UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended ~~September 30,~~December 31, 2011

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

Commission file number 001-33887

Orion Energy Systems, Inc.

(Exact name of Registrant as specified in its charter)


Wisconsin
~~Wisconsin~~		39-1847269

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification number)



2210 Woodland Drive, Manitowoc, Wisconsin		54220

(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (920) 892-9340

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

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

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

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

There were ~~23,010,653~~22,562,258 shares of the Registrant’s common stock outstanding on ~~November 4, 2011.~~

June 6, 2012.

PART I —– FINANCIAL INFORMATION


~~Item 1:~~		~~Financial Statements~~

Item 1: Financial Statements
ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

March 31, September 30,
2011 2011
Assets

Cash and cash equivalents $ 11,560 $ 15,559
Short-term investments 1,011 1,014
Accounts receivable, net of allowances of $436 and $485 27,618 21,637
Inventories, net 29,507 32,844
Deferred tax assets 947 1,268
Prepaid expenses and other current assets 2,499 4,052

Total current assets 73,142 76,374
Property and equipment, net 30,017 30,233
Patents and licenses, net 1,620 1,677
Long-term accounts receivable 6,030 7,948
Deferred tax assets 2,112 2,358
Other long-term assets 2,069 1,984

Total assets $ 114,990 $ 120,574

Liabilities and Shareholders’ Equity

Accounts payable $ 12,479 $ 10,384
Accrued expenses and other 2,324 2,683
Deferred revenue, current 262 3,077
Current maturities of long-term debt 1,137 2,351

Total current liabilities 16,202 18,495
Long-term debt, less current maturities 4,225 6,930
Deferred revenue, long-term 1,777 1,583
Other long-term liabilities 399 400

Total liabilities 22,603 27,408

Commitments and contingencies (See Note F)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2011 and September 30, 2011; no shares issued and outstanding at March 31, 2011 and September 30, 2011 — —
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2011 and September 30, 2011; shares issued: 30,312,758 and 30,403,067 at March 31, 2011 and September 30, 2011; shares outstanding: 22,893,803 and 23,010,653 at March 31, 2011 and September 30, 2011 — —
Additional paid-in capital 124,805 126,002
Shareholder notes receivable (193 ) (244 )
Treasury stock: 7,418,955 and 7,392,414 common shares at March 31, 2011 and September 30, 2011 (31,708 ) (31,757 )
Accumulated deficit (517 ) (835 )

Total shareholders’ equity 92,387 93,166

Total liabilities and shareholders’ equity $ 114,990 $ 120,574

September 30, September 30,
     March 31,    December 31,
     2011    2011
Assets

Cash and cash equivalents
     $ 11,560    $ 18,233
Short-term investments
     1,011    1,015
Accounts receivable, net of allowances of $757 and $831
     23,401    20,509
Inventories, net
     15,877    19,473
Deferred contract costs
     9,589       2,686
Deferred tax assets
     1,049    1,254
Prepaid expenses and other current assets
     1,727    2,280




Total current assets
     64,214    65,450
Property and equipment, net
     30,017    30,595
Patents and licenses, net
     1,620    1,702
Long-term accounts receivable
     7,251    8,496
Long-term inventory
     13,212    13,212
Deferred tax assets
     2,354    2,461
Other long-term assets
     2,419    2,985




Total assets
     $ 121,087    $ 124,901




Liabilities and Shareholders’ Equity

Accounts payable
     $ 12,483    $ 15,488
Accrued expenses and other
     2,184    3,511
Deferred revenue, current
     8,427    2,596
Current maturities of long-term debt
     1,137    2,344




Total current liabilities
     24,231    23,939
Long-term debt, less current maturities
     4,225    6,341
Deferred revenue, long-term
     1,777    1,527
Other long-term liabilities
     399    400




Total liabilities
     30,632    32,207




Commitments and contingencies (See Note F)

Shareholders’ equity:

Preferred stock, $0.01 par value: Shares authorized: 30,000,000 at March 31, 2011 and December 31, 2011; no shares issued and outstanding at March 31, 2011 and December 31, 2011
     —         —
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2011 and December 31, 2011; shares issued: 30,312,758 and 30,411,704 at March 31, 2011 and December 31, 2011; shares outstanding: 22,893,803 and 22,924,746 at March 31, 2011 and December 31, 2011
     —         —
Additional paid-in capital
     124,132    126,072
Stockholder notes receivable
     (193 )    (217 )
Treasury stock: 7,431,897 and 7,486,958 common shares at March 31, 2011 and December 31, 2011
     (31,708 )    (32,025 )
Accumulated deficit
     (1,776 )    (1,136 )




Total shareholders’ equity
     90,455    92,694




Total liabilities and shareholders’ equity
     $ 121,087    $ 124,901




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

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

Three Months Ended September 30, Six Months Ended September 30,
2010 2011 2010 2011
Product revenue $ 15,086 $ 18,718 $ 30,844 $ 40,397
Service revenue 767 542 1,986 1,637

Total revenue 15,853 19,260 32,830 42,034
Cost of product revenue 9,745 12,059 20,053 27,063
Cost of service revenue 498 382 1,415 1,116

Total cost of revenue 10,243 12,441 21,468 28,179

Gross profit 5,610 6,819 11,362 13,855
Operating expenses:
General and administrative 2,988 2,724 5,933 5,800
Sales and marketing 3,299 3,736 6,889 7,504
Research and development 573 593 1,183 1,215

Total operating expenses 6,860 7,053 14,005 14,519

Loss from operations (1,250 ) (234 ) (2,643 ) (664 )
Other income (expense):
Interest expense (55 ) (150 ) (124 ) (237 )
Dividend and interest income 153 214 246 368

Total other income 98 64 122 131

Loss before income tax (1,152 ) (170 ) (2,521 ) (533 )

Income tax benefit (1,692 ) (71 ) (2,525 ) (215 )

Net income (loss) $ 540 $ (99 ) $ 4 $ (318 )

Basic net income (loss) per share attributable to common shareholders $ 0.02 $ 0.00 $ 0.00 $ (0.01 )
Weighted-average common shares outstanding 22,638,638 22,989,502 22,581,188 22,955,655
Diluted net income (loss) per share attributable to common shareholders $ 0.02 $ 0.00 $ 0.00 $ (0.01 )
Weighted-average common shares outstanding 22,901,590 22,989,502 23,007,067 22,955,655

   Three Months Ended December 31, Nine Months Ended December 31,
   2010 2011 2010 2011
Product revenue
   $ 21,633 $ 24,274 $ 52,476 $ 71,746
Service revenue
   2,011 3,132 3,997 7,356


Total revenue
   23,644 27,406 56,473 79,102
Cost of product revenue
   14,134 17,445 34,186 50,484
Cost of service revenue
   1,676 2,447 3,091 5,716


Total cost of revenue
   15,810 19,892 37,277 56,200


Gross profit
   7,834 7,514 19,196 22,902
Operating expenses:

General and administrative
   2,709 2,841 8,642 8,641
Sales and marketing
   3,235 4,053 10,124 11,557
Research and development
   614 556 1,797 1,771


Total operating expenses
   6,558 7,450 20,563 21,969


Income (loss) from operations
   1,276 64 (1,367 ) 933
Other income (expense):

Interest expense
   (98 ) (160 ) (223 ) (397 )
Dividend and interest income
   189 226 435 594


Total other income (expense)
   91 66 212 197


Income (loss) before income tax
   1,367 130 (1,155 ) 1,130
Income tax expense (benefit)
   1,549 56 (976 ) 490


Net income (loss)
   $ (182 ) $ 74 $ (179 ) $ 640


Basic net income (loss) per share attributable to common shareholders
   $ (0.01 ) $ 0.00 $ (0.01 ) $ 0.03
Weighted-average common shares outstanding
   22,726,426 22,996,050 22,629,776 22,969,169
Diluted net income (loss) per share attributable to common shareholders
   $ (0.01 ) $ 0.00 $ (0.01 ) $ 0.03
Weighted-average common shares outstanding
   22,726,426 23,254,830 22,629,776 23,388,651
The accompanying notes are an integral part of these condensed consolidated statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Six Months Ended September 30,
2010 2011

Operating activities

Net income (loss) $ 4 $ (318 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 1,543 1,876
Stock-based compensation expense 611 657
Deferred income tax benefit (1,374 ) (567 )
Change in allowance for notes and accounts receivable 64 49
Other 34 37
Changes in operating assets and liabilities:
Accounts receivable 2,546 4,014
Inventories (7,715 ) (3,337 )
Prepaid expenses and other (6,454 ) (1,373 )
Deferred revenue 991 2,621
Accounts payable 1,474 (2,095 )
Accrued expenses (357 ) 360

Net cash provided by (used in) operating activities
(8,633 ) 1,924
Investing activities

Purchase of property and equipment (1,957 ) (2,003 )
Purchase of property and equipment held under operating leases (1,630 ) (3 )
Purchase of short-term investments (7 ) (3 )
Additions to patents and licenses (110 ) (125 )
Proceeds from sales of property, plant and equipment 1 1
Long-term assets (330 ) —

Net cash used in investing activities
(4,033 ) (2,133 )
Financing activities

Payment of long-term debt (271 ) (664 )
Proceeds from long-term debt 2,689 4,583
Proceeds from repayment of shareholder notes — 13
Excess tax benefits from stock-based compensation — 271
Deferred financing costs (61 ) (113 )
Proceeds from issuance of common stock 269 118

Net cash provided by financing activities
2,626 4,208

Net increase (decrease) in cash and cash equivalents (10,040 ) 3,999
Cash and cash equivalents at beginning of period 23,364 11,560

Cash and cash equivalents at end of period $ 13,324 $ 15,559

Supplemental cash flow information:

Cash paid for interest $ 126 $ 201
Cash paid for income taxes 28 63
Supplemental disclosure of non-cash investing and financing activities:

Shares issued from treasury for shareholder note receivable $ 121 $ 64
Shares surrendered into treasury from stock option exercise $ 51 —

     Nine Months Ended December 31,
     2010    2011
Operating activities

Net income (loss)
     $ (179 )    $ 640
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization
     2,414    3,029
Stock-based compensation expense
     931    966
Deferred income tax benefit
     (595 )    (312 )
Gain on sale of property and equipment
     13    (15 )
Change in bad debt expense
     85    74
Other
     38    61
Changes in operating assets and liabilities:

Accounts receivable
     (10,138 )    1,573
Inventories
     (6,239 )    (3,596 )
Deferred contract costs
     (5,562 )    6,903
Prepaid expenses and other
     (2,044 )    (1,089 )
Deferred revenue
     3,162       (6,081 )
Accounts payable
     7,602    3,005
Accrued expenses
     (73 )    1,328




Net cash (used in) provided by operating activities
     (10,585 )    6,486
Investing activities

Purchase of property and equipment
     (2,986 )    (3,398 )
Purchase of property and equipment held under operating leases
     (2,126 )    (3 )
Purchase of short-term investments
     (10 )    (4 )
Additions to patents and licenses
     (138 )    (184 )
Proceeds from sales of property, plant and equipment
     1    5
Long-term assets
     (330 )    —




Net cash used in investing activities
     (5,589 )    (3,584 )
Financing activities

Payment of long-term debt
     (528 )    (1,260 )
Proceeds from long-term debt
     2,689    4,583
Proceeds from repayment of shareholder notes
     1    47
Repurchase of common stock into treasury
     —         (279 )
Excess tax benefits from stock-based compensation
     193    682
Deferred financing costs
     (61 )    (124 )
Proceeds from issuance of common stock
     374    122




Net cash provided by financing activities
     2,668    3,771




Net increase (decrease) in cash and cash equivalents
     (13,506 )    6,673
Cash and cash equivalents at beginning of period
     23,364    11,560




Cash and cash equivalents at end of period
     $ 9,858    $ 18,233




Supplemental cash flow information:

Cash paid for interest
     $ 192    $ 347
Cash paid for income taxes
     $ 31    $ 96
Supplemental disclosure of non-cash investing and financing activities:

Shares issued from treasury for shareholder note receivable
     $ 158    $ 71
Shares surrendered into treasury from stock option exercise
     $ 51    $ —
The accompanying notes are an integral part of these condensed consolidated statements.

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — DESCRIPTION OF BUSINESS

Organization

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

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

The Company’s corporate offices and manufacturing operations are located in Manitowoc, Wisconsin and an operations facility occupied by Orion Engineered Systems is located in Plymouth, Wisconsin.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Reclassifications

Where appropriate, certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company 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. 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, 2012 or other interim periods.

The condensed consolidated balance sheet at March 31, 2011 has been derived from the audited and adjusted 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 should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended March 31, 2011, which we filed with the ~~Securities and Exchange Commission~~SEC on ~~July 22, 2011.~~

June 14, 2012.
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 bad debt reserves, accruals for warranty expenses, income taxes and certain equity transactions. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents.

Short-term Investments

The amortized cost and fair value of marketable securities, with gross unrealized gains and losses, as of March 31, 2011 and ~~September 30,~~December 31, 2011 were as follows (in thousands):

March 31, 2011
Amortized Unrealized Unrealized Cash and Cash Short Term
Cost Gains Losses Fair Value Equivalents Investments
Money market funds $ 485 $ — $ — $ 485 $ 485 $ —
Bank certificate of deposit 1,011 — — 1,011 — 1,011

Total $ 1,496 $ — $ — $ 1,496 $ 485 $ 1,011

September 30, 2011
Amortized Unrealized Unrealized Cash and Cash Short Term
Cost Gains Losses Fair Value Equivalents Investments
Money market funds $ 485 $ — $ — $ 485 $ 485 $ —
Bank certificate of deposit 1,014 — — 1,014 — 1,014

Total $ 1,499 $ — $ — $ 1,499 $ 485 $ 1,014

         March 31, 2011
   Amortized    Unrealized    Unrealized       Cash and Cash    Short-term
   Cost    Gains    Losses    Fair Value    Equivalents    Investments
Money market funds
   $ 485    $ —         $ —         $ 485    $ 485    $ —
Bank certificate of deposit
   1,011    —         —         1,011    —         1,011












Total
   $ 1,496    $ —         $ —         $ 1,496    $ 485    $ 1,011













             December 31, 2011
     Amortized      Unrealized      Unrealized           Cash and Cash      Short-term
     Cost      Gains      Losses      Fair Value      Equivalents      Investments
Money market funds
     $ 485      $ —           $ —           $ 485      $ 485      $ —
Bank certificate of deposit
     1,015      —           —           1,015      —           1,015












Total
     $ 1,500      $ —           $ —           $ 1,500      $ 485      $ 1,015












As of March 31, 2011 and ~~September 30,~~December 31, 2011, the Company’s financial assets described in the table above were measured at ~~fair value on a recurring basis employing quoted prices in active markets for identical assets~~cost (level 1 inputs).

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

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, short-term investments, accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying amounts of the Company’s financial instruments ~~which include cash and cash equivalents, investments, accounts receivable, and accounts payable,~~ approximate their respective fair values due to the relatively short-term nature of these ~~instruments. Based upon~~instruments, or in the case of long-term, because of the interest rates currently available to the Company for ~~debt with~~ similar ~~terms, the carrying value of the Company’s long-term debt is also approximately equal to its fair value.~~obligations. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

Accounts Receivable

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

Financing Receivables

The Company considers its lease balances included in consolidated current and long-term accounts receivable from its Orion Throughput Agreement, or OTA, sales-type leases to be financing receivables. Additional disclosures on the credit quality of the Company’s OTA receivables included in accounts receivable are as follows:

Aging Analysis as of ~~September 30,~~December 31, 2011 (in thousands):

1-90 days Greater than 90 Total sales-type
Not Past Due past due days past due Total past due leases
Lease balances included in consolidated accounts receivable — current $ 2,659 $ 32 $ 11 $ 43 $ 2,702
Lease balances included in consolidated accounts receivable — long-term 5,442 — — — 5,442

Total gross sales-type leases 8,101 32 11 43 8,144
Allowance — — (7 ) (7 ) (7 )

Total net sales-type leases $ 8,101 $ 32 $ 4 $ 36 $ 8,137

      1-90 days    Greater than 90 Total sales-type
   Not Past Due    past due    days past due Total past due leases
Lease balances included in consolidated accounts receivable—current
   $ 2,829    $ 6    $ 20 $ 26 $ 2,855
Lease balances included in consolidated accounts receivable—long-term
   6,001    —         —      —      6,001






Total gross sales-type leases
   8,830    6    20 26 8,856
Allowance
   —         —         (13 ) (13 ) (13 )






Total net sales-type leases
   $ 8,830    $ 6    $ 7 $ 13 $ 8,843






Allowance for Credit Losses

The Company’s allowance for credit losses is based on management’s assessment of the collectability of customer accounts. A considerable amount of judgment is required in order to make this assessment, including a detailed analysis of the aging of the lease receivables and the current credit worthiness of the Company’s customers and an analysis of historical bad debts and other adjustments. If there is a deterioration of a major customer’s credit worthiness or if actual defaults are higher than historical experience, the estimate of the recoverability of amounts due could be adversely affected. The Company reviews in detail the allowance for doubtful accounts on a quarterly basis and adjusts the allowance estimate to reflect actual portfolio performance and any changes in future portfolio performance expectations. The Company ~~did not incur any~~believes that there is no impairment of the receivables for the sales-type leases. The Company believes that there is no impairment of the receivables for the sales-type leases. The Company incurred $0 and $57,000 of provision write-offs or credit losses against its OTA sales-type lease receivable balances in ~~either~~ fiscal 2011 orand for the ~~six months~~quarter ended ~~September 30, 2011.~~

December 31, 2011, respectively.
Inventories

Inventories consist of raw materials and components, such as ballasts, metal sheet and coil stock and molded parts; work in process inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and wireless energy management systems and accessories, such as lamps, meters and power supplies. All inventories are stated at the lower of cost or market value with cost determined using the first-in, first-out (FIFO) method. The Company reduces the carrying value of its inventories for differences between the cost and estimated net realizable value, taking into consideration usage in the preceding 12 months, expected demand, and other information indicating obsolescence. The Company records as a charge to cost of product revenue the amount required to reduce the carrying value of inventory to net realizable value. As of March 31, 2011 and ~~September 30,~~December 31, 2011, the Company had inventory obsolescence reserves of ~~$811,000~~$1.3 million and ~~$818,000, respectively.~~

$1.3 million.
Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and receiving costs, are also included in cost of product revenue.

Inventories were comprised of the following (in thousands):

March 31, September 30,
2011 2011
Raw materials and components $ 12,005 $ 12,347
Work in process 459 1,103
Finished goods 17,043 19,394

$ 29,507 $ 32,844

   March 31,    December 31,
   2011    2011
Raw materials and components
   $ 12,005    $ 13,400
Work in process
   459    1,221
Finished goods
   3,413    4,852




   $ 15,877    $ 19,473




8
Deferred Contract Costs
Deferred contract costs consist primarily of the costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance. These deferred contract costs are expensed at the time the related revenue is recognized. Deferred costs amounted to $9.6 million and $2.7 million as of March 31, 2011 and December 31, 2011.
Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of ~~deferred costs related to in-process OTA projects,~~ prepaid insurance premiums, prepaid license fees, purchase deposits, advance payments to contractors, ~~advance commission payments~~prepaid taxes and miscellaneous receivables.

Property and Equipment

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

March 31, September 30,
2011 2011
Land and land improvements $ 1,474 $ 1,489
Buildings 15,104 15,170
Furniture, fixtures and office equipment 8,323 10,613
Leasehold improvements 9 54
Equipment leased to customers under Power Purchase Agreements 4,994 4,997
Plant equipment 8,067 8,461
Construction in progress 2,272 1,411

40,243 42,195
Less: accumulated depreciation and amortization (10,226 ) (11,962 )

Net property and equipment $ 30,017 $ 30,233

   March 31, December 31,
   2011 2011
Land and land improvements
   $ 1,474 $ 1,545
Buildings
   15,104 14,724
Furniture, fixtures and office equipment
   8,323 11,019
Leasehold improvements
   9 54
Equipment leased to customers under Power Purchase Agreements
   4,994 4,997
Plant equipment
   8,067 9,646
Construction in progress
   2,272 1,562


   40,243 43,547
Less: accumulated depreciation and amortization
   (10,226 ) (12,952 )


Net property and equipment
   $ 30,017 $ 30,595


Depreciation is provided over the estimated useful lives of the respective assets, using the straight-line method. Depreciable lives by asset category are as follows:


Land improvements		10 –- 15 years
Buildings		10 –- 39 years
Leasehold improvements		Shorter of asset life or life of lease
Furniture, fixtures and office equipment		2 –- 10 years
Plant equipment		3 –- 10 years

Patents and Licenses

Patents and licenses are amortized over their estimated useful life, ranging from 7 to 17 years, using the straight line method.

Long-Term Receivables

The Company records a long-term receivable for the non-current portion of its sales-type capital lease OTA contracts. The receivable is recorded at the net present value of the future cash flows from scheduled customer payments. The Company uses the implied cost of capital from each individual contract as the discount rate. Long-term receivables from OTA contracts were ~~$5.4~~$6.0 million as of ~~September 30,~~December 31, 2011.

Also included in other long-term receivables are amounts due from a third party finance company to which the Company has sold, without recourse, the future cash flows from OTAs entered into with customers. Such receivables are recorded at the present value of the future cash flows discounted between 8.8% and 11%. As of ~~September 30,~~December 31, 2011, the following amounts were due from the third party finance company in future periods (in thousands):

Fiscal 2013 $ 955
Fiscal 2014 1,015
Fiscal 2015 958
Fiscal 2016 310
Fiscal 2017 9

Total gross long-term receivable 3,247
Less: amount representing interest (690 )

Net long-term receivable $ 2,557

Fiscal 2013
   $ 955
Fiscal 2014
   1,015
Fiscal 2015
   958
Fiscal 2016
   310
Fiscal 2017
   9


Total gross long-term receivable
   3,247
Less: amount representing interest
   (583 )


Net long-term receivable
   $ 2,664


Long-Term Inventories
The Company records long-term inventory for the non-current portion of its wireless controls inventory. All inventories are stated at the lower of cost or market value with cost determined using the first-in, first-out (FIFO) method.
Other Long-Term Assets

Other long-term assets include long-term security deposits, prepaid licensing costs and deferred financing costs. Other long-term assets include $55,000 and ~~$152,000~~$95,000 of deferred financing costs as of March 31, 2011 and ~~September 30,~~December 31, 2011. Deferred financing costs related to debt issuances are amortized to interest expense over the life of the related debt issue (2 to 10 years).

Accrued Expenses

Accrued expenses include warranty accruals, accrued wages and benefits, accrued vacation, sales tax payable and other various unpaid expenses. NoAccrued expenses include $0.5 million and $1.4 million of accrued ~~expenses exceeded 5% of current liabilities~~subcontracted installation costs as of ~~either~~ March 31, 2011 ~~or September 30,~~and December 31, 2011.

The Company generally offers a limited warranty of one year on its own manufactured products in addition to those standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps and ballasts, which are significant components in the Company’s manufactured products.

Changes in the Company’s warranty accrual were as follows (in thousands):

Three Months Ended Six Months Ended
September 30, September 30,
2010 2011 2010 2011
Beginning of period $ 59 $ 59 $ 60 $ 59
Provision to product cost of revenue 27 28 75 59
Charges (27 ) (22 ) (76 ) (53 )

End of period $ 59 $ 65 $ 59 $ 65

   Three Months Ended Nine Months Ended
   December 31, December 31,
   2010 2011 2010    2011
Beginning of period
   $ 59 $ 65 $ 60    $ 59
Provision to product cost of revenue
   20 30 95    89
Charges
   (18 ) (24 ) (94 )    (77 )




End of period
   $ 61 $ 71 $ 61    $ 71




Revenue Recognition

The Company offers a financing program, called an OTA, for a customer’s lease of the Company’s energy management systems. The OTA is structured as a sales-type capital lease and upon successful installation of the system and customer acknowledgement that the system is operating as specified, product revenue is recognized at the Company’s net investment in the lease, which typically is the net present value of the future cash flows.

The Company offers a separate program, called a power purchase agreement, or PPA, for the Company’s renewable energy product offerings. A PPA is a supply side agreement for the generation of electricity and subsequent sale to the end user. Upon the customer’s acknowledgement that the system is operating as specified, product revenue is recognized on a monthly basis over the life of the PPA contract, typically in excess of 10 years.

~~Other than~~
10
For sales of solar photovoltaic systems, which are governed by customer contracts that require the Company to deliver functioning solar power systems and are generally completed within three to 15 months, the Company recognizes revenue from fixed price construction contracts using the percentage-of-completion method in accordance with ASC 605-35, Construction-Type and Production-Type Contracts. Under this method, revenue arising from fixed price construction contracts is recognized as work is performed based upon the percentage of incurred costs to estimated total forecasted costs. The Company has determined that the appropriate method of measuring progress on these sales is measured by the percentage of costs incurred to date of the total estimated costs for ~~OTA~~each contract as materials are installed. The percentage-of-completion method requires revenue recognition from the delivery of products to be deferred and ~~PPA~~the cost of such products to be capitalized as a deferred cost and current asset on the balance sheet. The Company performs periodic evaluations of the progress of the installation of the solar photovoltaic systems using actual costs incurred over total estimated costs to complete a project. Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable.
Revenue is recognized on the sales ~~revenue is recognized~~of our lighting and related energy efficiency systems and products when the following four criteria are met:
persuasive evidence of an arrangement exists;
• ~~persuasive evidence of an arrangement exists;~~
• ~~delivery has occurred and title has passed to the customer;~~
• ~~the sales price is fixed and determinable and no further obligation exists; and~~
• ~~collectability is reasonably assured~~
delivery has occurred and title has passed to the customer;
the sales price is fixed and determinable and no further obligation exists; and
collectability is reasonably assured
These four criteria are met for the Company’s product-only revenue upon delivery of the product and title passing to the customer. At that time, the Company provides for estimated costs that may be incurred for product warranties and sales returns. Revenues are presented net of sales tax and other sales related taxes.

For sales ~~contracts~~of the Company’s lighting and energy management technologies, consisting of multiple elements of revenue, such as a combination of product sales and services, the Company determines revenue by allocating the total contract revenue to each element based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (1) vendor-specific objective evidence (VSOE) of fair value, if available, (2) third-party evidence (TPE) of selling price if VSOE is not available, and (3) best estimate of the selling price if neither VSOE nor TPE is available (a description as to how the Company determined VSOE, TPE and estimated selling price is provided below).

The nature of the Company’s multiple element arrangements for the sale of its lighting and energy management technologies is similar to a construction project, with materials being delivered and contracting and project management activities occurring according to an installation schedule. The significant deliverables include the shipment of products and related transfer of title and the installation.

To determine the selling price in multiple-element arrangements, the Company established VSOE of the selling price for its HIF lighting and energy management system products using the price charged for a deliverable when sold separately. In addition, the Company records in service revenue the selling price for its installation and recycling services using management’s best estimate of selling price, as VSOE or TPE evidence does not exist. Service revenue is recognized when services are completed and customer acceptance has been received. Recycling services provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. The Company’s service revenues, other than for installation and recycling that are completed prior to delivery of the product, are included in product revenue using management’s best estimate of selling price, as VSOE or TPE evidence does not exist. These services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, and project management. For these services and for installation and recycling services, management’s best estimate of selling price is determined by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, competition, geographies in which the Company offers its products and services and internal costs. The determination of estimated selling price is made through consultation with and approval by management, taking into account all of the preceding factors.

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

Costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance are deferred and recorded in prepaid expenses and other current assets on the Consolidated Balance Sheet. These deferred costs are expensed at the time the related revenue is recognized. Deferred costs amounted to $0.8 million and $2.4 million as of March 31, 2011 and September 30, 2011.

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

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

March 31, September 30,
2011 2011
Deferred revenue — current liability $ 262 $ 3,077
Deferred revenue — long term liability 1,777 1,583

Total deferred revenue $ 2,039 $ 4,660

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between financial reporting and income tax basis of assets and liabilities, measured using the enacted tax rates and laws expected to be in effect when the temporary differences reverse. Deferred income taxes also arise from the future tax benefits of operating loss and tax credit carryforwards. A valuation allowance is established when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized.

ASC 740,Income Taxes, also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination. The Company has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. The Company recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits.

Deferred tax benefits have not been recognized for income tax effects resulting from the exercise of non-qualified stock options. These benefits will be recognized in the period in which the benefits are realized as a reduction in taxes payable and an increase in additional paid-in capital. For the ~~six~~nine months ended ~~September 30,~~December 31, 2010 and 2011, ~~there were none and $0.3 million~~ realized tax benefits from the exercise of stock ~~options.~~

options were $0.2 million and $0.7 million, respectively.

Stock Option Plans

The fair value of each option grant for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2010 and 2011 was determined using the assumptions in the following table:

Three months Ended September 30, Six months Ended September 30,
2010 2011 2010 2011
Weighted average expected term 8.3 years 6.8 years 5.8 years 5.7 years
Risk-free interest rate 2.24 % 1.64 % 2.25 % 1.83 %
Expected volatility 60 % 49.5 % 60 % 49.5%-58.4 %
Expected forfeiture rate 10 % 11.4 % 10 % 11.4 %
Expected dividend yield 0 % 0 % 0 % 0 %

   Three Months Ended December 31,    Nine Months Ended December 31,
   2010    2011    2010      2011
Weighted average expected term
   6.0 years       6.0 years       5.6 years         3.6 years
Risk-free interest rate
   1.47%       1.14%       2.06%         0.99%
Expected volatility
   74.8%       70.0%       60.0% - 74.8%         70.0%
Expected forfeiture rate
   10.0%       11.4%       10.0%         11.4%
Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.

Diluted net income (loss) per common share reflects the dilution that would occur if warrants and employee stock options were exercised. In the computation of diluted net income per common share, the Company uses the “treasury stock” method for outstanding options and warrants. Diluted net ~~loss~~income (loss) per common share is the same as basic net ~~loss~~income (loss) per common share for the periods ended ~~September 30, 2011,~~December 31, 2010, because the effects of potentially dilutive securities are anti-dilutive. The effect of net income (loss) per common share is calculated based upon the following shares (in thousands except share amounts):

Three months Ended September 30, Six months Ended September 30,
2010 2011 2010 2011
Numerator:
Net income (loss) (in thousands) $ 540 $ (99 ) $ 4 $ (318 )

Denominator:
Weighted-average common shares outstanding 22,638,638 22,989,502 22,581,188 22,955,655
Weighted-average effect of assumed conversion of stock options and warrants 262,952 — 425,879 —

Weighted-average common shares and common share equivalents outstanding 22,901,590 22,989,502 23,007,067 22,955,655

Net income (loss) per common share:
Basic $ 0.02 $ 0.00 $ 0.00 $ (0.01 )
Diluted $ 0.02 $ 0.00 $ 0.00 $ (0.01 )

   Three Months Ended December 31,    Nine Months Ended December 31,
   2010 2011    2010    2011
   (As Adjusted) (As Adjusted)    (As Adjusted)    (As Adjusted)
Numerator:

Net income (loss) (in thousands)
   $ (182 ) $ 74    $ (179 )    $ 640
Denominator:

Weighted-average common shares outstanding
   22,726,426 22,996,050    22,629,776    22,969,169
Weighted-average effect of assumed conversion of stock options and warrants
   —      258,780    —         419,482






Weighted-average common shares and common share equivalents outstanding
   22,726,426 23,254,830    22,629,776    23,388,651






Net income (loss) per common share:

Basic
   $ (0.01 ) $ 0.00    $ (0.01 )    $ 0.03
Diluted
   $ (0.01 ) $ 0.00    $ (0.01 )    $ 0.03
12
The following table indicates the number of potentially dilutive securities as of the end of each period:

September 30, September 30,
2010 2011
Common stock options 3,638,252 4,018,917
Common stock warrants 76,240 38,980

Total 3,714,492 4,057,897

   December 31,    December 31,
   2010    2011
Common stock options
   3,651,648    4,083,078
Common stock warrants
   45,040    38,980




Total
   3,696,688    4,122,058




Concentration of Credit Risk and Other Risks and Uncertainties

The Company currently depends on one supplier for a number of components necessary for its products, including ballasts and lamps. If the supply of these components were to be disrupted or terminated, or if this supplier were unable to supply the quantities of components required, the Company may have short-term difficulty in locating alternative suppliers at required volumes. Purchases from this supplier accounted for ~~44%~~21% and ~~15%~~22% of total cost of revenue for the three months ended ~~September 30,~~December 31, 2010 and 2011, respectively, and ~~34%~~29% and ~~13%~~15% of total cost of revenue for the ~~six~~nine months ended ~~September 30,~~December 31, 2010 and ~~2011.~~

2011, respectively.

The Company currently purchases a majority of its solar panels from one supplier for its sales of solar generating systems through its Orion Engineered Systems Division. The Company does have alternative vendor sources for its sale of PV solar generating systems. Purchases from this supplier accounted for 19% and 30% of total cost of revenue forFor the three months ended ~~September 30,~~December 31, 2010 and ~~2011 and 15% and 32% of total cost of revenue for the six months ended September 30, 2010 and 2011.~~

~~For the three and six months ended September 30, 2010 and~~December 31, 2011, no customer accounted for more than 10% of revenue.

For the nine months ended December 31, 2010, no customer accounted for more than 10% of revenue. For the nine months ended December, 31 2011, one customer accounted for 11% of revenue and one customer accounted for 11% of revenue.
As of March 31, 2011, ~~and September 30,~~one customer accounted for 17% of the accounts receivable balance. As of December 31, 2011, one customer accounted for ~~16%~~15% of the accounts receivable balance and one customer accounted for 11% of the accounts receivable ~~respectively.~~

balance.
Recent Accounting Pronouncements

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

In April, 2011, the FASB issued ASU No. 2011-03Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements(“ (“ASU 2011-03”). ASU No. 2011-03 affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments in ASU 2011-03 remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially all of the agreed terms, even in the event of default by the transferee. ASU 2011-03 also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance is effective for the Company’s reporting period ended March 31, 2012. ASU 2011-03 is required to be applied prospectively to transactions or modifications of existing ~~transactions~~transaction that occur on or after January 1, 2012. The Company does not expect that the adoption of ASU 2011-03 will have a significant impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (“IFRS”)(“ (“ASU 2011-04”). ASU 2011-04 represents the converged guidance of the FASB and the IASB (the “Boards”) on fair value measurements. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRSs. The amendments in this ASU are required to be applied prospectively, and are effective for interim and annual periods beginning after December 15, 2011. The Company does not expect that the adoption of ASU 2011-04 will have a significant impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”) which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. However, in December 2011, the FASB issued ASU No. 2011-12,“Deferral of the Effective Date for Amendments to the Presentation of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”(“ASU 2011-12”), which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 reinstated the requirements for the presentation of reclassifications that were in place prior to the issuance of ASU 2011-05 and did not change the effective date for ASU 2011-05. For public entities, the amendments in ASU 2011-05 and ASU2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. The adoption of ASU 2011-05 ~~will~~and ASU 2011-12 did not have a significant impact on the Company’s consolidated statements as it only requires a change in the format of the current presentation.

NOTE C — RELATED PARTY TRANSACTIONS

During the ~~six~~nine months ended September 30, 2010 and 2011, the Company recorded revenue of $11,000 and $0.3 million, respectively, for products and services sold to an entity for which a then current director of the Company was formerly the executive chairman. During the same six month periods, the Company purchased goods and services from the same entity in the amounts of none and $4,700, respectively. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party.

~~During the six months ended September 30,~~December 31, 2010 and 2011, the Company purchased goods and services from an entity in the amounts of ~~$19,000~~$34,000 and ~~$23,000,~~$35,000, respectively, for which a director of the Company serves as a member of the board of directors. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party.

During the nine months ended December 31, 2010, the Company recorded revenue of $18,000 for products and services sold to an entity for which a former director of the Company was formerly the executive chairman. The Company also entered into an OTA finance contract with such entity in September 2010 with future expected gross contracted revenue to the Company of $2.9 million. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party. As of December 31, 2011, the related party relationship no longer exists.
During the nine months ended December 31, 2010, the Company recorded revenue of $183,000 for products and services sold to various entities affiliated or associated with an entity for which a director of the Company previously served as a member of the board of directors. The Company is not able to identify the respective amount of revenues attributable to specifically identifiable entities within such group of affiliated or associated entities or the extent to which any such individual entities are related to the entity on whose board of directors the Company’s executive officer serves. The terms and conditions of such relationship are believed to be not materially more favorable to the Company or the entity than could be obtained from an independent third party. As of December 31, 2011, the related party relationship no longer exists.
NOTE D — DEBT

Long-term debt as of March 31, 2011 and ~~September 30,~~December 31, 2011 consisted of the following (in thousands):

March 31, September 30,
2011 2011
Term note $ 782 $ 659
Customer equipment finance notes payable 1,793 6,028
First mortgage note payable 853 815
Debenture payable 807 787
Other long-term debt 1,127 992

Total long-term debt 5,362 9,281
Less current maturities (1,137 ) (2,351 )

Long-term debt, less current maturities $ 4,225 $ 6,930

   March 31, December 31,
   2011 2011
Term note
   $ 782 $ 596
Customer equipment finance notes payable
   1,793 5,597
First mortgage note payable
   853 795
Debenture payable
   807 776
Other long-term debt
   1,127 921


Total long-term debt
   5,362 8,685
Less current maturities
   (1,137 ) (2,344 )


Long-term debt, less current maturities
   $ 4,225 $ 6,341


New Debt Arrangements

In September 2011, the Company entered into a credit agreement with JP Morgan Chase Bank, N.A. (JP Morgan) that provided the Company with $5.0 million immediately available to fund completed customer contracts under the Company’s OTA finance program and an additional $5.0 million upon the Company’s achievement of meeting a trailing 12-month earnings before interest, taxes, depreciation and amortization (EBITDA) target of $8.0 million. The Company has ~~one-year~~one year from the date of the commitment to borrow under the credit agreement. In September 2011, the Company borrowed $1.8 million. The borrowing is collateralized by the OTA-related equipment and the expected future monthly payments under the supporting 27 individual OTA customer contracts. The current borrowing under the credit agreement bears interest at LIBOR plus 4% and matures in September 2016. The credit agreement includes certain financial covenants, including funded debt to EBITDA and debt service coverage ratios. The Company was in compliance with all covenants in the credit agreement as of September 30, 2011.

Revolving Credit Agreement

On June 30, 2010, the Company entered into a new credit agreement (Credit Agreement) with JP Morgan. The Credit Agreement replaced the former credit agreement with a different bank.

The Credit Agreement provides for a revolving credit facility (Credit Facility) that matures on June 30, 2012. The Company is currently working on an amendment to the Credit Facility to extend the maturity date to June 30, 2013. Borrowings under the Credit Facility are limited to (i) $15.0 million or (ii) during periods in which the outstanding principal balance of outstanding loans under the Credit Facility is greater than $5.0 million, the lesser of (A) $15.0 million or (B) the sum of 75% of the outstanding principal balance of certain accounts receivable of the Company and 45% of certain inventory of the Company. The Credit Agreement contains certain financial covenants, including minimum unencumbered liquidity requirements and requirements that the Company maintain a total liabilities to tangible net worth ratio not to exceed 0.50 to 1.00 as of the last day of any fiscal quarter. The Credit Agreement also contains certain restrictions on the ability of the Company to make capital or lease expenditures over prescribed limits, incur additional indebtedness, consolidate or merge, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on its stock, redeem or repurchase shares of its stock or pledge assets. The Company also may cause JP Morgan to issue letters of credit for the Company’s account in the aggregate principal amount of up to $2.0 million, with the dollar amount of each issued letter of credit counting against the overall limit on borrowings under the Credit Facility. As of ~~September 30,~~December 31, 2011, the Company had outstanding letters of credit totaling $1.7 million, primarily for securing collateral requirements under equipment operating leases. In fiscal 2011, the Company incurred $57,000 of total deferred financing costs related to the Credit Agreement which is being amortized over the two-year term of the Credit Agreement. There were no borrowings by the Company under the Credit Agreement as of March 31, 2011 or ~~September 30,~~December 31, 2011. ~~The Company was in compliance with all of its covenants under the Credit Agreement as of September 30, 2011.~~

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

The Credit Agreement provides that the Company has the option to select whether borrowings under the Credit Facility will bear interest at either (i) a daily borrowing LIBOR rate tied to a one-month maturity or (ii) a LIBOR rate tied to a maturity corresponding to an interest period selected by the Company plus, in the case of either (i) or (ii), a per annum rate spread of 2.00%, 2.50% or 3.00%, depending on the ratio of (A) earnings before interest, taxes, depreciation and amortization less income taxes pain in cash less 50% of depreciation expense to (B) the sum of interest expense paid in cash in respect of indebtedness for borrowed money plus scheduled principal payments made with respect to indebtedness for borrowed money, all as determined for the 12-month period ending as of the end of the applicable fiscal quarter.

The Company must pay a fee of 0.25% on the average daily unused amount of the Credit Facility and a fee of 2.00% on the daily average face amount of undrawn issued letters of credit. The fee on unused amounts is waived if the Company or its affiliates maintain funds on deposit with JP Morgan or its affiliates above a specified amount. The deposit threshold requirement was met as of ~~September 30,~~December 31, 2011.

NOTE E — INCOME TAXES

The income tax provision for the ~~six~~nine months ended ~~September 30,~~December 31, 2011 was determined by applying an estimated annual effective tax rate of ~~40.3%~~43.4% to income before taxes. The estimated effective income tax rate was determined by applying statutory tax rates to pretax income adjusted for certain permanent book to tax differences and tax credits.

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

Six Months Ended September 30,
2010 2011
Statutory federal tax rate (34.0 )% 34.0 %
State taxes, net (9.9 )% 4.9 %
Stock-based compensation expense (44.6 )% 1.4 %
Federal tax credit 7.9 % (2.2 )%
State tax credit 2.1 % 0.0 %
Permanent items (11.7 )% 1.0 %
Change in valuation reserve (10.4 )% 0.0 %
Other, net 0.4 % 1.4 %

Effective income tax rate (100.2 )% 40.3 %

   Nine Months Ended December 31,
   2010 2011
Statutory federal tax rate
   34.0 % 34.0 %
State taxes, net
   2.0 % 9.2 %
Stock-based compensation expense
   (113.3 )% 0.0 %
Federal tax credit
   (14.7 )% (11.6 )%
State tax credit
   (2.2 )% (5.9 )%
Change in valuation reserve
   8.0 % 5.9 %
Permanent items
   7.0 % 6.6 %
Prior Year Permanent Differences
   (5.5 )% 3.4 %
Other, net
   0.2 % 1.8 %


Effective income tax rate
   (84.5 )% 43.4 %


The Company is eligible for tax benefits associated with the excess of the tax deduction available for exercises of non-qualified stock options, or NQSOs, over the amount recorded at grant. The amount of the benefit is based on the ultimate deduction reflected in the applicable income tax return. Benefits of ~~$0.5~~$0.1 million were recorded in fiscal 2011 as a reduction in taxes payable and a credit to additional paid in capital based on the amount that was utilized during the year. Benefits of ~~$0.3~~$0.7 million were recorded for the ~~six~~nine months ended ~~September 30,~~December 31, 2011.

During fiscal 2011, the Company converted almost all of its existing incentive stock options, or ISOs, to NQSOs. This conversion was applied retrospectively, allowing the Company to benefit by reducing $0.6 million of income tax expense during fiscal 2011 related to non-deductible ISO stock compensation expense that was previously deferred for income tax purposes. The conversion will greatly reduce the impact of stock-based compensation expense on the effective tax rate in the table above. Since July 30, 2008, all stock option grants have been issued as NQSOs.

As of ~~September 30,~~December 31, 2011, the Company had federal net operating loss carryforwards of approximately ~~$7.6~~$5.9 million, of which ~~$4.5~~$2.2 million are associated with the exercise of NQSOs that have not yet been recognized by the Company in its financial statements. The Company also has state net operating loss carryforwards of approximately ~~$4.6~~$4.4 million, of which ~~$2.5~~$1.9 million are associated with the exercise of NQSOs. The Company also has federal tax credit carryforwards of approximately $1.0 million and state tax credits of $0.6 million. A full valuation allowance has been set up for the state tax credits due to the state apportioned income and the potential expiration of the state tax credits due to the carry forward period. These federal and state net operating losses and credit carryforwards are available, subject to the discussion in the following paragraph, to offset future taxable income and, if not utilized, will begin to expire in varying amounts between 2014 —– 2030.

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

As of ~~September 30,~~December 31, 2011, an examination of the Company’s U.S. federal income tax returns for tax years 2009 to 2011 ~~remain subject to examination.~~was complete. The ~~Company has various federal income tax return positions in the process of examination for 2009 and 2010. The Company currently believes that the ultimate~~ resolution of ~~these matters, individually or in the aggregate, will~~this examination did not have a material effect on its business, financial condition, results of operations or liquidity.

Uncertain tax positions

As of ~~September 30,~~December 31, 2011, the balance of gross unrecognized tax benefits was approximately $0.4 million, all of which would reduce the Company’s effective tax rate if recognized. The Company does not expect this amount to change in the next 12 months as none of the issues are currently under examination, the statutes of limitations do not expire within the period, and the Company is not aware of any pending litigation. Due to the existence of net operating loss and credit carryforwards, all years since 2002 are open to examination by tax authorities.

The Company has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. The Company recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are immaterial as of the date of adoption and are included in the unrecognized tax benefits. For the ~~six~~nine months ended ~~September 30,~~December 31, 2010 and 2011, the Company had the following unrecognized tax benefit activity (in thousands):

Six Months Ended Six Months Ended
September 30, 2010 September 30, 2011
Unrecognized tax benefits as of beginning of period $ 399 $ 399
Decreases relating to settlements with tax authorities — —
Additions based on tax positions related to the current period positions 1 1

Unrecognized tax benefits as of end of period $ 399 $ 400

16
   Nine Months Ended    Nine Months Ended
   December 31, 2010    December 31, 2011
Unrecognized tax benefits as of beginning of period
   $ 398    $ 399
Additions based on tax positions related to the current period positions
   1    1




Unrecognized tax benefits as of end of period
   $ 399    $ 400




NOTE F — COMMITMENTS

AND CONTINGENCIES
Operating Leases and Purchase Commitments

The Company leases vehicles and equipment under operating leases. Rent expense under operating leases was ~~$0.4~~$0.5 million and $0.5 million for the three months ended ~~September 30,~~December 31, 2010 and 2011; and ~~$0.8~~$1.3 million and ~~$1.0~~$1.6 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2010 and 2011. The Company enters into non-cancellable purchase commitments for certain inventory items in order to secure better pricing and ensure materials are on hand to meet anticipated order volume and customer expectations, as well as for capital expenditures. As of ~~September 30,~~December 31, 2011, the Company had entered into ~~$10.1~~$12.1 million of purchase commitments related to ~~fiscal 2012,~~the next 12 months, including $1.7 million for operating lease commitments and ~~$8.4~~$10.4 million for inventory purchase commitments.

NOTE G — SHAREHOLDERS’ EQUITY

Shareholder Rights Plan

On January 7, 2009, the Company’s Board of Directors adopted a shareholder rights plan and declared a dividend distribution of one common share purchase right (a “Right”) for each outstanding share of the Company’s common stock. The issuance date for the distribution of the Rights was February 15, 2009 to shareholders of record on February 1, 2009. Each Right entitles the registered holder to purchase from the Company one share of the Company’s common stock at a price of $30.00 per share, subject to adjustment (the “Purchase Price”).

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

If a person becomes an Acquiring Person, holders of Rights (except as otherwise provided in the shareholder rights plan) will have the right to receive that number of shares of the Company’s common stock 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, the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (except as otherwise provided in the shareholder rights plan) will thereafter have the right to receive 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 the Company. At any time prior to a person becoming an Acquiring Person, the Board of Directors of the Company 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, 2019.

Employee Stock Purchase Plan

In August 2010, the Company’s Board of Directors approved a non-compensatory employee stock purchase plan, or ESPP. The ESPP authorizes 2,500,000 shares to be issued from treasury or authorized shares to satisfy employee share purchases under the ESPP. All full-time employees of the Company are eligible to be granted a non-transferable purchase right each calendar quarter to purchase directly from the Company up to $20,000 of the Company’s common stock at a purchase price equal to 100% of the closing sale price of the Company’s common stock on the NYSE Amex exchange on the last trading day of each quarter. The ESPP allows for employee loans from the Company, except for Section 16 officers, limited to 20% of an individual’s annual income and no more than $250,000 outstanding at any one time. Interest on the loans is charged at the 10-year loan IRS rate and is payable at the end of each calendar year or upon loan maturity. The loans are secured by a pledge of any and all the Company’s shares purchased by the participant under the ESPP and the Company has full recourse against the employee, including offset against compensation payable. The Company had the following shares issued from treasury during fiscal 2011 and for the ~~six~~nine months ended ~~September 30,~~December 31, 2011:

Shares Issued Shares Issued
Under ESPP Closing Market Under Loan Dollar Value of Repayment of
Plan Price Program Loans Issued Loans
Fiscal Year Ended March 31, 2011 65,776 $ 3.37 58,655 $ 196,100 $ 2,685
Quarter Ended June 30, 2011 9,788 3.93 8,601 33,800 1,649
Quarter Ended September 30, 2011 16,753 2.65 11,264 29,850 11,102

Total 92,317 $ 3.30 78,520 $ 259,750 $ 15,436

   Under ESPP    Closing Market    Under Loan    Dollar Value of    Repayment of
   Plan    Price    Program    Loans Issued    Loans
Fiscal Year Ended March 31, 2011
   65,776    $ 3.37    58,655    $ 196,100    $ 2,685
Quarter Ended June 30, 2011
   9,788    3.93    8,601    33,800    1,649
Quarter Ended September 30, 2011
   16,753    2.65    11,264    29,850    11,102
Quarter Ended December 31, 2011
   3,756    2.95    2,542    7,500    34,650










Total
   96,073    $ 3.29    81,062    $ 267,250    $ 50,086










Loans issued to employees are reflected on the Company’s balance sheet as a contra-equity account.

Share Repurchase Program

In October 2011, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase in aggregate up to a maximum of $1.0 million of the Company’s outstanding common stock.

In November 2011, the Company’s Board of Directors approved an increase to the share repurchase program authorizing the Company to repurchase in aggregate up to a maximum of $2.5 million of the Company’s outstanding common stock. As of December 31, 2011, the Company had repurchased 98,300 shares of common stock at a cost of $279,000 under the program.
NOTE H — STOCK OPTIONS AND WARRANTS

The Company grants stock options under its 2003 Stock Option and 2004 Stock and Incentive Awards Plans (the Plans). Under the terms of the Plans, the Company has reserved ~~12,000,000~~13,500,000 shares for issuance to key employees, consultants and directors. The Company’s ~~board~~Board of ~~directors~~Directors approved an increase to the number of shares available under the 2004 Stock and Incentive Awards Plan of 1,500,000 shares, and such share increase was approved by the Company’s shareholders at the 2010 annual shareholders meeting and such shares are included above, other than as described below. In addition, the Company’s board of directors subsequently approved an additional increase to the number of shares available under the Plan by 1,000,000 shares contingent upon the Company’s achievement of at least 100% of each of the targeted financial metrics under its bonus program for fiscal 2012. The contingent share increase was approved by the Company’s shareholders at the 2011 annual shareholders meeting, ~~and~~but such shares are not included in the total above. The options generally vest and become exercisable ratably between one month and five years although longer vesting periods have been used in certain circumstances. Exercisability of the options granted to employees are contingent on the employees’ continued employment and non-vested options are subject to forfeiture if employment terminates for any reason. Options under the Plans have a maximum life of 10 years. In the past, the Company has granted both ISOs and NQSOs, although in July 2008, the Company adopted a policy of thereafter only granting NQSOs. Restricted stock awards have no vesting period and have been issued to certain non-employee directors in lieu of cash compensation pursuant to elections made under the Company’s non-employee director compensation program. The Plans also provide to certain employees accelerated vesting in the event of certain changes of control of the Company as well as under other special circumstances.

In fiscal 2011, the Company converted all of its existing ISO awards to NQSO awards. No consideration was given to the employees for their voluntary conversion of ISO awards.

The Company granted accelerated vesting stock options in May 2011 under its 2004 Stock and Incentive Awards Plan to provide an opportunity for its employees to earn long-term equity incentive awards based on the Company’s financial performance for fiscal 2012. An aggregate of 459,041 stock options were granted on the third business day following the Company’s public release of its fiscal 2011 results at an exercise price per share of $4.19, which was the closing sale price of the Company’s Common Stock on that date. The stock options will only vest, however, if the optionee remains employed and the Company is successful in achieving at least 100% of the target levels for each of the Company’s three financial metric targets for fiscal 2012, and if the Company’s stock price equals or exceeds $5.00 per share for at least 20 trading days during any 90-day period during the options’ ten-year term.

For the three and ~~six~~nine months ended ~~September 30,~~December 31, 2011, the Company granted ~~7,614~~8,637 and ~~10,896~~19,533 shares ~~under~~from the 2004 Stock and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ~~at $3.12~~ranging from $2.75 per share ~~and~~to $4.19 per share, the closing market prices as of the grant dates.

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

Three Months Ended September 30, Six Months Ended September 30,
2010 2011 2010 2011

Cost of product revenue $ 38 $ 35 $ 74 $ 77
General and administrative 173 140 271 296
Sales and marketing 145 124 254 272
Research and development 7 7 12 12

Total $ 363 $ 306 $ 611 $ 657

   Three Months Ended December 31,    Nine Months Ended December 31,
   2010    2011    2010      2011
Cost of product revenue
   $ 42    $ 37    $ 116      $ 114
General and administrative
   147    144    417      440
Sales and marketing
   123    119    377      391
Research and development
   9    9    21      21








Total
   $ 321    $ 309    $ 931      $ 966








As of ~~September 30,~~December 31, 2011, compensation cost related to non-vested common stock-based compensation, excluding performance stock option awards, amounted to ~~$3.8~~$3.4 million over a remaining weighted average expected term of ~~6.9~~6.7 years.

The following table summarizes information with respect to the Plans:

Options Outstanding
Weighted
Weighted Average
Shares Average Remaining Aggregate
Available for Number Exercise Contractual Intrinsic
Grant of Shares Price Term (in years) value
Balance at March 31, 2011 1,577,676 3,658,768 $ 3.83 6.60
Granted stock options (986,356 ) 986,356 4.08
Granted shares (10,896 ) — —
Forfeited 546,794 (546,794 ) 4.32
Exercised — (79,413 ) 1.24

Balance at September 30, 2011 1,127,218 4,018,917 $ 3.97 7.17 $ 444,261

Exercisable at September 30, 2011 1,723,065 $ 3.97 5.52 $ 316,911

   Options Outstanding
   Shares
Available for
Grant Number
of Shares Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term (in years)    Aggregate
Intrinsic
Value
Balance at March 31, 2011
   1,577,676 3,658,768 $ 3.83    6.60
Granted stock options
   (1,251,356 ) 1,251,356 3.79
Granted shares
   (19,533 ) —      —
Forfeited
   747,633 (747,633 ) 4.25
Exercised
   —      (79,413 ) 1.25



Balance at December 31, 2011
   1,054,420 4,083,078 $ 3.89    6.95    $ 810,806



Exercisable at December 31, 2011
   1,846,129 $ 3.86    5.17    $ 610,279



The aggregate intrinsic value represents the total pre-tax intrinsic value, which is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s closing common stock price of ~~$2.65~~$2.95 as of ~~September 30,~~December 31, 2011.

A summary of the status of the Company’s outstanding non-vested stock options as of ~~September 30,~~December 31, 2011 was as follows:


Non-vested at March 31, 2011	1,832,167
Granted	~~986,356~~1,251,356
Vested	(~~209,881~~341,845	)
Forfeited	(~~312,790~~504,729	)

Non-vested at December 31, 2011
~~Non-vested at September 30, 2011~~	~~2,295,852~~2,236,949

The Company has previously issued warrants in connection with various private placement stock offerings and services rendered. The warrants granted the holder the option to purchase common stock at specified prices for a specified period of time. No warrants were issued in fiscal 2011 or during the ~~six~~nine months ended ~~September 30,~~December 31, 2011.

Outstanding warrants are comprised of the following:

Weighted
Average
Number of Exercise
Shares Price
Balance at March 31, 2011 38,980 $ 2.25
Issued — —
Exercised — —
Cancelled — —

Balance at September 30, 2011 38,980 $ 2.25

      Weighted
   Number of    Average
   Shares    Exercise Price
Balance at March 31, 2011
   38,980    $ 2.25




Balance at December 31, 2011
   38,980    $ 2.25




19
A summary of outstanding warrants at ~~September 30,~~December 31, 2011 follows:

Number of
Exercise Price Warrants Expiration
$2.25 38,980 Fiscal 2015

   Number of
Exercise Price
   Warrants    Expiration
$2.25
   38,980    Fiscal 2015
NOTE I — ~~SEGMENT DATA~~

~~During the fiscal 2011 third quarter, certain activity of the Orion Engineered Systems Division exceeded the quantitative thresholds required for segment reporting. As such,~~SEGMENTS
The descriptions of the Company’s segments and their summary financial information are summarized below.

Energy Management

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

Engineered Systems

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

wind.
Corporate and Other

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

Revenues Operating (Loss) Income
For the Three Months Ended September 30, For the Three Months Ended September 30,
(dollars in thousands) 2010 2011 2010 2011
Segments:
Energy Management $ 14,371 $ 16,686 $ 1,301 $ 1,415
Engineered Systems 1,482 2,574 (429 ) (449 )
Corporate and Other — — (2,122 ) (1,200 )

$ 15,853 $ 19,260 $ (1,250 ) $ (234 )

Revenues Operating (Loss) Income
For the Six Months Ended September 30, For the Six Months Ended September 30,
(dollars in thousands) 2010 2011 2010 2011
Segments:
Energy Management $ 29,769 $ 33,128 $ 1,592 $ 2,228
Engineered Systems 3,061 8,906 (841 ) (365 )
Corporate and Other — — (3,394 ) (2,527 )

$ 32,830 $ 42,034 $ (2,643 ) $ (664 )

   Revenues    Operating Income (Loss)
   For the Three Months Ended December 31,    For the Three Months Ended December 31,
   2010    2011    2010    2011
(dollars in thousands)
Segments:

Energy Management
   $ 22,042    $ 20,544    $ 3,499    $ 1,459
Engineered Systems
   1,602    6,862    (640 )    (132 )
Corporate and Other
   —         —         (1,583 )    (1,263 )








   $ 23,644    $ 27,406    $ 1,276    $ 64








   Revenues    Operating Income (Loss)
   For the Nine Months Ended December 31,    For the Nine Months Ended December 31,
   2010    2011    2010    2011
(dollars in thousands)
Segments:

Energy Management
   $ 54,121    $ 55,061    $ 5,268    $ 4,060
Engineered Systems
   2,352    24,041    (1,658 )    663
Corporate and Other
   —         —         (4,977 )    (3,790 )








   $ 56,473    $ 79,102    $ (1,367 )    $ 933








   Total Assets    Deferred Revenue
   March 31, 2011    December 31, 2011    March 31, 2011    December 31, 2011
(dollars in thousands)
Segments:

Energy Management
   $ 66,795    $ 67,770    $ 533    $ 1,017
Engineered Systems
   20,422    13,252    9,671    3,106
Corporate and Other
   33,870    43,879    —         —








   $ 121,087    $ 124,901    $ 10,204    $ 4,123








19


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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in the Form 10-Q. It should also be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form ~~10-K~~10-K/A for the year ended March 31, 2011.

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 fiscal 2011 Annual Report filed on Form ~~10-K~~10-K/A for the fiscal year ended March 31, 2011 and elsewhere in this Quarterly Report. 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 design, manufacture, market and implement energy management systems consisting primarily of high-performance, energy efficient lighting systems, controls and related services and market and implement renewable energy systems consisting primarily of solar generating photovoltaic, or PV, systems and wind turbines. We operate in two business segments, which we refer to as our Energy Management Division and our Engineered Systems Division.

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

We have sold and installed more than ~~2,176,000~~2,232,000 of our HIF lighting systems in over ~~7,368~~7,673 facilities from December 1, 2001 through ~~September 30,~~December 31, 2011. We have sold our products to ~~137~~139 Fortune 500 companies, many of which have installed our HIF lighting systems in multiple facilities. Our top direct customers by revenue in fiscal 2011 included Coca-Cola Enterprises Inc., U.S. Foodservice, SYSCO Corp., Ball Corporation, MillerCoors and Pepsico, Inc. and its affiliates.

Our fiscal year ends on March 31. We call our prior fiscal year which ended on March 31, 2011, “fiscal 2011”. We call our current fiscal year, which will end on March 31, 2012, “fiscal 2012.” Our fiscal first quarter ended on June 30, our fiscal second quarter ended on September 30, our fiscal third quarter ~~ends~~ended on December 31 and our fiscal fourth quarter ends on March 31.

Because of the recessed state of the global economy, especially as it impacted capital equipment manufacturers, our results for the first half of fiscal 2011 were impacted by lengthened customer sales cycles and sluggish customer capital spending. During the second half of fiscal 2011 and the first ~~half~~nine months of fiscal 2012, capital equipment purchases were slightly improved and we continue to remain optimistic regarding customer behaviors for the remainder of fiscal year 2012. To address these difficult economic conditions, we implemented $3.2 million of annualized cost reductions during the first quarter of fiscal 2010. These cost containment initiatives included reductions related to headcount, work hours and discretionary spending and began to show results in the second half of fiscal 2010 and the first half of fiscal 2011. During the second quarter of fiscal 2011, we identified an additional $1 million of annualized cost reductions related to decreased product costs, improved manufacturing efficiencies and reduced operating expenses. We realized these cost reductions beginning during the fiscal 2011 third quarter through reduction in general and administrative expenses and improved product margins for our HIF lighting systems.

Despite these recent economic challenges, we remain optimistic about our near-term and long-term financial performance. Our near-term optimism is based upon our record level of revenue in fiscal 2011 along with our return to profitability, our record level of order backlog heading into the ~~back half~~fourth quarter of fiscal 2012, the increasing volume of unit sales in the first ~~half~~nine months of fiscal 2012 of our new products, specifically our exterior HIF fixtures, InteLite wireless dynamic controls, and our Apollo light pipes, and our cost reduction plans completed during fiscal 2011. Our long-term optimism is based upon the considerable size of the existing market opportunity for lighting retrofits, the continued development of our new products and product enhancements, the opportunity for additional revenue from sales of renewable technologies through our Orion Engineered Systems Division, the opportunity for our participation in the replacement part aftermarket and the increasing national recognition of the importance of environmental stewardship, including legislation in the State of Wisconsin passed in fiscal 2011 that recognized our solar Apollo light pipe as a renewable product offering and qualified it for incentives currently offered to other renewable technologies.

In August 2009, we created Orion Engineered Systems, a new operating division which has been offering our customers additional alternative renewable energy systems. In fiscal 2010, we sold and installed three solar PV electricity generating projects, completing our test analysis on two of the three in the fiscal 2010 third quarter, and executed our first cash sale and our first power purchase agreement, or PPA, as a result of the successful testing of these systems. We completed the installation and customer acceptance of the third system, a cash sale, during our fiscal 2011 first quarter. During our fiscal 2011 second quarter, we received an ~~$8.2~~$8.3 million cash order for a solar PV generating system for which we recognized ~~$6.6 million of~~ revenue in fiscal ~~2011.~~

2012.
During our fiscal 2011 third quarter, ~~revenue from our Orion Engineered Systems Division exceeded~~we introduced the ~~quantitative threshold for generally accepted accounting principles, or GAAP, segment accounting.~~presentation of operating segments. We now report our Energy Management and Engineered Systems ~~Divisions~~groups as separate segments. Our Energy Management ~~Division~~division develops, manufactures, integrates and sells commercial high intensity fluorescent, or HIF, lighting systems and energy management systems. Our Engineered Systems ~~Division~~division sells and integrates alternative renewable energy ~~systems and provides technical services for the Company’s sale of HIF lighting systems and energy management~~ systems.

In response to the constraints on our customers’ capital spending budgets, we have more aggressively promoted the advantages to our customers of purchasing our energy management systems through our Orion Throughput Agreement, or OTA, ~~finance~~financing program. Our OTA financing program provides for our customer’s purchase of our energy management systems without an up-front capital outlay. The OTA contracts under this sales-type financing are either structured with a fixed term, typically 60 months, and a bargain purchase option at the end of the term, or are one year in duration and, at the completion of the initial one-year term, provide for (i) one to four automatic one-year renewals at agreed upon pricing; (ii) an early buyout for cash; or (iii) the return of the equipment at the customer’s expense. The revenue that we are entitled to receive from the sale of our energy management systems under our OTA financing program is fixed and is based on the cost of the energy management system and applicable profit margin. Our revenue from agreements entered into under this program is not dependent upon our customers’ actual energy savings. ~~Upon completion~~During the third quarter of ~~the installation,~~fiscal 2012, we ~~may choose to sell the future cash flows and residual rights to the~~entered into an arrangement with a national equipment ~~on a non-recourse basis to an unrelated third party~~ finance company ~~in exchange~~to provide immediate non-recourse funding of pre-credit approved OTA finance contracts upon project completion and customer acceptance. We have now secured multiple funding sources for ~~cash and future payments.~~our OTA projects. We expect that the number of customers who choose to purchase our systems by using our OTA financing program will continue to increase in future periods. Additionally, we have provided a financing program to our alternative renewable energy system customers called a solar power purchase agreement, or PPA, as an alternative to purchasing our systems for cash. The PPA is a supply side agreement for the generation of electricity and subsequent sale to the end user. We do not intend to use our own cash balances to fund future PPA ~~Opportunities. We~~opportunities and have ~~secured one external funding source~~been able to ~~fund PPA’s and continue to look for additional~~secure several external sources of funding for PPA’s on behalf of our customers.

Revenue and Expense Components

Revenue.We sell our energy management products and services directly to commercial and industrial customers, and indirectly to end users through wholesale sales to electrical contractors and value-added resellers. We currently generate the substantial majority of our revenue from sales of HIF lighting systems and related services to commercial and industrial customers. While our services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, project management, installation and recycling in connection with our retrofit installations, we separately recognize service revenue only for our installation and recycling services. Our service revenues are recognized when services are complete and customer acceptance has been received. In fiscal 2011, we increased our efforts to expand our value-added reseller channels, including through developing a partner standard operating procedural kit, providing our partners with product marketing materials and providing training to channel partners on our sales methodologies. These wholesale channels accounted for approximately 53% of our total revenue in fiscal 2011, not taking into consideration our renewable technologies revenue generated through our Orion Engineered Systems Division. During the first nine months of fiscal 2012, ~~first half,~~ wholesale revenues accounted for approximately ~~61%~~64% of our total revenue, not taking into consideration our renewable technologies revenue generated through our Orion Engineered Systems Division, compared to ~~53%~~51% for the first ~~half~~nine months of fiscal 2011. We are changing the manner in which we sell our solar PV systems. Instead of reselling the solar PV equipment ~~obtained~~ from a solar PV equipment manufacturer, we are encouraging our customers to purchase their solar PV systems directly from the manufacturer, while we provide the value-added installation and integration services. This change in approach is expected to result in reduced revenue from solar orders, but is expected to result in improved gross margins as discussed below.

Additionally, we offer our OTA sales-type financing program under which we finance the customer’s purchase of our energy management systems. We recognize revenue from OTA contracts at the net present value of the future cash flows at the completion date of the installation of the energy management systems and the ~~customers~~customer’s acknowledgement that the system is operating as specified.

In fiscal 2011, we recognized $10.7 million of revenue from 127 completed OTA contracts. For the three months ended ~~September 30,~~December 31, 2011, we recognized ~~$3.6~~$2.5 million of revenue from 29 completed contracts. For the ~~six~~nine months ended ~~September 30,~~December 31, 2011, we recognized ~~$6.5~~$9.1 million of revenue from 82111 completed contracts. In the future, we expect an increase in the volume of OTA contracts as our customers take advantage of the value proposition without incurring any up-front capital cost.

For sales of solar photovoltaic systems, which are governed by customer contracts that require the Company to deliver functioning solar power systems and are generally completed within three to 15 months, the Company recognizes revenue from fixed price construction contracts using the percentage-of-completion method in accordance with ASC 605-35, Construction-Type and Production-Type Contracts. Under this method, revenue arising from fixed price construction contracts is recognized as work is performed based upon the percentage of incurred costs to estimated total forecasted costs. The Company has determined that the appropriate method of measuring progress on these sales is measured by the percentage of costs incurred to date of the total estimated costs for each contract as materials are installed. The percentage-of-completion method requires revenue recognition from the delivery of products to be deferred and the cost of such products to be capitalized as a deferred cost and current asset on the balance sheet. The Company performs periodic evaluations of the progress of the installation of the solar photovoltaic systems using actual costs incurred over total estimated costs to complete a project. Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable.

Our PPA financing program provides for our customer’s purchase of electricity from our renewable energy generating assets without an upfront capital outlay. Our PPA is a longer-term contract, typically in excess of 10 years, in which we receive monthly payments over the life of the contract. This program creates an ongoing recurring revenue stream, but reduces near-term revenue as the payments are recognized as revenue on a monthly basis over the life of the contract versus upfront upon product shipment or project completion. In fiscal 2011, we recognized $0.4 million of revenue from completed PPAs. In the first ~~half~~nine months of fiscal 2012, we recognized ~~$0.4~~$0.5 million of revenue from completed PPAs. As of ~~September 30,~~December 31, 2011, we had signed one customer to two separate PPAs representing future potential discounted revenue streams of ~~$3.5~~$3.2 million. We discount the future revenue from PPAs due to the long-term nature of the contracts, typically in excess of 10 years. The timing of expected future discounted GAAP revenue recognition and the resulting operating cash inflows from PPAs, assuming the systems perform as designed, was as follows as of ~~September 30,~~December 31, 2011 (in thousands):

Fiscal 2012 $ 324
Fiscal 2013 646
Fiscal 2014 536
Fiscal 2015 426
Fiscal 2016 425
Beyond 1,152

Total expected future discounted revenue from PPAs $ 3,509

~~Other than for OTA and PPA revenue, we~~
Fiscal 2012
   $ 130
Fiscal 2013
   646
Fiscal 2014
   536
Fiscal 2015
   436
Fiscal 2016
   436
Beyond
   1,027


Total expected future discounted revenue from PPAs
   $ 3,211


We recognize revenue on product only sales at the time of shipment. For projects consisting of multiple elements of revenue, such as a combination of product sales and services, we recognize revenue by allocating the total contract revenue to each element based on their relative selling prices. We determine the selling price of products based upon the price charged when these products are sold separately. For services, we determine the selling price based upon management’s best estimate giving consideration to pricing practices, margin objectives, competition, scope and size of individual projects, geographies in which we offer our products and services, and internal costs. We recognize revenue at the time of product shipment on product sales and on services completed prior to product shipment. We recognize revenue associated with services provided after product shipment, based on their relative selling price, when the services are completed and customer acceptance has been received. When other significant obligations or acceptance terms remain after products are delivered, revenue is recognized only after such obligations are fulfilled or acceptance by the customer has occurred.

Our dependence on individual key customers can vary from period to period as a result of the significant size of some of our retrofit and multi-facility roll-out projects. Our top 10 customers accounted for approximately ~~38%~~30% and ~~28%~~45% of our total revenue for the first ~~half~~nine months of fiscal ~~2012~~2011 and fiscal ~~2011,~~2012, respectively. No ~~customer~~customers accounted for more than 10% of our revenue in the first nine months of fiscal 2011 and two customers accounted for more than 10% of our total revenue in the first ~~half~~nine months of fiscal ~~2012 or fiscal 2011.~~2012. To the extent that large retrofit and roll-out projects and/or large solar projects or solar roll-outs become a greater component of our total revenue, we may experience more customer concentration in given periods. The loss of, or substantial reduction in sales volume to, any of our significant customers could have a material adverse effect on our total revenue in any given period and may result in significant annual and quarterly revenue variations.

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

Backlog.We define backlog as the total contractual value of all firm orders and OTA contracts received for our lighting ~~and solar~~ products and services where delivery of product or completion of services has not yet occurred as of the end of any particular reporting period. Such orders must be evidenced by a signed proposal acceptance or purchase order from the customer. Our backlog does not include PPAs or national contracts that have been negotiated, but under which we have not yet received a purchase order for the specific location. As of ~~September 30,~~December 31, 2011, we had a backlog of firm purchase orders of approximately $50.6 million, which included $44.4 million of solar PV orders, compared to $23.6 million as of September 30, 2011, which included $16.5 million of solar PV ~~orders, compared to $11.6 million as of June 30, 2011, which included $4.2~~orders. We currently expect approximately $9.9 million of ~~solar PV orders.~~our backlog to be recognized as revenue in our fiscal 2012 fourth quarter. We expect approximately $22.4 million of our backlog to be recognized in fiscal 2013 and the remainder in future years. We generally expect this level of firm purchase order backlog related to HIF lighting systems to be converted into revenue within the following ~~quarter and~~quarter. We generally expect our firm purchase order backlog related to solar PV systems to be recognized within the following ~~two quarters.~~three to 15 months, although during the third quarter of fiscal 2012 we received an $18.3 million single order for which the solar PV system construction will not begin until our fiscal 2014. Principally as a result of the increased volume of our solar PV orders, the continued lengthening of our customer’s purchasing decisions because of current recessed economic conditions and related factors, ~~and~~ the continued shortening of our installation cycles and the number of projects sold through OTAs, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of actual revenue recognized in future periods.

Cost of Revenue.Our total cost of revenue consists of costs for: (i) raw materials, including sheet, coiled and specialty reflective aluminum; (ii) electrical components, including ballasts, power supplies and lamps; (iii) wages and related personnel expenses, including stock-based compensation charges, for our fabricating, coating, assembly, logistics and project installation service organizations; (iv) manufacturing facilities, including depreciation on our manufacturing facilities and equipment, taxes, insurance and utilities; (v) warranty expenses; (vi) installation and integration; and (vii) shipping and handling. Our cost of aluminum can be subject to commodity price fluctuations, which we attempt to mitigate with forward fixed-price, minimum quantity purchase commitments with our suppliers. We also purchase many of our electrical components through forward purchase contracts. We buy most of our specialty reflective aluminum from a single supplier, and most of our ballast and lamp components from a single supplier, although we believe we could obtain sufficient quantities of these raw materials and components on a price and quality competitive basis from other suppliers if necessary. Purchases from our current primary supplier of ballast and lamp components constituted ~~13%~~27% of our total cost of revenue for the first ~~half~~nine months of fiscal 2012 and were ~~34%~~29% of our total cost of revenue for the first ~~half~~nine months of fiscal 2011. Our cost of revenue from OTA projects is recorded upon customer acceptance and acknowledgement that the system is operating as specified. Our production labor force is non-union and, as a result, our production labor costs have been relatively stable. We have been expanding our network of qualified third-party installers to realize efficiencies in the installation process.

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

Operating Expenses.Our operating expenses consist of: (i) general and administrative expenses; (ii) sales and marketing expenses; and (iii) research and development expenses. Personnel related costs are our largest operating expense. In fiscal 2012, we are increasing personnel in our sales areas for telemarketing and direct sales employees as we believe that future opportunities within our business remain strong.

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

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

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

In fiscal 2011 and continuing in the first ~~half~~nine months of fiscal 2012, we invested in marketing efforts to our direct end customers and to our channel partners through increasing advertising, marketing collateral materials and participating in national industry and customer trade shows. We expense all pre-sale costs incurred in connection with our sales process prior to obtaining a purchase order. These pre-sale costs may reduce our net income in a given period prior to recognizing any corresponding revenue. We also intend to continue investing in our research and development of new and enhanced energy management products and services.

We recognize compensation expense for the fair value of our stock option awards granted over their related vesting period. We recognized ~~$0.7~~$1.0 million infor the first ~~half~~nine months of fiscal 2012 and ~~$0.6~~$0.9 million infor the first ~~half~~nine months of fiscal 2011. As a result of prior option grants, we expect to recognize an additional ~~$3.8~~$3.4 million of stock-based compensation over a weighted average period of approximately seven years, including ~~$0.7~~$0.3 million inover the ~~last six months~~remaining quarter of fiscal 2012. These charges have been, and will continue to be, allocated to cost of product revenue, general and administrative expenses, sales and marketing expenses and research and development expenses based on the departments in which the personnel receiving such awards have primary responsibility. A substantial majority of these charges have been, and likely will continue to be, allocated to general and administrative expenses and sales and marketing expenses.

Interest Expense.Our interest expense is comprised primarily of interest expense on outstanding borrowings under long-term debt obligations, including the amortization of previously incurred financing costs. We amortize deferred financing costs to interest expense over the life of the related debt instrument, ranging from two to ten years.

Interest Income.We report interest income earned on our cash and cash equivalents and short term investments. We also report interest income earned from our financed OTA contracts.

Income Taxes.As of ~~September 30,~~December 31, 2011, we had net operating loss carryforwards of approximately ~~$7.6~~$5.9 million for federal tax purposes and ~~$4.6~~$4.4 million for state tax purposes. Included in these loss carryforwards were ~~$4.5~~$2.2 million for federal and ~~$2.5~~$1.9 million for state tax purposes of compensation expenses that were associated with the exercise of nonqualified stock options. The benefit from our net operating losses created from these compensation expenses has not yet been recognized in our financial statements and will be accounted for in our shareholders’ equity as a credit to additional paid-in capital as the deduction reduces our income taxes payable. We also had federal tax credit carryforwards of approximately $1.0 million and state credit carryforwards of approximately $0.6 million. A full valuation allowance has been set up for the state tax credits. We believe it is more likely than not that we will realize the benefits of most of these assets and we have reserved for an allowance due to our state apportioned income and the potential expiration of the state tax credits due to the carryforward period. These federal and state net operating losses and credit carryforwards are available, subject to the discussion in the following paragraph, to offset future taxable income and, if not utilized, will begin to expire in varying amounts between 2014 and 2030.

Generally, a change of more than 50% in the ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for federal income tax purposes. An ownership change may limit a company’s ability to use its net operating loss carryforwards attributable to the period prior to such change. In fiscal 2007 and prior to our IPO, past issuances and transfers of stock caused an ownership change for certain tax purposes. When certain ownership changes occur, tax laws require that a calculation be made to establish a limitation on the use of net operating loss carryforwards created in periods prior to such ownership change. For fiscal year 2008, utilization of our federal loss carryforwards was limited to $3.0 million. There was no limitation that occurred for fiscal 2010 or fiscal 2011. For fiscal 2012, we do not anticipate a limitation on the use of our net operating loss carryforwards.

Results of Operations

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

Three Months Ended September 30, Six Months Ended September 30,
2010 2011 2010 2011
% of % of % % of % of %
Amount Revenue Amount Revenue Change Amount Revenue Amount Revenue Change
Product revenue $ 15,086 95.2 % $ 18,718 97.2 % 24.1 % $ 30,844 94.0 % $ 40,397 96.1 % 31.0 %
Service revenue 767 4.8 % 542 2.8 % (29.3 )% 1,986 6.0 % 1,637 3.9 % (17.6 )%

Total revenue 15,853 100.0 % 19,260 100.0 % 21.5 % 32,830 100.0 % 42,034 100.0 % 28.0 %
Cost of product revenue 9,745 61.5 % 12,059 62.6 % 23.7 % 20,053 61.1 % 27,063 64.4 % 35.0 %
Cost of service revenue 498 3.1 % 382 2.0 % (23.3 )% 1,415 4.3 % 1,116 2.7 % (21.1 )%

Total cost of revenue 10,243 64.6 % 12,441 64.6 % 21.5 % 21,468 65.4 % 28,179 67.0 % 31.3 %

Gross profit 5,610 35.4 % 6,819 35.4 % 21.6 % 11,362 34.6 % 13,855 33.0 % 21.9 %
General and administrative expenses 2,988 18.8 % 2,724 14.1 % (8.8 )% 5,933 18.1 % 5,800 13.8 % (2.2 )%
Sales and marketing expenses 3,299 20.8 % 3,736 19.4 % 13.2 % 6,889 21.0 % 7,504 17.9 % 8.9 %
Research and development expenses 573 3.6 % 593 3.1 % 3.5 % 1,183 3.6 % 1,215 2.9 % 2.7 %

Loss from operations (1,250 ) (7.9 )% (234 ) (1.2 )% 81.3 % (2,643 ) (8.1 )% (664 ) (1.6 )% 74.9 %
Interest expense 55 0.3 % 150 0.8 % 172.7 % 124 0.4 % 237 0.6 % 91.1 %
Dividend and interest income 153 1.0 % 214 1.1 % 39.9 % 246 0.8 % 368 0.9 % 49.6 %

Loss before income tax (1,152 ) (7.3 )% (170 ) (0.9 )% 85.2 % (2,521 ) (7.7 )% (533 ) (1.3 )% 78.9 %
Income tax benefit (1,692 ) (10.7 )% (71 ) (0.4 )% 95.8 % (2,525 ) (7.7 )% (215 ) (0.5 )% 91.5 %

Net income (loss) $ 540 3.4 % $ (99 ) (0.5 )% (118.3 )% $ 4 0.0 % $ (318 ) (0.8 )% (8,050.0 )%

Three Months Ended December 31, Nine Months Ended December 31,
2010 2011 2010 2011
% of % of % % of % of %
Amount Revenue Amount Revenue Change Amount Revenue Amount Revenue Change
Product revenue
$ 21,633 91.5 % $ 24,274 88.6 % 12.2 % $ 52,476 92.9 % $ 71,746 90.7 % 36.7 %
Service revenue
2,011 8.5 % 3,132 11.4 % 55.7 % 3,997 7.1 % 7,356 9.3 % 84.0 %

Total revenue
23,644 100.0 % 27,406 100.0 % 15.9 % 56,473 100.0 % 79,102 100.0 % 40.1 %
Cost of product revenue
14,134 59.8 % 17,445 63.7 % 23.4 % 34,186 60.5 % 50,484 63.8 % 47.7 %
Cost of service revenue
1,676 7.1 % 2,447 8.9 % 46.0 % 3,091 5.5 % 5,716 7.2 % 84.9 %

Total cost of revenue
15,810 66.9 % 19,892 72.6 % 25.8 % 37,277 66.0 % 56,200 71.0 % 50.8 %

Gross profit
7,834 33.1 % 7,514 27.4 % (4.1 )% 19,196 34.0 % 22,902 29.0 % 19.3 %
General and administrative expenses
2,709 11.4 % 2,841 10.4 % 4.9 % 8,642 15.3 % 8,641 10.9 % — %
Sales and marketing expenses
3,235 13.7 % 4,053 14.8 % 25.3 % 10,124 17.9 % 11,557 14.6 % 14.2 %
Research and development expenses
614 2.6 % 556 2.0 % (9.4 )% 1,797 3.2 % 1,771 2.3 % (1.4 )%

Income (loss) from operations
1,276 5.4 % 64 0.2 % (95.0 )% (1,367 ) (2.4 )% 933 1.2 % (168.3 ) %
Interest expense
98 0.4 % 160 0.5 % 63.3 % 223 0.4 % 397 0.5 % 78.0 %
Dividend and interest income
189 0.8 % 226 0.8 % 19.6 % 435 0.8 % 594 0.7 % 36.6 %

Income before income tax
1,367 5.8 % 130 0.5 % (90.5 )% (1,155 ) (2.0 )% 1,130 1.4 % 197.8 %
Income tax expense (benefit)
1,549 6.6 % 56 0.2 % (96.4 )% (976 ) (1.7 )% 490 0.6 % 150.2 %

Net income (loss)
$ (182 ) (0.8 )% $ 74 0.3 % 140.7 % $ (179 ) (0.3 )% $ 640 0.8 % 457.5 %

Revenue.Product revenue increased from ~~$15.1~~$21.6 million for the fiscal 2011 ~~second~~third quarter to ~~$18.7~~$24.3 million for the fiscal 2012 ~~second~~third quarter, an increase of ~~$3.6~~$2.7 million, or ~~24%~~12.2%. The increase in product revenue was a result of increased sales of our ~~HIF lighting systems and renewable energy~~solar PV systems. Service revenue ~~decreased~~increased from ~~$0.8~~$2.0 million for the fiscal 2011 ~~second~~third quarter to ~~$0.5~~$3.1 million for the fiscal 2012 ~~second~~third quarter, ~~a decrease~~an increase of ~~$0.3~~$1.1 million, or ~~38%~~55.7%. The ~~decrease~~increase in service revenues was a result of the ~~continued percentage~~ increase in sales of ~~our total revenues generated by our wholesale channels, where our services are not provided.~~PV systems and the related installation revenue. Total revenue from ~~renewable energy~~solar PV systems was ~~$2.0~~$6.9 million for the fiscal 2012 ~~second~~third quarter compared to ~~none for the fiscal 2011 second quarter. Product revenue increased from $30.8~~$1.6 million for the fiscal 2011 ~~first half to $40.4~~third quarter, an increase of $5.3 million or 331%. Product revenue increased from $52.5 million for the first nine months of fiscal 2011 to $71.7 million for the first nine months of fiscal 2012, ~~first half,~~ an increase of ~~$9.6~~$19.2 million, or ~~31%~~36.7%. Service revenue increased from $4.0 million for the first nine months of fiscal 2011 to $7.4 million for the first nine months of fiscal 2012, an increase of $3.4 million, or 84.0%. Total revenue from renewable energy systems was ~~$7.4~~$24.0 million for the fiscal 2012 first ~~half~~nine months compared to ~~$0.4~~$2.4 million for the fiscal 2011 first ~~half,~~nine months, an increase of ~~$7.0~~$21.6 million, or ~~1,750%. Service revenue decreased from $2.0 million for the fiscal 2011 first half to $1.6 million for the fiscal 2012 first half, a decrease of $0.4 million, or 20%~~900%. The ~~decrease~~increase in service revenue was ~~a result~~due to the related installation services resulting from the increased sales of PV systems for both the ~~continued percentage increase~~three and nine month periods. For the first nine months of ~~total revenue to~~fiscal 2012, our wholesale channels ~~where services are~~accounted for approximately 64% of our total revenue, not ~~provided.~~

taking into consideration sales of solar PV systems, compared to 51% for the first nine months of fiscal 2011. We continue to experience revenue growth through the use of our OTA finance contracts.
26
Cost of Revenue and Gross Margin.Our cost of product revenue increased from ~~$9.7~~$14.1 million for the fiscal 2011 ~~second~~third quarter to ~~$12.1~~$17.4 million for the fiscal 2012 ~~second~~third quarter, an increase of ~~$2.4~~$3.3 million, or ~~25%~~23.4%. Our cost of service revenue ~~decreased~~increased from ~~$0.5~~$1.7 million for the fiscal 2011 ~~second~~third quarter to ~~$0.4~~$2.4 million for the fiscal 2012 ~~second~~third quarter, ~~a decrease~~an increase of ~~$0.1~~$0.7 million, or ~~20%~~46.0%. Total gross margin was ~~35.4%~~33.1% and 27.4% for the fiscal 2011 ~~second~~third quarter and fiscal 2012 ~~second~~third quarters, respectively. Our gross margin on renewable revenues was 13.1% during the fiscal 2012 third quarter. Gross margin from our HIF integrated systems revenue for the fiscal 2012 third quarter was 32.2%. Total cost of product revenue increased from ~~$20.1~~$34.2 million for the fiscal 2011 first ~~half~~nine months to ~~$27.1~~$50.5 million for the fiscal 2012 first ~~half,~~nine months, an increase of ~~$7.0~~$16.3 million, or ~~35%~~47.7%. Our cost of service revenue ~~decreased~~increased from ~~$1.4~~$3.1 million for the fiscal 2011 first ~~half~~nine months to ~~$1.1~~$5.7 million for the fiscal 2012 first ~~half, a decrease~~nine months, an increase of ~~$0.3~~$2.6 million, or ~~21%~~84.9%. Total gross margin decreased from ~~34.6%~~34.0% for the fiscal 2011 first ~~half~~nine months to ~~33.0%~~29.0% for the fiscal 2012 first ~~half.~~nine months. For the fiscal 2012 first ~~half,~~nine months, our gross margin declined due to a higher mix of renewable product and service revenues from our Orion Engineered Systems ~~Division.~~division. Our gross margin on renewable revenues was ~~14.7%~~17.1% during the fiscal 2012 first ~~half.~~nine months. Gross margin from our HIF integrated systems revenue for the fiscal 2012 first ~~half~~nine months was ~~36.9%~~34.3%.

General and Administrative.Our general and administrative expenses ~~decreased~~increased from ~~$3.0~~$2.7 million for the fiscal 2011 ~~second~~third quarter to ~~$2.7~~$2.8 million for the fiscal 2012 ~~second~~third quarter, ~~a decrease~~an increase of ~~$0.3~~$0.1 million, or ~~10%~~4.9%. Our general and administrative expenses ~~decreased from $5.9~~were $8.6 million for both the first nine months of fiscal 2011 and the first ~~half to $5.8 million for~~nine months of fiscal 2012. For the first nine months of fiscal 2012, ~~first half,~~expenses increased as a ~~decrease~~result of $0.1 million ~~or 2%. The decrease was a result of reduced headcounts in management and information technologies offset by increased expenses~~incurred for depreciation and software license costs for our new enterprise resource planning, or ERP, ~~system.~~

system and $0.1 million for increased stock compensation costs versus the prior fiscal year’s period. These increases were offset by reduced legal expenses and discretionary spending reductions.
Sales and Marketing.Our sales and marketing expenses increased from ~~$3.3~~$3.2 million for the fiscal 2011 ~~second~~third quarter to ~~$3.7~~$4.1 million for the fiscal 2012 ~~second~~third quarter, an increase of ~~$0.4~~$0.9 million, or ~~12%~~25.3%. Our sales and marketing expenses increased from ~~$6.9~~$10.1 million for the first nine months of fiscal 2011 ~~first half~~ to ~~$7.5~~$11.6 million for the first nine months of fiscal 2012, ~~first half,~~ an increase of ~~$0.6~~$1.5 million, or 9%14.2%. The increase was a result of increased costs for headcount additions ~~to our direct sales force and for~~in our newly formed telemarketing department, higher commission expense on our increased revenue and increased depreciation for our new customer relationship management, or CRM, system. Total sales and marketing ~~employee~~ headcount was 7987 and 9397 at ~~September 30,~~December 31, 2010 and ~~September 30,~~ 2011, respectively.

Research and Development.Our research and development expenses ofwere $0.6 million for both the fiscal 2011 third quarter and the fiscal 2012 ~~second quarter~~third quarter. Our research and development expenses of $1.8 million for the first nine months of fiscal 2012 were similar to our research and development expenses for ~~our~~the first nine months of fiscal ~~2011 second quarter. Our research and development expenses of $1.2 million for the fiscal 2012 first half were similar to our research and development expenses for our fiscal 2011 first half.~~2011. Expenses incurred in the first nine months of fiscal 2012 ~~first half~~ related to compensation costs for the development and support of our new products, depreciation expenses for lab and research equipment and sample and testing costs related to our dynamic control devices and our light emitting diode, or LED, product initiatives.

Interest Expense.~~Our interest expense increased from $55,000 for the fiscal 2011 second quarter to $150,000 for the fiscal 2012 second quarter, an increase of $95,000, or 173%.~~ Our interest expense increased from $0.1 million for the fiscal 2011 ~~first half~~third quarter to $0.2 million for the fiscal 2012 ~~first half,~~third quarter, an increase of $0.1 million, or ~~100%~~63.3%. Our interest expense increased from $0.2 million for the first nine months of fiscal 2011 to $0.4 million for the first nine months of fiscal 2012, an increase of $0.2 million, or 78.0%. The increase in our interest expense was due to additional ~~financings~~debt funding completed during the second half of fiscal 2011 and the first half of fiscal 2012 for the purpose of financing our OTA projects.

Interest Income.Interest income ~~increased from $153,000~~was relatively unchanged at $0.2 million for both the fiscal 2011 ~~second quarter to $214,000 for the~~and fiscal 2012 ~~second quarter, an increase of $61,000 or 40%.~~third quarters. Interest income increased from ~~$0.2 million for the fiscal 2011 first half to~~ $0.4 million for the first nine months of fiscal 2011 to $0.6 million for the first nine months of fiscal 2012, ~~first half,~~ an increase of $0.2 million or ~~100%~~36.6%. Interest income increased due to an increase in ~~the number and dollar amount of~~ completed OTA contracts and the related interest income under the financing terms.

Income Taxes.Our income tax ~~benefit~~expense decreased from ~~a benefit~~an expense of ~~$1.7~~$1.5 million for the fiscal 2011 ~~second~~third quarter to an income tax ~~benefit~~expense of $0.1 million for the fiscal 2012 ~~second~~third quarter, a decrease of ~~$1.6~~$1.4 million or ~~94%~~96.4%. Our income tax benefit decreased from a benefit of ~~$2.5~~$1.0 million for the first nine months of fiscal 2011 ~~first half~~ to an income tax ~~benefit~~expense of ~~$0.2~~$0.5 million for the first nine months of fiscal 2012, ~~first half,~~ a decrease of ~~$2.3~~$1.5 million or ~~92%~~150.2%. Our effective income tax rate for the first nine months of fiscal 2011 ~~first half~~ was ~~100.2%~~(84.5)%, compared to ~~40.3%~~43.4% for the nine months of fiscal ~~2012 first half.~~2012. The change in our effective tax rate was due to the conversion of our incentive stock options, or ISOs, to non-qualified stock options, or NQSOs, completed during the ~~fourth quarter~~second half of fiscal 2011 and a decrease ~~from the~~due to prior year ~~for non-deductible expenses and an increase in fiscal 2011 for the state valuation reserve.~~permanent adjustments. The conversion of our ISOs to NQSOs eliminated the volatility in our effective tax rates at lower pre-tax earnings levels and should result in an effective tax rate in the 38% to 40% range for future periods.

27
Energy Management Segment

The following table summarizes our Energy Management segment operating results:

For the Three Months Ended September 30, For the Six Months Ended September 30,
(dollars in thousands) 2010 2011 2010 2011
Revenues $ 14,371 $ 16,686 $ 29,769 $ 33,128
Operating income $ 1,301 $ 1,415 $ 1,592 $ 2,228
Operating margin 9.1 % 8.5 % 5.3 % 6.7 %

   For the Three Months Ended December 31, For the Nine Months Ended December 31,
(dollars in thousands)    2010 2011 2010 2011
Revenues
   $ 22,042 $ 20,544 $ 54,121 $ 55,061
Operating income
   $ 3,499 $ 1,459 $ 5,268 $ 4,060
Operating margin
   15.9 % 7.1 % 9.7 % 7.4 %
Energy Management segment revenue decreased $1.5 million, or 6.8%, from $22.0 million for the fiscal 2011 third quarter to $20.5 million for the fiscal 2012 third quarter. The decrease was due to reduced order volumes at calendar-year end as our customers did not allocate capital budget dollars as they had in prior calendar year-ends. Energy Management segment revenue increased ~~$2.3~~$1.0 million, or ~~16%~~1.7%, from ~~$14.4~~$54.1 million for the first nine months of fiscal 2011 ~~first quarter~~ to ~~$16.7~~$55.1 million for the first nine months of fiscal ~~2012 first quarter. Energy Management segment revenue increased $3.4 million, or 11%, from $29.8 million for the fiscal 2011 first half to $33.1 million for the fiscal 2012 first half.~~2012. The increase was due to increased sales of our HIF lighting systems to our national account and wholesale ~~customers.~~

customers, increased revenue from new product offerings, including exterior lighting and LED fixtures.
Energy Management segment operating income ~~increased $0.1~~decreased $2.0 million, or 8%58.3%, from ~~$1.3~~$3.5 million for the fiscal 2011 ~~first~~third quarter to ~~$1.4~~$1.5 million for the fiscal 2012 ~~first quarter.~~third quarter due to the reduction in volume and the increase in sales and marketing expenses. Energy Management segment operating income ~~increased $0.6~~decreased $1.2 million, or ~~38%~~22.9%, from ~~$1.6~~$5.3 million for the first nine months of fiscal 2011 ~~first half~~ to ~~$2.2~~$4.1 million for the first nine months of fiscal ~~2012 first half.~~2012. The ~~increase~~decrease in operating income for the first nine months of fiscal 2012 was ~~a result of additional revenue~~due to our increase in sales and ~~improved gross margins on our HIF lighting systems.~~

marketing expenses.
Engineered Systems Segment

The following table summarizes our Engineered Systems segment operating results:

For the Three Months Ended September 30, For the Six Months Ended September 30,
(dollars in thousands) 2010 2011 2010 2011
Revenues $ 1,482 $ 2,574 $ 3,061 $ 8,906
Operating loss $ (429 ) $ ( 449 ) $ (841 ) $ (365 )
Operating margin (28.9 )% (17.4 )% (27.5 )% (4.1 )%

   For the Three Months Ended December 31, For the Nine Months Ended December 31,
(dollars in thousands)    2010 2011 2010 2011
Revenues
   $ 1,602    $ 6,862 $ 2,352    $ 24,041
Operating income (loss)
   $ (640 ) $ (132 ) $ (1,658 ) $ 663
Operating margin
   (40.0 ) % (1.9 )% (70.5 ) % 2.8 %
27

Engineered Systems segment revenue increased ~~$1.1~~$5.3 million, or ~~73%~~328.3%, from ~~$1.5~~$1.6 million for the fiscal 2011 ~~first~~third quarter to ~~$2.6~~$6.9 million for the fiscal 2012 ~~first~~third quarter. ~~Engineered~~Energy Systems segment revenue increased ~~$5.8~~$21.6 million, or ~~187%~~922.2%, from ~~$3.1~~$2.4 million for the first nine months of fiscal 2011 ~~first half~~ to ~~$8.9~~$24.0 million for the first nine months of fiscal ~~2012 first half.~~2012. The increase was due to increased sales of solar renewable ~~technologies.~~technologies for the fiscal 2012 third quarter and the first nine months of fiscal 2012. We believe that revenue activity increased at the calendar year end as customers took advantage of expiring tax benefits. During the ~~first half~~same periods of fiscal ~~2011,~~2010, our Engineered Systems segment efforts were primarily focused on ~~continuing to build sales pipeline~~research of renewable technology products and ~~determination of the~~understanding if there was a market for these ~~renewable~~ technologies within our customer base.

Engineered Systems segment operating loss decreased $0.5, or 79.4%, million from an operating loss of ~~$0.4~~$0.6 million for the fiscal 2011 ~~first~~third quarter ~~was similar~~ to Engineered Systems segment operating income for the fiscal 2012 first quarter. Energy Management segment operating loss decreased $0.5 million, or 63%, from $0.8 million for the fiscal 2011 first half to $0.4$0.1 million for the fiscal 2012 third quarter. Energy Systems segment operating income increased $2.4 million, or 140%, from an operating loss of $1.7 million for the first ~~half.~~nine months of fiscal 2011 to operating income of $0.7 million for the first nine months of fiscal 2012. The ~~reduction~~increase in operating ~~loss~~income for both the quarter and year-to-date, was a result of the increased revenue volume and resulting contribution margin from sales of solar renewable energy systems.

Liquidity and Capital Resources

Overview

We had approximately ~~$15.6~~$18.2 million in cash and cash equivalents and $1.0 million in short-term investments as of ~~September 30,~~December 31, 2011, compared to $11.6 million and $1.0 million at March 31, 2011. Our cash equivalents are invested in money market accounts with maturities of less than 90 days and an average yield of ~~0.2%~~0.24%. Our short-term investment account consists of a bank certificate of deposit in the amount of $1.0 million with an expiration date of ~~December 2011~~March 2012 and a yield of 0.50%. Additionally, as of ~~September 30,~~December 31, 2011, we had $13.3 million of borrowing availability under our revolving credit agreement. We also had $3.2 million of availability on our recently completed OTA credit agreement, which can be utilized for the sole purpose of funding customer OTA projects. During the first ~~half~~nine months of fiscal 2012, we borrowed $4.6 million to finance our OTA projects. In November 2011, we entered into an arrangement with a national equipment finance company to provide immediate non-recourse funding of pre-credit approved OTA finance contracts upon project completion and customer acceptance. We have now secured multiple debt and equipment finance sources for our OTA finance contracts and believe that our sources of OTA funding are sufficient to meet near-term OTA finance program requirements. In October 2011, our board of directors approved a $1.0 million share repurchase ~~plan.~~plan, which was increased to $2.5 million in November 2011. We believe that our existing cash and cash equivalents, our anticipated cash flows from operating activities and our borrowing capacity under our revolving credit facility and our OTA credit facility will be sufficient to meet our anticipated cash needs for at least the next 12 months, dependent upon our growth opportunities with our cash and finance customers.

Cash Flows

The following table summarizes our cash flows for the ~~six~~nine months ended ~~September 30,~~December 31, 2010 and 2011 (in thousands):

Six Months Ended
September 30,
2010 2011
Operating activities $ (8,633 ) $ 1,924
Investing activities (4,033 ) (2,133 )
Financing activities 2,626 4,208

Decrease in cash and cash equivalents $ (10,040 ) $ 3,999

   Nine Months Ended December 31,
   2010 2011
Operating activities
   $ (10,585 ) $ 6,486
Investing activities
   (5,589 ) (3,584 )
Financing activities
   2,668 3,771


(Decrease) increase in cash and cash equivalents
   $ (13,506 ) $ 6,673


Cash Flows Related to Operating Activities.Cash provided by operating activities for the first nine months of fiscal 2012 ~~first half~~ was ~~$1.9~~$6.5 million and consisted of net cash provided from changes in operating assets and liabilities of ~~$0.2~~$2.0 million and a net ~~loss~~income adjusted for non-cash expense items of ~~$1.7~~$4.5 million. Cash provided by changes in operating assets and liabilities consisted of a decrease of ~~$4.0~~$6.9 million in deferred contract costs due to project progress for solar projects, a $1.6 million decrease in total accounts receivable due to customer payments received ~~during the quarter~~ and a ~~$2.6~~$3.0 million increase in ~~deferred revenue due~~accounts payable related to ~~customer deposit payments received.~~payment terms on inventory purchases. Cash used from changes in operating assets and liabilities included a ~~$3.3~~$3.6 million increase in inventory for purchases ~~of solar panel inventory~~described under “— Liquidity and increases in our work-in-process and lighting fixture inventories for orders that are expected to ship during the fiscal 2012 third quarter, a $1.4 million increase in prepaid and other expenses related to deferred costs from projects still in implementationCapital Resources — Working Capital” below and a ~~$2.1~~$6.1 million decrease in ~~accounts payable due to vendor payments.~~

deferred revenue as a result of project completions.
Cash used in operating activities for the first nine months of fiscal 2011, ~~first half~~ was ~~$8.6~~$10.6 million and consisted of net cash of ~~$9.5~~$13.3 million used for changes in operating assets and liabilities offset by a net loss adjusted for non-cash expense items of ~~$0.9~~$2.7 million. Cash used for changes in operating assets and liabilities consisted of an increase in accounts receivables of $10.1 million due to the increase in revenue, an increase in deferred contract costs of ~~our OTA program and the long-term nature of the contracts~~$5.6 million for solar project costs incurred and an increase of ~~$7.7~~$6.2 million for inventory purchases, including ~~$3.8~~$1.8 million for purchases of wireless control inventories ~~based upon our Phase 2 initiatives, a $1.9 million increase in solar panel inventories in anticipation of the receipt of customer purchase orders~~ and a ~~$3.1~~$4.4 million increase in ballast component inventories due to concerns over supply availability and component shortages. Cash provided by changes in operating assets and liabilities included a ~~$1.5~~$7.6 million increase in accounts payable related to payment terms on inventory purchases and a ~~$0.8~~$3.2 million increase in deferred ~~revenue related to an investment tax grant received for a solar asset owned under our power purchase agreement, or PPA, finance program.~~

revenue.

Cash Flows Related to Investing Activities.For the first nine months of fiscal 2012, ~~first half,~~ cash used in investing activities was ~~$2.1~~$3.6 million. This included a net ~~$2.0~~$3.4 million for capital improvements related to our information technology systems, manufacturing and tooling improvements and facility investments and ~~$0.1~~$0.2 million for investment in patent activities.

For the first nine months of fiscal 2011, ~~first half,~~ cash used in investing activities was ~~$4.0~~$5.6 million. This included ~~$2.0~~$3.0 million for capital improvements related to our information technology systems, renewable technologies, manufacturing and tooling improvements and facility investments, ~~$1.6~~$2.1 million invested in equipment related to our PPA finance programs, $0.3 million for long-term investments and $0.1 million for patent investments.

Cash Flows Related to Financing Activities.For the first nine months of fiscal 2012, ~~first half,~~ cash flows provided by financing activities were ~~$4.2~~$3.8 million. This included $4.6 million in new debt borrowings to fund OTAs, ~~$0.3~~$0.7 million for excess tax benefits from stock-based compensation and $0.1 million received from stock option and warrant exercises. Cash flows used in financing activities included ~~$0.7~~$1.3 million for repayment of long-term debt, $0.3 million for common share repurchases and $0.1 million for debt closing costs.

For the first nine months of fiscal 2011, ~~first half,~~ cash flows provided by financing activities ~~was $2.6~~were $2.7 million. This included $2.7 million in new debt borrowings to fund OTA and capital projects, ~~and $0.3~~$0.4 million received from stock option ~~exercises.~~exercises and $0.2 million for excess tax benefits from stock-based compensation. Cash flows used in financing activities included ~~$0.3~~$0.5 million for repayment of long-term debt and $0.1 million for costs related to our new credit agreement.

Working Capital

Our net working capital as of ~~September 30,~~December 31, 2011 was ~~$57.9~~$41.5 million, consisting of ~~$76.4~~$65.4 million in current assets and ~~$18.5~~$23.9 million in current liabilities. Our net working capital as of March 31, 2011 was ~~$56.9~~$40.0 million, consisting of ~~$73.1~~$64.2 million in current assets and ~~$16.2~~$24.2 million in current liabilities. Our ~~current~~ accounts receivables have decreased from fiscal 2011 year-end by ~~$6.0~~$2.9 million as a result of ~~the collection of payments~~cash collections from customers. Our inventories increased from our fiscal 2011 year-end by ~~$3.3~~$3.6 million due to a ~~$1.8~~$1.6 million increase in ~~solar panel inventories~~fluorescent lamps due to supply concerns, a $1.2 million increase in ~~anticipation of the receipt of customer purchase orders,~~raw materials for new products and to help address certain electronic component supply concerns and a ~~$0.7~~$0.8 million increase in our work-in process inventories for product orders to be delivered in our fiscal 2012 ~~third quarter, a $0.1 million increase in raw materials and a $0.7 million increase in finished goods for orders expected to ship in our fiscal 2012 back half.~~

fourth quarter.
During fiscal 2011, we increased our inventory levels of key electronic components, specifically electronic ballasts, to avoid potential shortages and customer service issues as a result of lengthening supply lead times and product availability issues. During fiscal 2012, we have maintained these higher levels of ballast inventories. We continue to monitor supply side concerns within the electronic component market and believe that our current inventory levels are sufficient to protect us against the risk of being unable to deliver product as specified by our customers’ requirements. ~~Recently,~~During fiscal 2012, we were made aware of concerns over shortages of rare earth minerals used in the production of fluorescent lamps. We have increased our purchase commitments related to these components to ensure that we will have product availability to meet customer demands. We are continually monitoring supply side concerns through conversations with our key vendors and currently believe that supply availability concerns appear to have moderated, but have not diminished to the point where we anticipate reducing safety stock to the levels that existed prior to the electrical components supply issues.

We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase.

Indebtedness

Revolving Credit Agreement

On June 30, 2010, we entered into a new credit agreement, ~~(Credit Agreement)~~or Credit Agreement, with JP Morgan Chase Bank, N.A. ~~(JP Morgan).~~, or JP Morgan. The Credit Agreement replaced our former credit agreement.

The Credit Agreement provides for a revolving credit facility, ~~(Credit Facility)~~or Credit Facility, that matures on June 30, 2012. We are currently working on an amendment to the Credit Facility to extend the maturity date to June 30, 2013. Borrowings under the Credit Facility are limited to (i) $15.0 million or (ii) during periods in which the outstanding principal balance of outstanding loans under the Credit Facility is greater than $5.0 million, the lesser of (A) $15.0 million or (B) the sum of 75% of the outstanding principal balance of certain accounts receivable ~~of the Company~~ and 45% of certain inventory of the Company. The Credit Agreement contains certain financial covenants, including minimum unencumbered liquidity requirements and requirements that we maintain a total liabilities to tangible net worth ratio not to exceed 0.50 to 1.00 as of the last day of any fiscal quarter. The Credit Agreement also contains certain restrictions on our ability to make capital or lease expenditures over prescribed limits, incur additional indebtedness, consolidate or merge, guarantee obligations of third parties, make loans or advances, declare or pay any dividend or distribution on its

~~stock, redeem or repurchase shares of its stock or pledge assets.~~inventory. We also may cause JP Morgan to issue letters of credit for ~~the Company’s~~our account in the aggregate principal amount of up to $2.0 million, with the dollar amount of each issued letter of credit counting against the overall limit on borrowings under the Credit Facility. As of ~~September 30,~~December 31, 2011, we ~~had~~ had outstanding letters of credit totaling $1.7 million, primarily for securing collateral requirements under equipment operating leases. In fiscal 2011, we incurred $57,000 of total deferred financing costs related to the Credit Agreement which is being amortized over the two-year term of the Credit Agreement. We had no outstanding borrowings under the Credit Agreement as of March 31, 2011 or ~~September 30,~~December 31, 2011. ~~We were in compliance with all of its covenants under the Credit Agreement as of September 30, 2011.~~

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

We must pay a fee of 0.25% on the average daily unused amount of the Credit Facility and a fee of 2.00% on the daily average face amount of undrawn issued letters of credit. The fee on unused amounts is waived if we or our affiliates maintain funds on deposit with JP Morgan or its affiliates above a specified amount. We satisfied the deposit requirement to waive the unused fee as of ~~September~~ December 31, 2011.

30 ~~2011.~~

OTA Credit Agreement

In September 2011, we entered into a credit agreement with JP Morgan that provided us with $5.0 million immediately available to fund completed customer contracts under our OTA finance program and an additional $5.0 million upon our achievement of meeting a trailing 12-month earnings before interest, taxes, depreciation and amortization (EBITDA) target of $8.0 million. We have one-year from the date of the commitment to borrow under the credit agreement. In September 2011, we borrowed $1.8 million. We did not borrow on the credit facility during our fiscal 2012 third quarter. The borrowing is collateralized by the OTA-related equipment and the expected future monthly payments under the supporting 27 individual OTA customer contracts. The current borrowing under the credit agreement bears interest at LIBOR plus 4% and matures in September 2016. The credit agreement includes certain financial covenants, including funded debt to EBITDA and debt service coverage ratios. ~~We were in compliance with all covenants in the credit agreement as of September 30, 2011.~~

Capital Spending

Capital expenditures totaled ~~$2.0~~$3.4 million during the first nine months of fiscal 2012 ~~first half~~ due to investments in information technologies and other tooling and equipment for new products, as well as cost improvements in our manufacturing facility and a research and training addition to our Manitowoc facility. We expect to incur ~~a total of~~approximately $1.0 ~~to $1.4~~ million in capital expenditures during the remainder of fiscal 2012, excluding capital to support ~~our~~expected OTA ~~contracts.~~growth. Our capital spending plans predominantly consist of ~~further cost improvements~~the completion of projects that have been in ~~our manufacturing facility, improvements to our building~~place for several months and ~~headquarters, new product development and investment in information technology systems.~~for which we have already invested significant capital. We consider the investment ininto our ~~information systems~~training and research facility critical to our long-term ~~success and our ability to ensure a strong control environment over financial reporting and operations.~~success. We expect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases, to the extent needed, long-term debt financing, or by using our available capacity under our credit facility.

Contractual Obligations and Commitments

The following table is a summary of our long-term contractual obligations as of ~~September 30,~~December 31, 2011 (dollars in thousands):

Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
Bank debt obligations $ 9,281 $ 2,351 $ 4,150 $ 1,837 $ 943
Cash interest payments on debt 1,546 496 579 192 279
Operating lease obligations 8,499 1,715 1,945 1,734 3,105
Purchase order and cap-ex commitments (1) 16,028 8,386 7,642 — —

Total $ 35,354 $ 12,948 $ 14,316 $ 3,763 $ 4,327

      Less than          More than
   Total    1 Year    1-3 Years    3-5 Years    5 Years
Bank debt obligations
   $ 8,685    $ 2,344    $ 3,960    $ 1,492    $ 889
Cash interest payments on debt
   1,241    401    456    155    229
Operating lease obligations
   8,177    1,728    1,837    1,702    2,910
Purchase order and cap-ex commitments(1)
   14,937    10,454    4,483    —         —










Total
   $ 33,040    $ 14,927    $ 10,736    $ 3,349    $ 4,028










(1) Reflects non-cancellable purchase order commitments in the amount of ~~$16.0~~$14.9 million for certain inventory items entered into in order to secure better pricing and ensure materials on hand.
30

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, the 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~~10-K/A for the year ended March 31, 2011. There have been no material changes in any of our accounting policies since March 31, 2011.

31
Recent Accounting Pronouncements

For a complete discussion of recent accounting pronouncements, refer to Note B in the condensed consolidated financial statements included elsewhere in this report.


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~~10-K/A for the year ended March 31, 2011. There have been no material changes to such exposures since March 31, 2011.


ITEM 4.		CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as ~~such term is defined in~~of the end of the quarter ended December 31, 2011 pursuant to Rules ~~13a-15(e) and 15d-15(e) under~~13a-15(b) of the Securities Exchange Act of 1934, or the Exchange ~~Act,~~Act.

Material Weaknesses in Internal Control over Financial Reporting

In connection with the assessment of our internal control over financial reporting as of December 31, 2011, management has identified the ~~end~~following deficiencies that constituted individually, or in the aggregate, material weaknesses in our internal control over financial reporting as of December 31, 2011:

We did not maintain an effective control environment, as evidenced by the combination of (i) having an insufficient number of personnel appropriately qualified to perform an appropriately detailed review of the ~~quarter ended September 30, 2011 pursuant~~accounting for nonroutine revenue transactions, and (ii) having inadequate disclosure controls to ~~Rule 13a-15(b)~~ensure timely internal notification of ~~the Exchange Act. Based upon their evaluation,~~business transactions impacting revenue recognition and decisions requiring accounting entries.

We did not maintain an effective control environment over our ~~Chief Executive Officer~~financial close and reporting processes as evidenced by having an insufficient number of personnel appropriately qualified to support timely and thorough reconciliation of significant accounts.

The material weaknesses described above resulted in a restatement of our ~~Chief Financial Officer~~annual and interim consolidated financial statements. Because of these material weaknesses, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2011.

Plans for Remediation of Material Weaknesses

Our Board, the Audit & Finance Committee and management have added resources 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 revenue recognition, our financial close process and our disclosure controls and procedures, ~~were effective~~ as of December 31, 2011.

We have developed a remediation plan (the “Remediation Plan”) to address the ~~end~~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:

Define and assess each control deficiency: 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 each control deficiency for each affected area; 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 management and the Audit & Finance Committee.

The following are steps we have taken in this process:

In the second quarter ~~ended September 30, 2011.~~of fiscal 2012, we hired a Corporate controller and in the third quarter of fiscal 2012, we hired a corporate tax manager;

~~There was~~
In April 2012, we developed and implemented a new sub-certification process with our management group in order to identify new revenue sources and identify legal contractual terms and conditions revisions;

In the first quarter of fiscal 2012, we implemented a new enterprise resource planning, or ERP, system to improve our process transactions and the underlying data that supports our financial closing and reporting process.

We have identified external resources for the purpose of engaging them to perform detailed accounting analysis on complex nonroutine revenue transactions.

The Remediation Plan is being administered by our Chief Financial Officer and involves key leaders from across the organization.

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.

Changes in Internal Control over Financial Reporting

Except as described above in Plans for Remediation of Material Weaknesses, there were no ~~change~~other changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30,~~December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~PART II OTHER INFORMATION~~


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~~10-K/A for the fiscal year ended March 31, 2011, which we filed with the SEC on ~~July 22, 2011.~~June 14, 2012. During the ~~three~~nine months ended ~~September 30,~~December 31, 2011, there were no material changes to the risk factors that were disclosed in Part I — Item 1A under the heading “Risk Factors” in our Annual Report on Form ~~10-K~~10-K/A for the fiscal year ended March 31, 2011.


	Page(s)
PART I FINANCIAL INFORMATION		3

ITEM 1. Financial Statements (unaudited)		3

Condensed Consolidated Balance Sheets as of March 31, 2011 and ~~September 30,~~December 31, 2011		3

Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2010 and 2011		4

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2010 and 2011		5

Notes to the Condensed Consolidated Financial Statements		6

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		31	32

ITEM 4. Controls and Procedures		31	32

PART II OTHER INFORMATION		31

ITEM 1A. Risk Factors		31	33

ITEM 5. Other Information		32

~~ITEM 6. Exhibits~~		33

~~SIGNATURES~~		34
ITEM 6. Exhibits	35
SIGNATURES
~~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~~36


	March 31,			September 30,
	2011			2011
Assets
Cash and cash equivalents	$	11,560		$	15,559
Short-term investments		1,011			1,014
Accounts receivable, net of allowances of $436 and $485		27,618			21,637
Inventories, net		29,507			32,844
Deferred tax assets		947			1,268
Prepaid expenses and other current assets		2,499			4,052

Total current assets		73,142			76,374
Property and equipment, net		30,017			30,233
Patents and licenses, net		1,620			1,677
Long-term accounts receivable		6,030			7,948
Deferred tax assets		2,112			2,358
Other long-term assets		2,069			1,984

Total assets	$	114,990		$	120,574

Liabilities and Shareholders’ Equity
Accounts payable	$	12,479		$	10,384
Accrued expenses and other		2,324			2,683
Deferred revenue, current		262			3,077
Current maturities of long-term debt		1,137			2,351

Total current liabilities		16,202			18,495
Long-term debt, less current maturities		4,225			6,930
Deferred revenue, long-term		1,777			1,583
Other long-term liabilities		399			400

Total liabilities		22,603			27,408

Commitments and contingencies (See Note F)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2011 and September 30, 2011; no shares issued and outstanding at March 31, 2011 and September 30, 2011		—			—
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2011 and September 30, 2011; shares issued: 30,312,758 and 30,403,067 at March 31, 2011 and September 30, 2011; shares outstanding: 22,893,803 and 23,010,653 at March 31, 2011 and September 30, 2011		—			—
Additional paid-in capital		124,805			126,002
Shareholder notes receivable		(193	)		(244	)
Treasury stock: 7,418,955 and 7,392,414 common shares at March 31, 2011 and September 30, 2011		(31,708	)		(31,757	)
Accumulated deficit		(517	)		(835	)

Total shareholders’ equity		92,387			93,166

Total liabilities and shareholders’ equity	$	114,990		$	120,574


	Three Months Ended September 30,						Six Months Ended September 30,
	2010			2011			2010			2011
Product revenue	$	15,086		$	18,718		$	30,844		$	40,397
Service revenue		767			542			1,986			1,637

Total revenue		15,853			19,260			32,830			42,034
Cost of product revenue		9,745			12,059			20,053			27,063
Cost of service revenue		498			382			1,415			1,116

Total cost of revenue		10,243			12,441			21,468			28,179

Gross profit		5,610			6,819			11,362			13,855
Operating expenses:
General and administrative		2,988			2,724			5,933			5,800
Sales and marketing		3,299			3,736			6,889			7,504
Research and development		573			593			1,183			1,215

Total operating expenses		6,860			7,053			14,005			14,519


Loss from operations		(1,250	)		(234	)		(2,643	)		(664	)
Other income (expense):
Interest expense		(55	)		(150	)		(124	)		(237	)
Dividend and interest income		153			214			246			368

Total other income		98			64			122			131

Loss before income tax		(1,152	)		(170	)		(2,521	)		(533	)

Income tax benefit		(1,692	)		(71	)		(2,525	)		(215	)

Net income (loss)	$	540		$	(99	)	$	4		$	(318	)


Basic net income (loss) per share attributable to common shareholders	$	0.02		$	0.00		$	0.00		$	(0.01	)
Weighted-average common shares outstanding		22,638,638			22,989,502			22,581,188			22,955,655
Diluted net income (loss) per share attributable to common shareholders	$	0.02		$	0.00		$	0.00		$	(0.01	)
Weighted-average common shares outstanding		22,901,590			22,989,502			23,007,067			22,955,655


	Three Months Ended December 31,						Nine Months Ended December 31,
	2010			2011			2010			2011
Product revenue	$	21,633		$	24,274		$	52,476		$	71,746
Service revenue		2,011			3,132			3,997			7,356

Total revenue		23,644			27,406			56,473			79,102
Cost of product revenue		14,134			17,445			34,186			50,484
Cost of service revenue		1,676			2,447			3,091			5,716

Total cost of revenue		15,810			19,892			37,277			56,200

Gross profit		7,834			7,514			19,196			22,902
Operating expenses:
General and administrative		2,709			2,841			8,642			8,641
Sales and marketing		3,235			4,053			10,124			11,557
Research and development		614			556			1,797			1,771

Total operating expenses		6,558			7,450			20,563			21,969

Income (loss) from operations		1,276			64			(1,367	)		933
Other income (expense):
Interest expense		(98	)		(160	)		(223	)		(397	)
Dividend and interest income		189			226			435			594

Total other income (expense)		91			66			212			197

Income (loss) before income tax		1,367			130			(1,155	)		1,130
Income tax expense (benefit)		1,549			56			(976	)		490

Net income (loss)	$	(182	)	$	74		$	(179	)	$	640

Basic net income (loss) per share attributable to common shareholders	$	(0.01	)	$	0.00		$	(0.01	)	$	0.03
Weighted-average common shares outstanding		22,726,426			22,996,050			22,629,776			22,969,169
Diluted net income (loss) per share attributable to common shareholders	$	(0.01	)	$	0.00		$	(0.01	)	$	0.03
Weighted-average common shares outstanding		22,726,426			23,254,830			22,629,776			23,388,651


	March 31, 2011
	Amortized		Unrealized		Unrealized				Cash and Cash		Short Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments
Money market funds	$	485	$	—	$	—	$	485	$	485	$	—
Bank certificate of deposit		1,011		—		—		1,011		—		1,011

Total	$	1,496	$	—	$	—	$	1,496	$	485	$	1,011


	September 30, 2011
	Amortized		Unrealized		Unrealized				Cash and Cash		Short Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments
Money market funds	$	485	$	—	$	—	$	485	$	485	$	—
Bank certificate of deposit		1,014		—		—		1,014		—		1,014

Total	$	1,499	$	—	$	—	$	1,499	$	485	$	1,014


			December 31, 2011
	Amortized		Unrealized		Unrealized				Cash and Cash		Short-term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments
Money market funds	$	485	$	—	$	—	$	485	$	485	$	—
Bank certificate of deposit		1,015		—		—		1,015		—		1,015

Total	$	1,500	$	—	$	—	$	1,500	$	485	$	1,015


			1-90 days		Greater than 90						Total sales-type
	Not Past Due		past due		days past due			Total past due			leases
Lease balances included in consolidated accounts receivable — current	$	2,659	$	32	$	11		$	43		$	2,702
Lease balances included in consolidated accounts receivable — long-term		5,442		—		—			—			5,442

Total gross sales-type leases		8,101		32		11			43			8,144
Allowance		—		—		(7	)		(7	)		(7	)

Total net sales-type leases	$	8,101	$	32	$	4		$	36		$	8,137


	March 31,		December 31,
	2011		2011
Raw materials and components	$	12,005	$	13,400
Work in process		459		1,221
Finished goods		3,413		4,852

	$	15,877	$	19,473


Fiscal 2013	$	955
Fiscal 2014		1,015
Fiscal 2015		958
Fiscal 2016		310
Fiscal 2017		9

Total gross long-term receivable		3,247
Less: amount representing interest		(690	)

Net long-term receivable	$	2,557


	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2010			2011			2010			2011
Beginning of period	$	59		$	59		$	60		$	59
Provision to product cost of revenue		27			28			75			59
Charges		(27	)		(22	)		(76	)		(53	)

End of period	$	59		$	65		$	59		$	65


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2010			2011			2010			2011
Beginning of period	$	59		$	65		$	60		$	59
Provision to product cost of revenue		20			30			95			89
Charges		(18	)		(24	)		(94	)		(77	)

End of period	$	61		$	71		$	61		$	71

	•		~~persuasive evidence of an arrangement exists;~~

	•		~~delivery has occurred and title has passed to the customer;~~

	•		~~the sales price is fixed and determinable and no further obligation exists; and~~

	•		~~collectability is reasonably assured~~


	Six Months Ended		Six Months Ended
	September 30, 2010		September 30, 2011
Unrecognized tax benefits as of beginning of period	$	399	$	399
Decreases relating to settlements with tax authorities		—		—
Additions based on tax positions related to the current period positions		1		1

Unrecognized tax benefits as of end of period	$	399	$	400


	Nine Months Ended		Nine Months Ended
	December 31, 2010		December 31, 2011
Unrecognized tax benefits as of beginning of period	$	398	$	399
Additions based on tax positions related to the current period positions		1		1

Unrecognized tax benefits as of end of period	$	399	$	400


	Shares Issued				Shares Issued
	Under ESPP		Closing Market		Under Loan		Dollar Value of		Repayment of
	Plan		Price		Program		Loans Issued		Loans
Fiscal Year Ended March 31, 2011		65,776	$	3.37		58,655	$	196,100	$	2,685
Quarter Ended June 30, 2011		9,788		3.93		8,601		33,800		1,649
Quarter Ended September 30, 2011		16,753		2.65		11,264		29,850		11,102

Total		92,317	$	3.30		78,520	$	259,750	$	15,436


	Options Outstanding
									Weighted
							Weighted		Average
	Shares						Average		Remaining		Aggregate
	Available for			Number			Exercise		Contractual		Intrinsic
	Grant			of Shares			Price		Term (in years)		value
Balance at March 31, 2011		1,577,676			3,658,768		$	3.83		6.60
Granted stock options		(986,356	)		986,356			4.08
Granted shares		(10,896	)		—			—
Forfeited		546,794			(546,794	)		4.32
Exercised		—			(79,413	)		1.24

Balance at September 30, 2011		1,127,218			4,018,917		$	3.97		7.17	$	444,261

Exercisable at September 30, 2011					1,723,065		$	3.97		5.52	$	316,911


	Options Outstanding
	Shares Available for Grant			Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance at March 31, 2011		1,577,676			3,658,768		$	3.83		6.60
Granted stock options		(1,251,356	)		1,251,356			3.79
Granted shares		(19,533	)		—			—
Forfeited		747,633			(747,633	)		4.25
Exercised		—			(79,413	)		1.25

Balance at December 31, 2011		1,054,420			4,083,078		$	3.89		6.95	$	810,806

Exercisable at December 31, 2011					1,846,129		$	3.86		5.17	$	610,279


			Weighted
			Average
	Number of		Exercise
	Shares		Price
Balance at March 31, 2011		38,980	$	2.25
Issued		—		—
Exercised		—		—
Cancelled		—		—

Balance at September 30, 2011		38,980	$	2.25


	Number of
Exercise Price	Warrants		Expiration
$2.25		38,980	Fiscal 2015


	Revenues				Operating (Loss) Income
	For the Three Months Ended September 30,				For the Three Months Ended September 30,
(dollars in thousands)	2010		2011		2010			2011
Segments:
Energy Management	$	14,371	$	16,686	$	1,301		$	1,415
Engineered Systems		1,482		2,574		(429	)		(449	)
Corporate and Other		—		—		(2,122	)		(1,200	)

	$	15,853	$	19,260	$	(1,250	)	$	(234	)


	Revenues				Operating (Loss) Income
	For the Six Months Ended September 30,				For the Six Months Ended September 30,
(dollars in thousands)	2010		2011		2010			2011
Segments:
Energy Management	$	29,769	$	33,128	$	1,592		$	2,228
Engineered Systems		3,061		8,906		(841	)		(365	)
Corporate and Other		—		—		(3,394	)		(2,527	)

	$	32,830	$	42,034	$	(2,643	)	$	(664	)


	Revenues				Operating Income (Loss)
	For the Three Months Ended December 31,				For the Three Months Ended December 31,
	2010		2011		2010			2011
(dollars in thousands)
Segments:
Energy Management	$	22,042	$	20,544	$	3,499		$	1,459
Engineered Systems		1,602		6,862		(640	)		(132	)
Corporate and Other		—		—		(1,583	)		(1,263	)

	$	23,644	$	27,406	$	1,276		$	64


	Revenues				Operating Income (Loss)
	For the Nine Months Ended December 31,				For the Nine Months Ended December 31,
	2010		2011		2010			2011
(dollars in thousands)
Segments:
Energy Management	$	54,121	$	55,061	$	5,268		$	4,060
Engineered Systems		2,352		24,041		(1,658	)		663
Corporate and Other		—		—		(4,977	)		(3,790	)

	$	56,473	$	79,102	$	(1,367	)	$	933


	Total Assets				Deferred Revenue
	March 31, 2011		December 31, 2011		March 31, 2011			December 31, 2011
(dollars in thousands)
Segments:
Energy Management	$	66,795	$	67,770	$	533		$	1,017
Engineered Systems		20,422		13,252		9,671			3,106
Corporate and Other		33,870		43,879		—			—

	$	121,087	$	124,901	$	10,204		$	4,123


Fiscal 2012	$	324
Fiscal 2013		646
Fiscal 2014		536
Fiscal 2015		426
Fiscal 2016		425
Beyond		1,152

Total expected future discounted revenue from PPAs	$	3,509


			Less than 1						More than 5
	Total		Year		1-3 Years		3-5 Years		Years
Bank debt obligations	$	9,281	$	2,351	$	4,150	$	1,837	$	943
Cash interest payments on debt		1,546		496		579		192		279
Operating lease obligations		8,499		1,715		1,945		1,734		3,105
Purchase order and cap-ex commitments (1)		16,028		8,386		7,642		—		—

Total	$	35,354	$	12,948	$	14,316	$	3,763	$	4,327


			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Bank debt obligations	$	8,685	$	2,344	$	3,960	$	1,492	$	889
Cash interest payments on debt		1,241		401		456		155		229
Operating lease obligations		8,177		1,728		1,837		1,702		2,910
Purchase order and cap-ex commitments(1)		14,937		10,454		4,483		—		—

Total	$	33,040	$	14,927	$	10,736	$	3,349	$	4,028


(1)		Reflects non-cancellable purchase order commitments in the amount of ~~$16.0~~$14.9 million for certain inventory items entered into in order to secure better pricing and ensure materials on hand.


					Total Number of
	Total				Shares Purchased as		Approximate Dollar Value
	Number of				Part of Publicly		of Shares that May Yet Be
	Shares		Average Price		Announced Plans		Purchased Under the
Period	Purchased		Paid per Share		or Programs(1)		Plans or Programs(1)
October 1—October 31, 2011		—	$	—		—		$	2,500,000
November 1—November 30, 2011		8,300	$	2.62		8,300		$	2,478,000
December 1—December 31, 2011		90,000	$	2.86		90,000		$	2,221,000

		98,300				98,300


	Cumulative From
	December 1, 2001
	Through September 30, 2011
	(in thousands, unaudited)
HIF lighting systems sold(1)		2,176
Total units sold (including HIF lighting systems)		2,904
Customer kilowatt demand reduction(2)		679
Customer kilowatt hours saved(2)(3)		17,970,668
Customer electricity costs saved(4)	$	1,383,741
Indirect carbon dioxide emission reductions from customers’ energy savings (tons)(5)		11,677
Square footage retrofitted(6)		1,119,001


	Cumulative From
	December 1, 2001
	Through December 31, 2011
	(in thousands, unaudited)
HIF lighting systems sold (1)		2,232
Total units sold (including HIF lighting systems)		3,005
Customer kilowatt demand reduction (2)		700
Customer kilowatt hours saved (2)(3)		19,268,376
Customer electricity costs saved (4)	$	1,483,665
Indirect carbon dioxide emission reductions from customers’ energy savings (tons) (5)		12,457
Square footage retrofitted (6)		1,155,627


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

(2)		A substantial majority of our HIF lighting systems, which generally operate at approximately 224 watts per six-lamp fixture, are installed in replacement of HID fixtures, which generally operate at approximately 465 watts per fixture in commercial and industrial applications. We calculate that each six-lamp HIF lighting system we install in replacement of an HID fixture generally reduces electricity consumption by approximately 241 watts (the difference between 465 watts and 224 watts). In retrofit projects where we replace fixtures other than HID fixtures, or where we replace fixtures with products other than our HIF lighting systems (which other products generally consist of products with lamps similar to those used in our HIF systems, but with varying frames, ballasts or power packs), we generally achieve similar wattage reductions (based on an analysis of the operating wattages of each of our fixtures compared to the operating wattage of the fixtures they typically replace). We calculate the amount of kilowatt demand reduction by multiplying (i) 0.241 kilowatts per six-lamp equivalent unit we install by (ii) the number of units we have installed in the period presented, including products other than our HIF lighting systems (or a total of approximately ~~2.9~~3.0 million units).

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