funding OTA projects. To ensure long-term capital support for our expected growth of these financing programs, we are currently pursuing several additional debt financing alternatives to provide funding to specifically support the equipment and purchases that underlie our OTAs and PPAs.

We believe that our existing cash and cash equivalents and our anticipated cash flows from operating activities ~~and our borrowing capacity under our revolving credit facility~~ will be sufficient to meet our anticipated cash needs for at least the next 12 ~~months, dependent upon the growth of our OTA finance programs and the extent to which we support such contracts with our own cash.~~months.

Indebtedness

Revolving Credit Agreement

On ~~June 30, 2010,~~March 18, 2008, we entered into a ~~new~~ credit agreement ~~or Credit Agreement, with JP Morgan Chase~~to replace a previous agreement between us and Wells Fargo Bank, N.A.~~, or JP Morgan.~~ The ~~Credit Agreement replaced our former~~ credit ~~agreement.~~

~~The Credit Agreement~~agreement provides for a revolving credit facility ~~or Credit Facility,~~ that matures on ~~June 30, 2012. Borrowings~~August 31, 2010. The initial maximum aggregate amount of availability under the ~~Credit Facility are limited~~line of credit is $25.0 million. We have a one-time option to ~~(i) $15.0 million or (ii) during periods in which~~increase the ~~outstanding principal balance~~maximum aggregate amount of ~~outstanding loans~~availability under the Line of Credit ~~Facility is greater than $5.0~~to up to $50.0 million, although any advance from the ~~lesser of (A) $15.0 million or (B) the sum of 75% of the outstanding principal balance of certain accounts receivable and 45% of certain inventory. We also may cause JP Morgan to issue letters~~line of credit ~~for our account in~~over $25.0 million is discretionary to Wells Fargo even if no event of default has occurred. In December 2008, we briefly drew $4.0 million on the ~~aggregate principal amount of up to $2.0 million, with the dollar amount of each issued letter~~line of credit ~~counting against~~due to the ~~overall limit on borrowings under the Credit Facility. As~~timing of ~~December 31, 2010,~~treasury repurchases and funds available in our operating account. In May 2009, we had outstanding letters of credit totaling $1.7 million, primarily for securing collateral requirements under equipment operating leases. We had no outstanding borrowings under the Credit Agreement as of December 31, 2010. We were in compliance with all of our covenants undercompleted an amendment to the credit agreement, effective as of ~~December~~March 31, ~~2010.~~

~~The Credit Agreement is secured~~2009, which formalized Wells Fargo’s prior consent to our treasury repurchase program, increased the capital expenditures covenant for fiscal 2009 and revised certain financial covenants by adding a ~~first lien security interest in our accounts receivable, inventory~~minimum requirement for unencumbered liquid assets, increasing the quarterly rolling net income requirement and ~~general intangibles,~~modifying the merger and a second lien priority in our equipment and fixtures. All OTAs, PPAs, leases, supply agreements and/or similar agreements relating to solar photovoltaic and wind turbine systems or facilities, as well as allacquisition covenant exemption. As of ~~our accounts receivable and assets related to~~September 30, 2009, there was no outstanding balance due on the ~~foregoing, are excluded from these liens.~~line of credit.

We must pay a fee of ~~0.25%~~0.20% on the average daily unused amount of the ~~Credit Facility~~line of credit and fees upon the issuance of each letter of credit equal to 1.25% per annum of the principal amount thereof.

The credit agreement provides that we have the option to select the interest rate applicable to all or a ~~fee~~portion of ~~2.00%~~the outstanding principal balance of the line of credit either (i) at a fluctuating rate per annum one percent (1.00%) below the prime rate in effect from time to time, or (ii) at a fixed rate per annum determined by Wells Fargo to be one and one quarter percent (1.25%) above LIBOR. Interest is payable on the ~~daily average face amount~~last day of ~~undrawn issued letters~~each month. The credit agreement contains certain financial covenants including minimum net income requirements, fixed charge coverage ratio and requirements that we maintain a net worth ratio at prescribed levels. The credit agreement also contains certain restrictions on our ability to make capital or lease expenditures over prescribed limits, incur additional indebtedness, consolidate or merge, guarantee obligations of ~~credit. The fee~~third parties, make loans or advances, declare or pay any dividend or distribution on ~~unused amounts~~its stock, redeem or repurchase shares of its stock, or pledge assets.

At the end of our fiscal 2010 second quarter, even though we had no borrowings outstanding under our line of credit, we were not in technical compliance with our rolling quarterly net income and our fixed charge coverage ratio covenants in our credit agreement. We are currently in discussions with Wells Fargo, as well as other banks, on a further amended or new credit facility.

Since we have over $34 million of cash, cash-equivalents and short-term investments on hand, and because we have no borrowings outstanding under our credit agreement and no currently foreseeable intention to borrow under our line of credit, we do not believe that such covenant violations or any subsequently obtained credit agreement amendment is ~~waived if we~~material to our current or future financial condition or our ~~affiliates maintain funds on deposit with JP Morgan~~current or ~~its affiliates above a specified amount. We did not meet the deposit requirement~~future access to ~~waive the unused fee as of December 31, 2010.~~capital or liquidity.

Capital Spending

We expect to incur approximately ~~$0.3~~$1.4 million in capital expenditures during the remainder of fiscal ~~2011, excluding capital to support expected OTA growth.~~2010. We spent approximately ~~$2.9~~$2.5 million of capital expenditure in the first ~~nine months~~half of fiscal ~~2011~~2010 on ~~information technologies, renewable energy-related investments~~the completion of our corporate technology center, implementation of an ERP system, software development for our wireless controls technology and other tooling and equipment for new products and cost improvements in our manufacturing facility. Our capital spending plans predominantly consist of the completion of projects that have been in place for several months and for which we have already invested significant capital. We consider the completion of our ~~information~~ERP systems critical to our long-term success and our ability to ensure a strong control environment over financial reporting and operations. We expect to finance ~~these capital expenditures~~the information technology and manufacturing improvements primarily through ~~our existing cash,~~ equipment secured loans and leases, ~~to the extent needed,~~ long-term debt financing, using cash on hand or by using our available capacity under our revolving credit facility.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures ~~(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))~~ as of the end of the quarter ended ~~December 31, 2010~~September 30, 2009 pursuant to ~~the requirements~~Rule 13a-15(b) of the Securities Exchange ~~Act. Based upon their evaluation,~~Act of 1934 (the “Exchange Act”). After re-evaluating the effectiveness of the controls noted above, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the quarter ended ~~December 31, 2010.~~September 30, 2009, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting that occurred during the quarter ended ~~December 31, 2010~~September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

We are subject to various claims and legal proceedings arising in the ordinary course of our business. In addition to ordinary-course litigation, we are a party to the litigation described below.

In February and March 2008, three class action lawsuits were filed in the United States District Court for the Southern District of New York against us, several of our officers, all members of our then existing board of directors, and certain underwriters ~~relating to~~from our December 2007 IPO. The plaintiffs ~~claimed~~claim to represent ~~those~~certain persons who purchased shares of our common stock from December 18, 2007 through February 6, 2008. The plaintiffs ~~alleged,~~allege, among other things, that the defendants made misstatements and failed to disclose material information in our IPO registration statement and prospectus. The complaints ~~alleged~~allege various claims under the Securities Act of 1933, as amended. The complaints ~~sought,~~seek, among other relief, class certification, unspecified damages, fees, and such other relief as the court may deem just and proper.

On August 1, 2008, the court-appointed lead plaintiff filed a consolidated amended complaint in the United States District Court for the Southern District of New York. On September 15, 2008, wethe Company and the other director and officer defendants filed a motion to dismiss the consolidated complaint, and the underwriters filed a separate motion to dismiss the consolidated complaint on January 16, 2009. After oral argument on August 19, 2009, the ~~court~~Court granted in part and denied in part the motions to dismiss. The plaintiff filed a second consolidated amended complaint on September 4, 2009, and the defendants filed an answer to the complaint on October 9, 2009.

In the fourth quarter of fiscal 2010, we reached a preliminary agreement to settle the class action lawsuits and on January 3, 2011, the court issued an order granting preliminary approval of the settlement. The court has scheduled a fairness hearing for April 14, 2011. Substantially all of the proposed preliminary settlement amount will be covered by our insurance. However, for our share of the proposed preliminary settlement not covered by insurance, we recorded an after-tax charge in the fourth quarter of fiscal 2010 of approximately $0.02 per share. We ~~deposited our uninsured share of the settlement amount in escrow on February 1, 2011.~~

~~If the preliminary settlement is not finally approved or the other conditions are not met, we will continue to defend against the lawsuits and~~ believe that we and the other defendants have substantial legal and factual defenses to the claims and allegations contained in the consolidated ~~complaint. In such a case,~~complaint, and we ~~would~~ intend to pursue these defenses vigorously. There can be no assurance, however, that we ~~would~~will be successful, and an adverse resolution of the ~~lawsuits~~lawsuit could have a material adverse effect on our consolidated financial ~~condition,~~position, results of operations and cash flow. In addition, although we carry insurance for these types of claims, a judgment significantly in excess of our insurance coverage or any costs, claims or judgment which are disputed or not covered by insurance could materially and adversely affect our financial condition, results of operations and cash flow. ~~If the preliminary settlement is not finally approved or the other conditions are not met, we~~We are not presently able to reasonably estimate potential costs and/or losses, if any, related to the lawsuit.


ITEM 1A.		RISK FACTORS

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I — Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2010, which we filed with the SEC on June 14, 2010. During~~2009. Other than as set forth below, during the three months ended ~~December 31, 2010,~~September 30, 2009, there were no material changes to the risk factors that were disclosed in Part I — Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2010.~~2009.

Our potential addition of new renewable energy technologies into our product, application or service offerings involves many risks and uncertainties. Many technologies do not become commercially profitable products, applications or services despite extensive development and commercialization efforts.

In August 2009, we created Orion Technology Ventures (“OTV”) as a new operating division to explore whether we should offer our customers additional alternative renewable energy systems, such as those using wind and solar technologies. OTV is conducting research on, and developing commercialization strategies with respect to, various renewable energy technologies that we may decide to add to our product, application and service offerings.

The process of developing and commercializing new products, applications and services, particularly relating to alternative renewable energy systems, is expected to be both time-consuming and costly and will involve a high degree of business risk. We may be unable to successfully develop or commercialize new technologies in the form of new products, applications or services. This process may involve substantial expenditures in research and development, sourcing and marketing. Commercialization of new technological products, applications and services often requires a very long lead time. Because it is generally not possible to predict the amount of time required or the costs involved in achieving new product, application or service introduction objectives, actual development and commercialization costs may exceed budgeted amounts and estimated development and commercialization schedules may be extended. Developing new technological products, applications and services, and creating effective commercialization strategies for new renewable energy technologies, are subject to inherent risks that may include:

Unanticipated and/or substantial delays;

Unanticipated and/or substantially increased costs;

Unrecoverable and/or substantially increased expenses;

Technical, reliability, durability or quality problems, including potential warranty and/or product liability claims;

Insufficiency of dedicated or budgeted funds;

Inability to meet targeted cost or performance objectives;

Inability to satisfy industry standards or consumer expectations and needs;

Regulatory obstacles;

Competition;

Inability to prove the original concept;

Lack of demand; and

Diversion of our management’s and employees’ focus and/or attention.

The occurrence of any one or more of these risks could cause us to incur substantial costs and expenses or even to abandon or substantially delay or change our strategy of exploring the addition of new alternative renewable energy technologies into our product, application and service offerings.

OTV may not be able to identify suitable new technologies, we may invest too much in new technologies, our management could be distracted by new technologies and we could fail to develop any new products, applications or services successfully.

Identifying suitable new alternative renewable energy technologies for addition into our product, application and service offerings may be difficult, and the failure to do so could harm our growth strategy. If we make an investment in one or more new alternative renewable energy technologies, then we could have difficulty developing and commercializing it or integrating it into our product, application or service offerings. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses and/or capital expenditures. As a result, our failure to fully develop and commercialize potential new alternative renewable energy technologies or to integrate them effectively into our product, application and service offerings properly could have a material adverse effect on our business, financial condition and operating results.

We may not be able to obtain additional equity capital or debt financing necessary to effectively introduce and commercialize any new alternative renewable energy technologies identified by OTV into our product, application and service offerings.

Our existing capital resources may not be sufficient to effectively introduce and commercialize any new alternative renewable energy technologies identified by OTV into our product, application and service offerings. We may not be able to obtain sufficient additional equity capital and/or debt financing required to do so or we may not be able to obtain such additional equity capital or debt financing on acceptable terms or conditions. Although we have been successful in the past in raising equity capital and debt financing, recent trends in the equity and debt markets and our recent financial performance may pose significant challenges for us. Factors affecting the availability to us of equity capital or debt financing on acceptable terms and conditions include:

The price, volatility and trading volume and history of our common stock.

Our current and future financial results and position, including our recent losses generated from operations.

The market’s view of our industry and products.

The perception in the equity and debt markets of our ability to execute our business plan.

We have no operating history in the solar photovoltaic or wind energy industries that can be used to evaluate our potential prospects for success in these industries.

Our OTV division is currently researching three test solar photovoltaic electricity generating projects. These projects are expected to help us answer technological, installation and commercial feasibility questions before determining whether and/or how this technology may fit into our overall business plan. OTV is also exploring potential wind energy projects and applications.

We have no history in the solar photovoltaic or wind energy industries. If we choose to further pursue adding these technologies into our product, application or service offerings, there can be no assurance that our venture into these industries will prove successful. We have no history of developing or commercializing solar photovoltaic or wind energy technologies that can be used to evaluate our potential prospects for success. As a result, our prospects for success in being able to introduce new products, applications or services using these technologies must be considered in the context of a new company in a developing industry. The risks we face include the possibility that we will not be successful in developing or commercializing any such technologies, that we will not be able to do so without incurring unexpected and/or substantial costs and expenses and/or failing to generate any substantial incremental revenues, that we will not be able to rely on third-party manufacturers or providers of such technologies, and that we will not be able to operate successfully in the competitive environment of the solar photovoltaic and/or wind energy industries. If we are unable to address all of these risks, our business, results of operations and financial condition may be materially adversely affected.

OTV’s pursuit of solar photovoltaic and/or wind electricity generating technologies is subject to risks specific to the solar photovoltaic and/or wind industry.

If we elect to further pursue adding solar photovoltaic and/or wind electricity generating technologies into our product, application or service offerings, such business pursuits will involve risks specifically associated with the solar photovoltaic and/or wind industry, including:

The market for photovoltaic and wind electricity generating technologies has been adversely affected by the recessionary economic conditions over the past year, and we cannot guarantee that demand will return or increase in the future.

A variety of solar power, wind power and other renewable energy technologies may be currently under development by other companies that could result in higher or more effective product performance than the performance expected to be produced by any technology that we decide to offer.

Our ability to generate revenue and profitability from adding solar photovoltaic and/or wind electricity generating technologies into our product, application or service offerings will be dependent on consumer acceptance and the economic feasibility of solar and/or wind generated energy.

A drop in the retail price of conventional energy or other alternate renewable energy sources may negatively impact our ability to generate revenue and profitability from solar photovoltaic and/or wind generated energy technologies.

The reduction, elimination or expiration of government mandates and subsidies or economic or tax rebates, credits and/or incentives for alternative renewable energy systems would likely substantially reduce the demand for, and economic feasibility of, any solar photovoltaic and/or wind electricity generating products, applications or services and could materially reduce any prospects for our successfully introducing any new products, applications or services using such technologies.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(b) Use of Proceeds

Our IPO was declared effective by the SEC on December 18, 2007. The net offering proceeds received by us, after deducting underwriting discounts and commissions and expenses incurred in connection with the offering, were approximately $78.6 million. Through ~~December 31, 2010,~~September 30, 2009, approximately ~~$43.1~~$14.8 million of the proceeds from our IPO have been used to fund operations of our business and for general corporate purposes and approximately ~~$29.8~~$29.7 million was used for the repurchase of common shares. The remainder of the net proceeds from the IPO are invested in short-term investment grade securities, bank certificates of deposit and money market accounts. Other than for our share repurchases, there has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on December 18, 2007 pursuant to Rule 424(b).


ITEM 6.		EXHIBITS

(a) Exhibits


	10.1			Letter Agreement, dated as of August 27, 2009, between Orion Energy Systems, Inc. ~~2004 Stock~~ and ~~Incentive Awards Plan,~~John H. Scribante, filed as ~~amended (incorporated by reference~~Exhibit 10.1 to ~~Appendix A to the definitive proxy statement of~~ Orion Energy Systems, Inc.’s Form 8-K filed on ~~Schedule 14A on~~ September ~~10, 2010).~~2, 2009, is hereby incorporated by reference as Exhibit 10.1. *

10.2

Executive Employment and Severance Agreement, dated September 8, 2009, by and between Stuart L. Ralsky and Orion Energy Systems, Inc. *⁺

31.1

Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.


	31.2			Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.


	32.1			Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	32.2			Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Management contract or compensatory plan or arrangement.
⁺		Previously filed.

3436


	Page(s)

PART I FINANCIAL INFORMATION		4

ITEM 1. Financial Statements (unaudited)		4

Condensed Consolidated Balance Sheets as of March 31, ~~2010 and December 31, 2010~~		3

~~Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31,~~ 2009 and ~~2010~~September 30, 2009		4

Condensed Consolidated Statements of ~~Cash Flows~~Operations for the ~~Nine~~Three and Six Months Ended ~~December 31,~~September 30, 2008 and 2009 ~~and 2010~~		5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2008 and 2009		6

Notes to the Condensed Consolidated Financial Statements		67

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1921

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		31

ITEM 4. Controls and Procedures		31

PART II OTHER INFORMATION		32

ITEM 1. Legal Proceedings		3132

ITEM 1A. Risk Factors		32

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		32

~~ITEM 4. Removed and Reserved~~		3234

ITEM 5. Other Information		3235

ITEM 6. Exhibits		3436

SIGNATURES		3537

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


	March 31, 2010												March 31, 2009
	Amortized		Unrealized		Unrealized				Cash and Cash		Short Term		Amortized		Unrealized		Unrealized					Cash and Cash		Short Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments		Cost		Gains		Losses			Fair Value		Equivalents		Investments
Money market funds	$	22,297	$	—	$	—	$	22,297	$	22,297	$	—	$	14,114	$	—	$	—		$	14,114	$	14,114	$	—
Bank certificates of deposit		1,000		—		—		1,000		—		1,000
Bank certificate of deposit														9,007		—		—			9,007		6,207		2,800
Commercial paper														3,690		—		—			3,690		—		3,690
Corporate obligations														2,257		—		(7	)		2,250		2,250		—
Government agency obligations														12,412		—		(25	)		12,387		12,387		—

Total	$	23,297	$	—	$	—	$	23,297	$	22,297	$	1,000	$	41,480	$	—	$	(32	)	$	41,448	$	34,958	$	6,490


	March 31,		December 31,		March 31,		September 30,
	2010		2010		2009		2009
Raw materials and components	$	11,107	$	14,128	$	9,629	$	9,383
Work in process		669		402		1,753		574
Finished goods		14,215		17,700		8,850		9,715

	$	25,991	$	32,230	$	20,232	$	19,672


							March 31,			September 30,
	March 31,			December 31,			2009			2009
	2010			2010						(As Restated)
Land and land improvements	$	1,436		$	1,474		$	822		$	1,435
Buildings		14,072			15,749			5,435			14,127
Furniture, fixtures and office equipment		6,615			8,056			3,432			5,010
Equipment leased to customers under finance agreements		1,586			8,582
Plant equipment		7,627			7,919			6,882			7,190
Construction in progress		6,777			6,484			11,366			2,262

		38,113			48,264			27,937			30,024
Less: accumulated depreciation and amortization		(7,613	)		(10,523	)		(4,938	)		(6,050	)

Net property and equipment	$	30,500		$	37,741		$	22,999		$	23,974


	March 31,			September 30,
	2009			2009
Equipment	$	1,104		$	1,104
Less: accumulated amortization		(477	)		(535	)

Net equipment	$	627		$	569


	December 31, 2010												September 30, 2009
	Amortized		Unrealized		Unrealized				Cash and Cash		Short Term		Amortized		Unrealized		Unrealized				Cash and Cash		Short Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments		Cost		Gains		Losses		Fair Value		Equivalents		Investments
Money market funds	$	484	$	—	$	—	$	484	$	484	$	—	$	22,107	$	—	$	—	$	22,107	$	22,107	$	—
Bank certificate of deposit		1,010		—		—		1,010		—		1,010		7,282		—		—		7,282		6,282		1,000
Commercial paper														3,639		61		—		3,700		3,700		—

Total	$	1,494	$	—	$	—	$	1,494	$	484	$	1,010	$	33,028	$	61	$	—	$	33,089	$	32,089	$	1,000


Fiscal 2013	$	336
Fiscal 2014		336
Fiscal 2015		403

Total gross long-term receivable		1,075
Less: amount representing interest		(164	)

Net long-term receivable	$	911


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						September 30,						September 30,
	2009			2010			2009			2010			2008			2009			2008			2009
Beginning of period	$	42		$	59		$	55		$	60		$	63		$	65		$	69		$	55
Provision to cost of revenue		40			20			60			95			17			10			20			20
Charges		(44	)		(18	)		(77	)		(94	)		(34	)		(33	)		(43	)		(33	)

End of period	$	38		$	61		$	38		$	61		$	46		$	42		$	46		$	42

	•		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


	Six Months Ended,
	September 30, 2008			September 30, 2009
Unrecognized tax benefits as of beginning of period	$	392		$	397
Decreases relating to settlements with tax authorities		(5	)		—
Additions based on tax positions related to the current period positions		6			1

Unrecognized tax benefits as of end of period	$	393		$	398


	Nine Months Ended		Nine Months Ended
	December 31, 2009		December 31, 2010
Unrecognized tax benefits as of beginning of period	$	397	$	398
Decreases relating to settlements with tax authorities		—		—
Additions based on tax positions related to the current period positions		1		1

Unrecognized tax benefits as of end of period	$	398	$	399


	As of December 31, 2010
	Shares Issued		Closing		Shares Issued		Dollar Value		Repayment
Period	Under ESPP Plan		Market Price		Under Loan Program		Of Loans Issued		Of Loans
Quarter Ended September 30, 2010		40,560	$	3.17		38,202	$	121,100	$	—
Quarter Ended December 31, 2010		12,274		3.34		10,898		36,400		844

Total		52,834	$	3.21		49,100	$	157,500	$	844


	Options Outstanding												Options Outstanding
									Weighted												Weighted
							Weighted		Average										Weighted		Average
	Shares						Average		Remaining		Aggregate		Shares						Average		Remaining		Aggregate
	Available for			Number			Exercise		Contractual		Intrinsic		Available for			Number			Exercise		Contractual		Intrinsic
	Grant			of Shares			Price		Term (in years)		value		Grant			of Shares			Price		Term (in years)		value
Balance at March 31, 2010		569,690			3,546,249		$	3.66		6.87
Amendment to Plan		1,500,000
Balance at March 31, 2009														1,070,954			3,680,945		$	3.40		6.82
Granted stock options		(609,077	)		609,077			3.66						(549,227	)		549,227			3.38
Granted shares in lieu of cash compensation		(11,976	)		—			—						(2,843	)		—			—
Forfeited		218,658			(218,658	)		3.88						212,360			(212,360	)		5.22
Exercised		—			(285,020	)		1.31						—			(265,498	)		1.70

Balance at December 31, 2010		1,667,295			3,651,648		$	3.80		6.65	$	2,080,575
Balance at September 30, 2009														731,244			3,752,314		$	3.41		6.89	$	2,871,547

Exercisable at December 31, 2010					1,748,281		$	3.34		4.96	$	1,581,405
Exercisable at September 30, 2009																	1,702,251		$	2.65		5.21	$	1,999,824


Non-vested at March 31, ~~2010~~2009	~~1,789,119~~1,821,827
Granted	~~609,077~~549,227
Vested	(~~276,171~~108,631	)
Forfeited	(~~218,658~~212,360	)

Non-vested at ~~December 31, 2010~~September 30, 2009	~~1,903,367~~2,050,063


	Number of
Exercise Price	Warrants		Expiration	Number of Warrants		Expiration
$2.25		38,980	Fiscal 2014		38,980	Fiscal 2014
$2.30					383,078	Fiscal 2010
$2.50		6,060	Fiscal 2011		37,260	Fiscal 2011

Total		45,040			459,318


	Revenues				Operating (Loss) Profit
	For the Three Months Ended December 31,				For the Three Months Ended December 31,
(dollars in thousands)	2009		2010		2009			2010
Segments:
Energy Management	$	16,672	$	19,354	$	2,384		$	3,262
Engineered Systems		2,623		10,317		(199	)		976
Corporate and Other		—		—		(1,609	)		(1,583	)

	$	19,295	$	29,671	$	576		$	2,655


	Revenues				Operating (Loss) Profit
	For the Nine Months Ended December 31,				For the Nine Months Ended December 31,
(dollars in thousands)	2009		2010		2009			2010
Segments:
Energy Management	$	40,447	$	44,696	$	928		$	3,698
Engineered Systems		6,095		13,378		(511	)		135
Corporate and Other		—		—		(4,905	)		(4,977	)

	$	46,542	$	58,074	$	(4,488	)	$	(1,144	)


	Total Assets				Deferred Revenue
(dollars in thousands)	March 31, 2010		December 31, 2010		March 31, 2010			December 31, 2010
Segments:
Energy Management	$	55,771	$	70,003	$	390		$	1,341
Engineered Systems		3,962		12,199		134			776
Corporate and Other		43,888		33,864		—			—

	$	103,621	$	116,066	$	524		$	2,117


Fiscal 2011 remainder	$	735
Fiscal 2012		4,171
Fiscal 2013		4,055
Fiscal 2014		3,447
Beyond		4,239

Total expected future gross revenue from OTAs	$	16,647


			Less than 1						More than 5				Less than 1						More than 5
	Total		Year		1-3 Years		3-5 Years		Years		Total		Year		1-3 Years		3-5 Years		Years
Bank debt obligations	$	5,877	$	1,261	$	2,315	$	1,632	$	669	$	4,030	$	693	$	1,200	$	926	$	1,211
Capital lease obligations		2		2		—		—		—
Cash interest payments on debt		1,209		312		403		174		320		1,063		208		316		189		350
Operating lease obligations		9,217		1,699		2,301		1,670		3,547		3,660		938		1,914		601		207
Purchase order and cap-ex commitments (1)		13,460		9,643		3,817		—		—		11,637		10,462		1,175		—		—

Total	$	29,765	$	12,917	$	8,836	$	3,476	$	4,536	$	20,390	$	12,301	$	4,605	$	1,716	$	1,768


(1)		Reflects non-cancellable purchase order commitment in the amount of ~~$13.4~~$10.7 million for certain inventory items entered into in order to secure better pricing and ensure materials on hand and capital expenditure commitments in the amount of ~~$0.1~~$0.9 million for improvements to information technology systems ~~renewable energy products~~ and manufacturing equipment and tooling.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


					Total Number of
	Total				Shares Purchased as		Approximate Dollar Value
	Number of				Part of Publicly		of Shares that May Yet Be
	Shares		Average Price		Announced Plans		Purchased Under the
Period	Purchased		Paid per Share		or Programs(1)		Plans or Programs(1)

July 1 — July 31, 2009		46,667	$	3.75		46,667	$	335,000
August 1 — August 31, 2009		0	$	0		0	$	335,000
September 1 — September 30, 2009		23,962	$	3.13		23,962	$	260,000

		70,629				70,629


~~ITEM 4.~~		~~REMOVED AND RESERVED~~
(1)		On December 15, 2008, we announced that our board of directors had authorized the repurchase of up to an additional $10 million of our outstanding common stock. The action supplemented the $20 million share repurchase authorization announced on July 17, 2008. Unless terminated earlier by resolution of our board of directors, this repurchase program will expire when we have repurchased all shares authorized for repurchase thereunder.


	Cumulative From		Cumulative From
	December 1, 2001		December 1, 2001
	Through December 31, 2010		Through September 30, 2009
	(in thousands, unaudited)		(in thousands, unaudited)
HIF lighting systems sold(1)		1,973		1,572
Total units sold (including HIF lighting systems)		2,593		2,037
Customer kilowatt demand reduction(2)		607		477
Customer kilowatt hours saved(2)(3)		14,321,538		9,230,379
Customer electricity costs saved(4)	$	1,102,758	$	710,739
Indirect carbon dioxide emission reductions from customers’ energy savings (tons)(5)		9,519		6,135
Square footage retrofitted(6)		1,010,057		806,946


(1)		“HIF lighting systems” includes all HIF units sold under the brand name “Compact Modular” and its predecessor, “Illuminator.”


(2)		A substantial majority of our HIF lighting systems, which generally operate at approximately 224 watts per six-lamp fixture, are installed in replacement of HID fixtures, which generally operate at approximately 465 watts per fixture in commercial and industrial applications. We calculate that each six-lamp HIF lighting system we install in replacement of an HID fixture generally reduces electricity consumption by approximately 241 watts (the difference between 465 watts and 224 watts). In retrofit projects where we replace fixtures other than HID fixtures, or where we replace fixtures with products other than our HIF lighting systems (which other products generally consist of products with lamps similar to those used in our HIF systems, but with varying frames, ballasts or power packs), we generally achieve similar wattage reductions (based on an analysis of the operating wattages of each of our fixtures compared to the operating wattage of the fixtures they typically replace). We calculate the amount of kilowatt demand reduction by multiplying (i) 0.241 kilowatts per six-lamp equivalent unit we install by (ii) the number of units we have installed in the period presented, including products other than our HIF lighting systems (or a total of approximately ~~2.59~~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 ~~2009,~~2008, which is the most current full year for which this information is available, was ~~$0.0989~~$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 ~~2.59~~2.04 million total units sold, which contain a total of approximately ~~12.95~~10.2 million lamps. Each lamp illuminates approximately 75 square feet. The majority of our installed fixtures contain six lamps and typically illuminate approximately 450 square feet.


	~~ORION ENERGY SYSTEMS, INC.~~
	~~Registrant~~

ORION ENERGY SYSTEMS, INC. Registrant		By
By:	/s/ Scott R. Jensen
			Scott R. Jensen
			Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)

10.2
	~~10.1~~			Executive Employment and Severance Agreement, dated September 8, 2009, by and between Stuart L. Ralsky and Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, as amended (incorporated by reference to Appendix A to the definitive proxy statement of Orion Energy Systems, Inc. filed on Schedule 14A on September 10, 2010).⁺