UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

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

Commission file number 001-33887

Orion Energy Systems, Inc.

(Exact name of Registrant as specified in its charter)

Wisconsin		39-1847269
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification number)
2210 Woodland Drive, Manitowoc, Wisconsin		54220
(Address of principal executive offices)		(Zip code)

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. Yes þ No o

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). Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

There were 22,818,902 shares of the Registrant’s common stock outstanding on February 7, 2011.

 

 

EXPLANATORY NOTE

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

As previously disclosed, in this Quarterly Report on Form 10-Q/A, we have restated our previously issued unaudited consolidated financial statements and related disclosures for the quarter ended December 31, 2010 to reclassify our transactions under our Orion Throughput Agreements, or OTAs, as sales-type leases instead of as operating leases.

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

This Quarterly Report on Form 10-Q/A for the quarterly period ended December 31, 2010, initially filed with the SEC on February 9, 2011 (“Original Filing”), is being filed to reflect the financial statement restatement. Generally, for the quarterly and year-to-date periods ended December 31, 2010, this change in accounting treatment and financial statement restatements has resulted in:

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

• Increases in our revenue of $0.4 million (1%), an increase in our net income of $0.1 million (17%) and no change in our income per share of $0.03 (0%) for the quarter ended December 31, 2010, and an increase in our revenue of $4.8 million (8%), a decrease in our net loss of $1.3 million (233%) and a reduction in our loss per share of $0.06 (300%) for the nine months ended December 31, 2010; and

• Increases in our current assets of $4.8 million (7%), our total assets of $1.3 million (1%), and a decrease in our total liabilities of $0.8 million (3%) and a reduction in our retained deficit of $2.0 million (59%).

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

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

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

Orion Energy Systems, Inc.

Quarterly Report On Form 10-Q/A

For The Quarter Ended December 31, 2010

Table Of Contents

		Page(s)
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2010			4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2009 and 2010			5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2009 and 2010			6
Notes to the Condensed Consolidated Financial Statements			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			35
ITEM 4. Controls and Procedures			35
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings			36
ITEM 1A. Risk Factors			36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
ITEM 4. Removed and Reserved			37
ITEM 5. Other Information			37
ITEM 6. Exhibits			38
SIGNATURES			39
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1:		Financial Statements

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

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

		March 31,				December 31,
		2010				2010
		(As Restated)				(As Restated)
Assets
Cash and cash equivalents		$	23,364			$	9,858
Short-term investments			1,000				1,010
Accounts receivable, net of allowances of $382 and $467			15,991				26,241
Inventories, net			25,991				32,230
Deferred tax assets			1,244				1,754
Prepaid expenses and other current assets			4,112				4,726
Total current assets			71,702				75,819
Property and equipment, net			28,193				30,991
Patents and licenses, net			1,590				1,634
Deferred tax assets			974				1,059
Long-term accounts receivable			2,092				4,886
Other long-term assets			27				2,963
Total assets		$	104,578			$	117,352
Liabilities and Shareholders’ Equity
Accounts payable		$	7,761			$	15,363
Accrued expenses and other			4,128				3,993
Current maturities of long-term debt			562				1,261
Total current liabilities			12,451				20,617
Long-term debt, less current maturities			3,156				4,618
Deferred revenue, long-term			186				1,036
Other long-term liabilities			398				399
Total liabilities			16,191				26,670
Commitments and contingencies (See Note G)
Shareholders’ equity:
Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2010 and December 31, 2010; no shares issued and outstanding at March 31, 2010 and December 31, 2010			—				—
Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2010 and December 31, 2010; shares issued: 29,911,203 and 30,224,199 at March 31, 2010 and December 31, 2010; shares outstanding: 22,442,380 and 22,792,302 at March 31, 2010 and December 31, 2010			—				—
Additional paid-in capital			122,515				123,965
Treasury stock: 7,468,823 and 7,431,897 common shares at March 31, 2010 and December 31, 2010			(32,011	)			(31,767	)
Shareholder notes receivable			—				(157	)
Accumulated deficit			(2,117	)			(1,359	)
Total shareholders’ equity			88,387				90,682
Total liabilities and shareholders’ equity		$	104,578			$	117,352

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

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

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

		Three Months Ended December 31,								Nine Months Ended December 31,
		2009				2010				2009				2010
		As Restated				As Restated				As Restated				As Restated
Product revenue		$	18,737			$	28,048			$	45,879			$	58,891
Service revenue			2,090				2,008				4,897				3,994
Total revenue			20,827				30,056				50,776				62,885
Cost of product revenue			11,860				19,228				30,729				39,280
Cost of service revenue			1,568				1,674				3,455				3,089
Total cost of revenue			13,428				20,902				34,184				42,369
Gross profit			7,399				9,154				16,592				20,516
Operating expenses:
General and administrative			3,051				2,709				9,357				8,642
Sales and marketing			3,063				3,235				9,176				10,124
Research and development			404				614				1,315				1,797
Total operating expenses			6,518				6,558				19,848				20,563
Income (loss) from operations			881				2,596				(3,256	)			(47	)
Other income (expense):
Interest expense			(66	)			(98	)			(192	)			(223	)
Dividend and interest income			157				189				539				435
Total other income (expense)			91				91				347				212
Income (loss) before income tax			972				2,687				(2,909	)			165
Income tax expense (benefit)			218				1,931				(652	)			(594	)
Net income (loss)		$	754			$	756			$	(2,257	)		$	759
Basic net income (loss) per share		$	0.03			$	0.03			$	(0.10	)		$	0.03
Weighted-average common shares outstanding			21,792,175				22,726,426				21,709,799				22,629,776
Diluted net income (loss) per share		$	0.03			$	0.03			$	(0.10	)		$	0.03
Weighted-average common shares and share equivalents outstanding			22,567,575				23,110,633				21,709,799				23,061,360

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)

		Nine Months Ended December 31,
		2009				2010
		(As Restated)				(As Restated)
Operating activities
Net loss		$	(2,257	)		$	759
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,956				2,341
Stock-based compensation expense			1,064				931
Deferred income tax benefit			(813	)			(595	)
Change in allowance for notes and accounts receivable			384				85
Other			15				25
Changes in operating assets and liabilities:
Accounts receivable			(2,969	)			(10,335	)
Inventories			(4,285	)			(6,239	)
Prepaid expenses and other assets and liabilities			(2,752	)			(5,102	)
Accounts payable			5,193				7,602
Accrued expenses			738				(136	)
Net cash used in operating activities			(3,726	)			(10,664	)
Investing activities
Purchase of property and equipment			(4,142	)			(2,887	)
Purchase of property and equipment leased to customers under operating leases			(1,903	)			(2,126	)
Purchase of short-term investments			—				(10	)
Sale of short-term investments			5,522				—
Additions to patents and licenses			(186	)			(158	)
Proceeds from sales of long-term assets			6				1
Long-term assets			—				(330	)
Net cash used in investing activities			(703	)			(5,510	)
Financing activities
Payment of long-term debt			(640	)			(528	)
Proceeds from long-term debt			200				2,689
Proceeds from shareholder notes			—				1
Repurchase of common stock into treasury			(400	)			—
Excess tax benefits from stock-based compensation			95				193
Deferred financing costs and offering costs			—				(61	)
Proceeds from issuance of common stock			947				374
Net cash provided by financing activities			202				2,668
Net decrease in cash and cash equivalents			(4,227	)			(13,506	)
Cash and cash equivalents at beginning of period			36,163				23,364
Cash and cash equivalents at end of period		$	31,936			$	9,858
Supplemental cash flow information:
Cash paid for interest		$	215			$	192
Cash paid for income taxes			30				31
Supplemental disclosure of non-cash investing and financing activities
Shares issued from treasury for stock note receivable		$	—			$	158
Shares surrendered into treasury for stock option exercise		$	—			$	51

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

ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — DESCRIPTION OF BUSINESS

Organization

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

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

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

NOTE B — RESTATEMENT OF FINANCIAL STATEMENTS

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

As previously disclosed in a Current Report on Form 8-K, on June 14, 2011, the Company’s management, with concurrence from the Audit & Finance Committee of the Company’s Board of Directors, concluded that the financial statements contained in the Form 10-Q for the quarterly period ended December 31, 2010 should no longer be relied upon and must be restated to properly record revenue from its OTAs as sales-type lease contracts.

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

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

The specific line-item effect of the restatement on the Company’s previously issued unaudited condensed consolidated financial statements as of and for the three and nine months ended December 31, 2010 as filed on Form 10-Q on February 9, 2011 are as follows (in thousands, except share and per share data):

		Consolidated Balance Sheets as of December 31, 2010
		As Previously
		reported				Adjustments				As Restated
Assets:
Accounts receivable		$	24,326			$	1,915			$	26,241
Deferred tax assets, current			502				1,252				1,754
Prepaid expenses and other current assets			3,140				1,586				4,726
Total current assets			71,066				4,753				75,819
Property and equipment, net			37,741				(6,750	)			30,991
Deferred tax assets, long-term			2,662				(1,603	)			1,059
Accounts receivable, long-term			—				4,886				4,886
Total assets			116,066				1,286				117,352
Accrued expenses			4,190				(197	)			3,993
Deferred revenue			1,599				(563	)			1,036
Total liabilities			27,430				(760	)			26,670
Shareholders’ equity:
Retained deficit			(3,405	)			2,046				(1,359	)

		Consolidated Statements of Operations
		Three months ended December 31, 2010												Nine months ended December 31, 2010
		As Previously												As Previously
		reported				Adjustments				As Restated				reported				Adjustments				As Restated
Product revenue		$	27,663			$	385			$	28,048			$	54,080			$	4,811			$	58,891
Cost of product revenue			18,784				444				19,228				35,566				3,714				39,280
Dividend and interest income			3				186				189				19				416				435
Income tax expense (benefit)			1,915				16				1,931				(777	)			183				(594	)
Net income (loss)			644				112				756				(571	)			1,330				759
Net income (loss) per share attributable to common shareholders — basic		$	0.03			$	—			$	0.03			$	(0.03	)		$	0.06			$	0.03
Net income (loss) per share attributable to common shareholders — diluted		$	0.03			$	—			$	0.03			$	(0.03	)		$	0.06			$	0.03
Weighted average common shares outstanding — basic			22,726,426				—				22,726,426				22,629,776				—				22,629,776
Weighted average common shares outstanding — diluted			23,110,633				—				23,110,633				22,629,776				—				23,061,360

		Consolidated Statements of Cash Flows
		Nine months ended December 31, 2010
		As Previously
		reported				Adjustments				As Restated
Net (loss) income		$	(571	)		$	1,330			$	759
Depreciation and Amortization			3,145				(804	)			2,341
Deferred income tax benefit			(597	)			2				(595	)
Accounts receivable			(9,794	)			(541	)			(10,335	)
Prepaid expenses and other assets and liabilities			(350	)			(4,752	)			(5,102	)
Accrued expenses			346				(482	)			(136	)
Net cash used in operating activities			(5,417	)			(5,247	)			(10,664	)
Purchase of property and equipment			(2,885	)			(2	)			(2,887	)
Purchase of property and equipment held under operating leases			(7,375	)			5,249				(2,126	)
Net cash used in investing activities			(10,757	)			5,247				(5,510	)

NOTE C — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

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 (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results that may be expected for the year ending March 31, 2011 or other interim periods.

The condensed consolidated balance sheet at March 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete financial statements.

The accompanying unaudited condensed consolidated financial statements 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 for the fiscal year ended March 31, 2010 filed with the SEC on June 14, 2010 as supplemented by the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011 filed with the SEC on July 22, 2011 (See, in particular, footnote B therein).

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

Reclassification

Certain reclassifications have been made in the prior periods financial statements to conform to current period presentation.

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 available for sale

The amortized cost and fair value of marketable securities, with gross unrealized gains and losses, as of March 31, 2010 and December 31, 2010 were as follows (in thousands):

		March 31, 2010
		Amortized				Unrealized				Unrealized								Cash and Cash				Short Term
		Cost				Gains				Losses				Fair Value				Equivalents				Investments
Money market funds		$	22,297			$	—			$	—			$	22,297			$	22,297			$	—
Bank certificates of deposit			1,000				—				—				1,000				—				1,000
Total		$	23,297			$	—			$	—			$	23,297			$	22,297			$	1,000

		December 31, 2010
		Amortized				Unrealized				Unrealized								Cash and Cash				Short Term
		Cost				Gains				Losses				Fair Value				Equivalents				Investments
Money market funds		$	484			$	—			$	—			$	484			$	484			$	—
Bank certificate of deposit			1,010				—				—				1,010				—				1,010
Total		$	1,494			$	—			$	—			$	1,494			$	484			$	1,010

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

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

Fair value of financial instruments

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

Accounts receivable

The majority of the Company’s accounts receivable are due from companies in the commercial, industrial and agricultural industries, as well as 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.

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 or systems, 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, 2010 and December 31, 2010, the Company had inventory obsolescence reserves of $756,000 and $798,000, respectively.

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,				December 31,
		2010				2010
Raw materials and components		$	11,107			$	14,128
Work in process			669				402
Finished goods			14,215				17,700
		$	25,991			$	32,230

Property and Equipment

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

		March 31,				December 31,
		2010				2010
		(As Restated)				(As Restated)
Land and land improvements		$	1,436			$	1,474
Buildings			14,072				15,749
Furniture, fixtures and office equipment			6,615				8,056
Equipment leased to customers under Power Purchase Agreements			—				2,659
Plant equipment			7,627				7,919
Construction in progress			5,774				4,570
			35,524				40,427
Less: accumulated depreciation and amortization			(7,331	)			(9,436	)
Net property and equipment		$	28,193			$	30,991

The Company capitalized $21,000 and none, respectively, of the interest costs for construction in progress for the nine months ended December 31, 2009 and 2010, respectively. Included in construction in progress are costs related to Company-owned equipment leased to customers under solar power purchase agreements, or PPAs, of $2.7 million and $2.1 million as of March 31, 2010 and December 31, 2010, respectively.

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 Finance 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 $4.9 million as of December 31, 2010.

Other Long-Term Assets

Other long-term assets include $27,000 and $68,000 of deferred financing costs as of March 31, 2010 and December 31, 2010, respectively.

Also included in other long-term assets 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 at 7.5%. As of December 31, 2010, the following amounts were due from the third party finance company in future periods (in thousands):

Fiscal 2013		$	336
Fiscal 2014			336
Fiscal 2015			403
Total gross long-term receivable			1,075
Less: amount representing interest			(164	)
Net long-term receivable		$	911

Accrued Expenses

Accrued expenses include warranty accruals, accrued wages and benefits, accrued vacation, sales tax payable and other various unpaid expenses. Accrued legal costs were $1.2 million and $1.1 million as of March 31, 2010 and December 31, 2010, respectively.

The Company generally offers a limited warranty of one year on its 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 products.

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

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2009				2010				2009				2010
Beginning of period		$	42			$	59			$	55			$	60
Provision to cost of revenue			40				20				60				95
Charges			(44	)			(18	)			(77	)			(94	)
End of period		$	38			$	61			$	38			$	61

Revenue Recognition

The Company offers a financing program called the Orion Throughput Agreement, or OTA, for a customer’s lease of the Company’s energy management systems. The OTA is structured as a sales-type lease upon successful installation of the system and customer acknowledgement that the system is operating as specified, 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 financing program, called a 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 for OTA and PPA sales, revenue is recognized when the following four criteria are met:

	•		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

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.

As discussed in “Recent Accounting Pronouncements”, the Company elected to adopt the revised guidance of ASC 605-25 related to multiple-element arrangements during the quarter ended December 31, 2010. This guidance was retrospectively applied to the beginning of the Company’s fiscal year.

For sales contracts 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).

To determine the selling price in multiple-element arrangements, the Company established VSOE of selling price for its HIF lighting and energy management system products using the price charged for a deliverable when sold separately. In addition, the Company determines the selling price for its installation and recycling services through establishing TPE by obtaining independent quotes from installation contractors and evaluating similar services in standalone arrangements with similarly situated customers. Service revenue is recognized when services are complete and customer acceptance has been received. Recycling services provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. The Company’s service 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, 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 group, the Company uses management’s best estimate of selling price giving consideration to external and internal factors including, but not limited to, pricing practices, margin objectives, competition, scope and size of individual projects, geographies in which the Company offers its products and services and internal costs. The Company has completed a limited number of renewable project sales and accordingly, does not have sufficient VSOE or TPE evidence.

The nature of the Company’s multiple element arrangements are 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. The Company’s manufactured technologies are typically delivered within two weeks of receipt of a customer’s purchase order. The timing of delivery on renewable projects through the Company’s Engineered Systems division is dependent upon a contractual schedule agreed upon with the customer and executed in advance of the project start date. Installation for lighting and energy management projects is typically completed within four to six weeks, but can be longer dependent upon the size of the project, the complexity of the interior facility layout and the availability of the customer’s schedule to complete the project. Installation for renewable projects completed through the Company’s Engineered Systems division can often take three to six months to complete and can be longer dependent upon weather issues during installation.

Costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance are deferred and recorded in prepaid expenses and other current assets on the unaudited Condensed Consolidated Balance Sheet. These deferred costs are expensed at the time the related revenue is recognized. Deferred costs amounted to $1.6 million and $2.0 million as of March 31, 2010 and December 31, 2010, respectively.

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 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 contract is executed.

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

		March 31,				December 31,
		2010				2010
		(As Restated)				(As Restated)
Deferred revenue — current liability		$	338			$	276
Deferred revenue — long term liability			186				1,036
Total deferred revenue		$	524			$	1,312

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. Accrued penalties and interest were immaterial as of the date of adoption 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 nine months ended December 31, 2009 and 2010, realized tax benefits from the exercise of stock options were $0.1 million and $0.2 million, respectively.

Stock Option Plans

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

		Three Months Ended December 31,								Nine Months Ended December 31,
		2009				2010				2009				2010
Weighted average expected term		5.9 years				6.0 years				6.4 years				5.6 years
Risk-free interest rate			2.33	%			1.47	%			2.56	%			2.06	%
Expected volatility			60	%			74.8	%			60	%			60% - 74.8	%
Expected forfeiture rate			3	%			10	%			3	%			10	%
Expected dividend yield			0	%			0	%			0	%			0	%

Net Income (Loss) per Common Share

Net income (loss) per share of common stock was as follows for the three and nine months ended December 31, 2009 and 2010:

		Three months Ended December 31,								Nine months Ended December 31,
		2009				2010				2009				2010
		(As Restated)				(As Restated)				(As Restated)				(As Restated)
Net income (loss) (in thousands)		$	754			$	756			$	(2,257	)		$	759
Net income (loss) per common share:
Basic		$	0.03			$	0.03			$	(0.10	)		$	0.03
Diluted		$	0.03			$	0.03			$	(0.10	)		$	0.03
Weighted-average common shares outstanding used in:
Basic			21,792,175				22,726,426				21,709,799				22,629,776
Diluted			22,567,575				23,110,633				21,709,799				23,061,360

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of diluted common shares outstanding during the period. Diluted shares outstanding are calculated by adding to the weighted average shares any outstanding stock options and warrants based upon the treasury stock method. Diluted net loss per share is the same as basic net loss per share for periods with a net loss because the effects of potentially dilutive securities are anti-dilutive.

The Company had the following anti-dilutive securities outstanding which were excluded from the calculation of diluted net loss per share for the nine months ended:

		December 31,				December 31,
		2009				2010
Warrants			357,144				45,040
Stock Options			3,564,200				3,651,648
			3,921,344				3,696,688

Concentration of Credit Risk and Other Risks and Uncertainties

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

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 43% and 16% of total cost of revenue for the three months ended December 31, 2009 and 2010, respectively, and 26% and 25% of total cost of revenue for the nine months ended December 31, 2009 and 2010, respectively.

For the three and nine months ended December 31, 2009, no customers accounted for more than 10% of revenue. For the three and nine months ended December 31, 2010, one customer accounted for 19% and 9% of revenue, respectively.

As of March 31, 2010, one customer accounted for 16% of the accounts receivable balance. As of December 31, 2010, no customer accounted for more than 10% of the accounts receivable 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 2010-20). ASU 2010-20 requires further disaggregated disclosures that improve financial statement users’ understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The new and amended disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The adoption of ASU 2010-20 did not have a material impact on the Company’s consolidated results of operations and financial condition.

Effective April 1, 2010, the Company adopted ASU 2009-13, Multiple-Deliverable Revenue Arrangements, which amends ASC Subtopic 650-25 Revenue Recognition—Multiple-Element Arrangements to eliminate the requirement that all undelivered elements have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. The adoption of this ASU did not result in a material change in either the units of accounting or a change in the pattern or timing of revenue recognition. Additionally, the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

NOTE D — RELATED PARTY TRANSACTIONS

During the nine months ended December 31, 2009 and 2010, the Company recorded revenue of $27,000 and $18,000 for products and services sold to an entity for which a director of the Company was formerly the executive chairman. The Company also entered into an OTA finance contract with such entity in September 2010 with future expected gross contracted revenue to the Company of $2.9 million. During the same nine month periods, the Company purchased goods and services from the same entity in the amounts of $30,000 and none. 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, 2009 and 2010, the Company recorded revenue of $705,000 and $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.

NOTE E — LONG-TERM DEBT

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

		March 31,				December 31,
		2010				2010
Term note		$	1,017			$	843
Customer equipment finance note payable			—				2,318
First mortgage note payable			926				872
Debenture payable			847				817
Lease obligations			7				2
Other long-term debt			921				1,027
Total long-term debt			3,718				5,879
Less: current maturities			(562	)			(1,261	)
Long-term debt, less current maturities		$	3,156			$	4,618

New Debt Arrangements

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

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

Revolving Credit Agreement

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

The Credit Agreement provides for a revolving credit facility (Credit Facility) that matures on June 30, 2012. 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 December 31, 2010, the Company had outstanding letters of credit totaling $1.7 million, primarily for securing collateral requirements under equipment operating leases. The Company incurred $61,000 of deferred financing costs related to the Credit Agreement which will be amortized over the two-year term of the Credit Agreement. There were no borrowings by the Company under the Credit Agreement as of December 31, 2010. The Company was in compliance with all of its covenants under the Credit Agreement as of December 31, 2010.

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

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 not met as of December 31, 2010.

NOTE F — INCOME TAXES

The income tax provision for the nine months ended December 31, 2010 was determined by applying an estimated annual effective tax rate of 360.0% to income before taxes. The estimated effective income tax rate was determined by applying statutory tax rates to pretax income adjusted for certain permanent book to tax differences and tax credits.

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

		Nine Months Ended December 31,
		2009				2010
		(As Restated)				(As Restated)
Statutory federal tax rate			(34.0	)%			34.0	%
State taxes, net			2.6	%			2.0	%
Stock-based compensation expense			5.0	%			(388.7	)%
Federal tax credit			(3.5	)%			(14.7	)%
State tax credit			(0.4	)%			(2.2	)%
State valuation allowance			0.1	%			8.0	%
Permanent items			5.1	%			7.0	%
Other, net			2.7	%			(5.4	)%
Effective income tax rate			(22.4	)%			(360.0	)%

Included in the effective rate impact for stock compensation was the conversion of incentive stock options to non-qualified stock options. The conversion was applied retrospectively, allowing the Company to benefit $0.6 million of income tax expense that was previously deferred for income tax purposes. The conversion reduced the effective tax rate for the 9 months ended December 31, 2010 to a benefit rate of 360.0% from a pre-conversion income tax expense rate of 13.3%.

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

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

Uncertain tax positions

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

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

		Nine Months Ended				Nine Months Ended
		December 31, 2009				December 31, 2010
Unrecognized tax benefits as of beginning of period		$	397			$	398
Decreases relating to settlements with tax authorities			—				—
Additions based on tax positions related to the current period positions			1				1
Unrecognized tax benefits as of end of period		$	398			$	399

NOTE G — COMMITMENTS AND CONTINGENCIES

Operating Leases and Purchase Commitments

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

Litigation

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

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

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

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

NOTE H — SHAREHOLDERS’ EQUITY

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 million 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 for the first nine months of fiscal 2011:

		As of December 31, 2010
		Shares Issued				Closing				Shares Issued				Dollar Value				Repayment
Period		Under ESPP Plan				Market Price				Under Loan Program				Of Loans Issued				Of Loans
Quarter Ended September 30, 2010			40,560			$	3.17				38,202			$	121,100			$	—
Quarter Ended December 31, 2010			12,274				3.34				10,898				36,400				844
Total			52,834			$	3.21				49,100			$	157,500			$	844

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

NOTE I — 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 shares for issuance to key employees, consultants and directors. The Company’s board of directors approved an increase to the number of shares available under the 2004 Stock and Incentive Awards Plan of 1,500,000 shares, and such share increase was approved by the Company’s shareholders at the 2010 annual shareholders meeting and such shares are included above. The options generally vest and become exercisable ratably between one month and five years although longer vesting periods have been used in certain circumstances. Exercisability of the options granted to employees are contingent on the employees’ continued employment and non-vested options are subject to forfeiture if employment terminates for any reason. Options under the Plans have a maximum life of 10 years. In the past, the Company has granted both incentive stock options and non-qualified stock options, although in July 2008, the Company adopted a policy of thereafter only granting non-qualified stock options. Restricted stock awards have no vesting period and have been issued to certain non-employee directors in lieu of cash compensation pursuant to elections made under the Company’s non-employee director compensation program. The Plans also provide to certain employees accelerated vesting in the event of certain changes of control of the Company as well as under other special circumstances.

For the three and nine months ended December 31, 2010, the Company granted none and 11,976 shares from the 2004 Stock and Incentive Awards Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $2.86 to $3.46 per share, the market prices as of the grant dates.

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

		Three Months Ended December 31,								Nine Months Ended December 31,
		2009				2010				2009				2010
Cost of product revenue		$	51			$	42			$	163			$	116
General and administrative			135				147				400				417
Sales and marketing			205				123				472				377
Research and development			10				9				29				21
Total		$	401			$	321			$	1,064			$	931

As of December 31, 2010, compensation cost related to non-vested stock-based compensation amounted to $4.3 million over a remaining weighted average expected term of 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, 2010			569,690				3,546,249			$	3.66				6.87
Amendment to Plan			1,500,000
Granted stock options			(609,077	)			609,077				3.66
Granted shares in lieu of cash compensation			(11,976	)			—				—
Forfeited			218,658				(218,658	)			3.88
Exercised			—				(285,020	)			1.31
Balance at December 31, 2010			1,667,295				3,651,648			$	3.80				6.65			$	2,080,575
Exercisable at December 31, 2010							1,748,281			$	3.34				4.96			$	1,581,405

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 $3.34 as of December 31, 2010.

A summary of the status of the Company’s outstanding non-vested stock options as of December 31, 2010 was as follows:

Non-vested at March 31, 2010			1,789,119
Granted			609,077
Vested			(276,171	)
Forfeited			(218,658	)
Non-vested at December 31, 2010			1,903,367

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 2010 or for the nine months ended December 31, 2010.

Outstanding warrants are comprised of the following:

						Weighted
						Average
		Number of				Exercise
		Shares				Price
Balance at March 31, 2010			76,240			$	2.37
Issued			—				—
Exercised			(16,000	)			2.50
Cancelled			(15,200	)			2.50
Balance at December 31, 2010			45,040			$	2.28

A summary of outstanding warrants at December 31, 2010 follows:

		Number of
Exercise Price		Warrants				Expiration
$2.25			38,980			Fiscal 2014
$2.50			6,060			Fiscal 2011
Total			45,040

NOTE J — SEGMENTS

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

Energy Management

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

Engineered Systems

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

Corporate and Other

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

		Revenues								Operating (Loss) Profit
		For the Three Months Ended December 31,								For the Three Months Ended December 31,
(dollars in thousands)		2009				2010				2009				2010
		(As Restated)				(As Restated)				(As Restated)				(As Restated)
Segments:
Energy Management		$	18,204			$	19,739			$	2,689			$	3,203
Engineered Systems			2,623				10,317				(199	)			976
Corporate and Other			—				—				(1,609	)			(1,583	)
		$	20,827			$	30,056			$	881			$	2,596

		Revenues								Operating (Loss) Profit
		For the Nine Months Ended December 31,								For the Nine Months Ended December 31,
(dollars in thousands)		2009				2010				2009				2010
		(As Restated)				(As Restated)				(As Restated)				(As Restated)
Segments:
Energy Management		$	44,681			$	49,507			$	2,160			$	4,795
Engineered Systems			6,095				13,378				(511	)			135
Corporate and Other			—				—				(4,905	)			(4,977	)
		$	50,776			$	62,885			$	(3,256	)		$	(47	)

		Total Assets								Deferred Revenue
(dollars in thousands)		March 31, 2010				December 31, 2010				March 31, 2010				December 31, 2010
		(As Restated)				(As Restated)				(As Restated)				(As Restated)
Segments:
Energy Management		$	58,332			$	71,289			$	390			$	536
Engineered Systems			3,976				12,199				134				776
Corporate and Other			42,270				33,864				—				—
		$	104,578			$	117,352			$	524			$	1,312

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

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

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes, included elsewhere in this Quarterly Report on Form 10-Q/A. The information below has been adjusted to reflect the impact of the restatement of our financial results which is more fully described in Note B — Restatement to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q/A and under the paragraph “Restatement of Prior Period Financial Statements” below and does not reflect any subsequent information or events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events.

Cautionary Note Regarding Forward-Looking Statements

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

Restatement of Prior Period Financial Statements

As discussed in the explanatory note to this Form 10-Q/A, we have restated our previously issued unaudited consolidated financial statements and related disclosures for the quarter ended December 31, 2010 to account for our transactions under our Orion Throughput Agreements, or OTAs as sales-type leases instead of as operating leases.

Our prior method of accounting for OTA transactions as operating leases deferred revenue recognition over the full term of the OTA contracts, only recognizing revenue on a monthly basis as customer payments are due, while the upfront sales, general and administrative expenses related to these OTA contracts were recognized immediately.

We are filing this Amendment No. 1, or First Amendment, to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2010, or Form 10-Q, filed on February 9, 2011, to restate our unaudited interim condensed consolidated financial statements.

Background of the Restatement

As discussed above in the Explanatory Note in this Form 10-Q/A, the financial statements contained in the Form 10-Q for the quarterly period ended December 31, 2010 should no longer be relied upon and must be restated to account for our transactions under our OTAs as sales-type leases instead of as operating leases.

Our prior method of accounting for OTA transactions as operating leases deferred revenue recognition over the full term of the OTA contracts, only recognizing revenue on a monthly basis as customer payments are due, while the upfront sales, general and administrative expenses related to these OTA contracts were recognized immediately.

This Quarterly Report on Form 10-Q/A for the quarterly period ended December 31, 2010, initially filed with the SEC on February 9, 2011 (“Original Filing”), is being filed to reflect the financial statement restatement. Generally, for the quarterly and year-to-date periods ended December 31, 2010, this change in accounting treatment and financial statement restatements has resulted in:

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

• Increases in our revenue of $0.4 million (1%), an increase in our net income of $0.1 million (17%) and no change in our income per share of $0.03 (0%) for the quarter ended December 31, 2010, and an increase in our revenue of $4.8 million (8%), a decrease in our net loss of $1.3 million (233%) and a reduction in our loss per share of $0.06 (300%) for the nine months ended December 31, 2010; and

• Increases in our current assets of $4.8 million (7%), our total assets of $1.3 million (1%), and a decrease in our total liabilities of $0.8 million (3%) and a reduction in our retained deficit of $2.0 million (59%).

The specific line-item effect of the restatement on our previously issued unaudited condensed consolidated financial statements as of and for the three and nine months ended December 31, 2010 as filed on Form 10-Q on February 9, 2011 are as follows (in thousands, except share and per share data):

		Consolidated Balance Sheets as of December 31, 2010
		As Previously
		reported				Adjustments				As Restated
Assets:
Accounts receivable		$	24,326			$	1,915			$	26,241
Deferred tax assets, current			502				1,252				1,754
Prepaid expenses and other current assets			3,140				1,586				4,726
Total current assets			71,066				4,753				75,819
Property and equipment, net			37,741				(6,750	)			30,991
Deferred tax assets, long-term			2,662				(1,603	)			1,059
Accounts receivable, long-term			—				4,886				4,886
Total assets			116,066				1,286				117,352
Accrued expenses			4,190				(197	)			3,993
Deferred revenue			1,599				(563	)			1,036
Total liabilities			27,430				(760	)			26,670
Shareholders’ equity:
Retained deficit			(3,405	)			2,046				(1,359	)

		Consolidated Statements of Operations
		Three months ended December 31, 2010												Nine months ended December 31, 2010
		As Previously												As Previously
		reported				Adjustments				As Restated				reported				Adjustments				As Restated
Product revenue		$	27,663			$	385			$	28,048			$	54,080			$	4,811			$	58,891
Cost of product revenue			18,784				444				19,228				35,566				3,714				39,280
Dividend and interest income			3				186				189				19				416				435
Income tax expense (benefit)			1,915				16				1,931				(777	)			183				(594	)
Net income (loss)			644				112				756				(571	)			1,330				759
Net income (loss) per share attributable to common shareholders — basic		$	0.03			$	—			$	0.03			$	(0.03	)		$	0.06			$	0.03
Net income (loss) per share attributable to common shareholders — diluted		$	0.03			$	—			$	0.03			$	(0.03	)		$	0.06			$	0.03
Weighted average common shares outstanding — basic			22,726,426				—				22,726,426				22,629,776				—				22,629,776
Weighted average common shares outstanding - diluted			23,110,633				—				23,110,633				22,629,776				—				23,061,360

		Consolidated Statements of Cash Flows
		Nine months ended December 31, 2010
		As Previously
		reported				Adjustments				As Restated
Net (loss) income		$	(571	)		$	1,330			$	759
Depreciation and Amortization			3,145				(804	)			2,341
Deferred income tax benefit			(597	)			2				(595	)
Accounts receivable			(9,794	)			(541	)			(10,335	)
Prepaid expenses and other assets and liabilities			(350	)			(4,752	)			(5,102	)
Accrued expenses			346				(482	)			(136	)
Net cash used in operating activities			(5,417	)			(5,247	)			(10,664	)
Purchase of property and equipment			(2,885	)			(2	)			(2,887	)
Purchase of property and equipment held under operating leases			(7,375	)			5,249				(2,126	)
Net cash used in investing activities			(10,757	)			5,247				(5,510	)

Overview

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

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

We have sold and installed more than 1,972,000 of our HIF lighting systems in over 6,500 facilities from December 1, 2001 through December 31, 2010. We have sold our products to 130 Fortune 500 companies, many of which have installed our HIF lighting systems in multiple facilities. Our top direct customers by revenue in fiscal 2010 included Coca-Cola Enterprises Inc., U.S. Foodservice, SYSCO Corp., Ball Corporation, MillerCoors and Pepsico, Inc. and its affiliates.