(in thousands, except share and per share amounts)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2020			2019			2020			2019
Product revenue	$	31,929		$	25,867		$	61,890		$	93,778
Service revenue		12,322			8,382			19,453			31,171
Total revenue		44,251			34,249			81,343			124,949
Cost of product revenue		23,203			19,075			44,834			68,778
Cost of service revenue		10,042			6,900			15,605			24,823
Total cost of revenue		33,245			25,975			60,439			93,601
Gross profit		11,006			8,274			20,904			31,348
Operating expenses:
General and administrative		3,030			2,662			8,079			8,274
Sales and marketing		3,120			2,735			7,306			8,359
Research and development		391			439			1,230			1,240
Total operating expenses		6,541			5,836			16,615			17,873
Income from operations		4,465			2,438			4,289			13,475
Other income (expense):
Other income		12			2			56			22
Interest expense		(1	)		(38	)		(51	)		(261	)
Amortization of debt issue costs		(20	)		(61	)		(142	)		(182	)
Loss on debt extinguishment		(90	)		—			(90	)		—
Interest income		—			2			—			5
Total other expense		(99	)		(95	)		(227	)		(416	)
Income before income tax		4,366			2,343			4,062			13,059
Income tax expense		51			39			52			66
Net income	$	4,315		$	2,304		$	4,010		$	12,993
Basic net income per share attributable to common shareholders	$	0.14		$	0.08		$	0.13		$	0.43
Weighted-average common shares outstanding		30,735,722			30,243,865			30,586,196			30,053,330
Diluted net income per share	$	0.14		$	0.07		$	0.13		$	0.42
Weighted-average common shares and share equivalents outstanding		31,320,427			30,824,078			31,289,359			30,862,088

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Product revenue $ 15,993
$ 19,259
$ 41,883
$ 52,286
Service revenue 1,270
1,358
3,360
2,635
Total revenue 17,263
20,617
45,243
54,921
Cost of product revenue 11,181
13,577
30,587
36,748
Cost of service revenue 966
885
3,209
1,748
Total cost of revenue 12,147
14,462
33,796
38,496
Gross profit 5,116
6,155
11,447
16,425
Operating expenses:
General and administrative 2,878
3,541
11,370
11,040
Impairment of intangible assets —
—
710
—
Sales and marketing 2,981
3,147
9,241
9,167
Research and development 616
495
1,519
1,493
Total operating expenses 6,475
7,183
22,840
21,700
Loss from operations (1,359 ) (1,028 ) (11,393 ) (5,275 )
Other income (expense):
Other income —
—
—
190
Interest expense (102 ) (65 ) (308 ) (203 )
Interest income 5
7
12
31
Total other (expense) income (97 ) (58 ) (296 ) 18
Loss before income tax (1,456 ) (1,086 ) (11,689 ) (5,257 )
Income tax benefit (23 ) —
(23 ) (261 )
Net loss $ (1,433 ) $ (1,086 ) $ (11,666 ) $ (4,996 )
Basic net loss per share attributable to common shareholders $ (0.05 ) $ (0.04 ) $ (0.41 ) $ (0.18 )
Weighted-average common shares outstanding 28,909,847
28,258,742
28,734,394
28,106,209
Diluted net loss per share $ (0.05 ) $ (0.04 ) $ (0.41 ) $ (0.18 )
Weighted-average common shares and share equivalents outstanding 28,909,847
28,258,742
28,734,394
28,106,209

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

Condensed Consolidated Statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

	Shareholders’ Equity
	Common Stock
	Shares			Additional Paid-in Capital		Treasury Stock			Retained Deficit			Total Shareholders’ Equity
Balance, March 31, 2020		30,265,997		$	156,503	$	(36,163	)	$	(89,305	)	$	31,035
Exercise of stock options for cash		20,000			41		—			—			41
Shares issued under Employee Stock Purchase Plan		458			—		2			—			2
Stock-based compensation		342,780			208		—			—			208
Employee tax withholdings on stock-based compensation		(4,346	)		—		(18	)		—			(18	)
Net loss		—			—		—			(2,219	)		(2,219	)
Balance, June 30, 2020		30,624,889		$	156,752	$	(36,179	)	$	(91,524	)	$	29,049
Exercise of stock options for cash		9,000			28		—			—			28
Shares issued under Employee Stock Purchase Plan		151			—		1			—			1
Stock-based compensation		76,351			251		—			—			251
Employee tax withholdings on stock-based compensation		(581	)		—		(3	)		—			(3	)
Net income		—			—		—			1,914			1,914
Balance, September 30, 2020		30,709,810		$	157,031	$	(36,181	)	$	(89,610	)	$	31,240
Exercise of stock options for cash		38,000			79		—			—			79
Shares issued under Employee Stock Purchase Plan		178			—		2			—			2
Stock-based compensation		12,200			152		—			—			152
Employee tax withholdings on stock-based compensation		(235	)		—		(2	)		—			(2	)
Net income		—			—		—			4,315			4,315
Balance, December 31, 2020		30,759,953		$	157,262	$	(36,181	)	$	(85,295	)	$	35,786

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

SHAREHOLDERS’ EQUITY

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

	Shareholders’ Equity
	Common Stock
	Shares			Additional Paid-in Capital		Treasury Stock			Retained Deficit			Total Shareholders’ Equity
Balance, March 31, 2019		29,600,158		$	155,828	$	(36,091	)	$	(101,767	)	$	17,970
Exercise of stock options for cash		10,000			16		—			—			16
Shares issued under Employee Stock Purchase Plan		613			—		2			—			2
Stock-based compensation		535,344			171		—			—			171
Employee tax withholdings on stock-based compensation		(24,628	)		—		(64	)		—			(64	)
Net income		—			—		—			3,968			3,968
Balance, June 30, 2019		30,121,487		$	156,015	$	(36,153	)	$	(97,799	)	$	22,063
Shares issued under Employee Stock Purchase Plan		570			—		2			—			2
Stock-based compensation		111,848			159		—			—			159
Employee tax withholdings on stock-based compensation		(2,828	)		—		(13	)		—			(13	)
Net income		—			—		—			6,721			6,721
Balance, September 30, 2019		30,231,077		$	156,174	$	(36,164	)	$	(91,078	)	$	28,932
Shares issued under Employee Stock Purchase Plan		605			—		2			—			2
Stock-based compensation		22,046			185		—			—			185
Employee tax withholdings on stock-based compensation		(666	)		—		(2	)		—			(2	)
Net income		—			—		—			2,304			2,304
Balance, December 31, 2019		30,253,062		$	156,359	$	(36,164	)	$	(88,774	)	$	31,421

Nine Months Ended December 31,
2017 2016
Operating activities
Net loss $ (11,666 ) $ (4,996 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation 1,050
1,103
Amortization 486
721
Stock-based compensation 868
1,252
Impairment of intangible assets 710
—
Loss on sale of property and equipment —
1
Provision for inventory reserves 701
621
Provision for bad debts 21
118
Other 12
148
Changes in operating assets and liabilities:
Accounts receivable, current and long-term 492
(857 )
Inventories 4,120
(169 )
Deferred contract costs (179 ) (1,296 )
Prepaid expenses and other assets 1,383
3,294
Accounts payable 30
602
Accrued expenses and other (767 ) (661 )
Deferred revenue, current and long-term (342 ) 385
Net cash (used in) provided by operating activities (3,081 ) 266
Investing activities
Purchases of property and equipment (478 ) (376 )
Additions to patents and licenses (43 ) (252 )
Proceeds from sales of property, plant and equipment —
2,600
Net cash (used in) provided by investing activities (521 ) 1,972
Financing activities
Payment of long-term debt and capital leases (132 ) (814 )
Proceeds from revolving credit facility 51,926
63,705
Payment of revolving credit facility (54,933 ) (61,542 )
Payments to settle employee tax withholdings on stock-based compensation (9 ) (17 )
Net proceeds from employee equity exercises 6
6
Net cash (used in) provided by financing activities (3,142 ) 1,338
Net (decrease) increase in cash and cash equivalents (6,744 ) 3,576
Cash and cash equivalents at beginning of period 17,307
15,542
Cash and cash equivalents at end of period $ 10,563
$ 19,118

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

Condensed Consolidated Statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended December 31,
	2020			2019
Operating activities
Net income	$	4,010		$	12,993
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		889			910
Amortization of intangible assets		225			282
Stock-based compensation		611			515
Amortization of debt issue costs		142			182
Loss on debt extinguishment		90			—
Impairment of intangible assets		—			3
Loss on sale of property and equipment		6			—
Provision for inventory reserves		185			192
Other		9			28
Changes in operating assets and liabilities:
Accounts receivable, current and long-term		(13,208	)		(420	)
Revenue earned but not billed		(959	)		2,957
Inventories		(4,196	)		970
Prepaid expenses and other assets		339			44
Accounts payable		(304	)		(2,990	)
Accrued expenses and other		6,555			(1,296	)
Deferred revenue, current and long-term		(38	)		(95	)
Net cash (used in) provided by operating activities		(5,644	)		14,275
Investing activities
Purchases of property and equipment		(658	)		(582	)
Additions to patents and licenses		(43	)		(73	)
Net cash used in investing activities		(701	)		(655	)
Financing activities
Payment of long-term debt		(32	)		(68	)
Proceeds from revolving credit facility		8,000			63,200
Payments of revolving credit facility		(18,013	)		(71,572	)
Payments to settle employee tax withholdings on stock-based compensation		(22	)		(76	)
Deferred financing costs		(212	)		(91	)
Net proceeds from employee equity exercises		152			20
Net cash used in financing activities		(10,127	)		(8,587	)
Net (decrease) increase in cash and cash equivalents		(16,472	)		5,033
Cash and cash equivalents at beginning of period		28,751			8,729
Cash and cash equivalents at end of period	$	12,279		$	13,762
Supplemental disclosure of non-cash investing and financing activities:
Operating lease assets obtained in exchange for new operating lease liabilities	$	355		$	—

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 1 — DESCRIPTION OF BUSINESS

Organization

Orion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion ~~is a developer, manufacturer~~provides innovative light emitting diode ("LED") lighting systems and ~~seller~~turnkey project implementation including installation and commissioning of ~~lighting~~fixtures, controls and ~~energy management~~Internet of Things (“IoT”) systems, as well as ongoing system maintenance and program management. Orion’s products enable customers to ~~commercial~~reduce their carbon footprint and ~~industrial businesses, and federal and local governments, predominantly in North America.~~

digitize their business.

Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space in Jacksonville, ~~Florida; Chicago, Illinois;~~Florida.

NOTE 2 — IMPACT OF COVID-19

The COVID-19 pandemic has disrupted business, trade, commerce, and ~~Houston, Texas.~~financial and credit markets in the U.S. and globally. Orion’s business has been adversely impacted by measures taken by government entities and others to control the spread of the virus beginning in March 2020, the last month of its fiscal 2020 year, and continuing most significantly into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, Orion ~~also leases warehouse space~~experienced a rebound in business, with a full quarter of project installations for its largest customer, as well installations for a new large specialty retail customer, and no significant COVID-19 impacts. However, some customers continue to refrain from awarding new projects and potential future risks remain due to the COVID-19 pandemic.

As a deemed essential business, Orion provides products and services to ensure energy and lighting infrastructure and Orion therefore continues to operate throughout the pandemic. Orion has implemented a number of safety protocols, including limiting travel, restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures, and requiring face coverings.

As part of Orion’s response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020, Orion implemented a number of cost reduction and cash conservation measures, including reducing headcount. Orion recognized $0.4 million in restructuring expense during the fourth quarter of fiscal 2020. As of December 31, 2020, all of the restructuring costs had been paid.

While certain restrictions have begun to initially lessen in certain jurisdictions during fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees asked to work remotely if possible. Certain areas of the country have seen spikes of COVID-19 cases (including in Manitowoc, Wisconsin and ~~Augusta, Georgia.~~Jacksonville, Florida), which could result in renewed restrictions and lockdown orders. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of multiple projects have been extended. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on Orion’s business, liquidity, capital resources or financial results. However, the economic and regulatory impacts of COVID-19 will materially and adversely impact revenue and profitability in fiscal 2021. If there is prolonged adverse impact, Orion’s business, liquidity, capital resources, financial results, and the carrying values of Orion’s property, plant and equipment and intangible assets may be impacted negatively. Orion will continue to actively monitor the situation and may take further actions that alter business operations.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses. Orion is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was the period ended March 31, 2020. For the fiscal year ended March 31, 2020, and three and nine months ended December 31, 2020, the CARES Act did not have a material impact on Orion’s consolidated financial statements. See Note 14 – Income Taxes.

NOTE 23 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements of Orion have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results that may be expected for the fiscal year ending March 31, ~~2018~~2021 or other interim periods.

The ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet at March 31, ~~2017~~2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Orion’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~2020 filed with the ~~Securities and Exchange Commission~~SEC on June ~~13, 2017.~~

5, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence and allowance for doubtful accounts, accruals for warranty and loss contingencies, ~~impairments,~~ income taxes, impairment analyses, and certain equity transactions. Accordingly, actual results could differ from those estimates.

Concentration of Credit Risk and Other Risks and Uncertainties

Orion's cash is deposited with two financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk on these balances.

Orion purchases components necessary for its lighting products, including ~~ballasts,~~power supplies, lamps and LED components, from ~~multiple~~numerous suppliers. For the three months ended December 31, 2017, one supplier accounted for 13.9% of of total costs of revenue. For the nine months ended December 31, 2017, no supplier accounted for more than 10% of total cost of revenue For the three and nine months ended December 31, ~~2016,~~2020, no ~~supplier~~suppliers accounted for more than 10% of total cost of revenue.

For the three and nine months ended December 31, 2019, one supplier accounted for 24.0% and 12.5%, respectively, of total cost of revenue.

For the three months ended December 31, ~~2017, one customer~~2020, two customers accounted for ~~13.4%~~65.1% and 11.1% of total ~~revenue.~~revenue, respectively. For the nine months ended December 31, ~~2017,~~2020, one customer accounted for ~~11.1%~~55.7% of total revenue. For the three and nine months ended December 31, ~~2016, no~~2019, one customer accounted for ~~more than 10%~~72.3 % and 77.3%, respectively, of total revenue.

As of December 31, ~~2017, three~~2020, two customers accounted for ~~13.5%, 12.2%,~~59.3% and ~~10.1%, respectively,~~18.0% of accounts ~~receivable.~~receivable, respectively. As of March 31, ~~2017, one customer~~2020, two customers accounted for ~~11.6%~~37.3% and 13.0% of accounts ~~receivable.~~receivable, respectively.

Recent Accounting Pronouncements

Issued: Not Yet Adopted

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which provides clarification and additional guidance as to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU provides guidance as to the classification of a number of transactions including: contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The new standard will be effective for Orion in the first quarter of fiscal 2019 and will be applied through retrospective adjustment to all periods presented. Orion does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

~~In February~~June 2016, the FASB issued ASU ~~2016-02, “Leases (Subtopic 842)." This~~ No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires that lessees recognize right-of-use assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and disclose additional quantitative and qualitative information about leasing arrangements. Under this ASU, leases will be classified as either finance or operating, with classification affecting the patternan entity to assess impairment of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating leases, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will beits financial instruments based on ~~an assessment~~its estimate of ~~whether risks~~expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and ~~rewards, as well as substantive control, have been transferred through~~clarify the ~~lease contract. This~~implementation guidance. The provisions of ASU ~~also provides guidance on~~2016-13 and the ~~presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be~~related amendments are effective for Orion ~~on April 1, 2019. Early adoption~~for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of ~~the standard is permitted and a modified retrospective transition approach is required for leases existing at, or entered into after,~~ the beginning of the ~~earliest comparative~~first reporting period ~~presented~~ in which the ~~financial statements, with certain practical expedients available.~~guidance is effective. Orion ~~has not yet completed its review of the full provisions of this standard against its outstanding lease arrangements and~~ is in the process of quantifying the lease liability and related right of use asset which will be recorded to its consolidated balance sheets upon adoption of the standard. In addition, management continues to assesscurrently evaluating the impact of adoption of this standard on its consolidated statements of operations, cash flows, and the related footnote disclosures.

In ~~May 2014,~~December 2019, the FASB issued ASU ~~2014-09, "Revenue from Contracts~~No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general rules of Topic 740. The provisions of ASU 2019-12 are effective for Orion for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Orion is currently evaluating the impact of adoption on this standard on its consolidated statements of operations, cash flows, and the related footnote disclosures.

NOTE 4 — REVENUE

General Information

Orion generates revenues primarily by selling commercial LED lighting fixtures and components, including controls and integrated IoT capabilities, and by installing these fixtures in its customer’s facilities on a turnkey basis via a dedicated installation and support team. Orion recognizes revenue in accordance with ~~Customers." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue as~~the guidance in ASC 606 when control of the goods or services being provided (which Orion refers to as a performance obligation) is transferred to a customer at an amount that reflects the consideration itthat management expects to receive in exchange for those goods or services. ~~In addition, this ASU requires enhanced~~If there are multiple performance obligations in a contract, the contract’s total sales price is allocated to each individual performance obligation based on their relative standalone selling price.

Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and ~~expanded financial statement disclosures. Since~~components is classified as Product revenue in the ~~issuance~~Condensed Consolidated Statements of ~~this ASU,~~Operations.

Revenue from a customer contract which includes both the FASB has issued further updates to this ASU to provide additional guidance and clarification and to delay the original effective date. This ASU allows companies to elect either a full retrospective or modified retrospective approach to adoption. Orion will adopt this ASUsale of fixtures and the installation of such fixtures (which Orion refers to as a turnkey project) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices. Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue.

Orion also records revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. These PPAs are supply-side agreements for the generation of electricity. Orion’s last PPA expires in 2031. Revenue associated with the sale of energy generated by the solar facilities under these PPAs is within the scope of ASC 606. Orion also recognizes revenue upon the sale to third parties of tax credits received from operating the solar facilities and from amortizing a grant received from the federal government during the period starting when the power generating facilities were constructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.

When shipping and handling activities are performed after a customer obtains control of the product, Orion has elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. Any shipping and handling costs charged to customers are recorded in Product revenue. Shipping and handling costs are accrued and included in Cost of product revenue.

See Note 11 – Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for its products and services.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.

Contract Fulfillment Costs

Costs associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of product revenue at the time revenue is recorded. See Note 6 – Inventories, Net. Costs associated with installation sales are expensed as incurred.

Disaggregation of Revenue

Orion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue which is accounted for under other guidance. For the three and nine months ended December 31, 2020, Product revenue included $0.7 million and $2.1 million, respectively, derived from sales-type leases for light fixtures, no revenue and $0.1 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy,and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606.

For the three and nine months ended December 31, 2019, Product revenue included $0.2 million and $1.2 million, respectively, derived from sales-type leases for light fixtures, $0.1 million and $0.2 million, respectively, derived from the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $19 thousand and $0.1 million, respectively, derived from the amortization of federal grants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC 606. All remaining Product revenue, and all Service revenue, are derived from contracts with customers as defined in ASC 606.

The primary end-users of Orion’s lighting products and services are (a) commercial or industrial companies and (b) the federal government.

Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products either direct from Orion or through distributors or energy service companies ("ESCOs"). Revenues associated with commercial and industrial end-users are included within each of Orion’s segments, dependent on the sales channel.

The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select group of contractors who focus on the federal government. Revenues associated with government end-users are primarily included in the Orion Engineered Systems Division segment.

See Note 18 – Segments, for additional discussion concerning Orion’s reportable segments.

The following tables provide detail of Orion’s total revenues for the three and nine months ended December 31, 2020 and December 31, 2019 (dollars in thousands):

	Three Months Ended December 31, 2020						Nine Months Ended December 31, 2020
	Product		Services		Total		Product		Services		Total
Revenue from contracts with customers:
Lighting revenues, by end user
Federal government	$	177	$	323	$	500	$	312	$	349	$	661
Commercial and industrial		31,006		11,999		43,005		59,257		19,104		78,361
Total lighting		31,183		12,322		43,505		59,569		19,453		79,022
Solar energy related revenues		7		—		7		49		—		49
Total revenues from contracts with customers		31,190		12,322		43,512		59,618		19,453		79,071
Revenue accounted for under other guidance		739		—		739		2,272		—		2,272
Total revenue	$	31,929	$	12,322	$	44,251	$	61,890	$	19,453	$	81,343

	Three Months Ended December 31, 2019						Nine Months Ended December 31, 2019
	Product		Services		Total		Product		Services		Total
Revenue from contracts with customers:
Lighting revenues, by end user
Federal government	$	78	$	68	$	146	$	902	$	366	$	1,268
Commercial and industrial		25,467		8,314		33,781		91,411		30,805		122,216
Total lighting		25,545		8,382		33,927		92,313		31,171		123,484
Solar energy related revenues		10		—		10		50		—		50
Total revenues from contracts with customers		25,555		8,382		33,937		92,363		31,171		123,534
Revenue accounted for under other guidance		312		—		312		1,415		—		1,415
Total revenue	$	25,867	$	8,382	$	34,249	$	93,778	$	31,171	$	124,949

Cash Flow Considerations

Customer payments for material-only orders are due shortly after shipment.

Turnkey projects where the end-user is a commercial or industrial company typically span between one week to three months. Customer payment requirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they are delivered, other contracts specify that the customer will pay for the project in its entirety upon completion of the installation.

Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these sales often provide for monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.

Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three and nine months. The customer executes an agreement providing for monthly payments of the contract price, plus interest, typically over a five-year period. The total transaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects. The portion of the transaction associated with the installation is accounted for consistently with all other installation related ~~updates (“~~performance obligations. The portion of the transaction associated with the sale of the multiple individual light fixtures is accounted for as sales-type leases in accordance with the guidance for leases. Revenues associated with the sales-type leases are included in Product revenue and recorded for each fixture separately based on the customer’s monthly acknowledgment that specified fixtures have been installed and are operating as specified.

The payments associated with these transactions that are due during the twelve months subsequent to December 31, 2020 are included in Accounts receivable, net in Orion’s Condensed Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions are included in Other long-term assets in Orion’s Condensed Consolidated Balance Sheets.

The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable from the customer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution of the receivables purchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s Condensed Consolidated Balance Sheets until cash is received from the financial institution. The financial institution releases funds to Orion based on the customer’s monthly acknowledgment of the progress Orion has achieved in fulfilling its installation obligation. Orion provides the progress certifications to the financial institution one month in arrears.

The total amount received from the sales of these receivables during the three and nine months ended December 31, 2020, was $0 and $2.3 million, respectively. Orion’s losses on these sales were $0 and $9 thousand, respectively, for the three and nine months ended December 31, 2020 and are included in Interest expense in the Condensed Consolidated Statements of Operations.

The total amount received from the sales of these receivables during the three months ended three and nine months ended December 31, 2019 was $0.7 million and $4.4 million, respectively. Orion’s losses on these sales were $39 thousand and $0.1 million for the three and nine months ended December 31, 2019, respectively and are included in Interest expense in the Condensed Consolidated Statement of Operations.

Contract Balances

A receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to the customer. Payment terms on invoiced amounts are typically 30 days from the invoice date.

Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orion turnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly and reclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of December 31, 2020, and March 31, 2020, includes $0.3 million and $39 thousand, respectively, which was not derived from contracts with customers and therefore not classified as a contract asset as defined by ASC ~~606”) on their effective date, April 1, 2018.~~ 606.

Deferred revenue, current as of December 31, 2020, and March 31, 2020, includes $0.1 million and $31 thousand, respectively, of contract liabilities which represent consideration received from customers prior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.

Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursement for the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liability as defined by ASC 606.

The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of December 31, 2020 and March 31, 2020 (dollars in thousands):

	December 31, 2020		March 31, 2020
Accounts receivable, net	$	23,744	$	10,427
Contract assets	$	1,510	$	1,082
Contract liabilities	$	50	$	31

There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon billing. There were no significant changes to contract liabilities.

NOTE 5 — ACCOUNTS RECEIVABLE, NET

As of December 31, 2017, Orion has identified that the main types of contracts that require evaluation as to what, if any, changes will be necessary under ASC 606 as compared to legacy accounting guidance are (a) material only sales that are shipped to customers from Orion’s plant or directly from Orion’s vendors, (b) contracts that involve a combination of material2020, and ~~installation services, (c) contracts entered into under~~March 31, 2020, Orion's ~~legacy solar business, and (d) contracts that involve a combination of material and installation services where Orion also provides a financing arrangement to the customer.~~

Orion continues to review the provisions of ASC 606 against a sample of its customer contracts to determine the impact, if any, on the timing, measurement and presentation of revenue recognition and the cost of goods and services sold. The review considers, among other matters, the evaluation and identification of distinct performance obligations, measurement of Orion's progress toward satisfying identified performance obligations, and variable consideration in the form of customer rebates, payment discounts and product returns. The Company's assessment is preliminary and may change as it finalizes its review. Since Orion does not expect ASC 606 to impact the timing of its billings to customers or the receipt of customer payments, there could be fluctuations in the amount of deferred costs and liabilities reflected on Orion's future balance sheets as compared to historical presentations.

Under ASC 606, incremental contract costs, which for Orion includes sales commissions and costs paid to independent contractors for field audits, are required to be capitalized as contract assets and amortized over the period these costs are expected to be recovered. Although Orion incurs such costs, its contracts are typically completed within one year. As such, Orion's plans to elect the practical expedient provided in ASC 606 and expense incremental contract costs when incurred.

Orion is identifying the necessary changes in its ongoing process for the review of new customer contracts and the identification of key terms impacting revenue recognition. Orion is also evaluating the necessary changes to its systems, revenue related processes and controls as a result of the new standard, including the related footnote disclosures.

~~ASC 606 permits the use of either a full retrospective or modified retrospective transition method.~~Orion will adopt the requirements of the new standard effective April 1, 2018 using the modified retrospective transition method with the cumulative effect to the opening balance of retained earnings recognized as of the date of initial adoption.

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation: Scope of Modification Accounting” which provides guidance about which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting. The provisions of this standard are effective for Orion beginning on April 1, 2018. The adoption of this standard is not expected to have a material impact on Orion’s consolidated condensed financial statements.

~~Recently Adopted Standards~~

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” to simplify the presentation of deferred taxes. The amendments in this update require that deferred tax assets and liabilities be classified as non-current on the balance sheet. This ASU is effective for Orion's annual reporting period, and interim periods therein, as of April 1, 2017. The adoption of this standard had no impact on Orion’s condensed consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value for entities that measure inventory using first-in, first-out ("FIFO") or average cost. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Orion adopted this standard as of April 1, 2017. The adoption of this standard had no impact on Orion's condensed consolidated financial statements as the previous measurement and validation of the carrying value of its inventory incorporated market values consistent with the net realizable value measurements of the standard.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. Orion adopted this ASU as of April 1, 2017. As a result of adopting the income tax accounting provisions of this standard, Orion realized an increase in both its deferred tax assets related to stock-based compensation awards and the related valuation allowance. As Orion carries a full valuation allowance against its deferred tax assets, there was no net impact to its condensed consolidated balance sheets or statements of operations. In accordance with the provisions of this standard, Orion elected to prospectively adopt an accounting policy to recognize forfeitures as they occur in lieu of estimating forfeitures. The cashflow presentation provisions of the standard had no impact on Orion’s condensed consolidated financial statements. Finally, due to Orion's net loss, the modifications to the calculation of diluted earnings per share as a result of adopting this standard did not impact its diluted earnings per share.

~~NOTE 3 — ACCOUNTS RECEIVABLE~~

~~Orion's accounts~~Accounts receivable and ~~allowance~~Allowance for doubtful accounts balances were as follows (dollars in thousands):

	December 31, 2020			March 31, 2020
Accounts receivable, gross	$	23,772		$	10,455
Allowance for doubtful accounts		(28	)		(28	)
Accounts receivable, net	$	23,744		$	10,427

December 31, 2017 March 31, 2017
Accounts receivable, gross $ 8,827
$ 9,315
Allowance for doubtful accounts (164 ) (144 )
Accounts receivable, net $ 8,663
$ 9,171

NOTE 46 — INVENTORIES,

NET

As of December 31, ~~2017~~2020, and March 31, ~~2017,~~2020, Orion's ~~inventory~~Inventory balances were as follows (dollars in thousands):

	Cost		Excess and Obsolescence Reserve			Net
As of December 31, 2020
Raw materials and components	$	12,074	$	(1,132	)	$	10,942
Work in process		714		(435	)		279
Finished goods		7,907		(610	)		7,297
Total	$	20,695	$	(2,177	)	$	18,518

As of March 31, 2020
Raw materials and components	$	9,639	$	(1,244	)	$	8,395
Work in process		699		(305	)		394
Finished goods		6,598		(880	)		5,718
Total	$	16,936	$	(2,429	)	$	14,507

Cost Reserve Net
As of December 31, 2017
Raw materials and components $ 6,655
$ (1,406 ) $ 5,249
Work in process 1,316
(351 ) 965
Finished goods 4,385
(1,828 ) 2,557
Total $ 12,356
$ (3,585 ) $ 8,771

As of March 31, 2017
Raw materials and components $ 8,104
$ (1,807 ) $ 6,297
Work in process 1,918
(329 ) 1,589
Finished goods 7,044
(1,337 ) 5,707
Total $ 17,066
$ (3,473 ) $ 13,593

NOTE 57 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets ~~include~~consist primarily of prepaid insurance premiums, debt issue costs, and sales tax receivable.

NOTE 8 — PROPERTY AND EQUIPMENT, NET

As of December 31, 2020, and March 31, 2020, Property and equipment, net, included the following (dollars in thousands):

	December 31, 2020			March 31, 2020
Land and land improvements	$	433		$	433
Buildings and building improvements		9,474			9,470
Furniture, fixtures and office equipment		7,348			7,270
Leasehold improvements		340			324
Equipment leased to customers		4,997			4,997
Plant equipment		12,270			12,021
Construction in Progress		81			15
Gross property and equipment		34,943			34,530
Less: accumulated depreciation		(23,533	)		(22,713	)
Total property and equipment, net	$	11,410		$	11,817

December 31, 2017 March 31, 2017
Unbilled accounts receivable $ 1,034
$ 2,226
Other prepaid expenses 509
651
Total $ 1,543
$ 2,877

~~NOTE 6 — PROPERTY AND EQUIPMENT~~

~~Property and equipment were comprised of the following (dollars in thousands):~~

December 31, 2017 March 31, 2017
Land and land improvements $ 424
$ 424
Buildings and building improvements 9,245
9,245
Furniture, fixtures and office equipment 7,083
7,056
Leasehold improvements 324
324
Equipment leased to customers 4,997
4,997
Plant equipment 11,888
11,627
Construction in progress 196
61
34,157
33,734
Less: accumulated depreciation and amortization (20,944 ) (19,948 )
Property and equipment, net $ 13,213
$ 13,786

During the second quarter of fiscal 2018, as a result of lower than anticipated operating results in the first half of fiscal 2018, Orion revised its full year fiscal 2018 forecast. As such, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate its long-lived assets for impairment. Due to the central nature of its operations, Orion’s tangible and intangible definite-lived assets support its full operations, are utilized by all three of its reportable segments, and do not generate separately identifiable cash flows. As such, these assets together represent a single asset group. In reviewing the asset group for impairment, Orion elected to bypass the qualitative impairment assessment and went directly to performing the Step 1 recoverability test. Orion performed the Step 1 recoverability test for the asset group comparing its carrying value to the group’s expected future undiscounted cash flows. Orion concluded that the undiscounted cash flows of the definite lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment was recorded. No triggering event occurred in the quarter ended December 31, 2017, so no impairment review was conducted.

~~Equipment included above under capital leases was as follows (dollars in thousands):~~

December 31, 2017 March 31, 2017
Equipment $ 581
$ 581
Less: accumulated depreciation and amortization (308 ) (202 )
Equipment, net $ 273
$ 379

Orion recorded depreciation expense of ~~$0.4~~$0.3 million and ~~$1.1~~$0.9 million for the three and nine months ended December 31, ~~2017, respectively,~~2020 and ~~$0.3~~2019, respectively.

NOTE 9 — LEASES

From time to time, Orion leases assets from third parties. Orion also leases certain assets to third parties.

Orion accounts for leases in accordance with ASC 842. Under ASC 842, both finance and ~~$1.1~~operating lease ROU assets and lease liabilities for leases with initial terms in excess of 12 months are recognized at the commencement date based on the present value of lease payments over the lease term. Orion recognizes lease expense for leases with an initial term of 12 months or less, referred to as short term leases, on a straight-line basis over the lease term.

Assets Orion Leases from Other Parties

On January 31, 2020, Orion entered into the current lease for its approximately 266,000 square foot primary manufacturing and distribution facility in Manitowoc, WI. The lease has a 10-year term, with the option to terminate after six years. Orion is responsible for the costs of insurance and utilities for the facility. These costs are considered variable lease costs. The agreement is classified as an operating lease.

The prior lease agreement for this facility provided the lessor the right to terminate the lease agreement at any time with 12 months’ notice to Orion. As a result, the agreement was previously classified as a short-term lease.

In February 2014, Orion entered into a multi-year lease agreement for use of approximately 10,500 square feet of office space in a multi-use office building in Jacksonville Florida. The lease has since been extended, most recently during the first quarter of fiscal 2021, and presently terminates on June 30, 2023. The agreement is classified as an operating lease.

Orion has leased other assets from third parties, principally office and production equipment. The terms of our other leases vary from contract to contract.

A summary of Orion’s assets leased from third parties follows (dollars in thousands):

	Balance sheet classification	December 31, 2020		March 31, 2020
Assets
Operating lease assets	Other long-term assets	$	2,716	$	2,745
Liabilities
Current liabilities
Operating lease liabilities	Accrued expenses and other	$	637	$	691
Non-current liabilities
Operating lease liabilities	Other long-term liabilities		2,806		2,830
Total lease liabilities		$	3,443	$	3,521

Orion had operating lease costs of $0.2 million and $0.6 million for the three and nine months ended December 31, ~~2016, respectively.~~2020. Orion had operating lease costs of $0.1 million and $0.4 million for the three and nine months ended December 31, 2019.

The estimated maturity of lease liabilities for each of the next five years is shown below (dollars in thousands):

Maturity of Lease Liabilities	Operating Leases
Fiscal 2021 (period remaining)	$	203
Fiscal 2022		810
Fiscal 2023		820
Fiscal 2024		746
Fiscal 2025		735
Thereafter		628
Total lease payments	$	3,942
Less: Interest		(499	)
Present value of lease liabilities	$	3,443

Assets Orion Leases to Other Parties

One of Orion’s frequent customers purchases products and installation services under agreements that provide for monthly payments, at a fixed monthly amount, of the contract price, plus interest, typically over a five-year period. While Orion retains ownership of the light fixtures during the financing period, the transaction terms and the underlying economics associated with used lighting fixtures results in Orion essentially ceding ownership of the lighting fixtures to the customer after completion of the agreement. The portions of the transaction associated with the sale of the light fixtures is accounted for as a sales-type lease under ASC 842. The total transaction price in these contracts is allocated between the lease and non-lease components in the same manner as the total transaction price of other turnkey projects containing lighting fixtures and installation services.

Revenues, and production and acquisition costs, associated with sales-type leases are included in Product revenue and Costs of product revenues in the Condensed Consolidated Statement of Operations.

The following chart shows the amount of revenue and cost of sales arising from sales-type leases during the three and nine months ended December 31, 2020 and December 31, 2019 (dollars in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019
Product revenue	$	721	$	163	$	2,097	$	1,165
Cost of product revenue	$	662	$	142	$	1,913	$	1,044

The Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 includes an immaterial amount related to the net investment in sales-type leases as amounts due from the customer associated with lighting fixtures that were acknowledged to be installed and working correctly prior to period end were not transferred to the financing institution prior to the respective balance sheet dates.

Other Agreements where Orion is the Lessor

Orion has leased unused portions of its corporate headquarters to third parties. The length and payment terms of the leases vary from contract to contract and, in some cases, include options for the tenants to extend the lease terms. Annual lease payments are recorded as a reduction in administrative operating expenses and were not material in the three and nine months ended December 31, 2020 or December 31, 2019. Orion accounts for these transactions as operating leases.

NOTE 710 — OTHER INTANGIBLE ASSETS,

~~The~~ NET

As of December 31, 2020, and March 31, 2020, the components of, and changes in, the carrying amount of ~~other~~Other intangible assets, net, were as follows (dollars in thousands):

	December 31, 2020							March 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,805	$	(1,831	)	$	974	$	2,766	$	(1,700	)	$	1,066
Licenses		58		(58	)		—		58		(58	)		—
Trade name and trademarks (indefinite lived)		1,018		—			1,018		1,014		—			1,014
Customer relationships		3,600		(3,583	)		17		3,600		(3,545	)		55
Developed technology		900		(876	)		24		900		(819	)		81
Total	$	8,381	$	(6,348	)	$	2,033	$	8,338	$	(6,122	)	$	2,216

December 31, 2017 March 31, 2017
Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
Patents $ 2,702
$ (1,331 ) $ 1,371
$ 2,658
$ (1,211 ) $ 1,447
Licenses 58
(58 ) —
58
(58 ) —
Trade name and trademarks 1,005
—
1,005
1,715
—
1,715
Customer relationships 3,600
(3,286 ) 314
3,600
(3,054 ) 546
Developed technology 900
(546 ) 354
900
(426 ) 474
Non-competition agreements 100
(90 ) 10
100
(75 ) 25
Total $ 8,365
$ (5,311 ) $ 3,054
$ 9,031
$ (4,824 ) $ 4,207

During the second quarter of fiscal 2018, as a result of lower than anticipated operating results in the first half of fiscal 2018, Orion revised its full year fiscal 2018 forecast. As such, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate its long-lived assets for impairment. Orion performed a quantitative impairment review of its indefinite lived intangible assets related to the Harris trade name applying the royalty replacement method to determine the asset’s fair value as of September 30, 2017. Under the royalty replacement method, the fair value of the Harris tradename was determined based on a market participant’s view of the royalty that would be paid to license the right to use the tradename. This quantitative analysis incorporated several assumptions including forecasted future revenues and cash flows, estimated royalty rate, based on similar licensing transactions and market royalty rates, and discount rate, which incorporates assumptions such as weighted-average cost of capital and risk premium. As a result of this impairment test, the carrying value of the Harris trade name exceeded its estimated fair value and an impairment of $0.7 million was recorded to Impairment of intangible assets during the quarter ended September 30, 2017 to reduce the asset’s carrying value to its calculated fair value. No triggering event occurred in the quarter ended December 31, 2017, so no impairment review was conducted. This fair value determination was categorized as Level 3 in the fair value hierarchy.

Amortization expense on intangible assets was $0.1 million and $0.2 million for ~~both~~ the three and nine months ended December 31, ~~2017 and 2016.~~2020, respectively.

Amortization expense on intangible assets was ~~$0.5~~$0.1 million and ~~$0.7~~$0.3 million for the three and nine months ended December 31, ~~2017 and 2016,~~2019, respectively.

As of December 31, ~~2017,~~2020, the weighted average remaining useful life of intangible assets was ~~5.7~~3.8 years.

The estimated amortization expense for the remainder of fiscal ~~2018,~~2021, the next five fiscal years and beyond is shown below (dollars in thousands):

Fiscal 2021 (period remaining)	$	67
Fiscal 2022		202
Fiscal 2023		111
Fiscal 2024		107
Fiscal 2025		96
Fiscal 2026		87
Thereafter		345
Total	$	1,015

Fiscal 2018 (period remaining) $ 138
Fiscal 2019 449
Fiscal 2020 363
Fiscal 2021 289
Fiscal 2022 191
Fiscal 2023 166
Thereafter 453
Total $ 2,049

NOTE 811 — ACCRUED EXPENSES AND OTHER ~~LONG-TERM LIABILITIES~~

As of December 31, 2020, and March 31, 2020, Accrued expenses and other ~~include~~included the following (dollars in thousands):

	December 31, 2020		March 31, 2020
Compensation and benefits	$	2,191	$	2,594
Sales tax		888		513
Accrued project costs		7,500		1,173
Legal and professional fees		158		312
Warranty		734		708
Sales returns reserve		181		98
Credits due to customers		836		932
Other accruals		1,428		898
Total	$	13,916	$	7,228

December 31, 2017 March 31, 2017
Compensation and benefits $ 1,823
$ 2,431
Sales tax 202
213
Contract costs 515
223
Legal and professional fees 1,955
2,262
Warranty 347
449
Other accruals 313
410
Total $ 5,155
$ 5,988

~~Other long-term liabilities includes the following (dollars in thousands):~~

December 31, 2017 March 31, 2017
Warranty $ 270
$ 310
Medical benefits 126
—
Unrecognized tax benefits 113
113
Other —
19
Total $ 509
$ 442

Orion generally offers a limited warranty of one to ten years on its lighting products, ~~in addition to those~~including the pass through of standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps, power supplies, LED modules, chips and drivers, control devices, and ~~ballasts,~~other fixture related items, which are significant components in Orion's lighting products.

Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2020			2019			2020			2019
Beginning of period	$	885		$	803		$	1,069		$	657
Accruals		370			157			531			503
Warranty claims (net of vendor reimbursements)		(219	)		(51	)		(564	)		(251	)
End of period	$	1,036		$	909		$	1,036		$	909

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Beginning of period $ 739
$ 1,114
$ 759
$ 864
Provision to product cost of revenue (122 ) (190 ) (138 ) 61
Charges —
(2 ) (4 ) (3 )
End of period $ 617
$ 922
$ 617
$ 922

NOTE 912 — NET ~~LOSS~~INCOME PER COMMON SHARE

Basic and Diluted net ~~loss~~income per common share ~~is computed by dividing net loss~~was calculated based upon the following:

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2020		2019		2020		2019
Numerator:
Net income (in thousands)	$	4,315	$	2,304	$	4,010	$	12,993
Denominator:
Weighted-average common shares outstanding		30,735,722		30,243,865		30,586,196		30,053,330
Weighted-average common shares and common share equivalents outstanding		31,320,427		30,824,078		31,289,359		30,862,088
Net income per common share:
Basic	$	0.14	$	0.08	$	0.13	$	0.43
Diluted	$	0.14	$	0.07	$	0.13	$	0.42

Orion uses the treasury stock method to calculate the effect of outstanding dilutive equity incentive instruments, which requires Orion to compute total proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned stock-based compensation costs attributable to future services. Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on net income per common ~~shareholders by~~share during periods with net income, and accordingly, Orion excludes them from the ~~weighted-average number~~calculation. There were no anti-dilutive equity instruments excluded from the computation of diluted net income per common ~~shares outstanding~~share for the ~~period and does not consider common stock equivalents.~~

~~For the~~ three months and nine months ended December 31, ~~2017~~2020 respectively. Anti-dilutive equity instruments of approximately 203,734 and ~~2016, Orion was in a~~220,534 common shares were excluded from the computation of diluted net ~~loss position; therefore, the basic and diluted weighted average shares outstanding are equal because any increase to the basic shares would be anti-dilutive. Net loss~~income per common share ~~is calculated based upon the following:~~

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Numerator:
Net loss (in thousands) $ (1,433 ) $ (1,086 ) $ (11,666 ) $ (4,996 )
Denominator:
Weighted-average common shares outstanding 28,909,847
28,258,742
28,734,394
28,106,209
Weighted-average common shares and common share equivalents outstanding 28,909,847
28,258,742
28,734,394
28,106,209
Net loss per common share:
Basic $ (0.05 ) $ (0.04 ) $ (0.41 ) $ (0.18 )
Diluted $ (0.05 ) $ (0.04 ) $ (0.41 ) $ (0.18 )

The following table indicates the number of potentially dilutive securities excluded from the calculation of diluted net loss per common share because their inclusion would have been anti-dilutive. The number of shares are as of the end of each period:

December 31, 2017 December 31, 2016
Common stock options 709,667
1,561,953
Restricted shares 1,545,209
1,661,543
Total 2,254,876
3,223,496

~~NOTE 10 — RELATED PARTY TRANSACTIONS~~

~~During~~for the three months ended December 31, 2017, Orion did not have any related party transactions. During the nine months ended December 31, 2017, Orion incurred a de minimis expense for consulting services provided by a member of its Board of Directors. During the three and nine months ended December 31, 2016, Orion purchased goods and services from an entity in the amount of approximately twenty-one thousand and fifty-three thousand dollars, respectively, at which time a director of Orion served as a minority owner and as the president and chairman of the board of directors of the entity.

2019 respectively.

NOTE 1113 — LONG-TERM DEBT

Long-term debt consisted of the following (dollars in thousands):

	December 31, 2020			March 31, 2020
Revolving credit facility	$	—		$	10,013
Equipment debt obligations		53			85
Total long-term debt		53			10,098
Less current maturities		(14	)		(35	)
Long-term debt, less current maturities	$	39		$	10,063

December 31, 2017 March 31, 2017
Revolving credit facility $ 3,622
$ 6,629
Equipment lease obligations 204
321
Customer equipment finance notes payable 6
7
Other long-term debt —
14
Total long-term debt 3,832
6,971
Less current maturities (85 ) (152 )
Long-term debt, less current maturities $ 3,747
$ 6,819

Revolving Credit Agreement

On December 29, 2020, Orion ~~has an~~entered into a new Loan and Security Agreement with Bank of America, N.A., as lender (the “Credit Agreement”). The Credit Agreement replaced Orion’s prior $20.15 million secured revolving credit and security agreement dated as of October 26, 2018, as amended, ~~credit agreement ("~~by and among Orion and Western Alliance Bank, National Association, as lender (the “Prior Credit ~~Agreement"~~Agreement”) ~~that~~. The replacement of the Prior Credit Agreement with the Credit Agreement provides Orion with increased financing capacity and liquidity to fund its operations and implement its strategic plans.

The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit ~~Facility")~~Facility are subject to a borrowing base requirement based on eligible receivables, inventory and ~~inventory.~~cash. As of December 31, ~~2017, Orion's~~2020, the borrowing base ~~was approximately $3.8 million. The~~supports the full availability of the Credit ~~Facility has a maturity date of February 6, 2019, and includes a $2.0 million sublimit for the issuance of letters of credit.~~Facility. As of December 31, ~~2017, Orion had~~2020, no ~~outstanding letters~~amounts were borrowed under the Credit Facility.

The Credit Agreement is secured by a first lien security interest in substantially all of ~~credit.~~ Orion’s assets.

Borrowings ~~outstanding as of December 31, 2017, amounted to approximately $3.6 million and~~under the Credit Agreement are ~~included in non-current liabilities~~permitted in the ~~accompanying condensed consolidated balance sheet.~~form of LIBOR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to Orion’s availability under the Credit Agreement. Among other fees, Orion ~~estimates that as~~is required to pay an annual facility fee of ~~December 31, 2017, it was eligible~~$15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.

The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to ~~borrow an additional $0.2 million~~1.0 when excess availability under the Credit Facility ~~based upon current levels~~falls below the greater of ~~eligible inventory and accounts receivable.~~

~~Subject in each case to Orion's applicable borrowing base limitations, the Credit Agreement otherwise provides for a $15.0~~$3.0 million Credit Facility. This limit may increase to $20.0 million based on a borrowing base requirement, if Orion satisfies certain conditions. Orion did not meet the requirements to increase the borrowing limit to $20.0 million as of July 31, 2017, the most recent measurement date.

~~From and after any increase in the Credit Facility limit from $15.0 million to $20.0 million, the Credit Agreement requires that Orion maintain, as~~or 15% of the ~~end of each month, a~~committed facility. Currently, the required springing minimum fixed cost coverage ratio for the trailing twelve-month period of (i) earnings before interest, taxes, depreciation and amortization, subject to certain adjustments, to (ii) the sum of cash interest expense, certain principal payments on indebtedness and certain dividends, distributions and stock redemptions, equal to at least 1.10 to 1.00. is not required.

The Credit Agreement also contains ~~additional~~ customary events of default and other covenants, including certain restrictions on Orion’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, ~~guarantee obligations of third parties, make loans or advances, declare or~~ pay any dividend or distribution on Orion’s stock, redeem, retire or ~~repurchase~~purchase shares of Orion’s stock, make investments or pledge or ~~dispose~~transfer assets. If an event of ~~assets. Orion was in compliance with its covenants in~~default under the Credit Agreement asoccurs and is continuing, then Bank of ~~December 31, 2017.~~

~~Each subsidiary of Orion is a joint and several co-borrower or guarantor~~America, N.A. may cease making advances under the Credit Agreement and the Credit Agreement is secured by a security interest in substantially all of Orion’s and each subsidiary’s personal property (excluding various assets relating to customer Orion Throughput Agreements ("OTAs") and a mortgage on certain real property.

~~Borrowings~~declare any outstanding obligations under the Credit Agreement ~~bear interest at~~to be immediately due and payable. In addition, if Orion becomes the ~~daily three-month LIBOR plus 3.0% per annum, with a minimum interest charge for each year~~subject of voluntary or ~~portion of a year during the term of~~involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable.

Orion did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million ~~regardless~~on the write-off of ~~usage. As of December 31, 2017,~~unamortized debt issue costs related to the ~~interest rate was 4.69%. Orion must pay an unused line fee of 0.25% per annum~~Prior Credit Agreement. Also, due to the timing of the ~~daily average unused amount~~banking transition, Orion had $0.3 million of ~~the~~cash which was restricted for covering obligations on Orion’s outstanding credit card balances. The Prior Credit ~~Facility and a letter of credit fee at the rate of 3.0% per annum~~Agreement was scheduled to mature on ~~the undrawn amount of letters of credit outstanding from time to time under the Credit Facility.~~

~~Harris Seller's Note~~

On July 1, 2013, Orion issued an unsecured and subordinated promissory note in the principal amount of $3.1 million to partially fund the acquisition of Harris Manufacturing, Inc. and Harris LED, LLC (collectively, "Harris"). The note's interest rate was 4% per annum. Principal and interest were payable quarterly. The note matured in July 2016 and was paid in full upon maturity.

October 26, 2021.

Equipment ~~Lease~~Debt Obligations

In ~~March 2016 and~~ June 2015, Orion entered into lease agreements with a financing company in the principal amount of nineteen thousand dollars and $0.4 million, respectively, to fund certain equipment. The leases are secured by the related equipment. The leases bear interest at a rate of 5.9% and 3.6%, respectively, and mature in February 2018 and June 2020. Both leases contain a one dollar buyout option.

~~Customer Equipment Finance Notes Payable~~

~~In December 2014, Orion entered into a secured borrowing~~an agreement with a financing company in the principal amount of $0.4 million to fund ~~completed customer contracts under its OTA finance program that were previously funded under a different OTA credit agreement.~~the purchase of certain equipment. The ~~loan amount is~~debt was secured by the ~~OTA-related equipment and the expected future monthly payments under the supporting 25 individual OTA customer contracts.~~related equipment. The ~~borrowing agreement bears~~debt incurred interest at a rate of ~~8.36%~~5.94% per annum and ~~matures~~matured in ~~April 2018.~~

June 2020.

In ~~June 2011,~~February 2019, Orion entered into ~~a note agreement~~additional debt agreements with a ~~financial institution that provided Orion with $2.8 million~~financing company in the principal amount of $44 thousand and $30 thousand to fund ~~completed customer contracts under Orion’s OTA finance program.~~the purchase of certain equipment. The ~~note bore interest at 7.85%. The note matured in April 2016 and was paid in full upon maturity.~~

~~Other Long-Term Debt~~

In September 2010, Orion entered into a note agreement with the Wisconsin Department of Commerce that provided Orion with $0.3 million to fund Orion’s rooftop solar project at its Manitowoc facility. This note is included in the table above as other long-term debt. The note is collateralizeddebts are secured by the related ~~solar~~ equipment. The ~~note allowed for two years without interest accruing or principal payments due. Beginning in July 2012, the note bears~~debts bear interest at 2%a rate of 6.43% and ~~requires monthly payments of four thousand six hundred. The note matured~~8.77% per annum, respectively, and both debts mature in ~~June 2017 and was paid in full upon maturity.~~

January 2024.

NOTE 1214 — INCOME TAXES

~~The~~

Orion’s income tax provision ~~for the three months ended December 31, 2017~~ was determined by applying an estimated annual effective tax rate ~~of 1.6%~~based upon the facts and circumstances known to ~~loss~~book income (loss) before income ~~tax. The estimated~~tax, adjusting for discrete items. Orion’s actual effective tax rate is adjusted each interim period, as appropriate, for changes in facts and circumstances. For the three month period ended December 31, ~~2016 was 0.1%. The estimated effective~~2020 and 2019, Orion recorded income tax ~~rate was determined by applying statutory tax rates to pretax loss adjusted for certain permanent book to tax differences~~expense of $0.1 million and ~~tax credits.~~

~~The income tax provision for the nine months ended December 31, 2017 was determined by applying an estimated effective tax rate of 0.2% to loss before income tax. The estimated effective tax rate for~~$39 thousand, respectively, using this methodology. For the nine month period ended December 31, ~~2016 was (0.4)%. The estimated effective~~2020 and 2019, Orion recorded income tax ~~rate was determined by applying statutory tax rates to pretax loss adjusted for certain permanent book to tax differences and tax credits.~~

~~Orion is eligible for tax benefits associated with the excess~~expense of the tax deduction available for exercises of non-qualified stock options (NQSOs) over the amount recorded at grant. The amount of the benefit is based upon the ultimate deduction reflected in the applicable income tax return.

$0.1 million, respectively, using this methodology.

As of December 31, ~~2017,~~2020 and March 31, 2020, Orion had federal net operating loss carryforwards of approximately $80.6 million. Orion also had state net operating loss carryforwards of approximately $68.7 million. Orion also had federal tax credit carryforwards of approximately $1.4 million and state tax credits of $0.7 million. Orion's net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2020 and 2038. As of December 31, 2017, Orion had recorded a full valuation allowance ~~of $24.0 million equaling the net~~recorded against its deferred tax ~~asset due to the uncertainty of its realizable value in the future.~~assets. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. ~~In the event that~~ Orion ~~determines that~~intends to continue maintaining a full valuation allowance on the deferred tax assets ~~are able~~until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given current earnings and potential future earnings, Orion believes that there is a reasonable possibility that within the next 12 months sufficient positive evidence may become available to allow Orion to reach a conclusion that all or some portion of the valuation allowance will no longer be ~~realized, an adjustment to~~needed. Release of the ~~deferred tax asset~~valuation allowance would ~~increase income~~result in the ~~period such determination is made.~~

~~The Tax Cut and Jobs Act ("Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings~~recognition of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. At December 31, 2017, Orion had not completed its accounting for the tax effects of enactment of the Act; however, as described below, Orion has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.

~~Orion remeasured its~~ deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the 21% federal corporate tax rate. The provisional amount recorded related to the remeasurement of its deferred tax balance decreased deferred tax assets by $11.3 million. Thisand a decrease to ~~deferred tax assets was fully offset by a corresponding decrease to the valuation allowance. There is no impact on the current year~~ income tax expense for the ~~federal~~period the release is recorded. However, the timing and amount of the valuation allowance release are subject to change on the basis of future positive evidence.

The CARES Act includes significant business tax provisions that, among other things, temporarily eliminate the taxable income limit for certain net operating losses (NOLs), allow businesses to carry back tax year 2018-2020 NOLs to the five prior tax years, accelerate refunds of corporate alternative minimum tax ~~rate change due to Orion's current year taxable loss.~~

~~The Act also requires companies to pay a one-time transition tax on Orion's total post-1986 earnings~~credits, and ~~profits ("E&P")~~generally decrease the amount of ~~its foreign subsidiary that were previously tax deferred from US income taxes. Since Orion's foreign subsidiary has negative E&P, there is no transition tax to be reported in its~~disallowed business interest expense. Because of Orion’s loss carryforwards, Orion does not anticipate the income tax ~~expense.~~

provisions of the CARES Act to result in a material cash or financial statement impact during fiscal 2021.

Uncertain Tax Positions

As of December 31, ~~2017, the~~2020, Orion’s balance of gross unrecognized tax benefits was approximately ~~$0.1~~$0.3 million, ~~all~~$0.2 million of which would reduce Orion’s effective tax rate if recognized.

Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as ~~other~~Other long-term liabilities ~~(non-current)~~ to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in ~~income~~Income tax expense. Penalties and interest are ~~immaterial and are~~ included in the unrecognized tax benefits.

NOTE 1315 — COMMITMENTS AND CONTINGENCIES

~~Operating Leases~~

Orion leases office space and equipment under operating leases expiring at various dates through 2020. Rent expense under operating leases was $0.2 million and $0.3 million for the three months ended December 31, 2017 and 2016, respectively, and $0.7 million and $0.6 million for the nine months ended December 31, 2017 and 2016, respectively.

~~On April 28, 2017, Orion renewed the lease for its Jacksonville, Florida office space for an additional three-year term with annual rent expense of approximately $0.1 million.~~

On March 31, 2016, Orion entered into a purchase and sale agreement with a third party to sell and leaseback Orion's manufacturing and distribution facility for gross cash proceeds of $2.6 million. The transaction closed on June 30, 2016.

Litigation

Orion is subject to various claims and legal proceedings arising in the ordinary course of business. ~~As of the date of this report,~~ Orion ~~is unable to currently assess whether~~does not believe the final resolution of any of such claims or legal proceedings ~~may~~will have a material adverse effect on ~~our~~Orion’s future results of ~~operations. In addition to ordinary-course litigation, Orion is a party to the proceedings described below.~~

On March 27, 2014, Orion was named as a defendant in a civil lawsuit filed by Neal R. Verfuerth, a former chief executive officer who was terminated for cause in November 2012, in the United States District Court for the Eastern District of Wisconsin (Green Bay Division). The plaintiff alleged, among other things, that Orion breached certain agreements entered into with the plaintiff, including the plaintiff’s employment agreement, and violated certain laws. The complaint sought, among other relief, unspecified pecuniary and compensatory damages, fees and such other relief as the court may deem just and proper. On November 4, 2014, the court granted Orion's motion to dismiss six of the plaintiff's claims. On January 9, 2015, the plaintiff filed an amended complaint re-alleging claims that were dismissed by the court, including, among other things, a retaliation claim and certain claims with respect to prior management agreements and certain intellectual property rights. On January 22, 2015, Orion filed a motion to dismiss and a motion to strike certain of the claims made in the amended complaint. On May 18, 2015, the court dismissed the intellectual property claims re-alleged in the January 9, 2015 amended complaint. At the court's direction, the parties attempted to mediate the matter in May 2016, but were unsuccessful in resolving the matter.

On August 25, 2016, the Chief Judge of the United States District Court for the Eastern District of Wisconsin (Green Bay Division) dismissed all claims against Orion brought by the plaintiff, including his claims that Orion had allegedly breached the plaintiff’s employment agreement and had allegedly violated the plaintiff's whistleblower rights. On September 22, 2016, the plaintiff filed an appeal to the United States Court of Appeals challenging the judgment rendered on August 25, 2016. After the court-mandated mediation was unsuccessful, the plaintiff moved forward with his appeal focusing only on the District Court's dismissal of his whistleblower claims. The oral arguments for the appeal were held on September 27, 2017.

On January 11, 2018, a three judge panel of the United States Court of Appeals Seventh Circuit unanimously affirmed the dismissal of all of the plaintiff’s claims against Orion. It is currently uncertain whether the plaintiff intends to appeal the decision.

If the plaintiff chooses to appeal the decision, Orion intends to continue to defend against the claims vigorously. Orion believes it has substantial legal and factual defenses to the claims and allegations remaining in the case and that Orion will prevail in any further proceedings. Based upon the current status of the lawsuit, Orion does not believe that it is reasonably possible that the lawsuit will have a material adverse impact on its future continuing results of operations.

On November 10, 2017, a purported Orion shareholder, Stephen Narten, filed a civil lawsuit in the Circuit Court for Manitowoc County against those individuals who served on Orion’s Board of Directors during fiscal years 2015, 2016, and 2017 and certain current and former officers during the same period. The plaintiff, who purports to bring the suit derivatively on behalf of Orion, alleges that the director defendants breached their fiduciary duties in connection with granting certain stock-based incentive awards under Orion’s 2004 Stock and Incentive Awards Plan and that the directors and current and former officers breached their fiduciary duties by accepting those awards. On January 22, 2018, Orion moved to dismiss the lawsuit on the grounds that the complaint fails to state a claim upon which relief may be granted. Orion intends to defend against the claims vigorously. Orion believes that

it has substantial defenses to the claims in this proceeding. Based upon the current status of the lawsuit, Orion does not believe that it is reasonably possible that the lawsuit will have a material adverse impact on its future continuing results of operations.

operations or financial condition.

State Tax Assessment

In June 2016, Orion negotiated a settlement with the Wisconsin Department of Revenue with respect to an assessment regarding the proper classification of its products for tax purposes under Wisconsin law for $0.5 million.

During ~~the nine months ended December 31, 2017,~~fiscal 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period covering April 1, 2013 through March 31, 2017. Although the final resolution of ~~the Company’s~~Orion's sales and use tax audit is uncertain, ~~based on current information, in the opinion of the Company’s management,~~ the ultimate disposition of ~~these matters will~~this matter is not expected to have a material adverse effect on ~~the Company’s condensed consolidated balance sheet, statements~~Orion's future results of operations or ~~liquidity.~~

financial conditions.

NOTE 1416 — SHAREHOLDERS’ EQUITY

Shareholder Rights Plan

On January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amended the Rights Agreement dated as of January 7, 2009 and extended its terms by three years to January 7, 2022. Under the amendment, each common share purchase right (a “Right”), if exercisable, will initially represent the right to purchase from Orion, one share of Orion’s common stock, no par value per share, for a purchase price of $7.00 per share.

The Rights will not be exercisable (and will be transferable only with Orion’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 (“Acquiring Person”) has acquired beneficial ownership of 20% or more of Orion’s outstanding common stock (“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 Rights Agreement) will have the right to receive upon exercise that number of shares of Orion’s common stock having a market value of two times the 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, Orion 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 Rights Agreement) will thereafter have the right to receive upon exercise that number of shares of the acquiring company’s common stock which at the time of such transaction will have a market value of two times the then-current purchase price.

Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Orion. At any time prior to a person becoming an Acquiring Person, the Board of Directors of Orion may redeem the 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 Rights will expire on January 7, 2022.

Employee Stock Purchase Plan

In August 2010, Orion’s ~~board~~Board of ~~directors~~Directors approved a non-compensatory employee stock purchase plan, or ~~ESPP. Orion issued~~“ESPP”. In the ~~following shares from treasury during the nine~~three months ended December 31, ~~2017:~~

Shares Issued Under ESPP
Plan Closing Market
Price
Quarter Ended June 30, 2017 2,150
$1.28
Quarter Ended September 30, 2017 2,681
$1.12
Quarter Ended December 31, 2017 3,446
$0.88
Total issued in fiscal 2018 8,277
$0.88 - 1.28

~~In prior years,~~2020, Orion issued ~~loans to non-executive employees to purchase~~178 shares under the ESPP plan at a closing market price of its stock. The loan program has been discontinued and new loans are no longer issued. As of March 31, 2017, four thousand dollars of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account. During the nine months ended December 31, 2017, Orion entered into agreements with the counterparties to these loans. In exchange for the forgiveness of their outstanding loan balance, the employees returned their shares to Orion. As a result of these transactions, 1,230 shares were recorded within treasury stock and the loan balances were eliminated.$9.87.

	Shares Issued Under ESPP Plan		Closing Market Price
Quarter Ended June 30, 2020		458	3.46
Quarter Ended September 30, 2020		151	7.57
Quarter Ended December 31, 2020		178	9.87
Total issued in fiscal 2021		787	$ 3.46 - 9.87

NOTE 1517 — STOCK OPTIONS AND RESTRICTED SHARES

At ~~Orion's 2016 Annual Meeting~~Orion’s 2019 annual meeting of ~~Shareholders~~shareholders held on August ~~3, 2016, Orion's~~7, 2019, Orion’s shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, as amended and restated (the ~~"Plan"~~“Amended 2016 Plan”). The Amended 2016 Plan increased the number of shares of Orion’s common stock available for issuance under the Amended 2016 Plan from 1,750,000 shares to 3,500,000 shares (an increase of 1,750,000 shares); added a minimum vesting period for all awards granted under the Amended 2016 Plan (with limited exceptions); and added a specific prohibition on the payment of dividends and dividend equivalents on unvested awards.

The Amended 2016 Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Amended 2016 Plan may consist of stock options, stock appreciation rights, performance shares, performance units, common stock, restricted stock, restricted stock units, incentive awards or dividend equivalent units.

Prior to ~~shareholder approval of~~ the 2016 Omnibus Incentive Plan, ~~the Company~~Orion maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the ~~“Former~~“2004 Plan”). No new awards are being granted under the ~~Former~~2004 Plan; however, all awards granted under the ~~Former~~2004 Plan that ~~were~~are outstanding ~~as of August 3, 2016~~ will continue to be governed by the ~~Former~~2004 Plan.

~~Certain non-employee directors have elected to receive stock~~ Forfeited awards ~~in lieu of cash compensation pursuant to elections made~~originally issued under ~~Orion’s non-employee director compensation program.~~the 2004 Plan are canceled and are not available for subsequent issuance under the 2004 Plan or under the Amended 2016 Plan. The ~~plans~~Amended 2016 Plan and the 2004 Plan also permit accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.

Certain non-employee directors have from time to time elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program.

The following amounts of stock-based compensation were recorded (dollars in thousands):

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2020		2019		2020		2019
Cost of product revenue	$	1	$	1	$	3	$	2
Cost of service revenue		—		—		—		(1	)
General and administrative		143		172		581		482
Sales and marketing		7		1		24		1
Research and development		1		11		3		31
Total	$	152	$	185	$	611	$	515

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Cost of product revenue $ 1
$ 7
$ 11
$ 30
General and administrative 205
283
722
1,035
Sales and marketing 34
64
113
116
Research and development 10
30
22
71
Total $ 250
$ 384
$ 868
$ 1,252

During the first nine months of fiscal ~~2018,~~2021, Orion had the following activity related to its stock-based compensation:

	Restricted Shares			Stock Options
Awards outstanding at March 31, 2020		772,720			396,300
Awards granted		287,998			—
Awards vested or exercised		(431,331	)		(67,000	)
Awards forfeited		(140,598	)		(100,982	)
Awards outstanding at December 31, 2020		488,789			228,318
Per share price on grant date	$	4.27			—

Restricted Shares Stock Options
Balance at March 31, 2017 1,704,543
1,520,953
Awards granted 730,410
—
Awards vested (592,851 ) —
Awards forfeited (296,893 ) (811,286 )
Awards outstanding at December 31, 2017 1,545,209
709,667
Per share price on grant date $0.88 - $1.95
—

As of December 31, ~~2017,~~2020, the amount of deferred stock-based compensation expense to be recognized, over a remaining period of ~~2.0~~2.3 years, was approximately ~~$1.6~~$1.5 million.

NOTE 1618 — SEGMENTS

Orion has the following business segments: Orion ~~U.S. Markets Division ("USM"), Orion~~ Engineered Services Division ("OES") ~~and~~, Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). The accounting policies are the same for each business segment as they are on a consolidated basis.

~~Orion U.S. Markets Division ("USM")~~

The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of Orion’s agent distribution strategy. The migrated sales are included in Orion's ODS Division.

Orion Engineered Systems Division ~~("OES")~~

The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and ~~schools.~~

other customers.

Orion Distribution Services Division ~~("ODS")~~

The ODS segment ~~focuses on selling~~sells lighting products through manufacturer representative agencies and a network of ~~broadline~~ North American ~~distributors. This~~broadline electrical distributors and contractors.

Orion U.S. Markets Division

The USM segment ~~is expanding as a result of increased sales through distributors as Orion continues~~sells commercial lighting systems and energy management systems to ~~develop its agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM division.~~

contractors and ESCOs.

Corporate and Other

Corporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidated results (dollars in thousands).

	Revenues				Operating Income (Loss)
	For the Three Months Ended December 31,				For the Three Months Ended December 31,
	2020		2019		2020			2019
Segments:
Orion Engineered Systems	$	36,669	$	27,275	$	4,820		$	3,174
Orion Distribution Services		3,934		3,634		193			(206	)
Orion U.S. Markets		3,648		3,340		731			578
Corporate and Other		—		—		(1,279	)		(1,108	)
	$	44,251	$	34,249	$	4,465		$	2,438

Revenues Operating Income (Loss)
For the Three Months Ended December 31, For the Three Months Ended December 31,
2017 2016 2017 2016
Segments:
Orion U.S. Markets $ 2,168
$ 5,368
$ (520 ) $ 367
Orion Engineered Systems 7,316
8,288
185
(81 )
Orion Distribution Services 7,779
6,961
224
229
Corporate and Other —
—
(1,248 ) (1,543 )
$ 17,263
$ 20,617
$ (1,359 ) $ (1,028 )

	Revenues				Operating Income (Loss)
	For the Nine Months Ended December 31,				For the Nine Months Ended December 31,
	2020		2019		2020			2019
Segments:
Orion Engineered Systems	$	57,395	$	104,369	$	4,634		$	15,861
Orion Distribution Services		16,063		11,191		1,957			(691	)
Orion U.S. Markets		7,885		9,389		1,128			1,750
Corporate and Other		—		—		(3,430	)		(3,445	)
	$	81,343	$	124,949	$	4,289		$	13,475

Revenues Operating Income (Loss)
For the Nine Months Ended December 31, For the Nine Months Ended December 31,
2017 2016 2017 2016
Segments:
Orion U.S. Markets $ 6,388
$ 16,462
$ (2,970 ) $ 558
Orion Engineered Systems 18,857
22,062
(2,891 ) (878 )
Orion Distribution Services 19,998
16,397
(564 ) (132 )
Corporate and Other —
—
(4,968 ) (4,823 )
$ 45,243
$ 54,921
$ (11,393 ) $ (5,275 )

NOTE ~~17 — REORGANIZATION OF BUSINESS~~

During the nine months ended December 31, 2017, Orion implemented a reorganization and targeted cost savings plan. As a result, Orion entered into separation agreements with 20 employees. During the three months ended December 31, 2017, Orion recognized approximately nineteen thousand in savings due to outplacement services not used. For the nine months ended December 31, 2017, Orion recognized $2.0 million of restructuring expense consisting of severance, outplacement services, and continued medical benefits for terminated employees for a limited post-employment period. The restructuring expense for the three and nine months ended December 31, 2017 is reflected within Orion’s condensed statement of operations as follows (dollars in thousands):

Three Months Ended December 31, Nine Months Ended December 31,
2017 2017
Cost of product revenue $ (7 ) $ 33
General and administrative (7 ) 1,808
Sales and marketing (5 ) 178
Total $ (19 ) $ 2,019

~~Total restructuring expense by segment was recorded as follows (dollars in thousands):~~

Three Months Ended December 31, Nine Months Ended December 31,
2017 2017
Orion Distribution Systems $ (5 ) $ 84
Corporate and Other (14 ) 1,935
Total $ (19 ) $ 2,019

~~Orion recorded no restructuring expense to the Orion U.S. Markets or Orion Engineered Systems segments.~~

~~The following table displays a rollforward of the reorganization of business accruals established for employee separation costs from March 31, 2017 to December 31, 2017 (dollars in thousands):~~

March 31, 2017 Additions Amounts Used December 31, 2017
Employee separation costs $ —
$ 1,876
$ (1,635 ) $ 241
Post-employment medical benefits (1) —
143
(4 ) 139
Total $ —
$ 2,019
$ (1,639 ) $ 380

~~(1)~~

The severance agreement with one executive included a long-term post-employment medical benefit which will be paid over a period of approximately twelve years. Orion recorded a liability for the net present value of this obligation based on the current cost of premiums for this individual’s medical coverage increased by an estimated health care cost trend of 6.8% decreasing to 5% in nine years. This benefit is reflected in Orion’s condensed consolidated balance sheet within accrued expenses and other and other long-term liabilities.

~~The remaining accrual of $0.4 million for employee separation costs is expected to be paid within the next twelve months.~~

During the fourth quarter of fiscal 2018, Orion identified and implemented further expense reduction initiatives, including not renewing the lease for its Chicago office which was due to expire in May 2018, as well as related workforce reductions and other streamlining initiatives, that it expects will result in annualized cost savings of approximately $1.5 million. As these are fourth quarter events, restructuring expense related to these actions will be recognized in the fourth quarter of fiscal 2018.

~~NOTE 18~~19 — SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and noted no subsequent event requiring accrual or disclosure. See discussion related to litigation matters in Note 13 and new reorganization and cost cutting measures in Note 17 and the MD&A.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited ~~consolidated financial statements~~Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~.

2020.

Cautionary Note Regarding Forward-Looking Statements

Any statements in this Quarterly Report on Form 10-Q 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 Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017.~~2020. We urge you not to place undue reliance on these forward-looking statements, which speak only as of 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.

Overview

We ~~are a leading designer~~provide state-of-the-art light emitting diode ("LED") lighting, wireless Internet of Things (“IoT”) enabled control solutions, and ~~manufacturer of high-performance, energy-efficient LED and other lighting platforms.~~energy project management. We research, design, develop, ~~design,~~ manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior lighting systems and related services. Our products are targeted for applications in three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all of our sales occur within North America.

Our lighting products consist primarily of ~~light emitting diode ("LED")~~LED lighting ~~fixtures.~~fixtures, many of which include IoT enabled control systems. Our principal customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs") ~~and electrical contractors.~~. Currently, ~~substantially all~~most of our products are manufactured at our leased production facility ~~location~~located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties ~~as the LED market continues to evolve and~~ in order to provide versatility in our product development.

We ~~believe the market for lighting products has shifted to LED lighting systems, and that the customer base for~~have experienced recent success offering our legacy high intensity fluorescent ("HIF") technology products will continue to decline. Compared to our legacy lighting systems, we believe that LED lighting technology allows for better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by fluorescent or other legacy technologies. Our LED lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the LED market. Although we continue to sell some lighting products using our legacy HIF technology, we do not build to stock HIF products and instead build to committed customer orders as received. We plan to continue to primarily focus on developing and selling innovative LED products.

We do not have long-term contracts with our customers that provide us with recurring revenue from period to period and we typically generate substantially all of our revenue from sales of lighting systems and relatedcomprehensive project management services to ~~governmental, commercial~~national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and ~~industrial customers on a project-by-project basis.~~ audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration.

We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a ~~“retrofit.”~~"retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical ~~contractors, electrical~~ distributors and ESCOs to sell to their own customer bases.

Our ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively engage distribution and sales agents, develop recurring revenue streams, implement our cost reduction initiatives, and improve our marketing, new product development, project management, margin enhancement and operating expense management, as well as other factors. In addition, the

The gross ~~margins~~profits of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from ~~15%~~10% to 50%. As a result, a change in the total mix of our sales ~~toward~~among higher or lower margin products can cause our profitability to fluctuate from period to period.

Our fiscal year ends on March 31. We refer to our just completed fiscal year, which ended on March 31, 2020, as "fiscal 2020", and our prior fiscal year which ended on March 31, ~~2017~~2019 as "fiscal ~~2017", and our current fiscal year, which ends on March 31, 2018, as “fiscal 2018.”~~2019". Our fiscal first quarter of each fiscal year ends on June 30,

our fiscal second quarter ends on September 30, our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.

Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Orion has three reportable segments: Orion ~~U.S. Markets Division ("USM"), Orion~~ Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division (“USM”).

~~Market Shift to Light Emitting Diode Products~~

Impact of COVID-19 and Fiscal 2021 Outlook

The ~~rapid market shift~~COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the ~~lighting industry from legacy lighting products~~U.S. and globally. Our business has been adversely impacted by measures taken by government entities and others to ~~LED lighting products has caused us to adopt~~control the spread of the virus beginning in March 2020, the last few weeks of our prior fiscal year, and continuing most significantly into the second quarter of fiscal 2021. During the third quarter of fiscal 2021, we experienced a rebound in business, with a full quarter of project installations for our largest customer, as well installations for a new ~~strategies, approaches~~large specialty retail customer, and ~~processes in order to respond proactively to this industry transition. These changing underlying business fundamentals in this transition include:~~

~~Rapidly declining LED component costs and LED product end user customer pricing pressure.~~

~~Improving LED product performance and reducing customer return on investment payback periods resulting in increased customer preference for LED lighting products compared to legacy lighting products.~~

~~Increasing LED lighting product customer sales compared to decreasing HIF product sales.~~

~~A broader and more diverse customer base and market opportunities compared to our historical commercial and industrial facility customers.~~

Increased importance of highly innovative product designs and features and enhanced product research and development capabilities requiring rapid new product introduction and new methods of product and company differentiation.

~~Significantly reduced product technology life cycles; significantly shorter product inventory shelf lives and the related increased risk of rapidly occurring product technology obsolescence.~~

~~Increased reliance on international component sources.~~

~~Less internal product fabrication and production capabilities needed to support LED product assembly.~~

~~Different and broader types of components, fabrication and assembly processes needed to support LED product assembly compared to our legacy products.~~

~~Expanding customer bases and sales channels.~~

~~Significantly longer end user product warranty requirements for LED products compared to our legacy products.~~

~~As we~~no significant COVID-19 impacts. However, some customers continue to ~~focus our primary business on selling our LED product lines to respond~~refrain from awarding new projects and potential future risks remain due to the ~~rapidly changing market dynamics in~~COVID-19 pandemic.

As a deemed essential business, we provide products and services to ensure energy and lighting infrastructure and we therefore have continued to operate throughout the ~~lighting industry, we face intense competition from an increased number of other LED product companies,~~pandemic. We have implemented a number of ~~which have substantially greater resources~~safety protocols, including limiting travel and ~~more experience~~restricting access to our facilities along with monitoring processes, physical distancing, physical barriers, enhanced cleaning procedures and ~~history with LED lighting products than we do.~~

~~Management Restructuring and Focus on Profitability~~

~~On May 25, 2017, our Board of Directors restructured our management team.~~ requiring face coverings.

As part of ~~this restructuring,~~ our ~~Chief Executive Officer, John Scribante, left our Company and Mike Altschaefl, our current Board Chair, assumed~~response to the role of Chief Executive Officer. In addition, Scott Green, our Executive Vice President, became our new Chief Operating Officer, with ongoing primary responsibility for improving our revenue generation. Mike Potts and Marc Meade, our then current Executive Vice Presidents, remained in their positions and were assigned primary responsibility for substantially reducing our cost structure and for streamlining operations. Bill Hull remained in his position as Chief Financial Officer.

On June 30, 2017, Mike Potts decided to retire as our Chief Risk Officer and Executive Vice President effective as of August 30, 2017. Mr. Potts continues to serve as a member of our Board of Directors and will continue to provide consulting services to us.

Our market and product strategies have not changed. We have renewed our focus on execution, including a reduction in our cost structure. Our restructured management team has developed a plan to achieve breakeven earnings (excluding employee separation costs) before interest, taxes, depreciation, and amortization, or EBITDA, through the implementationimpacts of the ~~following cost reduction measures:~~

~~Constant monitoring and management of manufacturing overhead costs to ensure we continue to deliver strong gross margins amid an increasingly competitive market landscape;~~

~~Reducing staff positions through a targeted reduction in existing headcount;~~

~~Reductions in the total compensation of our executive management and board of directors;~~

~~Reductions in operating expenses, including better control of legal spending, elimination of our racing program and removal of various non-critical back office programs and initiatives.~~

We believe the above cost reduction plan, including the impact of fourth quarter fiscal 2018 actions, will result in annualized cost savings of approximately $6.0 million. These cost reductions, coupled with our renewed focus on sales channel execution, will help to drive revenue growth and accelerate our path to profitability.

During the first nine months of fiscal 2018, we executed on the majority of these plans by entering into separation agreements with 20 employees and recognized $2.0 million of expense for the nine months ended December 31, 2017 in employee separation related costs. During the three months ended December 31, 2017, we recognized approximately nineteen thousand in savings due to outplacement services not used. Our restructuring expense for the three and nine months ended December 31, 2017 is reflected within our condensed consolidated statements of operations as follows (dollars in thousands):

Three Months Ended December 31, Nine Months Ended December 31,
2017 2017
Cost of product revenue $ (7 ) $ 33
General and administrative (7 ) 1,808
Sales and marketing (5 ) 178
Total $ (19 ) $ 2,019

~~Total restructuring expense by segment was recorded as follows (dollars in thousands):~~

Three Months Ended December 31, Nine Months Ended December 31,
2017 2017
Orion Distribution Systems $ (5 ) $ 84
Corporate and Other (14 ) 1,935
Total $ (19 ) $ 2,019

~~We recorded no restructuring expense to the Orion U.S. Markets or Orion Engineered Systems segments.~~

Cash payments for employee separation costs in connection with the reorganization of business plans were $1.5 million for the nine months ended December 31, 2017. The remaining reorganization of business accruals as of December 31, 2017 were $0.5 million, of which $0.4 million relates to employee separation costs that are expected to be paid within one year. The remaining accrual of $0.1 million represents post-retirement medical benefits for one employee which will be paid over several years.

~~During~~COVID-19 pandemic, during the fourth quarter of fiscal ~~2018,~~2020 we ~~identified~~implemented a number of cost reduction and ~~implemented further expense reduction initiatives,~~cash conservation measures, including ~~not renewing~~reducing headcount. While certain restrictions have begun to initially lessen in certain jurisdictions during fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees asked to work remotely if possible. Certain areas of the ~~lease for~~country have seen spikes of COVID-19 cases (including in and around our ~~Chicago~~headquarters in Manitowoc, Wisconsin and our office in Jacksonville, Florida), which ~~was due to expire in May 2018, as well as related workforce reductions and other streamlining initiatives. We expect these actions will~~could result in ~~annualized cost savings~~renewed restrictions and lockdown orders. Some customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of ~~approximately $1.5 million, which is included~~several projects have been delayed, extended or terminated. These modifications to our business practices, including any future actions we take, may cause us to experience reductions in productivity and disruptions to our business routines. In addition, we are required to make substantial working capital expenditures and advance inventory purchases that we may not be able to recoup if the ~~total estimated annual cost savings~~agreements or a substantial volume of ~~$6.0 million discussed above. As these~~purchase orders under the agreements are ~~fourth quarter events, restructuring expense related to these actions will be recognized in the fourth quarter of fiscal 2018.~~

~~Impairment of Intangible Assets~~

~~During the quarter ended September 30, 2017, we reviewed our definite and indefinite lived assets for impairment~~delayed or terminated as a result of COVID-19. At this time, it is not possible to predict the overall impact the COVID-19 pandemic will have on our ~~lower than anticipated operating~~business, liquidity, capital resources or financial results, although the economic and ~~recent forecast revisions. As~~regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal 2021. If the COVID-19 pandemic becomes more pronounced in our markets or experiences a ~~result~~resurgence in markets recovering from the spread of COVID-19, or if another significant natural disaster or pandemic were to occur in the future, our operations in areas impacted by such events could experience further adverse financial impacts due to market changes and other resulting events and circumstances.

In addition to managing the adverse financial impact of the COVID-19 pandemic, our ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively execute on the following key strategic initiatives:

Executing and marketing our turnkey LED retrofit capabilities to large national account customers.

Continue our product innovation.

Leverage our smart lighting systems to support internet of things applications.

Develop our maintenance service offerings.

Support the success of our ESCO and distribution sales channels.

We also may identify and pursue strategic acquisition candidates that would help support these initiatives.

Managing Impacts of Tariffs and Trade Policies

The United States government has been implementing various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs imposed on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these ~~assessments, we determined that the carrying value~~tariffs and other trade policies, our results of our indefinite lived intangible asset related to the Harris trade name exceeded the asset’s fair value. As a result, we recorded an impairment charge of $0.7 million. No impairment was recorded in the three months ended December 31, 2017. A change in these assumptions or a change in circumstances could result in an impairment charge in a future period.

~~Fiscal 2018 Outlook~~

Despite lower than anticipated results for our three and the nine months ended December 31, 2017, we remain optimistic about our near-term and long-term financial performance. We remain confident in the value, performance, and return on investment of our lighting products.operations may be adversely affected. We believe that these mitigation activities will assist to offset added costs, and we currently believe that such tariffs will have a limited adverse financial effect on our results of operations. Any future policy changes that may be implemented could have a positive or negative consequence on our financial performance depending on how the changes would influence many factors, including business and consumer sentiment.

Major Developments in Fiscal 2021

During fiscal 2021, we executed multiple contract extensions for a major national account customer ~~purchases of~~with our state-of-the-art LED lighting systems and wireless IoT enabled control solutions at locations nationwide. This single national account customer represented 74.1% of our total revenue in fiscal 2020 and was the primary driver for our growth over the prior year period. During March 2020, this customer suspended our installations at a significant number of locations that were scheduled for installation during our fiscal 2020 fourth quarter and our fiscal 2021 first quarter. These installations resumed during the second quarter of fiscal 2021 and continued through the third quarter of fiscal 2021.

We also completed several initial retrofit projects at facilities for a major global logistics company. This customer is expected to be a significant source of revenue as we move forward, although these installations are likely to occur more slowly than we had originally anticipated. We expect to work with the customer on a project-by-project basis, versus larger-scale multi-site commitments, which limits visibility on the timing of future revenue contributions. We also have been selected to work with another major logistics company that is also expected to be a significant source of revenue in the future.

Additionally, we added a large specialty retail customer and are providing turnkey LED lighting retrofit solutions for a number of its stores. This project is expected to generate product and service revenue of at least $8 million during the second half fiscal 2021. We expect to retrofit additional stores for this customer in fiscal 2022.

As of December 31, 2020 and March 31, 2020, Orion had a full valuation allowance recorded against its deferred tax assets. We will continue to ~~increase~~evaluate the valuation allowance by considering changing facts and circumstances and may adjust our valuation allowance accordingly. Given our current earnings and potential future earnings, it is reasonably possible we will reverse a portion of our existing valuation allowance in the ~~near-term as expected improvements in LED performance and expected decreases in LED product costs make our LED products even more economically compelling to our customers.~~

Our near-term optimism is based upon: (i) our efforts to expand our distribution services customer base; (ii) our intentions to continue to selectively expand our sales force; (iii) our investments into new high-performance LED industrial lighting fixtures

future.

(iv) recent and planned new product introductions; and (v) our efforts to improve our gross margin as a result of focused inventory management, our cost containment initiatives and the development of higher-performance LED products.

~~Our long-term optimism is based upon the factors below which we believe will directly or indirectly drive customer spending on LED lighting systems or will improve the profitability of our operations:~~

~~The considerable size of the existing market opportunity for lighting retrofits, including the market opportunities in commercial office, manufacturing, healthcare, government and retail markets;~~

~~The continued development of our new higher margin products and product enhancements, including our new LED product offerings;~~

~~Our efforts to expand our channels of distribution;~~

~~Our cost reduction initiatives which have included significant changes to our manufacturing operations to increase our flexibility and lower our cost structure;~~

~~LED adoption continues to grow in all sectors;~~

~~Commercial and industrial economic sentiment is strengthening;~~

~~Utility incentives continue to be available and are increasing as a percent of project costs in many areas;~~

~~The passage of tax regulatory reform could encourage capital spending;~~

~~Capital spending is increasing;~~

~~Business profits are increasing; and~~

~~Consumer spending remains strong.~~

Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a “digital” or “connected ceiling”, or a framework or network that can support the installation and integration of other business solutions on our digital platform. This anticipated growth opportunity is also known as the “Industrial Internet of Things” or IoT, and is still early in its development; however, we have already participated in a few compelling applications that deliver cost savings and efficiency in areas outside of lighting.

Results of Operations - Three Months Ended December 31, ~~2017~~2020 versus Three Months Ended December 31, ~~2016~~

2019

The following table sets forth the line items of our ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations 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 (dollars in thousands, except percentages):

	Three Months Ended December 31,
	2020			2019						2020			2019
	Amount			Amount			% Change			% of Revenue			% of Revenue
Product revenue	$	31,929		$	25,867			23.4	%		72.2	%		75.5	%
Service revenue		12,322			8,382			47.0	%		27.8	%		24.5	%
Total revenue		44,251			34,249			29.2	%		100.0	%		100.0	%
Cost of product revenue		23,203			19,075			21.6	%		52.4	%		55.7	%
Cost of service revenue		10,042			6,900			45.5	%		22.7	%		20.1	%
Total cost of revenue		33,245			25,975			28.0	%		75.1	%		75.8	%
Gross profit		11,006			8,274			33.0	%		24.9	%		24.2	%
General and administrative expenses		3,030			2,662			13.8	%		6.8	%		7.8	%
Sales and marketing expenses		3,120			2,735			14.1	%		7.1	%		8.0	%
Research and development expenses		391			439			(10.9	)%		0.9	%		1.3	%
Income from operations		4,465			2,438			83.1	%		10.1	%		7.1	%
Other income		12			2			500.0	%		0.0	%		0.0	%
Interest expense		(1	)		(38	)		(97.4	)%		(0.0	)%		(0.1	)%
Amortization of debt issue costs		(20	)		(61	)		(67.2	)%		(0.0	)%		(0.2	)%
Loss on debt extinguishment		(90	)		—			100.0	%		(0.4	)%		—
Interest income		—			2			(100.0	)%		0.0	%		0.0	%
Income before income tax		4,366			2,343			86.3	%		9.9	%		6.8	%
Income tax expense		51			39			30.8	%		0.1	%		0.1	%
Net income	$	4,315		$	2,304			87.3	%		9.8	%		6.7	%

Three Months Ended December 31,
2017 2016 2017 2016
Amount Amount %
Change % of
Revenue % of
Revenue
Product revenue $ 15,993
$ 19,259
(17.0 )% 92.6 % 93.4 %
Service revenue 1,270
1,358
(6.5 )% 7.4 % 6.6 %
Total revenue 17,263
20,617
(16.3 )% 100.0 % 100.0 %
Cost of product revenue 11,181
13,577
(17.6 )% 64.8 % 65.8 %
Cost of service revenue 966
885
9.2 % 5.6 % 4.3 %
Total cost of revenue 12,147
14,462
(16.0 )% 70.4 % 70.1 %
Gross profit 5,116
6,155
(16.9 )% 29.6 % 29.9 %
General and administrative expenses 2,878
3,541
(18.7 )% 16.7 % 17.2 %
Sales and marketing expenses 2,981
3,147
(5.3 )% 17.3 % 15.3 %
Research and development expenses 616
495
24.4 % 3.5 % 2.4 %
Loss from operations (1,359 ) (1,028 ) (32.2 )% (7.9 )% (5.0 )%
Interest expense (102 ) (65 ) (56.9 )% (0.5 )% (0.3 )%
Interest income 5
7
(28.6 )% — % — %
Loss before income tax (1,456 ) (1,086 ) (34.1 )% (8.4 )% (5.3 )%
Income tax benefit (23 ) —
NM
(0.1 )% — %
Net loss $ (1,433 ) $ (1,086 ) (32.0 )% (8.3 )% (5.3 )%

*NM - Not Meaningful

Revenue. Product revenue ~~decreased 17.0%~~increased 23.4%, or ~~$3.3~~$6.1 million, for the third quarter of fiscal ~~2018~~2021 versus the third quarter of fiscal ~~2017.~~2020. Service revenue increased 47.0%, or $3.9 million, for the third quarter of fiscal 2021 versus the third quarter of fiscal 2020. The ~~decrease~~increase in product and service revenue was primarily ~~the result~~due to an increase of ~~the continued decline in fluorescent product sales, $2.1 million quarter over quarter,~~installations from our existing large national retail customer and a ~~decrease~~new large specialty retail customer. Sales to these two customers accounted for 65.1% and 11.1% of ~~$1.0 million~~total revenue, respectively, in ~~LED lighting revenue. LED lighting~~the third quarter of fiscal 2021.

Cost of Revenue and Gross Profit. Cost of product revenue ~~decreased by 6.4% from $15.5~~increased 21.6%, or $4.1 million, in the third quarter of fiscal ~~2017~~2021 versus the third quarter of fiscal 2020 due to ~~$14.5~~the increase in our sales. Cost of service revenue increased 45.5%, or $3.1 million, in the third quarter of fiscal ~~2018 primarily as a result of the timing of purchases by our direct customers. Service revenue decreased 6.5%, or $0.1 million, due to the timing of completion of installations in~~2021 versus the third quarter of fiscal ~~2018 when compared to the third quarter of fiscal 2017. Total revenue decreased by 16.3%, or $3.4 million, primarily~~2020 due to the ~~items discussed above.~~

~~Cost of Revenue and~~significant increase in sales. Gross ~~Margin.~~ Cost of product revenue decreased 17.6%, or $2.4 million in the third quarter of fiscal 2018 versus the comparable period in fiscal 2017 primarily due to the decline in sales, partially offset by lower overhead absorption compared to the prior year period. Cost of service revenueprofit percentage increased 9.2%, or $0.1 million, in the third quarter of fiscal 2018 versus the comparable period in fiscal 2017 primarily due to costs incurred on a large installation project and the timing of project completions. Gross margin declined slightly from ~~29.9%~~24.2% of revenue in the third quarter of fiscal ~~2017~~2020 to ~~29.6%~~24.9% in the third quarter of fiscal ~~2018,~~2021, due primarily ~~reflecting~~to an improvement in product margin on customer sales mix, partially offset by increased service revenues which have lower ~~overhead absorption on lower revenue in the recent period.~~margins.

Operating Expenses

General and Administrative.General and administrative expenses ~~decreased 18.7%~~increased 13.8%, or ~~$0.7~~$0.4 million, in the third quarter of fiscal ~~2018~~2021 compared to the third quarter of fiscal ~~2017,~~2020. This comparative increase was primarily due to ~~a decrease in wages as a result~~the timing of ~~headcount and salary reductions, legal expense, depreciation and amortization~~accruals for bonus expense and ~~stock compensation expense.~~an increase in professional services costs.

Sales and Marketing. Sales and marketing expenses ~~decreased 5.3%~~increased 14.1%, or ~~$0.2~~$0.4 million, in the third quarter of fiscal ~~2018~~2021 compared to the third quarter of fiscal ~~2017. The decrease quarter over quarter~~2020. This comparative increase was primarily due to ~~reduced consulting and professional fees related to special events and field~~an increase in commission expense on higher sales, ~~partially offset by increased expenses focusing on additional sales activities.~~as well as start-up costs for our new business line, Orion Maintenance Services.

Research and Development. Research and development expenses ~~increased by 24.4%~~decreased 10.9%, or ~~$0.1 million,~~$48 thousand, in the third quarter of fiscal ~~2018~~2021 compared to the third quarter of fiscal ~~2017~~2020. This comparative decrease was primarily due to ~~increased testing~~the timing of research and ~~consulting~~development costs.

Interest Expense. Interest expense in the third quarter of fiscal ~~2018 increased~~2021 decreased by ~~56.9%~~97.4%, or ~~thirty-seven~~$37 thousand, ~~dollars,~~ from the third quarter of fiscal ~~2017.~~2020. The ~~increase~~decrease in interest expense was primarily due to ~~increased third party financing costs.~~comparatively lower sales of receivables than in the prior year period.

Loss on Debt Extinguishment~~Interest Income.~~ ~~Interest income~~. Loss on debt extinguishment in the third quarter of fiscal ~~2018 decreased by 28.6%, or two thousand dollars, from~~2021 related to the ~~third quarter~~write-off of ~~fiscal 2017. Our interest income decreased as a result of the continued run-off of legacy customer financed projects.~~

~~Income Taxes.~~ Income tax benefit of twenty-three thousand in the third quarter of fiscal 2018 primarily reflected federal tax refunds, offset by state tax liabilities. We recorded no income tax expense in the third quarter of fiscal 2017 as a resultfees incurred with respect to our prior credit facility, which was recognized upon execution of our ~~operating losses. Our normal income tax expense is due primarily to minimum state tax liabilities.~~

~~Orion U.S. Markets Division~~

The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of our agent distribution strategy. The migrated sales are included in our ODS segment.

~~The following table summarizes our USM segment operating results (dollars in thousands):~~

For the Three Months Ended December 31,
2017 2016 %
Change
Revenues $ 2,168
$ 5,368
(59.6 )%
Operating (loss) income $ (520 ) $ 367
NM
Operating margin (24.0 )% 6.8 %

~~USM segment revenue decreased from the third quarter of fiscal 2017 by 59.6%, or $3.2 million. The decrease in revenue~~new credit facility during the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017 was due to a $1.4 million decline in sales to select large direct customers. The remainder of the decline was due primarily to the migration of sales to our ODS segment.

The USM segment realized an operating loss in the third quarter of fiscal 2018 of $0.5 million as compared to operating income of $0.4 million during the third quarter of fiscal 2017. The decline in the segment’s operating results was primarily due to the significant decline in sales period over period, including the migration of sales to ODS, resulting in lost operating expense leverage.

2021.

Orion Engineered Systems Division

~~The~~

Our OES segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. OES provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and ~~schools.~~

other customers.

The following table summarizes our OES segment operating results (dollars in thousands):

	Three Months Ended December 31,
	2020			2019			% Change
Revenues	$	36,669		$	27,275			34.4	%
Operating income	$	4,820		$	3,174			51.9	%
Operating margin		13.1	%		11.6	%

For the Three Months Ended December 31,
2017 2016 %
Change
Revenues $ 7,316
$ 8,288
(11.7 )%
Operating income (loss) $ 185
$ (81 ) NM
Operating margin 2.5 % (1.0 )%

OES segment revenue ~~decreased~~ in the third quarter of fiscal ~~2018 by 11.7%, or $1.0~~2021 increased $9.4 million ~~compared to~~from the third quarter of fiscal ~~2017~~2020 due primarily asto a ~~result of the timing of delivery of~~comparative increase in installations for our ~~turnkey projects~~existing large national retail customer and ~~reduced fluorescent purchases by~~installations for a new large specialty retail ~~customer.~~

~~OES segment~~customer which led to higher operating income in the third quarter of fiscal 2018 was $0.2 million, an increase of $0.3 million from the $0.1 million loss in the third quarter of fiscal 2017. The segment’s operating income was the result of improved delivery costs in the current quarter over the same period last year.

this segment.

Orion Distribution Services Division

~~The~~

Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of ~~broadline~~ North American ~~distributors. This segment is expanding as a result of increased sales through~~broadline and electrical distributors ~~as we continue to develop our agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM segment.~~

and contractors.

The following table summarizes our ODS segment operating results (dollars in thousands):

	Three Months Ended December 31,
	2020			2019			% Change
Revenues	$	3,934		$	3,634			8.3	%
Operating income (loss)	$	193		$	(206	)	NM*
Operating margin		4.9	%		(5.7	)%

*	NM - Not Meaningful

For the Three Months Ended December 31,
2017 2016 %
Change
Revenues $ 7,779
$ 6,961
11.8 %
Operating income 224
229
(2.2 )%
Operating margin 2.9 % 3.3 %

ODS segment revenue ~~increased~~ in the third quarter of fiscal ~~2018 by 11.8%~~2021 increased 8.3%, or ~~$0.8~~$0.3 million, compared to the third quarter of fiscal ~~2017, primarily~~2020, due to an increase in ~~select distributor sales.~~

~~While revenue increased period over period,~~volume through the ~~ODS segment’s~~channel which led to a corresponding increase in operating income in this segment based on operating leverage.

Orion U.S. Markets Division

Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.

The following table summarizes our USM segment operating results ~~remained relatively flat as~~(dollars in thousands):

	Three Months Ended December 31,
	2020			2019			% Change
Revenues	$	3,648		$	3,340			9.2	%
Operating income	$	731		$	578			26.5	%
Operating margin		20.0	%		17.3	%

USM segment revenue in the third quarter of fiscal 2021 increased 9.2%, or $0.3 million, compared to the third quarter of fiscal ~~2017~~2020, primarily due to animproved engagement in this channel, resulting in a corresponding increase in ~~selling expenses.~~

operating income.

Results of Operations - Nine ~~Months~~months Ended December 31, ~~2017~~2020 versus Nine ~~Months~~months Ended December 31, ~~2016~~

2019

	Nine Months Ended December 31,
	2020			2019						2020			2019
	Amount			Amount			% Change			% of Revenue			% of Revenue
Product revenue	$	61,890		$	93,778			(34.0	)%		76.1	%		75.1	%
Service revenue		19,453			31,171			(37.6	)%		23.9	%		24.9	%
Total revenue		81,343			124,949			(34.9	)%		100.0	%		100.0	%
Cost of product revenue		44,834			68,778			(34.8	)%		55.1	%		55.0	%
Cost of service revenue		15,605			24,823			(37.1	)%		19.2	%		19.9	%
Total cost of revenue		60,439			93,601			(35.4	)%		74.3	%		74.9	%
Gross profit		20,904			31,348			(33.3	)%		25.7	%		25.1	%
General and administrative expenses		8,079			8,274			(2.4	)%		9.9	%		6.6	%
Sales and marketing expenses		7,306			8,359			(12.6	)%		9.0	%		6.7	%
Research and development expenses		1,230			1,240			(0.8	)%		1.5	%		1.0	%
Income from operations		4,289			13,475			(68.2	)%		5.3	%		10.8	%
Other income		56			22			154.5	%		0.1	%		0.0	%
Interest expense		(51	)		(261	)		(80.5	)%		(0.1	)%		(0.2	)%
Amortization of debt issue costs		(142	)		(182	)		(22.0	)%		(0.2	)%		(0.1	)%
Loss on debt extinguishment		(90	)		—			100.0	%		(0.2	)%		—
Interest income		—			5			(100.0	)%		0.0	%		0.0	%
Income before income tax		4,062			13,059			(68.9	)%		5.0	%		10.5	%
Income tax expense		52			66			(21.2	)%		0.1	%		0.1	%
Net Income	$	4,010		$	12,993			(69.1	)%		4.9	%		10.4	%

Nine Months Ended December 31,
2017 2016 2017 2016
Amount Amount %
Change % of
Revenue % of
Revenue
Product revenue $ 41,883
$ 52,286
(19.9 )% 92.6 % 95.2 %
Service revenue 3,360
2,635
27.5 % 7.4 % 4.8 %
Total revenue 45,243
54,921
(17.6 )% 100.0 % 100.0 %
Cost of product revenue 30,587
36,748
(16.8 )% 67.6 % 66.9 %
Cost of service revenue 3,209
1,748
83.6 % 7.1 % 3.2 %
Total cost of revenue 33,796
38,496
(12.2 )% 74.7 % 70.1 %
Gross profit 11,447
16,425
(30.3 )% 25.3 % 29.9 %
General and administrative expenses 11,370
11,040
3.0 % 25.1 % 20.1 %
Impairment of intangible assets 710
—
NM
1.6 % — %
Sales and marketing expenses 9,241
9,167
0.8 % 20.4 % 16.7 %
Research and development expenses 1,519
1,493
1.7 % 3.4 % 2.7 %
Loss from operations (11,393 ) (5,275 ) (116.0 )% (25.2 )% (9.6 )%
Other income —
190
NM
— % 0.3 %
Interest expense (308 ) (203 ) (51.7 )% (0.7 )% (0.4 )%
Interest income 12
31
(61.3 )% — % 0.1 %
Loss before income tax (11,689 ) (5,257 ) (122.4 )% (25.9 )% (9.6 )%
Income tax (benefit) expense (23 ) (261 ) NM
(0.1 )% (0.5 )%
Net loss $ (11,666 ) $ (4,996 ) (133.5 )% (25.8 )% (9.1 )%

*NM - Not Meaningful

Revenue. Product revenue decreased ~~19.9%~~34.0%, or ~~$10.4~~$31.9 million, for the first nine months of fiscal ~~2018~~2021 versus the first nine months of fiscal 2017. The decrease in product revenue was primarily a result of the continued decline in fluorescent product sales, $6.4 million year over year, and a decrease of $3.6 million in LED lighting revenue. LED lighting2020. Service revenue decreased ~~8.7% from $41.2~~37.6%, or $11.7 million, infor the first nine months of fiscal ~~2017 to $37.6 million in~~2021 versus the first nine months of fiscal ~~2018~~2020. The decrease in product and service revenue was primarily due to multiple projects put on hold during the first half of fiscal 2021 as a result of COVID-19, including the ~~timing of purchases by our direct customers. Service revenue increased 27.5%, or $0.7 million, primarily due to the timing of installation~~ projects ~~in the first nine months of fiscal 2018 when compared to the first nine months of fiscal 2017. Total revenue decreased by 17.6%, or $9.7 million, primarily due to the items discussed above.~~

~~Cost of Revenue and Gross Margin.~~ Cost of product revenue decreased 16.8%, or $6.2 million, in the first nine months of fiscal 2018 versus the comparable period in fiscal 2017 primarily due to the decline in sales and the resulting lower overhead absorption compared to the prior year period. Cost of service revenue increased 83.6%, or $1.5 million, in the first nine months of fiscal 2018 versus the comparable period in fiscal 2017 primarily due to the timing of completion and costs onfor one large ~~projects. Gross margin decreased from 29.9%~~national account customer which represented 77.3% of revenue in the first nine months of fiscal ~~2017 to 25.3%~~2020, and 55.7% of revenue in the first nine months of fiscal ~~2018. Our~~2021. The project installations for this large national account customer resumed during the second quarter of fiscal 2021.

Cost of Revenue and Gross Profit. Cost of product ~~gross margin~~revenue decreased ~~as a result of under-absorption within our manufacturing facility and an increase in sales of products sourced from third party manufacturers.~~

~~Operating Expenses~~

~~General and Administrative.~~ ~~General and administrative expenses increased 3.0%~~55.1%, or ~~$0.3~~$23.9 million, in the first nine months of fiscal ~~2018 compared to~~2021 versus the first nine months of ~~2017, primarily~~fiscal 2020 due to ~~$1.8 million~~the significant decrease in reorganization costs, offset by decreases in wages due to salary and headcount reductions, legal, depreciation and amortization and stock compensation expenses. Excluding the employee separation costs, general and administrative expensesour sales. Cost of service revenue decreased ~~$1.7 million, or 15.1%.~~

~~Impairment of Intangible Assets.~~ During the nine months ended December 31, 2017, we performed a review of our definite and indefinite-lived tangible and intangible assets for impairment. In conjunction with this review, we determined that the carrying value of our Harris trade name intangible asset exceeded its fair value. As a result, we recorded an impairment charge of $0.7 million during the three months ended September 30, 2017.

~~Sales and Marketing.~~ ~~Our sales and marketing expenses increased 0.8%~~37.1%, or ~~$0.1~~$9.2 million, in the first nine months of fiscal ~~2018~~2021 versus the first nine months of fiscal 2020 due to the decrease in sales. Gross profit percentage increased from 25.1% of revenue in the first nine months of fiscal 2020 to 25.7% in fiscal 2021, due primarily to cost management and a change in customer sales mix.

Operating Expenses

General and Administrative. General and administrative expenses decreased 2.4%, or $0.2 million, in the first nine months of fiscal 2021 compared to the first nine months of fiscal ~~2017. The increase was~~2020, primarily due to ~~employee separation~~lower employment and travel costs ~~of $0.2 million~~in response to the COVID-19 pandemic.

Sales and ~~increased commissions related to our agency channel, offset by reduced consulting~~Marketing. Sales and ~~professional fees related to special events and field sales, partially offset by increased~~marketing expenses ~~focusing on additional sales activities.~~

~~Research and Development.~~ ~~Research and development expenses increased by 1.7%~~decreased 12.6%, or ~~twenty-six thousand dollars~~$1.1 million, in the first nine months of fiscal ~~2018~~2021 compared to the first nine months of fiscal ~~2017~~2020. This comparative decrease was primarily due to ~~an increase~~a decrease in ~~wages,~~commission expense on lower sales and lower travel costs in response to the COVID-19 pandemic, partially offset by ~~decreased testing~~start-up costs for our new business line, Orion Maintenance Services.

Research and ~~supply costs.~~

~~Other income.~~Development. ~~Other income~~Research and development expenses in the first nine months of fiscal ~~2017 represented product royalties received from licensing agreements for our patents.~~2021 remained relatively flat compared to the first nine months of fiscal 2020.

Interest Expense. Interest expense in the first nine months of fiscal ~~2018 increased by 51.7%, or $0.1 million, from the first nine months of fiscal 2017. The increase in interest expense was due to increased third party financing costs.~~

~~Interest Income.~~ ~~Interest income in the first nine months of fiscal 2018~~2021 decreased by ~~61.3%~~80.5%, or ~~nineteen thousand dollars, from the first nine months of fiscal 2017. Our interest income decreased as a result of the continued run-off legacy customer financed projects.~~

~~Income Taxes.~~ ~~Income tax benefit in the first nine months of 2018 decreased~~ $0.2 million, from the first nine months of fiscal ~~2017~~2020. The decrease in interest expense was primarily due to lower borrowing on our revolving credit facility and lower sales of receivables in the ~~release~~first nine months of ~~a valuation reserve in~~ fiscal ~~2017. Our income tax expense is due primarily to minimum state tax liabilities.~~

~~Orion U.S. Markets Division~~

~~The USM segment sells commercial lighting systems and energy management systems~~2021 compared to the ~~wholesale contractor markets. USM customers include ESCOs and electrical contractors. A significant portion~~first nine months of fiscal 2020.

Loss on debt extinguishment. Loss on debt extinguishment in the ~~historic sales~~first nine months of ~~this division have migrated~~fiscal 2021 related to ~~distribution channel sales~~the write-off of fees incurred with respect to our prior credit facility, upon execution of our new credit facility.

Orion Engineered Systems Division

The following table summarizes our OES segment operating results (dollars in thousands):

	Nine Months Ended December 31,
	2020			2019			% Change
Revenues	$	57,395		$	104,369			(45.0	)%
Operating income	$	4,634		$	15,861			(70.8	)%
Operating margin		8.1	%		15.2	%

OES segment revenue in the first nine months of fiscal 2021 decreased $47.0 million from the first nine months of fiscal 2020 due to multiple projects put on hold as a result of COVID-19, including the ~~implementation~~projects for one large national account customer that represented 77.3% of ~~our agent distribution strategy.~~total revenue in the first nine months fiscal 2020, and 55.7% of revenue in the first nine months of fiscal 2021. The ~~migrated~~project installations for this customer resumed during the second quarter of fiscal 2021. This sales ~~are included~~decrease led to a corresponding decrease in operating income in this segment.

Orion Distribution Services Division

The following table summarizes our ODS ~~segment.~~segment operating results (dollars in thousands):

	Nine Months Ended December 31,
	2020			2019			% Change
Revenues	$	16,063		$	11,191			43.5	%
Operating income (loss)		1,957			(691	)	NM*
Operating margin		12.2	%		(6.2	)%

*	NM - Not Meaningful

ODS segment revenue in the first nine months of fiscal 2021 increased 43.5%, or $4.9 million, compared to the first nine months of fiscal 2020, primarily due to sales to one customer who represented 6.8% of first nine months fiscal 2021 total revenue. This sales increase led to a corresponding increase in operating income in this segment based on operating leverage.

Orion U.S. Markets Division

The following table summarizes our USM segment operating results (dollars in thousands):

	Nine Months Ended December 31,
	2020			2019			% Change
Revenues	$	7,885		$	9,389			(16.0	)%
Operating income	$	1,128		$	1,750			(35.5	)%
Operating margin		14.3	%		18.6	%

For the Nine Months Ended December 31,
2017 2016 %
Change
Revenues $ 6,388
$ 16,462
(61.2 )%
Operating (loss) income $ (2,970 ) $ 558
NM
Operating margin (46.5 )% 3.4 %

USM segment revenue decreased from the first nine months of fiscal 2017 by 61.2%, or $10.1 million. The decrease in revenue during the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017 included the continued transition to our distribution sales model through the migration of sales to our ODS segment. Previously direct sales that are now sold through independent manufacturer representative agents are reflected within our ODS segment. The decrease also reflects a $2.4 million decline in sales to select large direct customers.

~~The USM segment’s operating results decreased $3.5 million~~ in the first nine months of fiscal 2018 as compared to the first nine months of fiscal 2017. The segment's operating loss was the result of the significant decline in sales due to the migration of customers to the distribution sales channel resulting in lost operating expense leverage and an intangible asset impairment in the second quarter of fiscal 2018 of $0.2 million.

~~Orion Engineered Systems Division~~

The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial lighting and energy management systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.

~~The following table summarizes our OES segment operating results (dollars in thousands):~~

For the Nine Months Ended December 31,
2017 2016 %
Change
Revenues $ 18,857
$ 22,062
(14.5 )%
Operating income (loss) $ (2,891 ) $ (878 ) (229.3 )%
Operating margin (15.3 )% (4.0 )%

~~OES revenue~~2021 decreased ~~in the nine months of fiscal 2018 by 14.5%~~16.0%, or ~~$3.2 million, compared to the first nine months of fiscal 2017 primarily as a result of the timing of delivery of our turnkey projects and reduced florescent purchases by a large retail customer.~~

~~OES segment operating loss in the first nine months of fiscal 2018 increased by $2.0~~$1.5 million, from the first nine months of fiscal ~~2017. The segment's operating loss was the result of the decline in sales resulting in lost operating leverage and an intangible asset impairment in the second quarter of fiscal 2018 of $0.5 million .~~

~~Orion Distribution Services Division~~

The ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North American distributors. This segment is expanding as a result of increased sales through distributors as Orion continues to develop its agent distribution strategy. This expansion includes the migration of customers from direct sales previously included in the USM segment.

~~The following table summarizes our ODS segment operating results (dollars in thousands):~~

For the Nine Months Ended December 31,
2017 2016 %
Change
Revenues $ 19,998
$ 16,397
22.0 %
Operating loss (564 ) (132 ) NM
Operating margin (2.8 )% (0.8 )%

~~ODS segment revenue increased in the first nine months of fiscal 2018 from the first nine months of fiscal 2017 by $3.6 million. The increase in revenue was~~2020, primarily due to ~~our transition to~~the impact of COVID-19, and resulted in a distribution channel sales model migrating direct sales through our manufacturer representative agents. In addition, ODS revenue grew as a result of our expanding manufacturer representative agencies and the continued ramp of sales through these agencies. The total manufacturer representative agencies increased from 31 to approximately 50 agencies from the third quarter of fiscal 2017 to the third quarter of fiscal 2018.

~~ODS~~corresponding decrease in operating income in this segment based on operating ~~loss increased by $0.4 million in the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017, primarily due to an increase in selling expenses.~~

leverage.

Liquidity and Capital Resources

Overview

We had approximately ~~$10.6~~$12.3 million in cash and cash equivalents as of December 31, ~~2017,~~2020, compared to ~~$17.3~~$28.8 million at March 31, ~~2017.~~2020. Our cash position decreased primarily as a result of net payments of $10.1 million to reduce the principal balance of our ~~net loss, separation payments to terminated employees in conjunction with our management reorganization and cost reduction initiatives,~~prior credit agreement and the ~~net repayment~~use of ~~$3.0 million on our revolving credit facility.~~

cash from operating activities of $5.6 million.

Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross ~~margins,~~profits, cash management practices, cost reduction initiatives, working capital management, capital expenditures, pending or future litigation results and cost containment measures. In addition, we tend to experience ~~high~~higher working capital costs when we increase sales from existing levels. Based on our current expectations, while we anticipate realizing improved operating results in the future, we also currently believe that we may experience negative working capital cash flows during some interim periods.

Cash Flows

The following table summarizes our cash flows for the nine months ended December 31, ~~2017~~2020 and ~~2016~~2019 (in thousands):

	Nine Months Ended December 31,
	2020			2019
Operating activities	$	(5,644	)	$	14,275
Investing activities		(701	)		(655	)
Financing activities		(10,127	)		(8,587	)
(Decrease) increase in cash and cash equivalents	$	(16,472	)	$	5,033

Nine Months Ended December 31,
2017 2016
Operating activities $ (3,081 ) $ 266
Investing activities (521 ) 1,972
Financing activities (3,142 ) 1,338
Increase (decrease) in cash and cash equivalents $ (6,744 ) $ 3,576

Cash Flows Related to Operating Activities. Cash (used in) provided by ~~or used in~~ operating activities primarily ~~consisted~~consists of a net ~~loss~~income adjusted for certain non-cash items, including depreciation, ~~and~~ amortization of intangible assets, stock-based compensation, ~~expenses,~~amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.

Cash used in operating activities for the first nine months of fiscal ~~2018~~2021 was ~~$3.1~~$5.6 million and consisted of aour net ~~loss~~income adjusted for non-cash expense items of ~~$7.8~~$6.2 million and net cash ~~provided by~~used in changes in operating assets and liabilities of ~~$4.7~~$11.8 million. Cash used by ~~changes in~~ operating assets and liabilities consisted primarily of ~~a decrease~~an increase in accounts receivable of ~~$0.8~~$13.2 million ~~in accrued expenses and other primarily~~ due to higher sales and the timing of ~~payment~~collections, and an increase in inventory of ~~commissions and lower accrued bonuses in the current fiscal year, a decrease of $0.3~~$4.2 million ~~in deferred revenue due to the timing of project completion and a decrease of $0.2 million in deferred contract costs due to the timing of project completions.~~on anticipated fourth quarter sales. Cash provided by changes in operating assets and liabilities ~~included a decrease~~consisted primarily of ~~$0.5~~an increase in accrued expenses and other of $6.6 million ~~in accounts receivable~~ due to ~~the decline in sales and the~~ timing of customer collections, a decrease in inventory of $4.1 million as a result of increased focus on inventory management in consideration of the lower sales volume, a decrease of $1.4 million in prepaid and other assets primarily due to the timing of project billings, and a negligible decrease in accounts payable.

billing for completed projects.

Cash provided by operating activities for the first nine months of fiscal ~~2017~~2020 was ~~$0.3~~$14.3 million and consisted of our net income adjusted for non-cash expense items of $15.1 million and net cash ~~provided~~used by changes in operating assets and liabilities of ~~$1.3 million and a net loss adjusted for non-cash expense items of $1.0~~$0.8 million. Cash used by changes in operating assets and liabilities consisted primarily of ~~an increase~~a decrease of ~~$0.8~~$2.9 million in accounts ~~receivable due to the increase in lighting revenue~~payable, and ~~the timing of collections from customers at period end, an increase of inventory by $0.2 million due to the timing of product shipments at quarter end,~~ a decrease ~~of $0.7 million~~ in accrued expenses ~~due to the payment of a state tax liability~~ and ~~an increase in deferred contract costs~~other of $1.3 million due to the timing of ~~project completions.~~payments. Cash provided by changes in operating assets and liabilities ~~included an increase~~consisted primarily of ~~$0.6~~a decrease of $2.9 million in ~~accounts payable due to the timing of payments on balances at quarter end,~~revenue earned but not billed and a decrease in ~~prepaid and other assets~~inventories of ~~$3.3 million primarily due to the timing of project billings, and an increase in deferred revenue of $0.4 million due to the timing of project completions.~~$1.0 million.

Cash Flows Related to Investing ~~Activities.~~Activities. Cash used byin investing activities ~~was $0.5~~of $0.7 million in the first nine months of fiscal ~~2018 which~~2021 consisted primarily of purchases of ~~property~~tooling and ~~equipment and additions to patents and licenses.~~equipment.

Cash ~~provided by~~used in investing activities ~~was $2.0~~of $0.7 million in the first nine months of fiscal ~~2017 which~~2020 consisted of ~~$2.6 million~~purchases of ~~proceeds from the sale of the Manitowoc manufacturing facility.~~tooling and equipment.

Cash Flows Related to Financing Activities. Cash used ~~by investing~~in financing activities ~~for~~of $10.1 million in the first nine months of fiscal ~~2017 was $0.4~~2021 consisted primarily of net repayments of $10.0 million ~~for capital improvements related to production enhancements and technology purchases and $0.2 million of additions to patents.~~

~~Cash Flows Related to Financing Activities.~~on our Prior Credit Agreement.

Cash used in financing activities was ~~$3.1~~$8.6 million for the first nine months of fiscal ~~2018 and was due almost entirely to the net repayment of our revolving credit facility.~~

~~Cash provided by financing activities was $1.3 million for the first nine months of fiscal 2017.~~2020. This ~~included $0.8 million~~use of cash ~~used for the repayment~~consisted primarily of ~~long-term debt, $11,000 for stock option exercises and stock related tax settlements, and~~ net ~~proceeds from the revolving credit facility~~repayments of ~~$2.2 million.~~

$8.4 million on our Credit Facility.

Working Capital

Our net working capital as of December 31, ~~2017~~2020 was ~~$13.4~~23.3 million, consisting of ~~$30.6~~$56.7 million in current assets and ~~$17.2~~$33.4 million in current liabilities. Our net working capital as of March 31, ~~2017~~2020 was ~~$25.5~~$27.8 million, consisting of ~~$43.9~~$55.0 million in current assets and ~~$18.4~~$27.2 in current liabilities. Our current accounts receivable, net balance ~~decreased~~increased by ~~$0.5~~$13.3 million from the fiscal ~~2017 year end~~2020 year-end primarily due to ~~the decline in~~higher sales and the timing of customer collections. Our ~~inventory decreased~~inventories, net increased from the fiscal ~~2017 year end~~2020 year-end by ~~$4.8~~$4.0 million due primarily to ~~continued management of purchasing activities~~anticipated project installations for a large national account customer and inventory management initiatives. Our prepaid and other current assets decreased by $1.3 million due to a decrease in unbilled revenue as a result of the timing of customer billings. Our accounts payable remained relatively flat compared to fiscal 2017 year end.new large specialty retail customer. Our accrued expenses ~~decreased~~increased from our fiscal ~~2017 year end~~2020 year-end by ~~$0.8~~$6.7 million due primarily to ~~the payment of commissions and a decrease~~an increase in accrued ~~bonuses in the current fiscal year.~~

project costs.

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,~~receivable, inventory and payables may increase to the extent our revenue and order levels increase.

Indebtedness

Revolving Credit Agreement

~~We have an~~

On December 29, 2020, we entered into a new Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., as lender (the “Lender”). The Credit Agreement replaced our existing $20.15 million secured revolving credit and security agreement dated as of October 26, 2018, as amended, ~~credit agreement ("~~with Western Alliance Bank, National Association, as lender (the “Prior Credit ~~Agreement"~~Agreement”) ~~that~~.

The replacement of the Prior Credit Agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans.

The Credit Agreement provides for a five-year $25.0 million revolving credit facility ("(the “Credit Facility”) that matures on December 29, 2025. Borrowings under the Credit ~~Facility")~~Facility are subject to a borrowing base requirement based on eligible receivables, inventory and ~~inventory.~~cash. As of December 31, ~~2017 our~~2020, the borrowing base ~~was approximately $3.8 million. The~~supports the full availability of the Credit ~~Facility has a maturity date of February 6, 2019 and includes a $2.0 million sublimit for the issuance of letters of credit.~~Facility. As of December 31, ~~2017, we had~~2020, no ~~outstanding letters~~amounts were borrowed under the Credit Facility.

The Credit Agreement is secured by a first lien security interest in substantially all of ~~credit.~~ our assets.

Borrowings ~~outstanding as of December 31, 2017, amounted to approximately $3.6 million and~~under the Credit Agreement are ~~included in non-current liabilities~~permitted in the ~~accompanying condensed consolidated balance sheet. We estimate that as~~form of ~~December 31, 2017,~~LIBOR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees, we ~~were eligible~~are required to ~~borrow~~pay an ~~additional $0.2 million~~annual facility fee of $15,000 and fee of 25 basis points on the unused portion of the Credit Facility.

The Credit Agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility ~~based upon current levels~~falls below the greater of ~~eligible inventory and accounts receivable.~~

~~Subject in each case to our applicable borrowing base limitations, the Credit Agreement otherwise provides for a $15.0~~$3.0 million Credit Facility. This limit may increase to $20.0 million based on a borrowing base requirement, if we satisfy certain conditions. We did not meet the requirements to increase the borrowing limit to $20.0 million as of July 31, 2017, the most recent measurement date.

~~From and after any increase in the Credit Facility limit from $15.0 million to $20.0 million, the Credit Agreement requires that we maintain, as~~or 15% of the ~~end of each month, a~~committed facility. Currently, the required springing minimum fixed cost coverage ratio for the trailing twelve-month period of (i) earnings before interest, taxes, depreciation and amortization, subject to certain adjustments, to (ii) the sum of cash interest expense, certain principal payments on indebtedness and certain dividends, distributions and stock redemptions, equal to at least 1.10 to 1.00. is not required.

The Credit Agreement also contains ~~additional~~ customary events of default and other covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, ~~guarantee obligations of third parties, make loans or advances, declare or~~ pay any dividend or distribution on our stock, redeem, retire or ~~repurchase~~purchase shares of our stock, make investments or pledge or ~~dispose~~transfer assets. If an event of ~~assets. We were in compliance with our covenants in~~default under the Credit Agreement ~~as of December 31, 2017.~~

~~Each of our subsidiaries~~occurs and is ~~a joint and several co-borrower or guarantor~~continuing, then the Lender may cease making advances under the Credit Agreement and the Credit Agreement is secured by a security interest in substantially all of our and each subsidiary’s personal property (excluding various assets relating to customer OTAs) and a mortgage on certain real property.

~~Borrowings~~declare any outstanding obligations under the Credit Agreement ~~bear interest at~~to be immediately due and payable. In addition, if we become the ~~daily three-month LIBOR plus 3.0% per annum, with a minimum interest charge for each year~~subject of voluntary or ~~portion of a year during the term of~~involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable.

We did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million ~~regardless~~on the write-off of ~~usage. As of September 30, 2017,~~unamortized debt issue costs related to the ~~interest rate was 4.69%. We must pay an unused line fee of 0.25% per annum~~Prior Credit Agreement. Also, due to the timing of the ~~daily average unused amount~~banking transition, we had $0.3 million of ~~the~~cash which was restricted for covering obligations on our outstanding credit card balances. The Prior Credit ~~Facility and a letter of credit fee at the rate of 3.0% per annum~~Agreement was scheduled to mature on ~~the undrawn amount of letters of credit outstanding from time to time under the Credit Facility.~~

October 26, 2021.

Capital Spending

Our capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems. Our capital expenditures totaled ~~$0.5~~$0.7 million and ~~$0.4~~$0.6 million for the ~~nine-month~~nine month periods ended December 31, ~~2017~~2020, and ~~2016,~~2019, respectively. WeDue to the uncertainty of the COVID-19 impact on our business, we do not have a committed capital expenditure plan ~~to incur approximately $0.6 million in capital expenditures in~~for fiscal ~~2018. We~~2021; however, we expect to finance ~~these~~current year capital expenditures primarily through our existing cash, ~~equipment secured~~equipment-secured loans and leases, to the extent needed, long-term debt financing, or by using our available capacity under our Credit ~~Facility.~~

Agreement.

Backlog

Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled ~~$6.8~~$21.8 million and ~~$7.3~~$19.2 million as of December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, respectively. We generally expect our backlog to be recognized as revenue within one ~~year.~~

year, although the COVID-19 pandemic may extend this time period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation

Our results from operations have not been, and we do not expect them to be, materially affected by inflation.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, ~~2017.~~2020. For the three months ended December 31, ~~2017,~~2020, there were no material changes in our accounting policies.

Recent Accounting Pronouncements

For a complete discussion of recent accounting pronouncements, refer to Note 23 in the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included elsewhere in this report.

~~ITEM 3.~~

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in our Annual Report on Form 10-K for the year ended March 31, ~~2017.~~2020. There have been no material changes to such exposures since March 31, ~~2017.~~

2020.


ITEM 4.	CONTROLS AND PROCEDURES

~~Material Weaknesses on Internal Control over Financial Reporting~~

Evaluation of Disclosure Controls and Procedures

Our ~~management is responsible for establishing~~disclosure controls and ~~maintaining adequate internal control over financial reporting (as defined~~procedures are designed to ensure that information required to be disclosed by us in ~~Rules 13a-15(f) and 15d-15(f)~~the reports that we file or submit under the Exchange ~~Act). Internal control over financial reporting~~Act is ~~a process designed by, or under the supervision of,~~accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, ~~or persons performing similar functions, and effected by the board~~as appropriate, to allow timely decisions regarding required disclosure.

As of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:


i.	~~pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;~~


~~ii.~~	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and


~~iii.~~	~~provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.~~

~~Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any~~December 31, 2020, an evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

~~Under~~was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, ~~our management has assessed~~of the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As previously disclosed under "Item 9A. Controls and Procedures" in our Annual Report on Form 10-K for our fiscal year ended March 31, 2017, we identified the following material weaknesses that existed as of March 31, 2017 and continued to exist at December 31, 2017. A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

~~Information & Communication.~~ We determined that our controls pertaining to information and communication did not operate effectively, resulting in a material weakness pertaining to these COSO components. Specifically, we did not have sufficient communication of the status and evolution of a project to ensure timely and accurate recognition of project costs. In addition, we did not have sufficient communication and resolution of matters identified through management’s review impacting the accounting close as noted in the Control Activities discussion below.

~~Control Activities - Accounting Close.~~ The operating effectiveness of our controls were inadequate to ensure that project costs were identified and recorded to expense in a timely manner. In addition, matters identified through management review controls were not brought to a timely resolution.

Because of the material weaknesses described above, in consultation with management, our Chief Executive Officer and Chief Financial Officer have concluded that we did not maintain effective internal control over financial reporting and our disclosure controls and procedures ~~were not effective as~~(as defined in Rule 13a-15(e) and Rule 15d-15(e) of ~~March 31, 2017 and December 31, 2017, based~~the Exchange Act). Based on ~~the criteria in Internal Control - Integrated Framework (2013) issued by COSO.~~

~~For the year ended March 31, 2017 and subsequent interim periods, we enhanced our closing procedures to ensure~~this evaluation, such officers have concluded that ~~in all material respects, our financial statements are presented in conformity with GAAP and free of material misstatement as of and for the periods ended March 31, 2017 and December 31, 2017.~~

~~Plans for Remediation of March 31, 2017 Material Weaknesses~~

Our Board, our Audit & Finance Committee and management have identified additional resources to assist in the remediation effort and are developing and implementing new processes, procedures and internal controls to remediate the material weaknesses that existed in our internal control over financial reporting as it related to project cost accounting and the accounting close, and our disclosure controls and procedures are effective as of ~~March 31, 2017 and~~ December 31, ~~2017.~~

We have developed a remediation plan (the “Remediation Plan”) to address the material weaknesses for the affected areas presented above. The Remediation Plan ensures that each area affected by a material control weakness is put through a comprehensive remediation process. The Remediation Plan entails a thorough analysis which includes the following phases:

~~Ensure a thorough understanding of the “as is” state, process owners, and procedural or technological gaps causing the deficiency;~~

Design and evaluate a remediation action for the review and analysis of project costs; validate or improve the related policy and procedures; evaluate skills of the process owners with regard to the policy and adjust as required;

~~Implement specific remediation actions: train process owners, allow time for process adoption and adequate transaction volume for next steps;~~

~~Test and measure the design and effectiveness of the remediation actions; test and provide feedback on the design and operating effectiveness of the controls; and~~

~~Review and acceptance of completion of the remediation effort by executive management and the Audit & Finance Committee.~~

~~We have have taken or are in the process of taking the following steps toward implementation of the Remediation Plan:~~

~~Developed a regular method for the evaluation of actual project costs incurred against budgeted costs and for the communication of such costs and project status;~~

~~Revisited the method in which projects are reviewed and evaluated by the accounting department to ensure the accurate and timely recording of necessary adjustments;~~

~~Formalized and strengthened management review controls as they pertain to the accounting close;~~

~~Provided training to key process owners;~~

~~Enhanced information technology reporting capabilities, where possible, to ensure consistent, accurate data to support accounting close processes in a timely and efficient manner; and~~

~~Continue to refine documentation of policies and procedures related to project accounting, account reconciliations, and other key areas within the accounting close.~~

The Remediation Plan is being administered by our Chief Financial Officer and involves key leaders from across the organization. The Chief Financial Officer is providing regular updates on the status of the remediation to our Audit and Finance Committee. While progress has been made, we continue to refine the new and enhanced processes and controls, finalize revisions to policies and procedures and provide additional training to our employees. Furthermore, many of these enhanced processes and controls have not yet operated for a sufficient period of time to conclude they are operating effectively, therefore the material weaknesses may continue to exist.

We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above and employ any additional tools and resources deemed necessary to ensure that our financial statements are fairly stated in all material respects.

2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting ~~during~~(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the ~~quarter~~Exchange Act) for the three months ended December 31, ~~2017,~~2020, that ~~have~~ materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting, other than with respect to the implementation of our Remediation Plans, as described above.~~

reporting.

PART II – OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date ~~hereof,~~of this report, we ~~are unable to currently assess whether~~do not believe that the final resolution of any of such claims or legal proceedings ~~may~~would have a material adverse effect on ~~Orion’s~~our future results of operations.

See Note ~~14, "Commitments~~15 – Commitments and Contingencies, ~~- Litigation",~~ to the Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.


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, ~~2017,~~2020, which we filed with the SEC on June ~~13, 2017~~5, 2020 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.


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

None

~~None~~


ITEM 5.	OTHER INFORMATION

None

~~None~~


ITEM 6.	EXHIBITS

~~(a)Exhibits~~

(a)

Exhibits

10.1	Voluntary Retirement Agreement and Release, dated as of September 21, 2020, between Orion Energy Systems, Inc. and William T. Hull, filed as Exhibit 10.1 to the Registrant’s Form 8-K filed September 23, 2020, is hereby incorporated by reference.

~~31.1~~ 10.2	Executive Employment and Severance Agreement, effective as of October 19, 2020, between Orion Energy Systems, Inc. and J. Per Brodin, filed as Exhibit 10.1 to the Registrant’s Form 8-K filed October 15, 2020, is hereby incorporated by reference.

10.3	Loan and Security Agreement, dated as of December 29, 2020, among Orion Energy Systems, Inc., Bank of America, N.A., as lender, and the subsidiary borrowers party thereto, filed as Exhibit 10.1 to the Registrant’s Form 8-K filed January 5, 2021, is hereby incorporated by reference.

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.+

101.INS	XBRL Instance ~~Document~~Document+

101.SCH	Taxonomy extension schema ~~document~~document+

101.CAL	Taxonomy extension calculation linkbase ~~document~~document+

~~101.LAB~~ 101.DEF	Taxonomy extension definition linkbase document+

101.LAB	Taxonomy extension label linkbase ~~document~~document+

101.PRE	Taxonomy extension presentation linkbase ~~document~~document+


+
+	Filed herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February ~~7, 2018.~~

11, 2021.



ORION ENERGY SYSTEMS, INC. Registrant

By		/s/ ~~William T. Hull~~J. Per Brodin
		~~William T. Hull~~ J. Per Brodin
		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)

Wisconsin		39-1847269

~~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)



Large accelerated filer	o ☐	Accelerated filer	o ☐

Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☒	Smaller reporting company	ý ☒

		Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o			☐

		Page(s)

		~~Page(s)~~
PART I FINANCIAL INFORMATION		3
ITEM 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of December 31, ~~2017~~2020 and March 31, ~~2017~~2020	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019	4
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended December 31, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine Months Ended~~nine months ended December 31, ~~2017~~2020 and December 31, ~~2016~~2019	5 7
	Notes to the Condensed Consolidated Financial Statements	6 8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21 24
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	33 35
ITEM 4.	Controls and Procedures	34 35
PART II OTHER INFORMATION		36
ITEM 1.	Legal Proceedings	36
ITEM 1A.	Risk Factors	36
ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	36
ITEM 5.	Other Information	36
ITEM 6.	Exhibits	37
~~SIGNATURES~~SIGNATURE		38
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~

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

☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	December 31, 2017			March 31, 2017
Assets
Cash and cash equivalents	$	10,563		$	17,307
Accounts receivable, net	8,663			9,171
Inventories, net	8,771			13,593
Deferred contract costs	1,115			935
Prepaid expenses and other current assets	1,543			2,877
Total current assets	30,655			43,883
Property and equipment, net	13,213			13,786
Other intangible assets, net	3,054			4,207
Other long-term assets	121			175
Total assets	$	47,043		$	62,051
Liabilities and Shareholders’ Equity
Accounts payable	$	11,685		$	11,635
Accrued expenses and other	5,155			5,988
Deferred revenue, current	277			621
Current maturities of long-term debt	85			152
Total current liabilities	17,202			18,396
Revolving credit facility	3,622			6,629
Long-term debt, less current maturities	125			190
Deferred revenue, long-term	946			944
Other long-term liabilities	509			442
Total liabilities	22,404			26,601
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at December 31, 2017 and March 31, 2017; no shares issued and outstanding at December 31, 2017 and March 31, 2017	—			—
Common stock, no par value: Shares authorized: 200,000,000 at December 31, 2017 and March 31, 2017; shares issued: 38,347,325 at December 31, 2017 and 37,747,227 at March 31, 2017; shares outstanding: 28,916,170 at December 31, 2017 and 28,317,490 at March 31, 2017	—			—
Additional paid-in capital	154,758			153,901
Treasury stock, common shares: 9,431,155 at December 31, 2017 and 9,429,737 at March 31, 2017	(36,085		)	(36,081		)
Shareholder notes receivable	—			(4		)
Retained deficit	(94,034		)	(82,366		)
Total shareholders’ equity	24,639			35,450
Total liabilities and shareholders’ equity	$	47,043		$	62,051



	Three Months Ended December 31,						Nine Months Ended December 31,
	2017			2016			2017			2016
Product revenue	$	15,993		$	19,259		$	41,883		$	52,286
Service revenue	1,270			1,358			3,360			2,635
Total revenue	17,263			20,617			45,243			54,921
Cost of product revenue	11,181			13,577			30,587			36,748
Cost of service revenue	966			885			3,209			1,748
Total cost of revenue	12,147			14,462			33,796			38,496
Gross profit	5,116			6,155			11,447			16,425
Operating expenses:
General and administrative	2,878			3,541			11,370			11,040
Impairment of intangible assets	—			—			710			—
Sales and marketing	2,981			3,147			9,241			9,167
Research and development	616			495			1,519			1,493
Total operating expenses	6,475			7,183			22,840			21,700
Loss from operations	(1,359		)	(1,028		)	(11,393		)	(5,275		)
Other income (expense):
Other income	—			—			—			190
Interest expense	(102		)	(65		)	(308		)	(203		)
Interest income	5			7			12			31
Total other (expense) income	(97		)	(58		)	(296		)	18
Loss before income tax	(1,456		)	(1,086		)	(11,689		)	(5,257		)
Income tax benefit	(23		)	—			(23		)	(261		)
Net loss	$	(1,433	)	$	(1,086	)	$	(11,666	)	$	(4,996	)
Basic net loss per share attributable to common shareholders	$	(0.05	)	$	(0.04	)	$	(0.41	)	$	(0.18	)
Weighted-average common shares outstanding	28,909,847			28,258,742			28,734,394			28,106,209
Diluted net loss per share	$	(0.05	)	$	(0.04	)	$	(0.41	)	$	(0.18	)
Weighted-average common shares and share equivalents outstanding	28,909,847			28,258,742			28,734,394			28,106,209



	Cost		Reserve			Net
As of December 31, 2017
Raw materials and components	$	6,655	$	(1,406	)	$	5,249
Work in process	1,316		(351		)	965
Finished goods	4,385		(1,828		)	2,557
Total	$	12,356	$	(3,585	)	$	8,771

As of March 31, 2017
Raw materials and components	$	8,104	$	(1,807	)	$	6,297
Work in process	1,918		(329		)	1,589
Finished goods	7,044		(1,337		)	5,707
Total	$	17,066	$	(3,473	)	$	13,593



	December 31, 2017		March 31, 2017
Unbilled accounts receivable	$	1,034	$	2,226
Other prepaid expenses	509		651
Total	$	1,543	$	2,877



	December 31, 2017			March 31, 2017
Equipment	$	581		$	581
Less: accumulated depreciation and amortization	(308		)	(202		)
Equipment, net	$	273		$	379



	December 31, 2017							March 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,702	$	(1,331	)	$	1,371	$	2,658	$	(1,211	)	$	1,447
Licenses	58		(58		)	—		58		(58		)	—
Trade name and trademarks	1,005		—			1,005		1,715		—			1,715
Customer relationships	3,600		(3,286		)	314		3,600		(3,054		)	546
Developed technology	900		(546		)	354		900		(426		)	474
Non-competition agreements	100		(90		)	10		100		(75		)	25
Total	$	8,365	$	(5,311	)	$	3,054	$	9,031	$	(4,824	)	$	4,207



Fiscal 2018 (period remaining)	$	138
Fiscal 2019	449
Fiscal 2020	363
Fiscal 2021	289
Fiscal 2022	191
Fiscal 2023	166
Thereafter	453
Total	$	2,049



	December 31, 2017	December 31, 2016
Common stock options	709,667	1,561,953
Restricted shares	1,545,209	1,661,543
Total	2,254,876	3,223,496



	Shares Issued Under ESPP Plan	Closing Market Price
Quarter Ended June 30, 2017	2,150	$1.28
Quarter Ended September 30, 2017	2,681	$1.12
Quarter Ended December 31, 2017	3,446	$0.88
Total issued in fiscal 2018	8,277	$0.88 - 1.28



	Restricted Shares		Stock Options
Balance at March 31, 2017	1,704,543		1,520,953
Awards granted	730,410		—
Awards vested	(592,851	)	—
Awards forfeited	(296,893	)	(811,286	)
Awards outstanding at December 31, 2017	1,545,209		709,667
Per share price on grant date	$0.88 - $1.95		—



	Revenues				Operating Income (Loss)
	For the Three Months Ended December 31,				For the Three Months Ended December 31,
	2017		2016		2017			2016
Segments:
Orion U.S. Markets	$	2,168	$	5,368	$	(520	)	$	367
Orion Engineered Systems	7,316		8,288		185			(81		)
Orion Distribution Services	7,779		6,961		224			229
Corporate and Other	—		—		(1,248		)	(1,543		)
	$	17,263	$	20,617	$	(1,359	)	$	(1,028	)



	Revenues				Operating Income (Loss)
	For the Nine Months Ended December 31,				For the Nine Months Ended December 31,
	2017		2016		2017			2016
Segments:
Orion U.S. Markets	$	6,388	$	16,462	$	(2,970	)	$	558
Orion Engineered Systems	18,857		22,062		(2,891		)	(878		)
Orion Distribution Services	19,998		16,397		(564		)	(132		)
Corporate and Other	—		—		(4,968		)	(4,823		)
	$	45,243	$	54,921	$	(11,393	)	$	(5,275	)



	March 31, 2017		Additions		Amounts Used			December 31, 2017
Employee separation costs	$	—	$	1,876	$	(1,635	)	$	241
Post-employment medical benefits (1)	—		143		(4		)	139
Total	$	—	$	2,019	$	(1,639	)	$	380