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Spark EnergyOrion Energy Systems, Inc. Shareholders’ Letter and Annual Report on Form 10-K Fiscal Year Ended March 31, 2019 To Our Valued Shareholders, Fiscal 2019 was a solid year of progress for Orion both in financial performance and in positioning the Company for future growth and profitability. Our revenues grew by 9% to $65.8 million compared to the prior year, and we made significant headway advancing our business activity with major national accounts. We also saw the full benefit of our prior-year cost cutting initiatives, which trimmed approximately $9 million or greater than 30% of our annual operating expenses compared to fiscal 2017 levels and continued to maintain strict cost management discipline. The combination of higher revenues and lower costs enabled us to trim our fiscal 2019 net loss by nearly 50% to $6.7 million compared to a net loss of $13.1 million in fiscal 2018. Further, our business development efforts the past year have set the stage for what should be substantial growth and a return to profitability in fiscal 2020. Orion has secured a contract with a major national account valued at approximately $110 million in turnkey LED lighting and controls retrofit installations. We expect roughly $100 million of this project to be completed and recognized as revenue during fiscal 2020. Fiscal 2019 highlights: • Fiscal 2019 revenue rose 9% to $65.8M • Fiscal 2019 net loss improved 49% to $(6.7M) • Achieved breakeven adjusted EBITDA for the second half of fiscal 2019 • Secured $110M in turnkey LED retrofit projects from a national customer with completion anticipated by the end of FY 2020. The project includes $11M in initial orders that were substantially completed in Q4’19 • FY 2019 benefitted from more than $6M in annual overhead reductions completed in FY 2018 Orion’s growth plan remains focused on three core sales channels: • Major national accounts managed by Orion’s in-house teams, • Our agent driven distribution channel, and • Energy service companies (ESCOs). Our progress in developing customers, partners and sales opportunities in these channels during fiscal 2019 has put Orion in an excellent position to deliver significantly improved revenue and bottom line results in 2020 and beyond. Major National Accounts Over the past year it has become increasingly apparent that Orion’s competitive advantages - industry leading customer service and our turnkey project capabilities - resonate most strongly within large and sophisticated businesses that are able to take a long term view in their capital projects such as LED lighting upgrades. These customers are able to look at the total cost of ownership of a lighting system and smart controls over the 25-year expected life of the systems, and it is in this context where the long term value of Orion’s quality, energy efficiency, smart design and efficient installation can be best recognized. If we can get a customer to make their purchase decision based on this long view, Orion is very likely to win the engagement. Added to our clear value proposition is Orion’s unique ability to deliver true turnkey LED retrofit services and project management, including initial site assessments, custom design and engineering to meet the customers' objectives with both lighting and controls, and through to installation and commissioning. We also leverage our high-quality U.S. manufacturing capabilities, enabling quick turnaround of customized solutions and product shipping generally within 10 days. We hear first-hand from major customers that our biggest competitors are not able to provide such seamless, turnkey solutions offering one centralized point of contact and responsibility. While they are able to provide LED fixtures at competitive pricing, customers are generally left to manage planning, installation and special considerations on their own. Focusing on our strong suite of solutions for large national accounts, Orion made solid progress the past year in developing some very significant customer opportunities. During fiscal 2019, approximately 47% of total sales came directly from national accounts compared to 40% in fiscal 2018. We believe this model is replicable with both new customers and our strong base of legacy customers. Agent Distribution Channel As we have mentioned in the past, the launch of our agent driven distribution channel significantly expands our reach in the commercial LED retrofit market in North America. We continue to fine tune this sales channel, supporting agencies with sales training and support and the right product mix, and as necessary, adding new agencies and pruning those that are not proving to be productive with our lines. Developing this channel is taking longer than originally expected, but long term we believe it is worth the effort to expand the reach of products and brands. Our agent driven distribution network contributed 37% of our total sales in fiscal 2019 compared to 46% of sales in fiscal 2018, with the decline principally reflecting the increase in major national customer activity and a competitive environment in this channel. Energy Service Companies (ESCOs) Orion has long-standing relationships with ESCOs, and many of those relationships continued to grow and strengthen in fiscal 2019. Through these ESCO relationships, our sales contribution from this channel grew to 16% of sales in fiscal 2019 compared to 14% in the previous year. Product Innovation Product innovation remains an extremely important ongoing focus of Orion, and we are constantly working to enhance the features, functionality and performance of our fixtures to ensure that we remain a leader in our industry and to ensure that we are delivering the value and customization that our customers require. Reflecting our ongoing R&D investments, Orion debuted several new fixtures and features at the LIGHTFAIR 2019 conference last month in Philadelphia. In particular, we introduced the Harris Lumen Select, a fixture where the lumen output can be adjusted in the field. We also provide customizable capabilities, upgrade potential and a wide range of integration options for high power lumen packages, basic controls, and Internet of Things capabilities. The plug-and-play upgrade potential we are increasingly building into our products differs substantially from most of our competition. Importantly, it provides our customers with future optionality for additional controls investments, while also providing Orion with potential future follow-on revenue opportunities. In addition to our technology and design enhancements are a growing array of Internet of Things (IoT) capabilities that we are able to integrate into our lighting networks. We leverage the electronic network of our LED lighting solutions to create smart ceilings that are able to cost effectively host IoT applications such as asset tracking, material handling, facilities utilization, climate control and other monitoring. This added utilization of an LED lighting network delivers even greater return on investment to our customers. We are increasingly working with customers to help them integrate such added functionality into their lighting system decision-making, providing even more value from Orion LED systems. Additionally, many of our LED systems are not only customized but also upgradeable, so customers can choose what they need now with the comfort of knowing they have the option to upgrade both the LED lighting elements and sensor capabilities in the future, as needed. Financial Strength Orion ended fiscal 2019 with net working capital of $14 million, including $8.7 million of cash and cash equivalents. In addition, we had approximately $1.4 million in unused borrowing capacity under our revolving credit facility and increased this borrowing capacity to approximately $5.4 million during Q1 of fiscal 2020. We believe our financial position allows for sufficient resources to execute our growth plans in fiscal 2020 and the foreseeable future. Outlook and Financial Goals Orion has set an initial revenue goal of $135 million to $145 million for fiscal 2020, representing growth of 100% to 120% over fiscal 2019. With this significant revenue growth and continued cost discipline, we would expect the Company to achieve at least 10% EBITDA margins as well as positive net income for fiscal 2020. We do caution that our quarterly performance will likely continue to vary materially on a sequential or year-over-year basis due to the size, timing and terms of customer contracts as well as other industry and economic conditions. Further, our gross margin, EBITDA and net income will also vary on a quarterly basis reflecting our revenue levels, related overhead absorption and investments in the business. In closing, I'd like to thank the Orion team for an outstanding and transformational year, and for their continued hard work and dedication to Orion's success as we move forward. Thank you for your continuing support and confidence in Orion. Sincerely, Mike Altschaefl CEO and Board Chair Orion Energy Systems, Inc. June 21, 2019 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2019or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to 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 ofincorporation or organization) (I.R.S. EmployerIdentification No.)2210 Woodland Drive, Manitowoc, WI 54220 (Address of principal executive offices) (Zip Code) (920) 892-9340(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the act: Title of Each Class Trading Symbol (s) Name of Each Exchange on Which RegisteredCommon stock, no par value OESX The Nasdaq Stock Market LLC(NASDAQ Capital Market)Common stock purchase rights The Nasdaq Stock Market LLC(NASDAQ Capital Market) Securities registered pursuant to Section 12(g) of the act:None Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒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 preceding12 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 ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an "emerging growthcompany". See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act: Large accelerated filer☐ Accelerated filer☐Non-accelerated filer☒ Smaller reporting company☒ Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of shares of the Registrant’s common stock held by non-affiliates as of September 30, 2018, the last business day of the Registrant’s most recentlycompleted second fiscal quarter, was approximately $19,881,105.As of May 31, 2019, there were 29,601,669 shares of the Registrant’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant's Proxy Statement for the 2019 Annual Meeting of Shareholders to be held on August 7, 2019 are incorporated herein by reference in Part III of thisAnnual Report on Form 10-K. ORION ENERGY SYSTEMS, INC.ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED MARCH 31, 2019Table of Contents PagePART IItem 1 Business6Item 1A Risk Factors14Item 1B Unresolved Staff Comments24Item 2 Properties24Item 3 Legal Proceedings24Item 4 Mine Safety Disclosures25PART IIItem 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities25Item 6 Selected Financial Data27Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations29Item 7A Quantitative and Qualitative Disclosures About Market Risk46Item 8 Financial Statements and Supplementary Data47Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure84Item 9A Controls and Procedures84Item 9B Other Information86PART IIIItem 10 Directors, Executive Officers and Corporate Governance87Item 11 Executive Compensation87Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters87Item 13 Certain Relationships and Related Transactions, and Director Independence87Item 14 Principal Accountant Fees and Services87PART IVItem 15 Exhibits and Financial Statement Schedules88Item 16 10-K Summary90Signatures91 FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes forward-looking statements that are based on Orion Energy Systems, Inc's ("Orion", "we", "us", "our" andsimilar references) beliefs and assumptions and on information currently available to us. When used in this Form 10-K, the words “anticipate,” “believe,”“could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans,intentions or expectations are based on assumptions, are subject to risks and uncertainties, and may not be achieved. These statements are based onassumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors thatwe believe are appropriate under the current circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond ourcontrol. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-lookingstatements contained in this Form 10-K. Important factors could cause actual results to differ materially from our forward-looking statements. Given theseuncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs andassumptions only as of the date of this Form 10-K, including particularly the Risk Factors described under Part I. Item 1A. of this Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in thisForm 10-K. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identifyall of these factors, they include, among others, the following: •our ability to achieve our expected revenue growth, gross margin and other financial objectives in fiscal 2020 and beyond; •our recent and expected fiscal 2020 reliance on revenue generated from the retrofit of a single national account customer; •our ability to achieve profitability and positive cash flows; •our levels of cash and our limited borrowing capacity under our revolving line of credit; •the availability of additional debt financing and/or equity capital; •our lack of major sources of recurring revenue, our dependence on a limited number of key customers, and the potential consequences of the lossof one or more key customers or suppliers, including key contacts at such customers; •our risk of potential loss related to single or focused exposure within the current customer base and product offerings; •our ability to manage the ongoing decreases in the average selling prices of our products as a result of competitive pressures in the evolving lightemitting diode ("LED") market; •our ability to differentiate our products in a highly competitive market, expand our customer base and gain market share; •our ability to manage our inventory and avoid inventory obsolescence in a rapidly evolving LED market; •our ability to adapt to increasing convergence in the LED market; •the reduction or elimination of investments in, or incentives to adopt, LED lighting technologies; •our increasing emphasis on selling more of our products through third party distributors and sales agents, including our ability to attract andretain effective third party distributors and sales agents to execute our sales model; •our ability to develop and participate in new product and technology offerings or applications in a cost effective and timely manner; •the potential deterioration of market conditions, including our dependence on customers' capital budgets for sales of products and services, andadverse impacts on costs and the demand for our products as a result of the implementation of tariffs; •our increasing reliance on third parties for the manufacture and development of products and product components; •our ability to maintain safe and secure information technology systems; •our failure to comply with the covenants in our revolving credit agreement; •our fluctuating quarterly results of operations as we continue to implement cost reductions, and continue to focus investing in our third partydistribution sales channel; •our ability to recruit, hire and retain talented individuals in all disciplines of our company; •our ability to balance customer demand and production capacity; •our ability to maintain an effective system of internal control over financial reporting; •price fluctuations (including as a result of tariffs), shortages or interruptions of component supplies and raw materials used to manufacture ourproducts;4 •our ability to defend our patent portfolio; •a reduction in the price of electricity; •the cost to comply with, and the effects of, any current and future industry and government regulations, laws and policies; and •potential warranty claims in excess of our reserve estimates.You are urged to carefully consider these factors and the other factors described under Part I. Item 1A. “Risk Factors” when evaluating any forward-looking statements, and you should not place undue reliance on these forward-looking statements.Except as required by applicable law, we assume no obligation to update any forward-looking statements publicly or to update the reasons why actualresults could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.5 ITEM 1.BUSINESSAs used herein, unless otherwise expressly stated or the context otherwise requires, all references to “Orion,” “we,” “us,” “our,” “Company” andsimilar references are to Orion Energy Systems, Inc. and its consolidated subsidiaries.OverviewWe provide state-of-the-art LED lighting, wireless Internet of Things (“IoT”) enabled control solutions, and energy project management. We research,design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficientcommercial and industrial interior and exterior lighting systems and related services. Our products are targeted for applications in three primary marketsegments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all ofour sales occur within North America.Our lighting products consist primarily of light emitting diode ("LED") lighting fixtures, many of which include IoT enabled control systems. Ourprincipal customers include large national account end-users, electrical distributors and energy service companies ("ESCOs"). Currently, substantially all ofour products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED market continues to evolve, we areincreasingly sourcing products and components from third parties in order to provide versatility in our product development.We have experienced recent success offering our comprehensive project management services to national account customers to retrofit their multiplelocations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, andproject management from delivery through to installation and controls integration.We believe the market for LED lighting products continues to grow. Due to their size and flexibility in application, we also believe that LED lightingsystems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies havebecome the primary component of our revenue as we continue to strive to be a leader in the LED market. We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period and we typicallygenerate substantially all of our revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on aproject-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on apurchase order basis. We typically sell our lighting systems in replacement of our customers’ existing 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 ourlighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period.Reportable SegmentsReportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularlyreviews when allocating resources and assessing performance. Our CODM is our chief executive officer. We have three reportable segments: OrionEngineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM").For financial results by reportable segment, please refer to Note 16, "Segment Data" in our consolidated financial statements included in Item 8. of thisAnnual Report.6 Orion Engineered Systems DivisionThe OES segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energymanagement systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.Orion Distribution Services DivisionThe ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North Americandistributors.Orion U.S. Markets DivisionThe USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers areprimarily ESCOs.Our Market OpportunityWe provide enterprise-grade LED lighting and energy project solutions. We are primarily focused on providing commercial and industrial facilitieslighting retrofit solutions in North America using solid-state LED technology. We believe the market for lighting products has shifted to LED lightingsystems and continues to grow. We believe that LED lighting technology allows for better optical performance, significantly reduced maintenance costs dueto performance longevity and reduced energy consumption. Due to their size and flexibility in application, we also believe that LED lighting systems canaddress opportunities for retrofit applications that cannot be satisfied by other technologies.Our products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their quantity or qualityof light. We estimate that our energy management systems reduce our customers’ legacy lighting-related electricity costs by approximately 50% or greater,while maintaining their quantity of light after the reduced wattage and improving overall lighting quality when replacing traditional fixtures. Our customerswith legacy lighting systems typically realize a one to four-year payback period, and most often 12 – 18 months, from electricity cost savings generated byour lighting systems without considering utility incentives or government subsidies. Energy-efficient lighting systems are cost-effective and environmentally responsible solutions allowing end users to reduce operating expenses. Basedon a July 2015 report published by the United States Department of Energy, or DOE, we estimate the potential North American LED retrofit market within ourprimary markets to be approximately 1.1 billion lighting fixtures. We serve government and private sector end-customers in the following primary markets:commercial office and retail, area lighting and industrial applications.Commercial office and retail. Our commercial office and retail market includes commercial office buildings, retail store fronts, government offices,schools, hospitals and other buildings with traditional 10 to 12 foot ceiling heights. The DOE estimates that there are approximately 987 million office"troffer" fixtures within the United States, which is a rectangular light fixture that fits into a modular dropped ceiling grid. We believe we have theopportunity to increase our revenue by serving this market with our LED Door Retrofit, or LDRTM, lighting solutions.Area lighting. Our market for area lighting includes parking garages, surface lots, automobile dealerships and gas service stations. The DOE estimatesthat there are approximately 66 million area lighting fixtures within the United States and an additional 45 million roadway lighting fixtures in the UnitedStates.Industrial applications. Our market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities, governmentbuildings and agricultural buildings. These facilities typically contain "high-bay" lighting fixtures. The DOE estimates that there are approximately 139million low/high bay fixtures within the United States.7 Commercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional fluorescents, LED andincandescent lighting fixtures. We estimate that approximately 50% of this market still utilizes inefficient high intensity discharge ("HID") lightingtechnologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and earlier generation of LED fixtures. According to the Electric PowerResearch Institute, or EPRI, HID fixtures only convert approximately 36% of the energy they consume into visible light. We estimate that our energymanagement systems reduce our customers’ legacy lighting-related electricity costs by approximately 50% or greater, while improving overall lightingquality when replacing traditional fixtures.We believe that utilities within the United States recognize the importance of energy efficiency as an economical means to manage capacityconstraints and as a low-cost alternative when compared to the construction costs of building new power plants. Accordingly, many of these utilities arecontinually focused on demand reduction through energy efficiency. According to our research of individual state and utility programs, 50 states, throughlegislation, regulation or voluntary action, have seen their utilities design and fund programs that promote or deliver energy efficiency. Our products are notsolely dependent upon these incentive programs, but we do believe that these incentive programs provide an important benefit as our customers evaluatetheir out-of-pocket cash investments.Our SolutionValue Proposition. We estimate our LED lighting systems generally reduce lighting-related electricity costs by approximately 50% or greater,compared to legacy fixtures, while improving overall lighting quality.Multi-Facility Roll-Out Capability. We offer our customers a single source, turnkey solution for project implementation in which we manage andmaintain responsibility for entire multi-facility roll-outs of our energy management solutions across North American commercial and industrial facilityportfolios. This capability allows us to offer our customers an orderly, timely and scheduled process for recognizing energy reductions and cost savings.Rapid Payback Period. In most retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one to four year, but mostoften 12 – 18 months, payback period on our lighting systems. These returns are achieved without considering utility incentives or government subsidies(although subsidies and incentives are continually being made available to our customers in connection with the installation of our systems that furthershorten payback periods).Easy Installation, Implementation and Maintenance. Most of our fixtures are designed with a lightweight construction and modular plug-and-playarchitecture that allows for fast and easy installation, facilitates maintenance, and integration of other components of our energy management system. Ouroffice LED Troffer Door Retrofit ("LDRTM") products are designed to allow for a fast and easy installation without disrupting the ceiling space or the officeworkspace. We believe our system’s design reduces installation time and expense compared to other lighting solutions, which further improves ourcustomers’ return on investment. We also believe that our use of standard components reduces our customers’ ongoing maintenance costs.Expanded Product Offerings. We are committed to continue developing LED product offerings in all of the markets we serve. Our third generationof ISON® class of LED interior fixture delivers a market leading 214 lumens per watt. This advancement means our customers can get more light with lessenergy, and sometimes fewer fixtures, than with any other product on the market. In fiscal 2018 and 2019, we launched a variety of new products, featuresand functionality targeting healthcare, food service, high and low temperature environments and other market segments. See "Products and Services" below.Environmental Benefits. By allowing for the permanent reduction of electricity consumption, our energy management systems reduce indirect CO2emissions that are a negative by-product of energy generation. We estimate that one of our LED lighting systems, when replacing a standard HID fixture,displaces 0.352 kW of electricity, which, based on information provided by the EPA, reduces a customer’s indirect CO2 emissions by approximately 1.5 tonsper year.8 Our Competitive StrengthsCompelling Value Proposition. By permanently reducing lighting-related electricity usage, our systems enable our customers to achieve significantcost savings, without compromising quantity and quality of light in their facilities. As a result, our products offer our customers a rapid return on theirinvestment, without relying on government subsidies or utility incentives.Comprehensive Project Management. We offer our customers a single source solution whereby we manage and are responsible for an entire retrofitlighting project, from initial site surveys and energy audits through to installation and controls integration. Our ability to offer such comprehensive turnkeyproject management services, coupled with best-in-class customer service, allows us to deliver energy reductions and cost savings to our customers in timely,orderly and planned multi-facility roll-outs nationwide. We experienced substantial success with offering these services in fiscal 2019 with one nationalaccount customer entering into commitments to retrofit multiple locations beginning in the fourth quarter of fiscal 2019 and continuing throughout our fiscal2020.Large and Growing Customer Base. We have developed a large and growing national customer base, and have installed our products in more than14,500 commercial and industrial facilities across North America. We believe that the willingness of our blue-chip customers to install our products acrossmultiple facilities represents a significant endorsement of our value proposition, which in turn helps us sell our energy management systems to newcustomers. We intend to leverage our expertise in managing projects across multiple facilities within our new LED product markets, which now include newcustomer opportunities with banks, insurance companies, hospitals, fast food chains, retail storefronts, grocery and pharmacies.Innovative Technology. We have developed a portfolio of 104 United States patents primarily covering various elements of our products. We believethese innovations allow our products to produce more light output per unit of input energy compared to our competition. We also have 15 patents pendingthat primarily cover various elements of our newly developed LED products and certain business methods. To complement our innovative energymanagement products, our integrated energy management services provide our customers with a turnkey solution either at a single facility or across theirNorth American facility footprints. Our demonstrated ability to innovate provides us with significant competitive advantages. Our lighting products offersignificantly more light output as measured in foot-candles of light delivered per watt of electricity consumed when compared to HID or traditionalfluorescent fixtures. Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a “connectedceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other solutions on a digital platform. This “smartceiling” can be integrated with other technologies to collect data and manage assets and resources more efficiently. This anticipated potential growthopportunity is also known as the “Industrial Internet of Things” or IoT and is in the early adoption phase in the marketplace as businesses and municipalitiesexplore use of these new technologies to optimize operations or develop “smart cities”. Orion’s percentage of systems utilizing IoT enabled devices hasgrown significantly over the past few years and we expect this trend to continue. Our IoT enabled devices not only contain energy management controlfunctions, but also have the ability to collect facility usage and traffic data as well as collect data from other facility mechanical systems.Expanded Sales and Distribution Network. In addition to selling directly to national accounts and ESCOs, we sell our lighting products and servicesto electrical distributors through a North American network of independent lighting agencies. As of the end of fiscal 2019, we had approximately 50different independent lighting agencies representing us in substantially all of North America. We intend to continue to selectively build our sales network inthe future, with a focus on geographic regions where we do not currently have a strong sales presence.Our Growth StrategiesOur ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively execute on the following key strategicinitiatives:Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of our competitiveadvantages is our ability to deliver full turnkey LED lighting project capabilities starting with energy audits and site assessments that lead to customengineering and manufacturing through to fully managed installations. These attributes coupled with our superior customer service, high quality designs andexpedited delivery responsiveness resulted in our contract to retrofit multiple locations for a single national account. This contract will lead our growthmomentum for fiscal 2020 and beyond.9 Support success of our ESCO and agent-driven distribution sales channels. We continue to focus on building our relationships and product and salessupport for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development ofnew products to cater to the unique needs of these sales channels.Continued Product Innovation. We continue to innovate, developing lighting fixtures and features that address specific customer requirements, whilealso working to maintain a leadership position in energy efficiency, smart product design and installation benefits. We also continue to deepen ourcapabilities in the integration of smart lighting controls. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs toenable lighting system customization from basic controls to advanced IoT capabilities.Leveraging of Orion’s Smart Lighting Systems to Support Internet of Things Applications. We believe we are ideally positioned to help customers toefficiently deploy new IoT controls and applications by leveraging the “Smart Ceiling” capabilities of their Orion solid state lighting system. IoT capabilitiescan include the management and tracking of facilities, personnel, resources and customer behavior, driving both sales and lowering costs. As a result, theseadded capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner.Products and ServicesOur primary focus has been, and will continue to be, emphasizing our LED lighting fixtures. Currently, substantially all of our products aremanufactured at our leased production facility location in Manitowoc, Wisconsin, although as the LED market continues to evolve, we also source productsand components from third parties in order to have versatility in our product development. We are focused on researching, developing and/or acquiring newinnovative LED products and technologies for the retrofit markets, such as the LDRTM. We plan to focus our efforts on developing creative new LED retrofitproducts in order to offer our customers a variety of integrated energy management services, such as system design, project management and installation.ProductsThe following is a description of our primary products:The LED Troffer Door Retrofit (LDRTM): The LDRTM is designed to replace existing 4 foot by 2 foot and 2 foot by 2 foot fluorescent troffers that arefrequently found in office or retail grid ceilings. Our LDRTM product is unique in that the LED optics and electronics are housed within the doorframe thatallows for installation of the product in approximately one to two minutes. Our LDRTM product also provides reduced maintenance expenses based uponimproved LED chips.Interior LED High Bay Fixtures: Our LED interior high bay lighting products consist of our Harris high bay, ApolloTM high bay and ISON® high bayproducts. Our ISON® class of LED interior fixture offers a full package of premium features, including low total cost of ownership, optics that currentlyexceed competitors in terms of lumen package, delivered light, modularity and advanced thermal management. Our third generation of ISON® class of LEDinterior fixture delivers up to an exceptional 214 lumens per watt. This advancement means our customers can get more light with less energy, andsometimes fewer fixtures, compared to other products on the market. Our ApolloTM class of LED interior fixtures is designed for new construction and retrofitprojects where initial cost is the largest factor in the purchase decision. Our Harris high bay is ideal for customers seeking a cost-effective solution to deliverenergy savings and maintenance reductions. In addition, our LED interior lighting products are lightweight and easy to handle, which further reducesinstallation and maintenance costs and helps to build brand loyalty with electrical contractors and installers.Smart Lighting Controls. We offer a broad array of smart building control systems that have either been developed by us under the InteLiteTM brandor procured from third parties. These control systems provide both lighting control options (such as occupancy, daylight, or schedule control) and dataintelligence capabilities for building managers to log, monitor, and analyze use of space, energy savings, and provide physical security of the space.Other Products. We also offer our customers a variety of other LED and HIF fixtures to address their lighting and energy management needs, includingfixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and private label resale.10 Warranty Policy. Our warranty policy generally provides for a limited one-year warranty on our HIF products and a limited five-year warranty on ourLED products, although we do offer warranties ranging up to 10 years for certain LED products. Ballasts, lamps, drivers, LED chips and other electricalcomponents are excluded from our standard warranty as they are covered by separate warranties offered by the original equipment manufacturers. Wecoordinate and process customer warranty inquiries and claims, including inquiries and claims relating to ballast and lamp components, through ourcustomer service department.ServicesWe provide a range of fee-based lighting-related energy management services to our customers, including: •comprehensive site assessment, which includes a review of the current lighting requirements and energy usage at the customer’s facility; •site field verification, or SFV, during which we perform a test implementation of our energy management system at a customer’s facility; •utility incentive and government subsidy management, where we assist our customers in identifying, applying for and obtaining available utilityincentives or government subsidies; •engineering design, which involves designing a customized system to suit our customers' facility lighting and energy management needs, andproviding the customer with a written analysis of the potential energy savings and lighting and environmental benefits associated with thedesigned system; •project management, which involves us working with the electrical contractor in overseeing and managing all phases of implementation fromdelivery through installation for a single facility or through multi-facility roll-outs tied to a defined project schedule; •installation services, for our products, which we provide through our national network of qualified third-party installers; and •recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting fixtures.We also provide other services that comprise a small amount of our revenue. These services primarily include management and control of powerquality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and fixture components into the after-market.Our CustomersWe primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing, and office facilities. In fiscal2019, one customer accounted for 20.7% of total revenue. We expect this customer will continue to account for even a substantially higher percentage of ourfiscal 2020 total revenue. In fiscal 2018, two customers accounted for 11.7% and 10.8% of total revenue. In fiscal 2017, there was no single customer thataccounted for more than 10% of our total revenue. While we continue to seek to diversify our customer base by expanding our reach to national accounts,ESCOs and the agent driven distribution channel, we expect to continue to derive a significant percentage of our revenue from contracts with onecustomer. These contracts are entered into in the ordinary course of business and provide that we will deliver products and services on a work order orpurchase order basis and any purchase order may be terminated prior to shipment. The contracts do not guarantee that the customer will buy our products orservices. The amount and concentration of our revenues with one or more customer may fluctuate on a year to year basis depending on the number of purchaseorders issued by our customers. The loss of a significant customer or the termination of a material volume of purchase orders (or the underlying agreements)could have a material adverse effect on our results of operations.11 Sales and MarketingWe sell our products in one of three ways: (i) directly with our relationships with our national account partners; (ii) indirectly through independentsales agencies and broadline North American distributors; and (iii) through ESCOs. Our ODS segment focuses on developing and expanding customerrelationships with independent manufacturer’s agents and broadline distributors. During fiscal 2019 and fiscal 2018, we engaged approximately 50manufacturer representative agencies to expand our reach with broadline distributors and further enhance our ability to increase our revenue. We attempt toleverage the customer relationships of these distributors to further extend the geographic scope of our selling efforts. We work cooperatively with our indirectchannels through participation in national trade organizations and by providing training on our sales methodologies.We have historically focused our marketing efforts on traditional direct advertising, as well as developing brand awareness through customereducation and active participation in trade shows and energy management seminars. These efforts have included participating in national, regional and localtrade organizations, exhibiting at trade shows, executing targeted direct mail campaigns, advertising in select publications, public relations campaigns,social media and other lead generation and brand-building initiatives.CompetitionThe market for energy-efficient lighting products and services is fragmented. We face strong competition primarily from manufacturers and distributorsof lighting products and services as well as electrical contractors. We compete primarily on the basis of technology, cost, performance, quality, customerexperience, energy efficiency, customer service and marketing support.There are a number of lighting fixture manufacturers that sell LED and HIF products that compete with our lighting product lines. Lighting companiessuch as Acuity Brands, Inc., Carmanah Technology Corporation, Energy Focus, Inc., Eaton Corporation plc, Cree, Inc., LSI Industries, Inc., RevolutionLighting Technologies Inc., TCP International Holdings, Inc., and Hubbell Incorporated are some of our main competitors within the commercial office, retailand industrial markets. We are also facing increased competition from manufacturers in low-cost countries.We also face competition from companies who provide energy management services. Some of these competitors, such as Ameresco, Inc., JohnsonControls, Inc. and Honeywell International, provide basic systems and controls designed to further energy efficiency.Intellectual PropertyAs of March 31, 2019, we had been issued 104 United States patents and have applied for 15 additional United States patents. The patented and patentpending technologies cover various innovative elements of our products, including our HIF and LED fixtures. Our patented LDRTM product allows for asignificantly quicker installation when compared to competitor's commercial office lighting products. Our smart lighting controls allow our lighting fixturesto selectively provide a targeted amount of light where and when it is needed most.We believe that our patent portfolio as a whole is material to our business. We also believe that our patents covering our ability to manage the thermaland optical performance of our LED and HIF lighting products are material to our business, and that the loss of these patents could significantly andadversely affect our business, operating results and prospects.BacklogBacklog represents the amount of revenue that we expect to realize in the future as a result of firm, committed orders. Our backlog as of March 31,2019 and March 31, 2018 totaled $10.8 million and $3.3 million, respectively. We generally expect our backlog to be recognized as revenue within oneyear.Manufacturing and DistributionWe lease an approximately 197,000 square foot manufacturing and distribution facility located in Manitowoc, Wisconsin, where substantially all ofour products are manufactured.12 We generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract with transportationcompanies to ship our products and manage all aspects of distribution logistics. We generally ship our products directly to the end user.Research and DevelopmentOur research and development efforts are centered on developing new LED products and technologies and enhancing existing products. The products,technologies and services we are developing are focused on increasing end user energy efficiency and enhancing lighting output. Over the last three fiscalyears, we have focused our development on additional LED products, resulting in our development and commercialization of several new suites of LEDinterior high bay products.We operate research and development lab and test facilities in our Jacksonville, Florida and Manitowoc, Wisconsin locations.Regulatory MattersOur operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air, discharge to water, theremediation of contaminated properties and the generation, handling, storage, transportation, treatment, and disposal of, and exposure to, waste and othermaterials, as well as laws and regulations relating to occupational health and safety. We believe that our business, operations, and facilities are beingoperated in compliance in all material respects with applicable environmental and health and safety laws and regulations.State, county or municipal statutes often require that a licensed electrician be present and supervise each retrofit project. Further, all installations ofelectrical fixtures are subject to compliance with electrical codes in virtually all jurisdictions in the United States. In cases where we engage independentcontractors to perform our retrofit projects, we believe that compliance with these laws and regulations is the responsibility of the applicable contractor.Our Corporate and Other Available InformationWe were incorporated as a Wisconsin corporation in April 1996 and our corporate headquarters are located at 2210 Woodland Drive, Manitowoc,Wisconsin 54220. Our Internet website address is www.orionlighting.com. Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or theExchange Act, are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after we electronicallyfile such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. We are not including the information contained on our websiteas part of, or incorporating it by reference into, this report.EmployeesAs of March 31, 2019, we had approximately 186 full-time and 135 temporary employees, of which 202 work in manufacturing. Our employees are notrepresented by any labor union, and we have never experienced a work stoppage or strike. We consider our relations with our employees to be good.13 ITEM 1A.RISK FACTORSYou should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and ExchangeCommission and the other information in this Annual Report on Form 10-K. The matters discussed in the following risk factors, and additional risks anduncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition,results of operations and future growth prospects and could cause the trading price of our common stock to decline.We have had a history of losses and we may be unable to achieve profitability or positive cash flows in the future.We have experienced net losses for the past five fiscal years. Generating net income and positive cash flows in the future will depend on our ability tosuccessfully complete and execute our strategic plan and continue to control costs pursuant to our cost reduction initiatives. The continued implementationof our cost reduction initiatives may negatively impact our sales. In addition, our cost reduction initiatives may not be sufficient to offset our negative cashflows and may plateau over time, reducing our ability to further offset negative cash flows. There is no guarantee that we will be able to achieve profitabilityor positive cash flows in the future. Our inability to successfully achieve profitability and positive cash flows will likely result in our experiencing a seriousliquidity deficiency and could threaten our viability.Our financial performance is dependent on our ability to execute on our strategy and achieve profitability.Our ability to achieve our desired growth and profitability goals depends on our ability to effectively manage our turnkey LED retrofit capabilities tolarge national account customers, engage distribution and sales agents, develop recurring revenue streams, expand our customer base and improve ourmarketing, new product development, project execution, customer service, margin enhancement and operating expense management, as well as other factors.If we are unable to successfully execute in any of these areas or on our growth and profitability strategy, then our business and financial performance willlikely be materially adversely affected.We may not be able to obtain equity capital or debt financing necessary to fund our ongoing operations, effectively pursue our strategy and sustain ourgrowth initiatives.Our existing liquidity and capital resources may not be sufficient to allow us to fund our ongoing operations, effectively pursue our strategy or sustainour growth initiatives. As of March 31, 2019, we had $8.7 million of cash and approximately $9.2 million of outstanding borrowings and $1.4 million ofremaining borrowing capacity available under our revolving credit facility, compared to $9.4 million of cash and approximately $3.9 million of outstandingborrowings and $0.1 million of remaining borrowing availability as of March 31, 2018. If we require additional capital resources, we may not be able toobtain sufficient equity capital and/or debt financing to allow us to continue our normal course of operations or we may not be able to obtain such equitycapital or debt financing on acceptable terms or conditions. Factors affecting the availability to us of equity capital or debt financing on acceptable terms andconditions include: •Our current and future financial results and position. •The collateral availability and softening of our otherwise unsecured assets. •The market’s, investors and lenders' view of our company, industry and products. •The perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations. •The price, volatility and trading volume and history of our common stock.Our inability to obtain the equity capital or debt financing necessary to fund our ongoing operations or pursue our strategies could force us to scaleback our operations or our sales initiatives. If we are unable to pursue our strategy and sustain our growth initiatives, our business and operating results willbe materially adversely affected.14 We do not have major sources of recurring revenue and depend upon a limited number of customers in any given period to generate a substantialportion of our revenue. The loss of significant customers or a major customer could have an adverse effect on our operations.We do not have long-term contracts with our customers that provide us with recurring revenue from period to period. As a result, we generate asubstantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new and existing customers and our dependence onindividual 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 top10 customers accounted for approximately 48%, 42%, and 33% respectively, of our total revenue for fiscal 2019, 2018 and 2017. In fiscal 2019, onecustomer accounted for 20.7% of total revenue. We expect this customer will continue to account for even a substantially higher percentage of our fiscal2020 revenue. As a result, we will continue to experience significant customer concentration in fiscal 2020. The loss of this customer or our failure to satisfyits installation requirements in fiscal 2020 could have a material adverse effect on our results of operations and financial condition. In fiscal 2018, twocustomers accounted for 11.7% and 10.8% of total revenue. In fiscal 2017, there was no single customer that accounted for more than 10% of our revenue.We expect large retrofit and rollout projects to continue to remain a significant component of our total revenue.The agreements we enter into with several of our key customers (including our largest customer) provide that we will provide products and services ona work order or purchase order basis. These agreements do not guarantee that our key customers will make purchases from us and provide that any purchaseorder or work order may be terminated prior to shipment. As a result, the amount and concentration of our revenues may fluctuate year over year dependingon the number of purchase orders or work orders issued by our customers, which may fluctuate due to factors such as our customers’ capital expenditurebudgets and general economic conditions. Additionally, commercial office lighting retrofits provide for single large project opportunities. The loss of, orsubstantial reduction in sales to, any of our significant customers, or a major customer, or the termination or delay of a significant volume of purchase ordersby one or more key customers, could have a material adverse effect on our results of operations in any given future period.The success of our business depends upon market acceptance of our energy management products and services.Our future success depends on continued commercial acceptance of our energy management products and services and obtaining additional projectmanagement retrofit contracts to supplement our contract for our single largest customer in fiscal 2019 and fiscal 2020. If we are unable to convince currentand potential customers of the advantages of our lighting systems and energy management products and services, then our ability to sell our lighting systemsand energy management products and services will be limited. In addition, because the market for energy management products and services is rapidlyevolving, we may not be able to accurately assess the size of the market, and we may have limited insight into trends that may emerge and affect our business.If the market for our lighting systems and energy management products and services does not continue to develop, or if the market does not accept ourproducts, then our ability to grow our business could be limited and we may not be able to increase our revenue or achieve profitability.Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business.Our operations and performance are impacted by worldwide economic conditions. Uncertainty about global economic conditions could result incustomers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in incomeor asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, onour business, results of operations or financial condition. For example, any economic and political uncertainty caused by the United States tariffs imposed onother countries, and any corresponding tariffs from such other countries in response, may negatively impact demand and/or increase the cost for our productsand components used in our products. There continues to be a great amount of debate regarding a wide range of policy options with respect to monetary, regulatory, and trade, amongstothers, that the U.S. federal government has and may pursue, including the recent imposition of tariffs on certain imports. Certain sourced finished productsand certain of the components used in our products are impacted by the recently imposed tariffs on China imports. Our efforts to mitigate the impact of addedcosts include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate theimpacts of these tariffs and other trade policies, our results of operations may be adversely affected.15 In addition, global economic and political uncertainty has led many customers to adopt strategies for conserving cash, including limits on capitalspending. Our lighting systems are often purchased as capital assets and therefore are subject to capital availability. Uncertainty around such availability hasled customers to delay purchase decisions, which has elongated the duration of our sales cycles. Weak economic conditions in the past have adverselyaffected our customers’ capital budgets, purchasing decisions and facilities managers and, therefore, have adversely affected our results of operations. Thereturn to a recessionary state of the global economy could potentially have negative effects on our near-term liquidity and capital resources, including slowercollections of receivables, delays of existing order deliveries, postponements of incoming orders and reductions in the number and volume of purchase ordersreceived from key customers as a result of reduced capital expenditure budgets. Our business and results of operations will be adversely affected to the extentthese adverse economic conditions affect our customers’ purchasing decisions.The success of our LED lighting retrofit solutions depend, in part, on our ability to claim market share ahead of our competitors. If we are unable toexpand our customer base and increase sales in our targeted markets, our revenues and profitability will be adversely affected.Participants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely to gain acompetitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life of several years followinginstallation. If we are unable to broaden our customer base and achieve greater market penetration in the LED market in a timely manner, we may lose theopportunity to market our LED products and services to significant portions of the lighting systems retrofit market for several years and may be at adisadvantage in securing future business opportunities from customers that have previously established relationships with one or more of ourcompetitors. These circumstances could reduce our revenue and profitability, which could have a material adverse effect on our results of operations andfinancial condition.In addition, as we continue to seek to expand our customer base within agent/distribution channels, national accounts and ESCOs, our success willdepend in part on our ability to attract and retain talent to execute on our sales model. If we are unable to attract and retain sufficient talent, we may beunable to broaden our customer base, which will adversely affect our revenue and profitability.We are increasing our emphasis on indirect distribution channels to sell our products and services. If we are unable to attract, incentivize and retainour third-party distributors and sales agents, or our distributors and sales agents do not sell our products and services at the levels expected, ourrevenues could decline and our costs could increase.We have significantly expanded the number of our manufacturer representative agencies that sell our products through distributors, many of which arenot exclusive, which means that these sales agents and distributors may sell other third-party products and services in direct competition with us. Since manyof our competitors use sales agents and distributors to sell their products and services, competition for such agents and distributors is intense and mayadversely affect our product pricing and gross margins. Additionally, due to mismanagement, industry trends, macro-economic developments, or otherreasons, our sales agents and distributors may be unable to effectively sell our products at the levels desired or anticipated. In addition, we have historicallyrelied on direct sales to sell our products, which were often made in competition with sales agents and distributors. In order to attract and form lastingpartnerships with sales agents and distributors, we will be required to overcome our historical perception as a direct sales competitor. As a result, we may havedifficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative effect on our ability to attract and obtaincustomers, which could have an adverse impact on our business.16 Our financial performance is dependent on our ability to achieve growth in our average sales margins on our products.The gross margins of our products can vary significantly, with margins ranging from 10% to 50%. While we continue to implement our strategy oftransitioning to higher-margin products and reducing the material cost of our products, a change in the total mix of our sales toward lower margin products, adecrease in the margins on our products as a result of competitive pressures driving down the average selling price of our products, lower sales volumes andpromotional programs to increase sales volumes could reduce our profitability and result in a material adverse effect on our business and financialperformance. Furthermore, average selling prices may be negatively impacted by market over-supply conditions, product feature cannibalization bycompetitors or component providers, low-cost non-traditional sales methods by new market entrants, and comparison of our retrofit fixture products withreplacement lamp equivalents. In a competitive lighting industry, we must be able to innovate and release new products on a regular basis with features andbenefits that generate increases in average selling price or average margins.We operate in a highly competitive industry and, if we are unable to compete successfully, our revenue and profitability will be adversely affected.We face strong competition primarily from manufacturers and distributors of energy management products and services, as well as from electricalcontractors. We are also facing increased competition from manufacturers in low-cost countries. We compete primarily on the basis of customer relationships,price, quality, energy efficiency, customer service and marketing support. Our products are in direct competition with the expanding availability of LEDproducts, HID technology, as well as HIF products and older fluorescent technology in the lighting systems retrofit market.Many of our competitors are better capitalized than we are, have strong customer relationships, greater name recognition, and more extensiveengineering, manufacturing, sales and marketing capabilities. In addition, the LED market has seen increased convergence in recent years, resulting in ourcompetition gaining increased market share and resources. Competitors could focus their substantial resources on developing a competing business model orenergy management products or services that may be potentially more attractive to customers than our products or services. In addition, we may facecompetition from other products or technologies that reduce demand for electricity. Our competitors may also offer energy management products and servicesat reduced prices in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retaincustomers, require us to lower our average selling prices in order to remain competitive, and reduce our revenue and profitability, any of which could have amaterial adverse effect on our results of operations and financial condition.The success of our business depends upon our adaptation to the quickly changing market conditions in the lighting industry and on market acceptanceof our lighting retrofit solutions using new LED technologies.The market for lighting products has experienced a significant technology shift to LED lighting systems. In addition, we continue to explore utilizingour system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other businesssolutions on our digital platform.As a result, our future success depends significantly upon the adoption rate of LED products within our primary markets and our ability to participatein this ongoing market trend. To be an effective participant in the LED market, we must keep up with the evolution of LED technology, which continues tomove at a fast pace. We may be unable to successfully develop and market new LED products or services that keep pace with technological or industrychanges, differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and industryregulations and technology standards. The development and introduction of new LED products may result in increased warranty expenses and other newproduct introduction expenses. In addition, we will likely continue to incur substantial costs to research and develop new LED products, which will increaseour expenses, without guarantee that our new products and services will be commercially viable. We may also spend time and resources to develop andrelease new LED products only to discover that a competitor has also introduced similar new products with superior performance. Moreover, if new sources oflighting are developed, our current products and technologies could become less competitive or obsolete, which could result in reduced revenue, reducedearnings or increased losses and/or inventory and other impairment charges.17 As we attempt to adapt and respond to this quickly evolving market, we have been managing through significant change in our vendor supply chainas we place most of our focus on this LED product line. We currently believe that our continuing efforts to negotiate further lower material input costs willhelp maintain or improve our LED product gross margins. However, we may not be able to realize the gross margin benefits in the amounts or on thetimetable anticipated and we may experience higher warranty expenses in the future as we implement our manufacturing and assembly process changes. It isalso possible that, as we continue to focus our sales efforts on our LED product lines, we may increase our risk of inventory obsolescence for our legacylighting product lines or even for outmoded LED products.Finally, in connection with our primary focus on selling our LED products, we expect our results of operations to continue to fluctuate from quarter toquarter as customers may continue to delay purchasing decisions as they evaluate their return on investment from purchasing new LED products compared toalternative lighting solutions, the pricing of LED products continues to fall and LED products continue to gain more widespread customer acceptance.Similarly, these circumstances have impacted, and may continue to adversely impact, our product gross margins and our profitability from quarter to quarter.If we are unable to achieve market acceptance of our lighting retrofit solutions using new LED technologies or realize the expected benefits from ourfocus on promoting our LED technologies, our results of operations and financial condition will likely be materially adversely affected.The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebatesin certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for ourproducts to slow, which could materially and adversely affect our revenues, profits and margins.Reductions in (including as a result of any budgetary constraints), or the elimination of, government investment and favorable energy policiesdesigned to accelerate the adoption of LED lighting could result in decreased demand for our products and decrease our revenues, profits and margins.Further, if our products fail to qualify for any financial incentives or rebates provided by governmental agencies or utilities for which our competitors’products qualify, such programs may diminish or eliminate our ability to compete by offering products at lower prices than ours.We increasingly rely on third-party manufacturers for the manufacture and development of our products and product components.We have increased our utilization of third-party manufacturers for the manufacture and development of our products and product components. Ourbusiness, prospects, results of operations, financial condition or cash flows could be materially adversely affected if our manufacturers were to experienceproblems with product quality, credit or liquidity issues, or disruptions or delays in the manufacturing process or delivery of the finished products andcomponents or the raw materials used to make such products and components.Changes in government budget priorities and political gridlock could negatively impact our sales and profitability.Actual and perceived changes in governmental budget priorities could adversely affect our business and results of operations. Government agenciespurchase product directly from us. When the government changes budget priorities, such as in times of war or financial crisis, or reallocates spending to areasunrelated to our business, our sales and profitability can be negatively impacted. For example, demand and payment for our products and services may beaffected by public sector budgetary cycles, funding authorizations or rebates. Funding reductions or delays, including delays caused by political gridlock,could negatively impact demand and payment for our products and services.Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply.We may be vulnerable to price increases for components or raw materials that we require for our products, including aluminum, copper, certain rareearth minerals, electronic drivers, chips, ballasts, power supplies and lamps. In particular, our cost of aluminum can be subject to commodity pricefluctuation. We also source certain finished goods externally. Limitations inherent within the supply chain of certain of these component parts, includingcompetitive, governmental, and legal limitations, natural disasters, and18 other events, could impact costs, and future increases in the costs of these items, including through the adoption of new tariffs by the United States and othercountries, could adversely affect our profitability, as there can be no assurance that future price increases will be successfully passed through to customers.Further, suppliers' inventories of certain components that our products require may be limited and are subject to acquisition by others. In the past, we havehad to purchase quantities of certain components that are critical to our product manufacturing and were in excess of our estimated near-term requirements asa result of supplier delivery constraints and concerns over component availability, and we may need to do so in the future. As a result, we have had, and mayneed to continue, to devote additional working capital to support component and raw material inventory that may not be used over a reasonable period toproduce saleable products, and we may be required to increase our excess and obsolete inventory reserves to provide for these excess quantities, particularlyif demand for our products does not meet our expectations. Also, any shortages or interruptions in supply of our components or raw materials could disruptour operations. If any of these events occur, our results of operations and financial condition could be materially adversely affected.Our ability to balance customer demand and capacity and increased employee turnover could negatively impact our business.In addition, as customer demand for our products changes, we must be able to adjust our production capacity, including increasing or decreasing ouremployee workforce, to meet demand. We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able toincrease or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, our ability toexecute our operating plan could be adversely affected.We have, from time to time, experienced increased employee turnover. The increased turnover has resulted in the loss of numerous long-termemployees, along with their institutional knowledge and expertise, and the reallocation of certain employment responsibilities, all of which could adverselyaffect operational efficiencies, employee performance and retention. Such turnover has also placed a significant burden on our continuing employees, hasresulted in higher recruiting expenses as we have sought to recruit and train employees, and introduced increased instability in our operations asresponsibilities were reallocated to new or different employees. To the extent that we are unable to effectively reallocate employee responsibilities, retainkey employees and reduce employee turnover, our operations and our ability to execute our operating plan could be adversely affected.Our inability to attract and retain key employees, our reseller network members or manufacturer representative agencies could adversely affect ouroperations and our ability to execute on our operating plan and growth strategy.We rely upon the knowledge, experience and skills of key employees throughout our organization, particularly our senior management team, our salesgroup that require technical knowledge or contacts in, and knowledge of, the LED industry and our innovation and engineering team. In addition, our abilityto attract talented new employees, particularly in our sales group and our innovation and engineering team, is also critical to our success. We also depend onour distribution channels and network of manufacturer representative agencies. If we are unable to attract and retain key employees, resellers, andmanufacturer representative agencies because of competition or, in the case of employees, inadequate compensation or other factors, our results of operationsand our ability to execute our operating plan could be adversely affected.If our information technology systems security measures are breached or fail, our products may be perceived as not being secure, customers maycurtail or stop buying our products, we may incur significant legal and financial exposure, our business, results of operations and financial conditioncould be materially adversely affected.Our information technology systems involve the storage of our confidential information and trade secrets as well as our customers’ personal andproprietary information in our equipment, networks and corporate systems. Security breaches expose us to a risk of loss of this information, litigation andincreased costs for security measures, loss of revenue, damage to our reputation and potential liability. Security breaches or unauthorized access may in thefuture result in a combination of significant legal and financial exposure, increased remediation and other costs, theft and/or unauthorized use or publicationof our trade secrets and other confidential business information, damage to our reputation and a loss of confidence in the security of our products, servicesand networks that could have an adverse effect upon our business. We take steps to prevent unauthorized access to our corporate systems, however, becausethe techniques used to obtain unauthorized access, disable or sabotage systems change frequently or may be designed to remain dormant until a triggeringevent, we may be unable to anticipate these techniques or implement adequate preventative measures. Further, the risk of a security breach or disruption,particularly through cyber-attacks, or cyber intrusion,19 including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder todetect and fight against. In addition, hardware, software or applications we procure from third parties may contain defects in design or manufacture or otherproblems that could unexpectedly compromise network and data security.If our information technology systems fail, or if we experience an interruption in their operation, then our business, results of operations and financialcondition could be materially adversely affected.The efficient operation of our business is dependent on our information technology systems. We rely on those systems generally to manage the day-to-day operation of our business, manage relationships with our customers, maintain our research and development data and maintain our financial andaccounting records. The failure of our information technology systems, our inability to successfully maintain, enhance and/or replace our informationtechnology systems, or any compromise of the integrity or security of the data we generate from our information technology systems, could adversely affectour results of operations, disrupt our business and product development and make us unable, or severely limit our ability, to respond to customer demands. Inaddition, our information technology systems are vulnerable to damage or interruption from: •earthquake, fire, flood and other natural disasters; •employee or other theft; •attacks by computer viruses or hackers; •power outages; and •computer systems, internet, telecommunications or data network failure.Any interruption of our information technology systems could result in decreased revenue, increased expenses, increased capital expenditures,customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on our results of operations or financial condition.Product liability claims could adversely affect our business, results of operations and financial condition.We face exposure to product liability claims in the event that our energy management products fail to perform as expected or cause bodily injury orproperty damage. Since virtually all of our products use electricity, it is possible that our products could result in injury, whether by product malfunctions,defects, improper installation or other causes. Particularly because our products often incorporate new technologies or designs, we cannot predict whether ornot product liability claims will be brought against us in the future or result in negative publicity about our business or adversely affect our customerrelations. Moreover, we may not have adequate resources in the event of a successful claim against us. A successful product liability claim against us that isnot covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages and could materiallyadversely affect our results of operations and financial condition.Our inability to protect our intellectual property, or our involvement in damaging and disruptive intellectual property litigation, could adversely affectour business, results of operations and financial condition or result in the loss of use of the product or service.We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as employeeand third-party nondisclosure and assignment agreements. Our failure to obtain or maintain adequate protection of our intellectual property rights for anyreason could have a material adverse effect on our business, results of operations and financial condition.We own United States patents and patent applications for some of our products, systems, business methods and technologies. We offer no assuranceabout the degree of protection which existing or future patents may afford us. Likewise, we offer no assurance that our patent applications will result in issuedpatents, that our patents will be upheld if challenged, that competitors will not develop similar or superior business methods or products outside theprotection of our patents, that competitors will not infringe upon our patents, or that we will have adequate resources to enforce our patents. Effectiveprotection of our United States patents may be unavailable or limited in jurisdictions outside the United States, as the intellectual property laws of foreigncountries sometimes offer20 less protection or have onerous filing requirements. In addition, because some patent applications are maintained in secrecy for a period of time, we couldadopt a technology without knowledge of a pending patent application, and such technology could infringe a third party’s patent.We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwiselearn of our unpatented technology. To protect our trade secrets and other proprietary information, we generally require employees, consultants, advisors andcollaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets,know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or otherproprietary information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely affected.We rely on our trademarks, trade names, and brand names to distinguish our company and our products and services from our competitors. Some of ourtrademarks may conflict with trademarks of other companies. Failure to obtain trademark registrations could limit our ability to protect our trademarks andimpede our sales and marketing efforts. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequateresources to enforce our trademarks.In addition, third parties may bring infringement and other claims that could be time-consuming and expensive to defend. Also, parties makinginfringement and other claims may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our products,services or business methods and could cause us to pay substantial damages. In the event of a successful claim of infringement, we may need to obtain one ormore licenses from third parties, which may not be available at a reasonable cost, or at all. It is possible that our intellectual property rights may not be validor that we may infringe upon existing or future proprietary rights of others. Any successful infringement claims could subject us to significant liabilities,require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling products, services and business methods and require us to redesignor, in the case of trademark claims, re-brand our company or products, any of which could have a material adverse effect on our business, results of operationsor financial condition.We are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or obtain waivers in theevent of non-compliance, could limit our borrowing availability under the credit agreement, resulting in our being unable to borrow under our creditagreement and materially adversely impact our liquidity.Our credit agreement with Western Alliance Bank contains provisions that limit our future borrowing availability and require us to maintain aminimum amount of cash on deposit and available borrowing capacity under such credit agreement as of the end of each month. The credit agreement alsocontains other customary covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter intoacquisitions, make investments, pay any dividend or distribution on our stock, redeem, repurchase or retire shares of our stock, or pledge or dispose of assets.There can be no assurance that we will be able to comply with the financial and other covenants in our credit agreement. Our failure to comply withthese covenants could cause us to be unable to borrow under the credit agreement and may constitute an event of default which, if not cured or waived, couldresult in the acceleration of the maturity of any indebtedness then outstanding under the credit agreement, which would require us to pay all amounts thenoutstanding. Such an event could materially adversely affect our financial condition and liquidity. Additionally, such events of non-compliance couldimpact the terms of any additional borrowings and/or any credit renewal terms. Any failure to comply with such covenants may be a disclosable event andmay be perceived negatively. Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future.Our retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous materials.When we retrofit a customer’s facility, we typically assume responsibility for removing and disposing of its existing lighting fixtures. Certaincomponents of these fixtures typically contain trace amounts of mercury and other hazardous materials. Older components may also contain trace amounts ofpolychlorinated biphenyls, or PCBs. We currently rely on contractors to remove the components containing such hazardous materials at the customer jobsite. The contractors then arrange for the disposal of such21 components at a licensed disposal facility. Failure by such contractors to remove or dispose of the components containing these hazardous materials in a safe,effective and lawful manner could give rise to liability for us, or could expose our workers or other persons to these hazardous materials, which could result inclaims against us which may have a material adverse effect on our results of operations, financial condition, cash flows or reputation.The cost of compliance with environmental laws and regulations and any related environmental liabilities could adversely affect our results ofoperations or financial condition.Our operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to water, theremediation of contaminated properties and the generation, handling, storage, transportation, treatment and disposal of, and exposure to, waste and othermaterials, as well as laws and regulations relating to occupational health and safety. These laws and regulations frequently change, and the violation of theselaws or regulations can lead to substantial fines, penalties and other liabilities. The operation of our manufacturing facility entails risks in these areas andthere can be no assurance that we will not incur material costs or liabilities in the future that could adversely affect our results of operations or financialcondition.Our corporate office building is currently listed for sale or lease; any sale of our building will likely result in a non-cash impairment charge.We currently own, but have listed for sale or lease, our corporate office building in Manitowoc, Wisconsin. We evaluate long-lived assets, includingproperty, plant, and equipment, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financialstatements may not be recoverable; as of March 31, 2019, the value of our long-lived assets was deemed recoverable. However, any sale of our building willlikely result in a non-cash impairment charge, as the building is currently listed for below its net book value and, as a result, will have an adverse impact onour results of operations during the period the impairment charge is incurred. We expect our quarterly revenue and operating results to fluctuate. If we fail to meet the expectations of market analysts or investors, the market priceof our common stock could decline substantially, and we could become subject to securities litigation.Our quarterly revenue and operating results have fluctuated in the past and will likely vary from quarter to quarter in the future. The results of onequarter are not an indication of our future performance. Our revenue and operating results may fall below the expectations of market analysts or investors insome future quarter or quarters. Our failure to meet these expectations could cause the market price of our common stock to decline substantially. If the priceof our common stock is volatile or falls significantly below our current price, we may be the target of securities litigation. If we become involved in this typeof litigation, regardless of the outcome, we could incur substantial legal costs, management’s attention could be diverted from the operation of our business,and our reputation could be damaged, which could adversely affect our business, results of operations or financial condition.Our net operating loss carry-forwards provide a future benefit only if we are profitable and may be subject to limitation based upon ownership changes.We have significant federal net operating loss carry-forwards and state net operating loss carry-forwards. While our federal and state net operating losscarry-forwards are fully reserved for, if we are unable to return to and maintain profitability, we may not be able to fully utilize these tax benefits.Furthermore, 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 changefor federal income tax purposes. An ownership change may limit a company’s ability to use its net operating loss carry-forwards attributable to the periodprior to such change. As a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such ownership change to offsettaxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for us.22 If we fail to establish and maintain effective internal controls over financial reporting, our business and financial results could be harmed.Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financialreporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accountingprinciples generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provideabsolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. As of March 31, 2019, our Chief Executive Officer andChief Financial Officer concluded that our internal controls were designed and operating effectively. The material weaknesses previously identified as ofMarch 31, 2017 and March 31, 2018 were the result of operating ineffectiveness of controls related to management's review over the accounting closeprocess, contract costs, and forecasts used to support certain fair value estimates. The material weaknesses were not fully remedied as of March 31, 2018, butwere remediated as of March 31, 2019. There can be no assurance that we will not experience another material weakness in the future. A material weakness isdefined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a materialmisstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A failure to maintain an effective system ofinternal control over financial reporting could limit our ability to report our financial results accurately and in a timely manner or to detect and prevent fraud,could result in a restatement of our financial statements, and could also cause a loss of investor confidence and decline in the market price of our commonstock.If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock priceand trading volume could decline.The trading market for our common stock will continue to depend in part on the research and reports that securities or industry analysts publish aboutour business or us. If these analysts do not continue to provide adequate research coverage or if one or more of the analysts who covers us downgrades ourstock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceasescoverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and tradingvolume to decline.The market price of our common stock could be adversely affected by future sales of our common stock in the public market by us or our executiveofficers and directors.We and our executive officers and directors may from time to time sell shares of our common stock in the public market or otherwise. We cannotpredict the size or the effect, if any, that future sales of shares of our common stock by us or our executive officers and directors, or the perception of suchsales, would have on the market price of our common stock.We are not currently paying dividends and will likely continue not paying dividends for the foreseeable future.We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings tofund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms ofour existing revolving credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be atthe discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions andother factors that our board of directors deems relevant. The restriction on and decision not to pay dividends may impact our ability to attract investors andraise funds, if necessary, in the capital markets.Anti-takeover provisions included in the Wisconsin Business Corporation Law, provisions in our amended and restated articles of incorporation orbylaws and the common share purchase rights that accompany shares of our common stock could delay or prevent a change of control of our company,which could adversely impact the value of our common stock and may prevent or frustrate attempts by our shareholders to replace or remove ourcurrent board of directors or management.A change of control of our company may be discouraged, delayed or prevented by certain provisions of the Wisconsin Business Corporation Law.These provisions generally restrict a broad range of business combinations between a Wisconsin corporation and a shareholder owning 15% or more of ouroutstanding common stock. These and other provisions in our amended and restated articles of incorporation, including our staggered board of directors andour ability to issue “blank check” preferred stock, as well as the23 provisions of our amended and restated bylaws and Wisconsin law, could make it more difficult for shareholders or potential acquirers to obtain control ofour board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger, tender offer or proxycontest involving our company.Each currently outstanding share of our common stock includes, and each newly issued share of our common stock will include, a common sharepurchase right. The rights are attached to, and trade with, the shares of common stock and generally are not exercisable. The rights will become exercisable ifa person or group acquires, or announces an intention to acquire, 20% or more of our outstanding common stock. The rights have some anti-takeover effectsand generally will cause substantial dilution to a person or group that attempts to acquire control of us without conditioning the offer on either redemption ofthe rights or amendment of the rights to prevent this dilution. The rights could have the effect of delaying, deferring or preventing a change of control.In addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of benefits, includingaccelerated vesting of stock options and restricted stock awards, upon a change of control and a subsequent qualifying termination. These provisions couldlimit the price that investors might be willing to pay in the future for shares of our common stock, thereby adversely affecting the market price of our commonstock. These provisions may also discourage or prevent a change of control or result in a lower price per share paid to our shareholders.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 2.PROPERTIESOn March 31, 2016, we entered into a purchase and sale agreement with a third party to sell and leaseback our manufacturing and distribution facilitylocated in Manitowoc, Wisconsin. The transaction closed on June 30, 2016. Pursuant to the agreement, a lease was entered into on June 30, 2016, in whichwe are leasing approximately 197,000 square feet of the building for not less than three years. The lease contains options by either party to reduce theamount of leased space after March 1, 2017. On March 22, 2018, we renewed the lease for our manufacturing and distribution facility for an additional 18months until December 31, 2020.We own our approximately 70,000 square foot technology center and corporate headquarters adjacent to our leased Manitowoc manufacturing anddistribution facility, of which we sub-lease a portion to third parties. We also lease 10,500 square feet of office space in Jacksonville, Florida.In fiscal 2018, we did not renew the leases for our 5,600 square foot of office space in Houston, Texas and our 3,100 square foot of office space inChicago, Illinois. The leases terminated as of April 30, 2018 and May 31, 2018, respectively.The facilities noted above are utilized by all our business segments.ITEM 3.LEGAL PROCEEDINGSWe are subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, we are unable tocurrently assess whether the final resolution of any of such claims or legal proceedings may have a material adverse effect on our future results ofoperations. In addition to ordinary-course litigation, we were a party to the proceedings described below.On November 10, 2017, a purported shareholder, Stephen Narten, filed a civil lawsuit in the Circuit Court for Manitowoc County against thoseindividuals who served on our board of directors during fiscal years 2015, 2016, and 2017 and certain current and former officers during the sameperiod. The plaintiff, who purported to bring the suit derivatively on behalf of us, alleged that the director defendants breached their fiduciary duties inconnection with granting certain stock-based incentive awards under our 2004 Stock and Incentive Awards Plan and that the directors and current and formerofficers breached their fiduciary duties by accepting those awards. During the first quarter of fiscal 2019, the parties reached a settlement of the claims andthe case was dismissed. The settlement did not have a material impact on our results of operations, cash flows or financial condition.24 ITEM 4.MINE SAFETY DISCLOSURESNone.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESShares of our common stock are traded on the NASDAQ Capital Market under the symbol “OESX”.ShareholdersAs of May 31, 2019, there were approximately 210 record holders of the 29,601,669 outstanding shares of our common stock. The number of recordholders does not include shareholders for whom shares are held in a “nominee” or “street” name.Dividend PolicyWe have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings tofund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms ofour existing credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be at thediscretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions (includingthose under our loan agreements) and other factors that our board of directors deems relevant.Securities Authorized for Issuance under Equity Compensation PlansThe following table represents shares outstanding under our 2003 Stock Option Plan, our 2004 Stock and Incentive Awards Incentive Plan, and our2016 Omnibus Incentive Plan as of March 31, 2019. Equity Compensation Plan Information Plan Category Number ofSecurities to beIssued UponExercise ofOutstandingOptions andVesting ofRestrictedShares WeightedAverageExercise Price ofOutstandingOptions andRestrictedShares Number ofSecuritiesRemainingAvailable forFuture IssuancesUnder the EquityCompensationPlans (1) Equity Compensation plans approved by security holders 1,780,429 $1.64 107,860 Equity Compensation plans not approved by security holders — — — Total 1,780,429 $1.64 107,860 (1)Excludes shares reflected in the column titled “Number of Securities to be Issued Upon Exercise of Outstanding Options and Vesting of RestrictedShares”.Issuer Purchase of Equity SecuritiesWe did not purchase shares of our common stock during the fiscal year ended March 31, 2019.Unregistered Sales of SecuritiesWe did not make any unregistered sales of our common stock during the year ended March 31, 2019 that were not previously disclosed in a QuarterlyReport on form 10-Q or a current report on Form 8-K during such period.25 Stock Price Performance GraphThe following graph shows the total shareholder return of an investment of $100 in cash on March 31, 2014 through March 31, 2019, for (1) ourcommon stock, (2) the Russell 2000 Index and (3) The NASDAQ Clean Edge Green Energy Index. Data for the Russell 2000 Index and the NASDAQ CleanEdge Green Energy Index assume reinvestment of dividends. The stock price performance graph should not be deemed filed or incorporated by reference intoany other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate thestock performance graph by reference in another filing. 26 ITEM 6.SELECTED FINANCIAL DATAYou should read the following selected consolidated financial data in conjunction with Item 7. "Management’s Discussion and Analysis of FinancialCondition and Results of Operations" and our consolidated financial statements and the related notes included in Item 8. "Financial Statements andSupplementary Data" of this report. The selected historical consolidated financial data are not necessarily indicative of future results. Fiscal Year Ended March 31, 2019 2018 2017 2016 2015 (in thousands, except per share amounts) Consolidated statements of operations data: Product revenue $56,261 $55,595 $66,224 $64,897 $65,881 Service revenue 9,493 4,705 3,987 2,745 6,329 Total revenue 65,754 60,300 70,211 67,642 72,210 Cost of product revenue (1)(2) 44,111 41,415 49,630 49,630 68,388 Cost of service revenue 7,091 4,213 3,244 2,015 4,959 Total cost of revenue 51,202 45,628 52,874 51,645 73,347 Gross profit 14,552 14,672 17,337 15,997 (1,137)General and administrative expenses (1)(3) 10,231 13,159 14,777 16,884 14,908 Impairment of assets (4) — 710 250 6,023 — Acquisition and integration related expenses (5) — — — — 47 Sales and marketing expenses (1) (5) 9,104 11,879 12,833 11,343 13,290 Research and development expenses (1) (6) 1,374 1,905 2,004 1,668 2,554 Loss from operations (6,157) (12,981) (12,527) (19,921) (31,936)Other income 80 248 215 — — Interest expense (493) (333) (163) (297) (376)Amortization of debt issue costs (101) (92) (110) — — Dividend and interest income 11 15 36 128 300 Loss before income tax (6,660) (13,143) (12,549) (20,090) (32,012)Income tax expense (benefit) 14 (15) (261) 36 49 Net loss $(6,674) $(13,128) $(12,288) $(20,126) $(32,061)Net loss per share attributable to common shareholders: Basic $(0.23) $(0.46) $(0.44) $(0.73) $(1.43)Diluted $(0.23) $(0.46) $(0.44) $(0.73) $(1.43)Weighted-average shares outstanding: Basic 29,430 28,784 28,156 27,628 22,353 Diluted 29,430 28,784 28,156 27,628 22,353 (1)Includes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic718, or ASC Topic 718, as follows: Fiscal Year Ended March 31, 2019 2018 2017 2016 2015 (in thousands) Cost of product revenue $2 $12 $30 $36 $50 Cost of service revenue 3 — — — — General and administrative expenses 764 929 1,337 1,148 1,056 Sales and marketing expenses 54 155 139 235 360 Research and development expenses 2 6 99 43 33 Total stock-based compensation expense $825 $1,102 $1,605 $1,462 $1,499 27 (2)Fiscal 2018 includes expenses of $34 thousand related to restructuring expense. Fiscal 2017 includes expenses of $2.2 million related to anincrease in inventory reserves and other inventory adjustments. Fiscal 2015 includes expenses of $12.1 million related to the impairment of wirelesscontrol inventory, fixed assets and intangible assets.(3)Fiscal 2018 includes $1.8 million of restructuring expense and $1.4 million benefit on the reversal of an accrual for a loss contingency. Fiscal 2016includes a $1.4 million loss contingency accrual.(4)Fiscal 2018 includes an intangible asset impairment of $0.7 million. Fiscal 2017 includes an intangible asset impairment of $0.3 million. Fiscal2016 includes expenses of $4.4 million related to the impairment of goodwill and $1.6 million related to the write-down to fair value of themanufacturing facility.(5)Fiscal 2018 includes expenses of $0.2 million related to restructuring.(6)Fiscal 2018 includes expenses of $0.1 million related to restructuring. As of March 31, 2019 2018 2017 2016 2015 (in thousands) Consolidated balance sheet data: Cash and cash equivalents $8,729 $9,424 $17,307 $15,542 $20,002 Total assets 56,021 45,325 62,051 70,875 87,805 Long term borrowings 9,283 4,013 6,819 4,021 3,222 Shareholder notes receivable — — (4) (4) (4)Total shareholders’ equity 17,970 23,424 35,450 45,983 64,511 28 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidatedfinancial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2019. See also “Forward-LookingStatements” and Item 1A “Risk Factors”.OverviewWe provide state-of-the-art LED lighting, wireless Internet of Things (“IoT”) enabled control solutions, and energy project management. We research,design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficientcommercial and industrial interior and exterior lighting systems and related services. Our products are targeted for applications in three primary marketsegments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets. Virtually all ofour sales occur within North America.Our lighting products consist primarily of light emitting diode ("LED") lighting fixtures, many of which include IoT enabled control systems. Ourprincipal customers include large national account end-users, electrical distributors and energy service companies ("ESCOs"). Currently, substantially all ofour products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED market continues to evolve, we areincreasingly sourcing products and components from third parties in order to provide versatility in our product development.We have experienced recent success offering our comprehensive project management services to national account customers to retrofit their multiplelocations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, andproject management from delivery through to installation and controls integration.We believe the market for LED lighting products continues to grow. Due to their size and flexibility in application, we also believe that LED lightingsystems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies havebecome the primary component of our revenue as we continue to strive to be a leader in the LED market. We generally do not have long-term contracts with our customers that provide us with recurring revenue from period to period and we typicallygenerate substantially all of our revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on aproject-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on apurchase order basis. The loss of, or substantial reduction in sales to, any of our significant customers, or our current single largest customer, or thetermination or delay of a significant volume of purchase orders by one or more key customers, could have a material adverse effect on our results ofoperations in any given future period.We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequentlyengage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on awholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period.Our fiscal year ends on March 31. We refer to our just completed fiscal year, which ended on March 31, 2019, as "fiscal 2019", and our prior fiscal yearwhich ended on March 31, 2018 as "fiscal 2018". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter ends on September 30,our fiscal third quarter ends on December 31 and our fiscal fourth quarter ends on March 31.Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularlyreviews when allocating resources and assessing performance. Our CODM is our chief executive officer.29 Orion has three reportable segments: Orion Engineered Systems Division ("OES"), and Orion Distribution Services Division ("ODS"), and Orion U.S. MarketsDivision (“USM”).Market Shift to Light Emitting Diode ProductsThe market shift in the past several years in the lighting industry from legacy lighting products to LED lighting products has caused us to adopt newstrategies, approaches and processes in order to respond proactively to this industry transition. These changing underlying business fundamentals in thistransition include: •Mitigating LED product end user customer pricing pressure. •Improving LED product performance and reducing customer return on investment payback periods resulting in increased customer preference forLED lighting products compared to legacy HIF lighting products. •Increasing LED lighting product customer sales compared to decreasing HIF product sales. •Developing IoT enabled control solutions. •Replacing earlier generation LED products. •A broader and more diverse customer base and market opportunities compared to our historical commercial and industrial facility customers. •Increased importance of highly innovative product designs and features and enhanced product research and development capabilities requiringrapid new product introduction and new methods of product and company differentiation. •Significantly reduced product technology life cycles, significantly shorter product inventory shelf lives and the related increased risk of rapidlyoccurring product technology obsolescence. •Increased reliance on international component sources. •Less internal product fabrication and production capabilities needed to support LED product assembly. •Different and broader types of components, fabrication and assembly processes needed to support LED product assembly compared to our legacyproducts. •Expanding customer bases and sales channels. •Significantly longer end user product warranty requirements for LED products compared to our legacy products.As we continue to focus our primary business on selling our LED product lines to respond to the rapidly changing market dynamics in the lightingindustry, we face intense competition from an increased number of other LED product companies, a number of which have substantially greater resources andmore experience and history with LED lighting products than we do.Major Developments in Fiscal 2019During fiscal 2019, we signed a series of contracts to retrofit multiple locations for a major national account customer with our state-of-the-art LEDlighting systems and wireless IoT enabled control solutions at locations nationwide. We currently expect total revenue from the customer to beapproximately $110 million, dependent on purchase orders, the majority of which we expect to be recognized during fiscal 2020. Fiscal 2020 OutlookOur ability to achieve our desired revenue growth and profitability goals depends on our ability to effectively execute on the following key strategicinitiatives:Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of our competitiveadvantages is our ability to deliver full turnkey LED lighting project capabilities. These turnkey services were the principal reason we obtained our $110million revenue commitment to retrofit multiple locations for a major national account customer. Our success in the national account market segment centerson our turnkey design, engineering, manufacturing and project30 management capabilities, which represent a very clear competitive advantage for us among large enterprises seeking to benefit from the illumination benefitsand energy savings of LED lighting across locations nationwide. Few LED lighting providers are organized to serve every step of a custom retrofit project ina comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations. Incrementally, we are also ableto help customers deploy state-of-the-art control systems that provide even greater long-term value from their lighting system investments.Looking forward, we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing newnational account opportunities that leverage our customized, comprehensive turnkey project solutions, and expanding our addressable market with high-quality, basic lighting systems to meet the needs of value-oriented customer segments served by our other market channels. Given our unique valueproposition, capabilities and focus on customer service, we are optimistic about our business prospects and working to build sales momentum with existingand new customers.Support success of our ESCO and agent-driven distribution sales channels. We continue to focus on building our relationships and product and salessupport for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development ofnew products to cater to the unique needs of these sales channels.Continued Product Innovation. We continue to innovate, developing lighting fixtures and features that address specific customer requirements, whilealso working to maintain a leadership position in energy efficiency, smart product design and installation benefits. We also continue to deepen ourcapabilities in the integration of smart lighting controls. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs toenable lighting system customization from basic controls to advanced IoT capabilities.Leveraging of Orion’s Smart Lighting Systems to Support Internet of Things Applications. We believe we are ideally positioned to help customers toefficiently deploy new IoT controls and applications by leveraging the “Smart Ceiling” capabilities of their Orion solid state lighting system. IoT capabilitiescan include the management and tracking of facilities, personnel, resources and customer behavior, driving both sales and lowering costs. As a result, theseadded capabilities provide customers an even greater return on investment from their lighting system and make us an even more attractive partner.Tariffs and Trade Policies. The United States government has been implementing various monetary, regulatory, and trade importation restraints,penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by the recently imposedtariffs on China imports. Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such assourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies,our results of operations may be adversely affected. We believe that these mitigation activities will assist to offset added costs, and we currently believe thatsuch tariffs will have a limited adverse financial effect on our results of operations. Any future policy changes that may be implemented could have a positiveor negative consequence on our financial performance depending on how the changes would influence many factors, including business and consumersentiment.31 Results of Operations: Fiscal 2019 versus Fiscal 2018The following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for eachapplicable period, together with the relative percentage change in such line item between applicable comparable periods (in thousands, except percentages): Fiscal Year Ended March 31, 2019 2018 2019 2018 Amount Amount %Change % ofRevenue % ofRevenue Product revenue $56,261 $55,595 1.2% 85.6% 92.2%Service revenue 9,493 4,705 101.8% 14.4% 7.8%Total revenue 65,754 60,300 9.0% 100.0% 100.0%Cost of product revenue 44,111 41,415 6.5% 67.1% 68.7%Cost of service revenue 7,091 4,213 68.3% 10.8% 7.0%Total cost of revenue 51,202 45,628 12.2% 77.9% 75.7%Gross profit 14,552 14,672 (0.8)% 22.1% 24.3%General and administrative expenses 10,231 13,159 (22.3)% 15.6% 21.8%Impairment of intangible assets — 710 NM 0.0% 1.2%Sales and marketing expenses 9,104 11,879 (23.4)% 13.8% 19.7%Research and development expenses 1,374 1,905 (27.9)% 2.1% 3.1%Loss from operations (6,157) (12,981) (52.6)% (9.4)% (21.5)%Other income 80 248 (67.7)% 0.1% 0.4%Interest expense (493) (333) 48.0% (0.7)% (0.6)%Amortization of debt issue costs (101) (92) 9.8% (0.2)% (0.2)%Interest income 11 15 (26.7)% 0.0% —%Loss before income tax (6,660) (13,143) 49.3% (10.0)% (21.7)%Income tax expense (benefit) 14 (15) NM 0.1% —%Net loss and comprehensive loss $(6,674) $(13,128) 49.2% (10.1)% (21.7)% *NM = Not MeaningfulRevenue. Product revenue increased 1.2%, or $0.7 million, for fiscal 2019 versus fiscal 2018. The increase in product revenue was primarily a result ofhigher sales volume through our national account channel, and primarily the result of a major retrofit project for multiple locations for one of our nationalaccount customers. The contractual commitments from this customer will result in substantially higher revenue for us in fiscal 2020. Service revenueincreased 101.8%, or $4.8 million, primarily due to higher sales volume through our national account channel and the timing of project installations. Totalrevenue increased by 9.0%, or $5.5 million, due to the items discussed above. Excluding the impact of the adoption of ASC 606, Product revenue increased5.1%, or $2.9 million, Service revenue increased 56.2%, or $2.6 million, and Total revenue increased 9.1%, or $5.5 million, compared to fiscal year 2018.Cost of Revenue and Gross Margin. Cost of product revenue increased 6.5%, or $2.7 million, in fiscal 2019 versus the comparable period in fiscal2018 primarily due to the increase in sales. Cost of service revenue increased 68.3%, or $2.9 million, in fiscal 2019 versus fiscal 2018 primarily due to theincrease in service revenue. Gross margin decreased from 24.3% of revenue in fiscal 2018 to 22.1% in fiscal 2019, primarily due to our product mix onhigher sales to one large national account customer. Excluding the impact of the adoption of ASC 606, gross margin for fiscal 2019 was 24.4%.Operating ExpensesGeneral and Administrative. General and administrative expenses decreased 22.3%, or $2.9 million, in fiscal 2019 compared to fiscal 2018, primarilydue to $1.8 million in employee separation costs incurred in fiscal 2018, offset by the release of a $1.4 million loss contingency accrual, which did not recurin fiscal 2019, as well as reduced employee costs and consulting expense as a result of our prior year cost reduction plan.32 Impairment of assets. No impairment charge was recorded in fiscal 2019. During fiscal 2018, we performed a review of our definite and indefinite-lived tangible and intangible assets for impairment. In conjunction with this review, we determined that the carrying value of our Harris trade nameintangible asset exceeded its fair value. As a result, we recorded an impairment charge of $0.7 million in fiscal 2018.Sales and Marketing. Our sales and marketing expenses decreased 23.4%, or $2.8 million, in fiscal 2019 compared to fiscal 2018. Excluding theimpact of the adoption of ASC 606, Sales and marketing expenses decreased 11.1%, or $1.3 million, in fiscal 2019 compared to fiscal 2018. The decreaseyear over year was primarily due to reduced employee costs due to the impact of our prior year cost reduction plan, and lower travel and entertainment andmarketing expenses. Research and Development. Research and development expenses decreased by 27.9%, or $0.5 million in fiscal 2019 compared to fiscal 2018 primarilydue to lower employee costs as a result of our prior year cost reduction plan, as well as a decrease in testing costs based on timing of new product rollouts andreduced consulting expenses. Other income. Other income in fiscal 2019 and fiscal 2018 represented product royalties received from licensing agreements for our patents.Interest Expense. Interest expense in fiscal 2019 increased by 48.0%, or $0.2 million, from fiscal 2018. The increase in interest expense was due toincreased third party financing costs related to the sale of receivables.Amortization of debt issue costs. Amortization of debt issue costs in fiscal 2019 increased 9.8%, or $9 thousand from fiscal 2018. The increase is dueto the execution of our new revolving credit facility.Interest Income. Interest income in fiscal 2019 remained relatively flat compared to fiscal 2018. Interest income relates to interest earned on sweepbank accounts.Income Taxes. Income tax expense in fiscal 2019 increased immaterially from fiscal 2018. Both periods include income tax expense for minimumstate tax liabilities. In fiscal 2018 we received refunds from previously filed tax returns. In both periods, the impact of the Tax Cuts and Jobs Act on taxexpense was immaterial due to the full valuation allowance.33 Results of Operations: Fiscal 2018 versus Fiscal 2017The following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for eachapplicable period, together with the relative percentage change in such line item between applicable comparable periods (in thousands, except percentages): Fiscal Year Ended March 31, 2018 2017 2018 2017 Amount Amount %Change % ofRevenue % ofRevenue Product revenue $55,595 $66,224 (16.1)% 92.2% 94.3%Service revenue 4,705 3,987 18.0% 7.8% 5.7%Total revenue 60,300 70,211 (14.1)% 100.0% 100.0%Cost of product revenue 41,415 49,630 (16.6)% 68.7% 70.7%Cost of service revenue 4,213 3,244 29.9% 7.0% 4.6%Total cost of revenue 45,628 52,874 (13.7)% 75.7% 75.3%Gross profit 14,672 17,337 (15.4)% 24.3% 24.7%General and administrative expenses 13,159 14,777 (10.9)% 21.8% 21.0%Impairment of assets 710 250 NM 1.2% 0.3%Sales and marketing expenses 11,879 12,833 (7.4)% 19.7% 18.3%Research and development expenses 1,905 2,004 (4.9)% 3.1% 2.9%Loss from operations (12,981) (12,527) (3.6)% (21.5)% (17.8)%Other income 248 215 15.3% 0.4% 0.3%Interest expense (333) (163) 104.3% (0.6)% (0.2)%Amortization of debt issue costs (92) (110) (16.4)% (0.1)% (0.1)%Interest income 15 36 (58.3)% —% —%Loss before income tax (13,143) (12,549) (4.7)% (21.8)% (17.9)%Income tax benefit (15) (261) NM —% (0.4)%Net loss and comprehensive loss $(13,128) $(12,288) (6.8)% (21.8)% (17.5)% Revenue. Product revenue decreased 16.1%, or $10.6 million, for fiscal 2018 versus fiscal 2017. The decrease in product revenue was primarily aresult of the continued decline in fluorescent product sales, $6.5 million year over year, and a decrease of $3.9 million in LED lighting revenue. LEDlighting revenue decreased 6.2% from $53.1 million in fiscal 2017 to $49.8 million in fiscal 2018, primarily as a result of a decrease in our LED Troffer DoorRetrofit product as well as the impact of our transition of our distribution sales channel to an agent driven model. Service revenue increased 18.0%, or $0.7million, primarily due to the timing of installation projects in fiscal 2018 compared to fiscal 2017. Total revenue decreased by 14.1%, or $9.9 million, due tothe items discussed above.Cost of Revenue and Gross Margin. Cost of product revenue decreased 16.6%, or $8.2 million, in fiscal 2018 versus the comparable period in fiscal2017 primarily due to the decline in sales and the resulting lower overhead absorption compared to the prior year period. Cost of service revenue increased29.9%, or $1.0 million, in fiscal 2018 versus fiscal 2017 primarily due to the timing of completion and costs on large projects. Gross margin decreased from24.7% of revenue in fiscal 2017 to 24.3% in fiscal 2018. Our product gross margin decreased as a result of under-absorption within our manufacturingfacility and an increase in sales of products sourced from third party manufacturers.Operating ExpensesGeneral and Administrative. General and administrative expenses decreased 10.9%, or $1.6 million, in fiscal 2018 compared to fiscal 2017, primarilydue to decreases in employee costs of $1.6 million due to headcount reductions, the release of a loss contingency reserve for $1.4 million, and a decrease inamortization of $0.3 due to a lower intangible balance, partially offset by employee separation costs of $1.8 million. The decrease in employee costs of $1.6million included the reduction of stock-based compensation expense of $0.4 million. Excluding the employee separation costs and the loss contingencyrelease, general and administrative expenses decreased $2.0 million, or 13.8%.34 Impairment of assets. During fiscal 2018 and fiscal 2017, we performed a review of our definite and indefinite-lived tangible and intangible assets forimpairment. In conjunction with this review, we determined that the carrying value of our Harris trade name intangible asset exceeded its fair value. As aresult, we recorded an impairment charge of $0.7 million and $0.3 million, respectively in fiscal 2018 and fiscal 2017.Sales and Marketing. Our sales and marketing expenses decreased 7.4%, or $0.9 million, in fiscal 2018 compared to fiscal 2017. The decrease wasprimarily due to lower employee costs and reduced consulting and professional fees related to special events and field sales, partially offset by $0.2 millionin employee separation costs.Research and Development. Research and development expenses decreased by 4.9%, or $0.1 million in fiscal 2018 compared to fiscal 2017 primarilydue to a decreased testing and supply costs, partially offset by $0.1 million in employee separation costs.Other income. Other income in fiscal 2018 and fiscal 2017 represented product royalties received from licensing agreements for our patents.Interest Expense. Interest expense in fiscal 2018 increased by 55.7%, or $0.1 million, from fiscal 2017. The increase in interest expense was due toincreased third party financing costs.Amortization of debt issue costs. Amortization of debt issue costs in fiscal 2018 decreased 16.4%, or $9 thousand from fiscal 2017. The decrease isdue to the revolving credit facility.Interest Income. Interest income in fiscal 2018 decreased by 58.3%, or $21 thousand, from fiscal 2017. Our interest income decreased as a result of thecontinued run-off legacy customer financed projects.Income Taxes. Income tax benefit in fiscal 2018 decreased $0.2 million from fiscal 2017. In fiscal 2017, we received refunds from previously filed taxreturns and reversed a valuation allowance resulting in a tax benefit in fiscal 2017. In fiscal 2018 we received refunds from previously filed tax returns. Bothperiods include income tax expense for minimum state tax liabilities. In fiscal 2018, the impact of the Tax Cuts and Jobs Act on tax expense was immaterialdue to the full valuation allowance.Orion Engineered Systems DivisionThe OES segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energymanagement systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.The following table summarizes our OES segment operating results (dollars in thousands): Fiscal year ended March 31, 2019 2018 2017 Revenues $30,925 $23,827 $29,501 Operating loss $(1,237) $(3,792) $(3,647)Operating margin (4.0)% (15.9)% (12.4)% Fiscal 2019 Compared to Fiscal 2018OES revenue increased in fiscal 2019 by 29.8%, or $7.1 million, compared to fiscal 2018 primarily as a result of the increase in volume of turnkeyprojects, specifically to one large national account customer, which will continue in fiscal 2020.OES segment operating loss in fiscal 2019 was $1.2 million, an improvement of $2.6 million from fiscal 2018. The improvement in the segment’soperating loss was the result of increased sales, the benefit of lower corporate allocated costs due to the impact of cost reduction initiatives, and a non-recurring asset impairment charge of $0.5 million in fiscal 2018.35 Fiscal 2018 Compared to Fiscal 2017OES revenue decreased in fiscal 2018 by 19.2%, or $5.7 million, compared to fiscal 2017 primarily as a result of the timing of delivery of our turnkeyprojects and reduced florescent purchases by a large retail customer.OES segment operating loss in fiscal 2018 increased by $0.1 million from fiscal 2017. The segment's operating loss was the result of the decline insales resulting in lost operating leverage and an intangible asset impairment in the second quarter of fiscal 2018 of $0.5 million.Orion Distribution Services DivisionThe ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North Americandistributors.The following table summarizes our ODS segment operating results (dollars in thousands): Fiscal year ended March 31, 2019 2018 2017 Revenues $24,173 $27,906 $22,858 Operating loss $(1,742) $(325) $(927)Operating margin (7.2)% (1.2)% (4.1)% Fiscal 2019 Compared to Fiscal 2018ODS segment revenue decreased in fiscal 2019 by 13.4%, or $3.7 million, compared to fiscal 2018, primarily due to a decrease in sales volumethrough our distribution channel.ODS segment operating loss in fiscal 2019 was $1.7 million, an increase of $1.4 million from fiscal 2018. The increase in segment operating loss wasprimarily due to decreased sales.Fiscal 2018 Compared to Fiscal 2017ODS segment revenue increased in fiscal 2018 from fiscal 2017 by $5.0 million. The increase in revenue was primarily due to our transition to adistribution channel sales model migrating direct sales through our manufacturer representative agents. In addition, ODS revenue grew as a result of ourexpanding manufacturer representative agencies and the continued ramp up of sales through these agencies. ODS segment operating loss decreased by $0.6 million in fiscal 2018 compared to fiscal 2017, primarily due to a decrease in selling expenses.Orion U.S. Markets DivisionThe USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers areprimarily comprised of ESCOs.The following table summarizes our USM segment operating results (dollars in thousands): Fiscal year ended March 31, 2019 2018 2017 Revenues $10,656 $8,567 $17,852 Operating income (loss) $1,132 $(3,123) $(1,357)Operating margin 10.6% (36.5)% (7.6)% 36 Fiscal 2019 Compared to Fiscal 2018USM segment revenue increased in fiscal 2019 by 24.3%, or $2.1 million, compared to fiscal 2018, primarily due to an increase in sales volume as aresult of our reengagement in the sales channel.ODS segment operating income in fiscal 2019 was $1.1 million, an improvement of $4.3 million over the operating loss in fiscal 2018. Theimprovement was primarily due to better operating leverage on lower allocated corporate costs, as well as a non-recurring asset impairment charge of $0.2million in fiscal 2018.Fiscal 2018 Compared to Fiscal 2017USM segment revenue decreased from fiscal 2017 by 52.0%, or $9.3 million. The decrease in revenue during fiscal 2018 compared to fiscal 2017included the continued transition to our distribution sales model through the migration of sales to our ODS segment. Sales made through independentmanufacturer representative agents are reflected within our ODS segment. The decrease also reflects a $1.3 million decline in sales to select large directcustomers.The USM segment’s operating loss increased $1.8 million in fiscal 2018 as compared to fiscal 2017. The segment’s operating loss was the result of thesignificant decline in sales due to the migration of customers to the distribution sales channel resulting in lost operating expense leverage and an intangibleasset impairment in the second quarter of fiscal 2018 of $0.2 million.Liquidity and Capital ResourcesOverviewWe had $8.7 million in cash and cash equivalents as of March 31, 2019, compared to $9.4 million at March 31, 2018. Our cash position decreasedprimarily as a result of our net loss and the timing of working capital changes, offset by net proceeds of $5.3 million from our revolving credit facility.On October 26, 2018, we entered into a new secured revolving Business Financing Agreement with Western Alliance Bank, as lender (the “New CreditAgreement”). The New Credit Agreement replaced our existing Credit Agreement.On June 3, 2019, we amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customerreceivables included in the borrowing base and provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certainconditions. The amendment provides for additional availability under the New Credit Agreement; the impact of which, as of March 31, 2019, would havebeen to increase availability by $4.0 million, bringing unused borrowing capacity to $5.4 million.Additional information on our New Credit Agreement can be found in the “Indebtedness” section located below.Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cashmanagement practices, cost reduction initiatives, working capital management, capital expenditures, pending or future litigation results and costcontainment measures. In addition, we tend to experience higher working capital costs when we increase sales from existing levels. Based on our currentexpectations, we believe we have adequate availability to service our increasing working capital costs with regards to recently signed contracts, includingwith a large national account customer.While we anticipate realizing improved operating results in the future, we also currently believe that we may experience negative working capital cashflows during some interim periods.37 While we believe that we will likely have adequate available cash and equivalents and credit availability under our New Credit Agreement to satisfyour currently anticipated working capital and liquidity requirements during the next 12 months based on our current cash flow forecast, there can be noassurance to that effect. We are pursuing various alternative sources of liquidity, including exploring a sale or mortgage of our tech center office building, tohelp ensure that we will have the best allocation of investing capital to satisfy our working capital needs. We have also amended our New Credit Agreementto expand our borrowing base and provide more available liquidity including increasing our borrowing availability by approximately $4 million. We arealso implementing certain inventory management practices that we anticipate will help to reduce our inventory levels and enhance our cash position. If weexperience significant liquidity constraints, we may be required to reduce our sales efforts, implement additional cost savings initiatives or undertake otherefforts to conserve our cash.In February 2017, we filed a universal shelf registration statement with the Securities and Exchange Commission. Under our shelf registrationstatement, we currently have the flexibility to publicly offer and sell from time to time up to $75.0 million of debt and/or equity securities, although, we arecurrently limited to selling an amount of securities equal to one-third of our public float on such registration statement over a 12 month period. The filing ofthe shelf registration statement may help facilitate our ability to raise public equity or debt capital to expand existing businesses, fund potential acquisitions,invest in other growth opportunities, repay existing debt, or for other general corporate purposes.Cash FlowsThe following table summarizes our cash flows for our fiscal 2019, fiscal 2018 and fiscal 2017: Fiscal Year Ended March 31, 2019 2018 2017 (in thousands) Operating activities $(5,058) $(4,415) $(1,903)Investing activities (449) (585) 1,649 Financing activities 4,812 (2,883) 2,019 (Decrease) increase in cash and cash equivalents $(695) $(7,883) $1,765 Cash Flows Related to Operating Activities. Cash used in operating activities primarily consisted of a net loss adjusted for certain non-cash itemsincluding depreciation and amortization, stock-based compensation expenses, provisions for reserves, and the effect of changes in working capital and otheractivities.Cash used in operating activities for fiscal 2019 was $5.1 million and consisted of a net loss adjusted for non-cash expense items of $4.1 million andnet cash used in changes in operating assets and liabilities of $1.0 million. Cash used by changes in operating assets and liabilities consisted of an increaseof $5.8 million in Accounts receivable due to the timing of billing and customer collections on comparatively higher fourth quarter sales, an increase inInventory of $4.7 million due to higher backlog for anticipated first quarter fiscal 2020 sales, and an increase of $1.4 million in Revenue earned but notbilled due to timing on revenue recognition compared to invoicing. Cash provided by changes in operating assets and liabilities included an increase of$8.9 million in Accounts payable based on timing of payments and an increase of $2.0 million in Accrued expenses and other primarily due to increasedaccrued project costs on higher installation volume. 38 Cash used in operating activities for fiscal 2018 was $4.4 million and consisted of a net loss adjusted for non-cash expense items of $8.0 million andnet cash provided by changes in operating assets and liabilities of $3.6 million. Cash used by changes in operating assets and liabilities consisted of adecrease of $1.7 million in Accrued expenses and other primarily due to the timing of payment of commissions and lower accrued bonuses in the currentfiscal year, a decrease of $0.1 million in Deferred revenue, current and long term due to the timing of project completion and a decrease of $0.1 million inDeferred contract costs due to the timing of project completions. Cash provided by changes in operating assets and liabilities included a decrease of $0.4million in Accounts receivable due to the decline in sales and the timing of customer collections, a decrease in Inventory of $4.7 million as a result ofincreased focus on inventory management in consideration of the lower sales volume, a decrease of $0.5 million in Prepaid and other current assets primarilydue to the timing of project billings, and a negligible decrease in accounts payable.Cash used in operating activities for fiscal 2017 was $1.9 million and consisted of net cash provided by changes in operating assets and liabilities of$3.7 million and a net loss adjusted for non-cash expense items of $5.6 million. Cash provided by changes in operating assets and liabilities consisted of adecrease of $1.7 million in Accounts receivable due to the timing of collections from customers, a decrease in Inventory of $1.2 million due to decreasinginventory prices, a decrease in Prepaid expenses and other current assets of $2.1 million due to project billings that decreased unbilled revenue and anincrease in Deferred revenue, current and long-term of $0.3 million. Cash used by changes in operating assets and liabilities included an increase in Deferredcontract costs of $0.9 million due to projects still in process, a decrease in Accounts payable of $0.1 million due to the increase in purchases to support ouranticipated growth in lighting product revenue, and decrease in Accrued expenses and other of $0.6 million for increased commissions as a result of Orion’sdistribution model changes.Cash Flows Related to Investing Activities. Cash used in investing activities was $0.4 million in fiscal 2019 and consisted primarily of purchases ofproperty and equipment of $0.4 million.Cash used in investing activities was $0.6 million in fiscal 2018 and consisted of purchases of property and equipment of $0.5 million and investmentin patents and licenses of $0.1 million.Cash provided by investing activities was $1.6 million in fiscal 2017 and consisted of spend of $0.7 million for capital expenditures and $0.3 millionof investment in patents, offset by $2.6 million of proceeds from the sale of the Manitowoc manufacturing facility.Cash Flows Related to Financing Activities. Cash provided by financing activities was $4.8 million for fiscal 2019. This cash provided consistedprimarily of net proceeds of $5.3 million from our revolving credit facility, offset by $0.4 million in debt issue costs due to the new revolving credit facilityand $0.1 million of payment of long-term debt.Cash used in financing activities was $2.9 million for fiscal 2018 and was due almost entirely to the net repayment of our revolving credit facility.Cash provided by financing activities was $2.0 million for fiscal 2017. This included net proceeds from the revolving credit facility of $2.9 million,offset by $0.9 million in cash used for the repayment of long-term debt and $11,000 for stock option related tax settlements.Working CapitalOur net working capital as of March 31, 2019 was $14.0 million, consisting of $41.4 million in current assets and $27.3 million in current liabilities.Our net working capital as of March 31, 2018 was $13.0 million, consisting of $29.4 million in current assets and $16.4 in current liabilities. Our currentAccounts receivable, net balance increased by $6.1 million from the fiscal 2018 year-end due to the timing of billing and customer collections oncomparatively higher fourth quarter sales. Our Revenue earned but not billed balance increased by $3.7 million from the fiscal 2018 year-end; the changeincluded $2.4 million of reclassifications recorded April 1, 2018 in conjunction with the adoption of ASC 606. Our Inventories, net increased $5.6 millionfrom the fiscal 2018 year-end due to higher backlog as of March 31, 2019 on anticipated fiscal 2020 sales to a large national account customer. Our Prepaidexpenses and other current assets decreased $1.8 million from the fiscal 2018 year-end primarily due to the reclassification of Revenue earned but not billedof $1.9 million to its own balance sheet line item in conjunction with the adoption of ASC 606. Our Deferred contract costs39 decreased $1.0 million from the fiscal 2018 year-end due to the adoption of ASC 606 and reclassification of these costs to either equity or inventory as part ofthe transition adjustment on April 1, 2018. Deferred contract costs is not used subsequent to the adoption of ASC 606. Our Accounts payable increased $8.0million due to the timing of purchases during the quarter, offset by the reclassifications of $0.9 million as of April 1, 2018 in conjunction with the adoptionof ASC 606. Our Accrued expenses increased $3.2 million from our fiscal 2018 year-end due to increased accrued project costs on higher installationvolume, and as well as reclassifications of $1.3 million as of April 1, 2018 in conjunction with the adoption of ASC 606.We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipateddemand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Our accounts receivables, inventory andpayables may increase to the extent our revenue and order levels increase.IndebtednessRevolving Credit AgreementOn October 26, 2018, we entered into the New Credit Agreement, which replaced our existing Credit Agreement.The New Credit Agreement provides for a two-year revolving credit facility (the “New Credit Facility”) that matures on October 26, 2020. Borrowingsunder the New Credit Facility are initially limited to $20.15 million subject to a borrowing base requirement based on eligible receivables andinventory. The New Credit Agreement includes a $2.0 million sublimit for the issuance of letters of credit. As of March 31, 2019, our borrowing base was$10.6 million, and we had $9.2 million in borrowings outstanding which were included in non-current liabilities in the accompanying Consolidated BalanceSheets. As of March 31, 2019, we had no outstanding letters of credit leaving additional borrowing availability of $1.4 million.The New Credit Agreement is secured by a security interest in substantially all of our and our subsidiaries’ personal property.Borrowings under the New Credit Agreement generally bear interest at floating rates based upon the prime rate (but not be less than 5.00% per year)plus an applicable margin determined by reference to our quick ratio (defined as the aggregate amount of unrestricted cash, unrestricted marketable securitiesand, with certain adjustments, receivables convertible into cash divided by the total current liabilities, including the obligations under the New CreditAgreement). As of March 31, 2019, the interest rate was 6.0%. Among other fees, we are required to pay an annual facility fee equal to 0.45% of the creditlimit under the New Credit Agreement due on October 26, 2018 and on each anniversary thereof. With certain exceptions, if the New Credit Agreement isterminated prior to the first anniversary of the closing date of the New Credit Agreement, we are required to pay a termination fee equal to 0.50% of the creditlimit under the New Credit Agreement.The New Credit Agreement requires us to maintain nine months’ of “RML” as of the end of each month. For purposes of the New Credit Agreement,RML is defined as, as of the applicable determination date, unrestricted cash on deposit with Western Alliance Bank plus availability under the New CreditAgreement divided by an amount equal to, for the applicable trailing three-month period, consolidated net profit before tax, plus depreciation expense,amortization expense and stock-based compensation, minus capital lease principal payments, tested as of the end of each month.The New Credit Agreement also contains customary events of default and other covenants, including certain restrictions on our ability to incuradditional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem, retire or purchase shares of ourstock, make investments or pledge or transfer assets. If an event of default under the New Credit Agreement occurs and is continuing, then Western AllianceBank may cease making advances under the New Credit Agreement and declare any outstanding obligations under the New Credit Agreement to beimmediately due and payable. In addition, we become the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then anyoutstanding obligations under the New Credit Agreement will automatically become immediately due and payable.On June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the New Credit Agreement. The FirstAmendment amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included inthe borrowing base and to provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions. Theamendment provides for additional availability under the New40 Credit Agreement; the impact of which, as of March 31, 2019, would have been to increase availability by $4.0 million, bringing unused borrowing capacityto $5.4 million. The foregoing is a summary of the First Amendment and is qualified in its entirety by reference to the full text of the First Amendment, a copy of whichis filed herewith as Exhibit 10.2 and incorporated herein by reference.Capital SpendingOver the past three fiscal years, we have made capital expenditures primarily for production equipment and tooling, for information technologysystems, and for general corporate purposes for our corporate headquarters and technology center. Our capital expenditures totaled $0.5 million in fiscal2019 and fiscal 2018 and $0.7 million in fiscal 2017. We plan to incur approximately $0.6 million in capital expenditures in fiscal 2020. Our capitalspending plans predominantly consist of investments related to new product development tooling and investments in information technology systems. Weexpect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases, to the extent needed, long-term debtfinancing, or by using our New Credit Facility.Contractual ObligationsInformation regarding our known contractual obligations of the types described below as of March 31, 2019 is set forth in the following table (dollarsin thousands): Payments Due By Period Total Less than1 Year 1-3 Years 3-5 Years More than5 Years (in thousands) Bank debt obligations $9,202 $— $9,202 $— $— Other debt obligations 177 96 51 30 — Cash interest payments on debt 18 9 7 2 — Operating lease obligations 829 506 323 — — Purchase order and capital expenditure commitments (1) 13,592 13,592 — — — Total $23,818 $14,203 $9,583 $32 $— (1)Reflects non-cancellable purchase commitments primarily for certain inventory items entered into in order to secure better pricing and ensurematerials on hand.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements.InflationOur results from operations have not been, and we do not expect them to be, materially affected by inflation.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requiresus to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assetsand liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability ofreceivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions thatwe believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forthbelow.41 Revenue Recognition. We generate revenue primarily by selling commercial lighting fixtures and components and by installing these fixtures in ourcustomer’s facilities. We recognize revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) whencontrol of the goods or services being provided (which we refer to as a performance obligation) is transferred to a customer at an amount that reflects theconsideration we expect to receive in exchange for those goods or services. Prices are generally fixed at the time of order confirmation. The amount ofexpected consideration includes estimated deductions and early payment discounts calculated based on historical experience, customer rebates based onagreed upon terms applied to actual and projected sales levels over the rebate period, and any amounts paid to customers in conjunction with fulfilling aperformance obligation.If there are multiple performance obligations in a single contract, the contract’s total sales price is allocated to each individual performance obligationbased on their relative standalone selling price. A performance obligation’s standalone selling price is the price at which we would sell such promised goodor service separately to a customer. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plusmargin approach when one is not available. The cost-plus margin approach is used to determine the stand-alone selling price for the installation performanceobligation and is based on average historical installation margin.Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components is classifiedas Product revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded at the point in time when managementbelieves that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer’s facility. This point in time isdetermined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning thetransaction.Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which we refer to as a turnkey project)is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management believes thecustomer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately for each customer contract basedupon the terms of the contract and the nature and extent of our control of the light fixtures during the installation. Product revenue associated with turnkeyprojects can be recorded (a) upon shipment or delivery, (b) subsequent to shipment or delivery and upon customer payments for the light fixtures, (c) when anindividual light fixture is installed and working correctly, or (d) when the customer acknowledges that the entire installation project is substantiallycomplete. Determining the point in time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and isapplied separately for each individual light fixture included in a contract. In making this judgment, management considers the timing of various factors,including, but not limited to, those detailed below: •when there is a legal transfer of ownership; •when the customer obtains physical possession of the products; •when the customer starts to receive the benefit of the products; •the amount and duration of physical control that we maintain on the products after they are shipped to, and received at, the customer’s facility; •whether we are required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered to the customer’sfacility; •when each light fixture is physically installed and working correctly; •when the customer formally accepts the product; and •when we receive payment from the customer for the light fixtures. 42 Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue isrecorded over-time as we fulfill our obligation to install the light fixtures. We measure our performance toward fulfilling our performance obligations forinstallations using an output method that calculates the number of light fixtures completely installed as of the measurement date in comparison to the totalnumber of light fixtures to be installed under the contract.Most products are manufactured in accordance with our standard specifications. However, some products are manufactured to a customer’s specificrequirements with no alternative use to us. In such cases, and when we have an enforceable right to payment, Product revenue is recorded on an over-timebasis measured using an input methodology that calculates the costs incurred to date as compared to total expected costs. There was no over-time revenuerelated to custom products recognized in fiscal year 2019.We offer a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of our energy management systems. The OTA isstructured as a sales-type lease and upon successful installation of the system and customer acknowledgment that the system is operating as specified,revenue is recognized at our net investment in the lease, which typically is the net present value of the future cash flows.We also record revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs are supply-sideagreements for the generation of electricity. Our last PPA expires in 2031. Revenue associated with the sale of energy generated by the solar facilities underthese PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to the amount billed to the customer, which is calculated byapplying the fixed rate designated in the PPAs to the variable amount of electricity generated each month. This approach is in accordance with the “right toinvoice” practical expedient provided for in ASC 606. We also recognize revenue upon the sale to third parties of tax credits received from operating thesolar facilities and from amortizing a grant received from the federal government during the period starting when the power generating facilities wereconstructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.Inventories. Inventories are stated at the lower of cost or net realizable value and include raw materials, work in process and finished goods. Items areremoved from inventory using the first-in, first-out method. Work in process inventories are comprised of raw materials that have been converted intocomponents for final assembly. Inventory amounts include the cost to manufacture the item, such as the cost of raw materials and related freight, labor andother applied overhead costs. We review our inventory for obsolescence. If the net realizable value, which is based upon the estimated selling price, lessestimated costs of completion, disposal, and transportation, falls below cost, then the inventory value is reduced to its net realizable value. Our inventoryobsolescence reserves at March 31, 2019 were $2.8 million, or 17.4% of gross inventory, and $3.4 million, or 30.1% of gross inventory, at March 31, 2018.Allowance for Doubtful Accounts. We perform ongoing evaluations of our customers and continuously monitor collections and payments andestimate an allowance for doubtful accounts based upon the aging of the underlying receivables, our historical experience with write-offs and specificcustomer collection issues that we have identified. While such credit losses have historically been within our expectations, and we believe appropriatereserves have been established, we may not adequately predict future credit losses. If the financial condition of our customers were to deteriorate and result inan impairment of their ability to make payments, additional allowances might be required which would result in additional general and administrativeexpense in the period such determination is made. Our allowance for doubtful accounts was $0.2 million, or 1.4% of gross receivables, at March 31, 2019 and$0.2 million, or 1.7% of gross receivables, at March 31, 2018.Recoverability of Long-Lived Assets. We evaluate long-lived assets such as property, equipment and definite lived intangible assets, such as patents,customer relationships, developed technology, and non-competition agreements, for impairment whenever events or circumstances indicate that the carryingvalue of the assets recognized in our financial statements may not be recoverable. Factors that we consider include whether there has been a significantdecrease in the market value of an asset, a significant change in the way an asset is being utilized, or a significant change, delay or departure in our strategyfor that asset, such as the loss of a customer in the case of customer relationships. Our assessment of the recoverability of long-lived assets involvessignificant judgment and estimation. These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypotheticalmarketplace participants use. Factors that we must estimate when performing recoverability and impairment tests include, among others, forecasted revenue,margin costs and the economic life of the asset. If impairment is indicated, we first determine if the total estimated future cash flows on an undiscounted basisare less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.43 During the second quarter of fiscal 2019, a triggering event occurred requiring us to evaluate our long-lived assets for impairment. Due to the centralnature of our operations, our tangible and intangible definite-lived assets support our full operations, are utilized by all three of our reportable segments, anddo not generate separately identifiable cash flows. As such, these assets together represent a single asset group. In reviewing the asset group for impairment,we elected to bypass the qualitative impairment assessment and went directly to performing the Step 1 recoverability test. We performed the Step 1recoverability test for the asset group by calculating the carrying value to the group’s expected future undiscounted cash flows. We concluded that theundiscounted cash flows of the definite lived asset group exceeded the carrying value. As such the asset group was deemed recoverable and no impairmentwas recorded.During the second quarter of fiscal 2019, we listed our corporate office building in Manitowoc, Wisconsin for sale or lease to increase liquiditythrough the divestiture of a non-core asset. Because of the uncertainty of a sale of our building, management concluded that the sale is not probable withinthe next twelve months, therefore the building continues to be classified as held for use as of March 31, 2019. The building is included in our long-livedasset group, which was evaluated for impairment during the second quarter of fiscal 2019; the asset group was deemed recoverable and no impairment wasrecorded. However, as the building is currently listed for below its net book value, the sale of our building could result in a non-cash impairment charge.Our impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows, determining asset fairvalues, and estimating asset’s useful lives. To make these judgments, we may use internal discounted cash flow estimates, quoted market prices, whenavailable, and independent appraisals, as appropriate, to determine fair value.If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be required torecognize future impairment losses which could be material to our results of operations.Indefinite Lived Intangible Assets. We test indefinite lived intangible assets for impairment at least annually on the first day of our fiscal fourthquarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators throughout the fiscal year. Ourannual impairment test may begin with a qualitative test to determine whether it is more likely than not that an indefinite lived intangible asset's carryingvalue is greater than its fair value. If our qualitative assessment reveals that asset impairment is more likely than not, we perform a quantitative impairmenttest by comparing the fair value of the indefinite lived intangible asset to its carrying value. Alternatively, we may bypass the qualitative test and initiateimpairment testing with the quantitative impairment test.We performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets as of January 1, 2019.This qualitative assessment considered our operating results for the first nine months of fiscal 2019 in comparison to prior years as well as its anticipatedfourth quarter results and fiscal 2019 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be morelikely than not and a quantitative analysis was not required.Stock-Based Compensation. We currently issue restricted stock awards to our employees, executive officers and directors. Prior to fiscal 2015, we alsoissued stock options to these individuals. We apply the provisions of ASC 718, Compensation - Stock Compensation, to these restricted stock and stockoption awards which requires us to expense the estimated fair value of stock options and similar awards based on the fair value of the award on the date ofgrant. Compensation costs for equity incentives are recognized in earnings, on a straight-line basis over the requisite service period.Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to determine our income taxesin each of the jurisdictions in which we operate. This process involves estimating our actual current tax expenses, together with assessing temporarydifferences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, whichare included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxableincome and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increasethis allowance in a period, we must reflect this increase as an expense within the tax provision in our statements of operations.Our judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recordedagainst our net deferred tax assets. We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. Forfiscal 2019, 2018, and 2017 we have recorded a full valuation allowance against our net44 federal and net state deferred tax assets due to our cumulative three-year taxable losses. In making these determinations, we considered all available positiveand negative evidence, including projected future taxable income, tax planning strategies, recent financial performance and ownership changes.We believe that past issuances and transfers of our stock caused an ownership change in fiscal 2007 that affected the timing of the use of our netoperating loss carry-forwards, but we do not believe the ownership change affects the use of the full amount of the net operating loss carry-forwards. As aresult, our ability to use our net operating loss carry-forwards attributable to the period prior to such ownership change to offset taxable income will besubject to limitations in a particular year, which could potentially result in increased future tax liability for us.As of March 31, 2019, we had net operating loss carry-forwards of approximately $88.1 million for federal tax purposes and $74.1 million for state taxpurposes. As of the prior fiscal year, this amount is representative of the entire loss carryforward on the filed returns.We also had federal tax credit carry-forwards of $1.3 million and state tax credit carry-forwards of $0.8 million, which are fully reserved for as part ofour valuation allowance. Of these tax attributes, $7.1 million of the federal and state net operating loss carry-forwards are not subject to time restrictions onuse but may only be used to offset 80% of future adjusted taxable income. The $155.1 federal and state net operating loss and tax credit carry-forwards willbegin to expire in varying amounts between 2020 and 2039.We recognize penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest were immaterial as of the date ofadoption and are included in unrecognized tax benefits.By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open tointerpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under Financial AccountingStandards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. ASC 740 utilizes a two-step approach for evaluating taxpositions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to besustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured as the largestamount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the levelof evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matterof judgment that depends on all available evidence. As of March 31, 2019, the balance of gross unrecognized tax benefits was approximately $0.1 million,all of which would reduce our effective tax rate if recognized. We believe that our estimates and judgments discussed herein are reasonable, however, actualresults could differ, which could result in gains or losses that could be material.The Tax Cut and Jobs Act ("Act") was enacted on December 22, 2017. The Act significantly changes U.S. tax law by, among other things, reducing theU.S. federal corporate tax rate from 35% to 21%, imposing a one-time transition tax on earnings of certain foreign subsidiaries that were previously taxdeferred, and creating new taxes on certain foreign sourced earnings. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB118") to address accounting for income tax effects of the Tax Reform Act. As of December 31, 2018, Orion did not adjust its estimates and considers allchanges due to the Act final.Recent Accounting PronouncementsSee Note 2 —Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a full description ofrecent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.45 Item 7A.Quantitative and Qualitative Disclosure About Market RiskMarket risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity pricing that mayadversely impact our consolidated financial position, results of operations or cash flows.Inflation. Our results from operations have not historically been, and we do not expect them to be, materially affected by inflation.Foreign Exchange Risk. We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign currency losses for allreporting periods have been nominal.Interest Rate Risk. Our investments consist primarily of investments in money market funds. While the instruments we hold are subject to changes inthe financial standing of the issuer of such securities, we do not believe that we are subject to any material risks arising from changes in interest rates, foreigncurrency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. It is our policy not to enterinto interest rate derivative financial instruments. As a result, we do not currently have any significant interest rate exposure.As of March 31, 2019, $9.1 million of our $9.2 million of outstanding debt was at floating interest rates. An increase of 1.0% in the prime rate wouldresult in an increase in our interest expense of approximately $0.1 million.Commodity Price Risk. We are exposed to certain commodity price risks associated with our purchases of raw materials, most significantly ouraluminum purchases. A hypothetical 20% fluctuation in aluminum prices would have an impact of $0.4 million on earnings in fiscal 2020.46 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageNumberReports of Independent Registered Public Accounting Firms48Consolidated Balance Sheets50Consolidated Statements of Operations and Comprehensive Income51Consolidated Statements of Shareholders’ Equity52Consolidated Statements of Cash Flows53Notes to Consolidated Financial Statements5447 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMShareholders and Board of DirectorsOrion Energy Systems, Inc.Manitowoc, WisconsinOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Orion Energy Systems, Inc. (the “Company”) as of March 31, 2019 and 2018, the relatedconsolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2019, and the relatednotes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all materialrespects, the financial position of the Company at March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years inthe period ended March 31, 2019, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'sinternal control over financial reporting as of March 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated June 4, 2019 expressed an unqualified opinionthereon.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLPWe have served as the Company's auditor since 2012.Milwaukee, WisconsinJune 4, 201948 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMShareholders and Board of DirectorsOrion Energy Systems, Inc.Manitowoc, WisconsinOpinion on Internal Control over Financial ReportingWe have audited Orion Energy Systems, Inc.’s (the “Company’s”) internal control over financial reporting as of March 31, 2019, based on criteria establishedin Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSOcriteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2019, based onthe COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedbalance sheets of the Company as of March 31, 2019 and 2018, the related consolidated statements of operations, shareholders’ equity, and cash flows foreach of the three years in the period ended March 31, 2019, and the related notes and our report dated June 4, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/BDO USA, LLPMilwaukee, WisconsinJune 4, 201949 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share amounts) March 31, 2019 2018 Assets Cash and cash equivalents $8,729 $9,424 Accounts receivable, net 14,804 8,736 Revenue earned but not billed 3,746 — Inventories, net 13,403 7,826 Deferred contract costs — 1,000 Prepaid expenses and other current assets 695 2,467 Total current assets 41,377 29,453 Property and equipment, net 12,010 12,894 Other intangible assets, net 2,469 2,868 Other long-term assets 165 110 Total assets $56,021 $45,325 Liabilities and Shareholders’ Equity Accounts payable $19,706 $11,675 Accrued expenses and other 7,410 4,171 Deferred revenue, current 123 499 Current maturities of long-term debt 96 79 Total current liabilities 27,335 16,424 Revolving credit facility 9,202 3,908 Long-term debt, less current maturities 81 105 Deferred revenue, long-term 791 940 Other long-term liabilities 642 524 Total liabilities 38,051 21,901 Commitments and contingencies (Note 13) Shareholders’ equity: Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2019 and 2018; no shares issued and outstanding at March 31, 2019 and 2018 — — Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2019 and 2018; shares issued: 39,037,969 and 38,384,575 at March 31, 2019 and 2018; shares outstanding: 29,600,158 and 28,953,183 at March 31, 2019 and 2018 — — Additional paid-in capital 155,828 155,003 Treasury stock: 9,437,811 and 9,431,392 common shares at March 31, 2019 and 2018 (36,091) (36,085)Retained deficit (101,767) (95,494)Total shareholders’ equity 17,970 23,424 Total liabilities and shareholders’ equity $56,021 $45,325 50 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share amounts) Fiscal Year Ended March 31, 2019 2018 2017 Product revenue $56,261 $55,595 $66,224 Service revenue 9,493 4,705 3,987 Total revenue 65,754 60,300 70,211 Cost of product revenue 44,111 41,415 49,630 Cost of service revenue 7,091 4,213 3,244 Total cost of revenue 51,202 45,628 52,874 Gross profit 14,552 14,672 17,337 Operating expenses: General and administrative 10,231 13,159 14,777 Impairment of intangible assets — 710 250 Sales and marketing 9,104 11,879 12,833 Research and development 1,374 1,905 2,004 Total operating expenses 20,709 27,653 29,864 Loss from operations (6,157) (12,981) (12,527)Other income (expense): Other income 80 248 215 Interest expense (493) (333) (163)Amortization of debt issue costs (101) (92) (110)Interest income 11 15 36 Total other expense (503) (162) (22)Loss before income tax (6,660) (13,143) (12,549)Income tax expense (benefit) 14 (15) (261)Net loss $(6,674) $(13,128) $(12,288)Basic net loss per share attributable to common shareholders $(0.23) $(0.46) $(0.44)Weighted-average common shares outstanding 29,429,540 28,783,830 28,156,382 Diluted net loss per share $(0.23) $(0.46) $(0.44)Weighted-average common shares and share equivalents outstanding 29,429,540 28,783,830 28,156,382 51 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIESSTATEMENTS OF SHAREHOLDERS’ EQUITY(in thousands, except share amounts) Shareholders’ Equity Common Stock Shares AdditionalPaid-inCapital TreasuryStock ShareholderNotesReceivable RetainedEarnings(Deficit) TotalShareholders’Equity Balance, March 31, 2016 27,767,138 $152,140 $(36,075) $(4) $(70,078) $45,983 Issuance of stock for services 110,566 156 — — — 156 Shares issued under Employee Stock Purchase Plan 5,156 — 8 — — 8 Stock-based compensation 444,102 1,605 — — — 1,605 Employee tax withholdings on stock-based compensation (9,472) — (14) — — (14)Net loss — — — — (12,288) (12,288)Balance, March 31, 2017 28,317,490 153,901 (36,081) (4) (82,366) 35,450 Issuance of stock for services 24,747 — — — — — Shares issued under Employee Stock Purchase Plan 10,057 — 11 — — 11 Stock-based compensation 612,601 1,102 — — — 1,102 Employee tax withholdings on stock-based compensation (10,482) — (11) — — (11)Collections on stockholder notes (1,230) (4) 4 — Net loss — — — — (13,128) (13,128)Balance, March 31, 2018 28,953,183 155,003 (36,085) — (95,494) 23,424 Shares issued under Employee Stock Purchase Plan 4,642 — 4 — — 4 Stock-based compensation 653,394 825 — — — 825 Collections on stockholder notes (11,061) — (10) — — (10)Cumulative effect of accounting change due to adoptionof ASC 606 — — — — 401 401 Net loss — — — — (6,674) (6,674)Balance, March 31, 2019 29,600,158 155,828 (36,091) — (101,767) 17,970 52 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Fiscal Year Ended March 31, 2019 2018 2017 Operating activities Net loss $(6,674) $(13,128) $(12,288)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,339 1,404 1,451 Amortization of intangible assets 444 607 881 Stock-based compensation 825 1,102 1,605 Amortization of debt issue costs 101 92 110 Impairment of intangible assets — 710 250 Provision for inventory reserves (202) 1,261 2,212 Provision for bad debts 56 22 132 Other 57 (94) 178 Changes in operating assets and liabilities: Accounts receivable (5,840) 419 1,687 Revenue earned but not billed (1,390) — — Inventories (4,689) 4,706 1,220 Deferred contract costs — (65) (899)Prepaid expenses and other current assets 68 391 1,974 Accounts payable 8,916 20 (81)Accrued expenses and other 1,975 (1,736) (635)Deferred revenue, current and long-term (44) (126) 300 Net cash used in operating activities (5,058) (4,415) (1,903)Investing activities Purchase of property and equipment (381) (512) (660)Additions to patents and licenses (68) (73) (291)Proceeds from sales of property, plant and equipment — — 2,600 Net cash (used in) provided by investing activities (449) (585) 1,649 Financing activities Payment of long-term debt (80) (158) (880)Proceeds from revolving credit facility 60,270 68,734 87,935 Payment of revolving credit facility (54,976) (71,456) (85,025)Payments to settle employee tax withholdings on stock-based compensation (10) (9) (19)Debt issue costs (396) — — Net proceeds from employee equity exercises 4 6 8 Net cash provided by (used in) financing activities 4,812 (2,883) 2,019 Net (decrease) increase in cash and cash equivalents (695) (7,883) 1,765 Cash and cash equivalents at beginning of period 9,424 17,307 15,542 Cash and cash equivalents at end of period $8,729 $9,424 $17,307 Supplemental cash flow information: Cash paid for interest $(176) $(147) $(164)Cash received for income taxes $12 $17 $153 Supplemental disclosure of non-cash investing and financing activities: Purchase of property, plant and equipment by issuing a debt $74 $— $175 53 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 — DESCRIPTION OF BUSINESSOrganizationOrion includes Orion Energy Systems, Inc., a Wisconsin corporation, and all consolidated subsidiaries. Orion is a developer, manufacturer and seller oflighting and energy management systems to commercial and industrial businesses, and federal and local governments, predominantly in North America.Orion’s corporate offices and leased primary manufacturing operations are located in Manitowoc, Wisconsin. Orion also leases office space inJacksonville, Florida and warehouse space in Manitowoc, Wisconsin. During fiscal 2018 and fiscal 2017 Orion had leased warehouse space in Augusta,Georgia, but as of March 31, 2018, Orion had vacated this storage location.In fiscal 2018, we did not renew the leases for our 5,600 square foot of office space in Houston, Texas and our 3,100 square foot of office space inChicago, Illinois. The leases terminated as of April 30, 2018 and May 31, 2018, respectively.NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe consolidated financial statements include the accounts of Orion Energy Systems, Inc. and its wholly-owned subsidiaries. All significantintercompany transactions and balances have been eliminated in consolidation.ReclassificationsIn the warranty rollforward in Note 9 – Accrued Expenses and Other, certain prior period balances have been reclassified to conform to current periodpresentation. The reclassifications were immaterial to the financial statements.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenuesand expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventoryobsolescence and allowance for doubtful accounts, accruals for warranty and loss contingencies, income taxes, impairment analyses, and certain equitytransactions. Accordingly, actual results could differ from those estimates.Cash and Cash EquivalentsOrion considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents.54 Fair Value of Financial InstrumentsOrion’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other, revolvingcredit facility and long-term debt. The carrying amounts of Orion’s financial instruments approximate their respective fair values due to the relatively short-term nature of these instruments, or in the case of long-term debt and revolving credit facility, because of the interest rates currently available to Orion forsimilar obligations. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservableinputs. GAAP describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the lastunobservable, 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 forwhich 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 fairvalue measurement. Inputs reflect management's best estimate of what market participants would use in valuing the asset or liability at the measurement date.Allowance for Doubtful AccountsOrion performs ongoing evaluations of its customers and continuously monitors collections and payments. Orion estimates an allowance for doubtfulaccounts based upon the aging of the underlying receivables, historical experience with write-offs and specific customer collection issues that have beenidentified. See Note 4 - Accounts Receivable for further discussion of the allowance for doubtful accounts.Deferred Contract CostsDeferred contract costs consist primarily of the costs of products delivered, and services performed, that are subject to additional performanceobligations or customer acceptance. In the prior year, these deferred contract costs were expensed at the time the related revenue was recognized. Uponadoption of “Revenue from Contracts with Customers” (Topic 606) on April 1, 2018, this account was no longer used; there were no Deferred costs as ofMarch 31, 2019. Deferred costs amounted to $1.0 million as of March 31, 2018. Incentive PlanOrion’s compensation committee approved an Executive Fiscal Year 2019 Annual Cash Incentive Program. The program provided for performancecash bonus payments ranging from 50-100% of the fiscal 2019 base salaries of Orion’s named executive officers and other key employees. The programprovided for bonuses to be paid out on the basis of achieving positive net income in fiscal 2019. Based upon the results for the year ended March 31, 2019,Orion did not accrue any expense related to this plan.Orion’s compensation committee approved an Executive Fiscal Year 2018 Annual Cash Incentive Program. The program provided for performancecash bonus payments ranging from 50-100% of the fiscal 2018 base salaries of Orion’s named executive officers and other key employees. The programprovided for bonuses to be paid out on the basis of achieving positive EBITDA in fiscal 2018. Based upon the results for the year ended March 31, 2018,Orion did not accrue any expense related to this plan.Orion’s compensation committee approved an Executive Fiscal Year 2017 Annual Cash Incentive Program. The program provided for performancecash bonus payments ranging from 35-100% of the fiscal 2017 base salaries of Orion’s named executive officers and other key employees. The programprovided for bonuses to be paid out on the basis of the achievement in fiscal 2018 of at least (i) $0.5 million of profit before taxes and (ii) revenue growth of10% more than fiscal year 2016. Based upon the results for the year ended March 31, 2017, Orion did not accrue any expense related to this plan. 55 Revenue RecognitionPeriods prior to April 1, 2018Revenue was recognized in accordance with the revenue recognition requirements in “Revenue Recognition” (Topic 605) (“ASC 605”) when thefollowing criteria were met: 1.persuasive evidence of an arrangement exists; 2.delivery has occurred and title has passed to the customer; 3.the sales price is fixed and determinable and no further obligation exists; and 4.collectability is reasonably assured.Revenue was recorded net of estimated provisions for returns, early payment discounts and rebates and other consideration paid to Orion’scustomers. Revenues were presented net of sales tax and other sales related taxes.For sales of Orion’s lighting and energy management technologies under multiple element arrangements, consisting of a combination of product salesand services, Orion determines revenue by allocating the total contract revenue to each element based on their relative selling prices in accordance with ASC605-25, Revenue Recognition - Multiple Element Arrangements. In such circumstances, Orion uses a hierarchy to determine the selling price to be used forallocating revenue to deliverables: (1) vendor-specific objective evidence ("VSOE") of fair value, if available, (2) third-party evidence ("TPE") of selling priceif VSOE is not available, and (3) best estimate of the selling price if neither VSOE nor TPE is available (a description as to how Orion determines estimatedselling price is provided below).The nature of Orion’s multiple element arrangements for the sale of its lighting and energy management technologies is similar to a constructionproject, with materials being delivered and contracting and project management activities occurring according to an installation schedule. The significantdeliverables include the shipment of products and related transfer of title and the installation.To determine the selling price in multiple-element arrangements, Orion establishes the selling price for its energy management system products usingmanagement's best estimate of the selling price, as VSOE and TPE do not exist. Product revenue is recognized when title and risk of loss for the productstransfers. For product revenue, management's best estimate of selling price is determined using a cost plus gross profit margin method.In addition, Orion records in service revenue the selling price for its installation and recycling services using management’s best estimate of sellingprice, as VSOE and TPE do not exist. Service revenue is recognized when services are completed and customer acceptance has been received. Recyclingservices provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. Orion’s service revenues, other than forinstallation and recycling that are completed prior to delivery of the product, are included in product revenue using management’s best estimate of sellingprice, as VSOE and TPE do not exist. These services include comprehensive site assessment, site field verification, utility incentive and government subsidymanagement, engineering design, and project management. For these services, along with Orion's installation and recycling services, under a multiple-element arrangement, management’s best estimate of selling price is determined using a cost plus gross profit margin method with consideration given toother relevant economic conditions and trends, customer demand, pricing practices, and margin objectives. The determination of an estimated selling price ismade through consultation with and approval by management, taking into account the preceding factors.Deferred revenue relates to advance customer billings, investment tax grants received related to PPAs and long term maintenance contracts on OTAsand 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 theoriginal OTA contract is executed.56 Period Commencing April 1, 2018General InformationOrion generates revenues primarily by selling commercial lighting fixtures and components and by installing these fixtures in its customer’sfacilities. Orion recognizes revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) when control ofthe goods or services being provided (which Orion refers to as a performance obligation) is transferred to a customer at an amount that reflects theconsideration that management expects to receive in exchange for those goods or services. Prices are generally fixed at the time of order confirmation. Theamount of expected consideration includes estimated deductions and early payment discounts calculated based on historical experience, customer rebatesbased on agreed upon terms applied to actual and projected sales levels over the rebate period, and any amounts paid to customers in conjunction withfulfilling a performance obligation.If there are multiple performance obligations in a single contract, the contract’s total sales price is allocated to each individual performance obligationbased on their relative standalone selling price. A performance obligation’s standalone selling price is the price at which Orion would sell such promisedgood or service separately to a customer. Orion uses an observable price to determine the stand-alone selling price for separate performance obligations or acost-plus margin approach when one is not available. The cost-plus margin approach is used to determine the stand-alone selling price for the installationperformance obligation and is based on average historical installation margin.Revenue derived from customer contracts which include only performance obligation(s) for the sale of lighting fixtures and components is classifiedas Product revenue in the Consolidated Statements of Operations. The revenue for these transactions is recorded at the point in time when managementbelieves that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer’s facility. This point in time isdetermined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning thetransaction.Revenue from a customer contract which includes both the sale of fixtures and the installation of such fixtures (which Orion refers to as a turnkeyproject) is allocated between each lighting fixture and the installation performance obligation based on relative standalone selling prices.Revenue from turnkey projects that is allocated to the sale of the lighting fixtures is recorded at the point in time when management believes thecustomer obtains control of the product(s) and is reflected in Product revenue. This point in time is determined separately for each customer contract basedupon the terms of the contract and the nature and extent of Orion’s control of the light fixtures during the installation. Product revenue associated withturnkey projects can be recorded (a) upon shipment or delivery, (b) subsequent to shipment or delivery and upon customer payments for the light fixtures, (c)when an individual light fixture is installed and working correctly, or (d) when the customer acknowledges that the entire installation project is substantiallycomplete. Determining the point in time when a customer obtains control of the lighting fixtures in a turnkey project can be a complex judgment and isapplied separately for each individual light fixture included in a contract. In making this judgment, management considers the timing of various factors,including, but not limited to, those detailed below: •when there is a legal transfer of ownership; •when the customer obtains physical possession of the products; •when the customer starts to receive the benefit of the products; •the amount and duration of physical control that Orion maintains on the products after they are shipped to, and received at, the customer’sfacility; •whether Orion is required to maintain insurance on the lighting fixtures when they are in transit and after they are delivered to the customer’sfacility; •when each light fixture is physically installed and working correctly; •when the customer formally accepts the product; and •when Orion receives payment from the customer for the light fixtures. 57 Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue isrecorded over-time as Orion fulfills its obligation to install the light fixtures. Orion measures its performance toward fulfilling its performance obligations forinstallations using an output method that calculates the number of light fixtures completely installed as of the measurement date in comparison to the totalnumber of light fixtures to be installed under the contract.Most products are manufactured in accordance with Orion’s standard specifications. However, some products are manufactured to a customer’sspecific requirements with no alternative use to Orion. In such cases, and when Orion has an enforceable right to payment, Product revenue is recorded on anover-time basis measured using an input methodology that calculates the costs incurred to date as compared to total expected costs. There was no over-timerevenue related to custom products recognized in fiscal year 2019.Orion offers a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of Orion’s energy management systems. TheOTA is structured as a sales-type lease and upon successful installation of the system and customer acknowledgment that the system is operating as specified,revenue is recognized at Orion’s net investment in the lease, which typically is the net present value of the future cash flows.Orion also records revenue in conjunction with several limited power purchase agreements (“PPAs”) still outstanding. Those PPAs are supply-sideagreements for the generation of electricity. Orion’s last PPA expires in 2031. Revenue associated with the sale of energy generated by the solar facilitiesunder these PPAs is within the scope of ASC 606. Revenues are recognized over-time and are equal to the amount billed to the customer, which is calculatedby applying the fixed rate designated in the PPAs to the variable amount of electricity generated each month. This approach is in accordance with the “rightto invoice” practical expedient provided for in ASC 606. Orion also recognizes revenue upon the sale to third parties of tax credits received from operatingthe solar facilities and from amortizing a grant received from the federal government during the period starting when the power generating facilities wereconstructed until the expiration of the PPAs; these revenues are not derived from contracts with customers and therefore not under the scope of ASC 606.When shipping and handling activities are performed after a customer obtains control of the product, Orion has elected to treat shipping and handlingcosts as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation. Anyshipping and handling costs charged to customers are recorded in Product revenue. Shipping and handling costs are accrued and included in Cost of productrevenue.See Note 9, Accrued Expenses and Other for a discussion of Orion’s accounting for the warranty it provides to customers for its products and services.Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.Shipping and Handling CostsOrion records costs incurred in connection with shipping and handling of products as cost of product revenue. Amounts billed to customers inconnection with these costs are included in product revenue.Research and DevelopmentOrion expenses research and development costs as incurred. Amounts are included in the Statement of Operations and Comprehensive Income on theline item Research and development.Income TaxesOrion recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between financial reporting and incometax basis of assets and liabilities, measured using the enacted tax rates and laws expected to be in effect when the temporary differences reverse. Deferredincome taxes also arise from the future tax benefits of operating loss and tax credit carry-forwards. A valuation allowance is established when managementdetermines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. For the fiscal year ended March 31, 2019, Orionincreased its full valuation allowance by $1.6 million against its deferred tax assets due to the increase in its deferred tax assets.58 ASC 740, Income Taxes, also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement oftax 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 sustainedupon examination. Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent thatpayment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties andinterest are immaterial and are included in the unrecognized tax benefits.The Tax Cut and Jobs Act ("ACT") was enacted December 22, 2017. Further information on the impacts of the Act can be found in Note 13, IncomeTaxes.Stock Based CompensationOrion’s share-based payments to employees are measured at fair value and are recognized in earnings, on a straight-line basis over the requisite serviceperiod.Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognitionprovisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably overthe requisite service period. As more fully described in Note 15 - Stock Options and Restricted Shares, Orion currently awards non-vested restricted stock toemployees, executive officers and directors. Orion did not issue any stock options during fiscal 2019, fiscal 2018 or fiscal 2017.Orion has not paid dividends in the past and does not plan to pay any dividends in the foreseeable future. Orion estimates its forfeiture rate of unvestedstock awards based on historical experience.Concentration of Credit Risk and Other Risks and UncertaintiesOrion’s cash is deposited with two financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on suchdeposits. Orion has not experienced any losses in such accounts and believes that it is not exposed to any significant financial institution viability risk onthese balances.Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components, from multiple suppliers. For fiscal2019, 2018 and 2017, no supplier accounted for more than 10% of total cost of revenue.In fiscal 2019, one customer accounted for 20.7% of total revenue. In fiscal 2018, two customers accounted for 11.7% and 10.8% of total revenue. Infiscal 2017, no customer accounted for 10% of revenue.As of March 31, 2019, one customer accounted for 56.2% of accounts receivable and as of March 31, 2018, one customer accounted for 13.2% ofaccounts receivable.Recent Accounting PronouncementsIssued: Not Yet AdoptedIn February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases" (Subtopic842). The pronouncement, and subsequent amendments, is included in the Accounting Standards Codification as Subtopic 842 (“ASC 842”). For Orion, theprimary impact of the adoption of ASC 842 will be the recognition of right-of-use assets and liabilities on the balance sheet for the rights and obligationscreated by contracts where Orion is leasing assets from third parties for periods in excess of one year. Previously, the financial impact associated with suchcontracts was recorded only in Orion’s statement of operations. Additional quantitative and qualitative disclosures about Orion’s lease arrangements are alsorequired. 59 Orion implemented ASC 842 at the start of the first quarter of the fiscal year ending March 31, 2020 using the optional transition method under whichthe new standard is applied only to the most current period presented and the cumulative effect of applying the new standards to existing lease agreements isrecognized at the date of initial application. Adoption of ASC 842 resulted in the recording of additional right-of-use lease assets and lease liabilities ofapproximately $0.2 million for operating lease agreements associated with assets used by Orion but owned by a third party. There was no adjustment toretained deficit. Orion also leases assets to third parties under capital and sales-type leases. There was no financial statement impact from the adoption ofASC 842 on the contracts where Orion leases assets to third parties. Determining whether a contract includes a lease, and assessing whether the lease should be accounted for as a finance lease or an operating lease, is amatter of judgment based on whether the risks and rewards as well as substantive control of the associated with the assets specified in the contract have beentransferred from the lessor to the lessee. Orion implemented the appropriate changes to business processes and controls to support recognition and disclosureunder the new standard, including the new qualitative and quantitative disclosures that will include information on the nature, amount, timing andsignificant judgments impacting revenue from contracts with customers.Orion management believes that the adoption of ASC 842 will not materially impact Orion’s future consolidated results of operations and will have noimpact on Orion’s future cash flows.Recently Adopted StandardsOn April 1, 2018, Orion adopted ASU 2014-09 and subsequent amendments, which is included in the Accounting Standards Codification as "Revenuefrom Contracts with Customers" (Topic 606) (“ASC 606”) and Sub-Topic 340-40 (“ASC 340-40”), using the modified retrospective approach. ASC 606superseded the revenue recognition requirements in “Revenue Recognition” (Topic 605) ("ASC 605") and provides guidance on the accounting for otherassets and deferred costs associated with contracts with customers. ASC 606 requires entities to recognize revenue when control of the promised goods orservices is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods orservices. ASC 340-40 limits the circumstances that an entity can recognize an asset from the costs incurred to obtain or fulfill a contract that are not subjectto the guidance in other portions in the Accounting Standards Codification, such as those related to inventory. The provisions of ASC 606 and ASC 340-40require entities to use more judgments and estimates than under previous guidance when allocating the total consideration in a contract to the individualpromises to customers (“performance obligations”) and determining when a performance obligation has been satisfied and revenue can be recognized.Orion’s adoption of ASC 606 did not have a material effect on Orion's financial statements. Orion has updated its processes and controls necessary forimplementing ASC 606, including the increased footnote disclosure requirements.In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which provided clarification andadditional guidance as to the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU providedguidance as to the classification of a number of transactions including: contingent consideration payments made after a business combination, proceeds fromthe settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity methodinvestees. This new ASU was effective for Orion beginning in the first quarter of fiscal 2019 and has been applied through retrospective adjustment to allperiods presented. The adoption of this ASU did not have a material impact on Orion’s consolidated financial statements.In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation: Scope of Modification Accounting” which provides guidanceabout which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting. The provisions ofthis ASU were effective for Orion beginning on April 1, 2018. The adoption of this ASU did not have a material impact on Orion’s consolidated financialstatements.60 NOTE 3 — REVENUEChanges in Accounting PoliciesOrion adopted ASC 606 and ASC 340-40 (the “new standards”) as of April 1, 2018 for contracts with customers that were not fully complete as of April1, 2018 using the modified retrospective transition method. The cumulative effect of initially applying the new standards was recorded as a $0.4 millionadjustment to the opening balance of retained deficit within Orion’s Consolidated Statement of Shareholders’ Equity.The new standards are applied separately for each contract between Orion and a customer. While the impact of the new standards vary for eachcontract based on its specific terms, in general, the new standards result in Orion (a) delaying the recognition of some of its Product revenue from the point ofshipment until a later date during the installation period, (b) recording Service revenue associated with installing lighting fixtures as such fixtures areinstalled instead of recording all Service revenue at the completion of the installation, and (c) recording costs associated with installing lighting fixtures asthey are incurred instead of deferring such costs and recognizing them at the time Service revenue was recorded.The adoption of the new standards also resulted in reclassifications (a) between Product revenue and Service revenue, and between Cost of servicerevenue and Sales and marketing expenses in Orion’s Consolidated Statements of Operations, and (b) between Accounts receivable, net, Revenue earned butnot billed, Inventories, net, Deferred contract costs, Prepaid expenses and other current assets, Accounts payable, Accrued expenses and other, Deferredrevenue, current, Deferred revenue, long-term, and Other long-term liabilities in Orion’s Consolidated Balance Sheets.For all adjustments and changes as a result of adopting the new standards for the current period, refer to the section “Impacts on Financial Statements”below. In accordance with the modified retrospective transition method, the historical information within Orion’s financial statements has not been restatedand continues to be reported under the accounting standard in effect for those periods. As a result, Orion has disclosed the accounting policies in effect priorto April 1, 2018, as well as the policies applied starting April 1, 2018. Revenue RecognitionSee Note 2, Summary of Significant Accounting Policies for a discussion of Orion’s accounting policies in effect prior to April 1, 2018, as well as thepolicies applied starting April 1, 2018 in regards to revenue recognition.Contract Fulfillment CostsCosts associated with product sales are accumulated in inventory as the fixtures are manufactured and are transferred to Cost of product revenue at thetime revenue is recorded. See Note 5, Inventories, Net. Costs associated with installation sales are expensed as incurred. Disaggregation of RevenueOrion’s Product revenue includes revenue from contracts with customers accounted for under the scope of ASC 606 and revenue which is accountedfor under other guidance. For fiscal year 2019, Product revenue included $3.4 million derived from sales-type leases for light fixtures, $0.2 million derivedfrom the sale of tax credits generated from Orion’s legacy operation for distributing solar energy, and $0.1 million derived from the amortization of federalgrants received in 2010 and 2011 as reimbursement for a portion of the costs to construct the legacy solar facilities which are not under the scope of ASC606. All remaining Product revenue, and all Service revenue, are derived from contracts with customers as defined in ASC 606.The primary end-users of Orion’s lighting products and services are (a) the federal government, and (b) commercial or industrial companies.The federal government obtains Orion products and services primarily through turnkey project sales that Orion makes to a select group of contractorswho focus on the federal government. Revenues associated with government end-users are primarily included in the Orion Engineered Systems Divisionsegment.61 Commercial or industrial end-users obtain Orion products and services through turnkey project sales or by purchasing products either direct fromOrion or through distributors or energy service companies ("ESCOs"). Revenues associated with commercial and industrial end-users are included withineach of Orion’s segments, dependent on the sales channel.See Footnote 16, Segment Data, for additional discussion concerning Orion’s reportable segments.The following table provides detail of Orion’s total revenues for the year ended March 31, 2019 (dollars in thousands): Year Ended March 31, 2019 Product Services Total Revenue from contracts with customers: Lighting revenues, by end user Federal government $2,579 $642 $3,221 Commercial and industrial 49,963 8,851 58,814 Total lighting 52,542 9,493 62,035 Solar energy related revenues 57 — 57 Total revenues from contracts with customers 52,599 9,493 62,092 Revenue accounted for under other guidance 3,662 — 3,662 Total revenue $56,261 $9,493 $65,754 Cash Flow ConsiderationsCustomer payments for material only orders are due shortly after shipment.Turnkey projects where the end-user is the federal government typically span a three to six-month period. The contracts for these sales often providefor monthly progress payments equal to ninety percent (90%) of the value provided by Orion during the month.Turnkey projects where the end-user is a commercial or industrial company typically span between two weeks to three months. Customer paymentrequirements for these projects vary by contract. Some contracts provide for customer payments for products and services as they are delivered, othercontracts specify that the customer will pay for the project in its entirety upon completion of the installation.Orion provides long-term financing to one customer who frequently engages Orion in large turnkey projects that span between three and ninemonths. The customer executes an agreement providing for monthly payments of the contract price, plus interest, over a five-year period. The totaltransaction price in these contracts is allocated between product and services in the same manner as all other turnkey projects. The portion of the transactionassociated with the installation is accounted for consistently with all other installation related performance obligations. The portion of the transactionassociated with the sale of the multiple individual light fixtures is accounted for as sales-type leases in accordance with ASC 840, "Leases". Revenuesassociated with the sales-type leases are included in Product revenue and recorded for each fixture separately based on the customer’s monthlyacknowledgment that specified fixtures have been installed and are operating as specified.The payments associated with these transactions that are due during the twelve months subsequent to March 31, 2019 are included in Accountsreceivable, net in Orion’s Consolidated Balance Sheets. The remaining amounts due that are associated with these transactions are included in Other long-term assets in Orion’s Consolidated Balance Sheets.The customer’s monthly payment obligation commences after completion of the turnkey project. Orion generally sells the receivable from thecustomer to an independent financial institution either during, or shortly after completion of, the installation period. Upon execution of the receivablespurchase / sales agreement, all amounts due from the customer are included in Revenues earned but not billed on Orion’s Consolidated Balance Sheets untilcash is received from the financial institution. The financial institution releases funds to Orion based on the customer’s monthly acknowledgment of theprogress Orion has achieved in fulfilling its installation obligation. Orion provides the progress certifications to the financial institution one month inarrears.62 The total amount received from the sales of these receivables during the twelve months ended March 31, 2019 was $6.9 million. Orion’s losses onthese sales aggregated to $0.3 million for the twelve months ended March 31, 2019 and is included in Interest expense in the Consolidated Statements ofOperations. Practical Expedients and ExemptionsOrion expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within Sales andmarketing expense. There are no other capitalizable costs associated with obtaining contracts with customers.Orion’s performance obligations related to lighting fixtures typically do not exceed nine months in duration. As a result, Orion has elected thepractical expedient that provides an exemption to the disclosure requirements regarding information about value assigned to remaining performanceobligations on contracts that have original expected durations of one year or less.Orion has also adopted the practical expedient that provides an exemption to the disclosure requirement of the value assigned to performanceobligations associated with contracts that were not complete as of April 1, 2018.Orion also elected the practical expedient that permits companies to not disclose quantitative information about the future revenue when revenue isrecognized as invoices are issued to customers for services performed.Other than the turnkey projects which result in sales-type leases discussed above, Orion generally receives full payment for satisfied performanceobligations in less than one year. Accordingly, Orion does not adjust revenues for the impact of any potential significant financing component as permittedby the practical expedients provided in ASC 606. Contract BalancesA receivable is recognized when Orion has an enforceable right to payment in accordance with contract terms and an invoice has been issued to thecustomer. Payment terms on invoiced amounts are typically 30 days from the invoice date.Revenue earned but not billed represents revenue that has been recognized in advance of billing the customer, which is a common practice in Orionturnkey contracts. Once Orion has an unconditional right to consideration under a turnkey contract, Orion typically bills the customer accordingly andreclassifies the amount to Accounts receivable, net. Revenue earned but not billed as of March 31, 2019 and April 1, 2018 includes $0.7 million and $0.6million, respectively, which was not derived from contracts with customers and therefore not classified as a contract asset as defined by the new standards.Deferred revenue, current as of March 31, 2019, included $48 thousand of contract liabilities which represented consideration received from customersprior to the point that Orion has fulfilled the promises included in a performance obligation and recorded revenue.Deferred revenue, long-term consists of the unamortized portion of the funds received from the federal government in 2010 and 2011 as reimbursementfor the costs to build the two facilities related to the PPAs. As the transaction is not considered a contract with a customer, this value is not a contract liabilityas defined by the new standards.The following chart shows the balance of Orion’s receivables arising from contracts with customers, contract assets and contract liabilities as of March31, 2019, and April 1, 2018, after the adoption of the new standards (dollars in thousands): March 31, 2019 April 1, 2018 Accounts receivable, net $14,804 $9,020 Contract assets $3,005 $1,773 Contract liabilities $48 $13 There were no significant changes in the contract assets outside of standard reclassifications to Accounts receivable, net upon billing. There were nosignificant changes to contract liabilities.63 Impact on Financial Statements (in thousands) As ReportedMarch 31,2019 Adjustments Balanceswithoutapplication ofASC 606As of March 31,2019 Assets Cash and cash equivalents $8,729 $— $8,729 Accounts receivable, net 14,804 (67) 14,737 Revenue earned but not billed 3,746 (3,746) — Inventories, net 13,403 (351) 13,052 Deferred contract costs 0 396 396 Prepaid expenses and other current assets 695 3,419 4,114 Total current assets 41,377 (349) 41,028 Property and equipment, net 12,010 — 12,010 Other intangible assets, net 2,469 — 2,469 Other long-term assets 165 — 165 Total assets $56,021 $(349) $55,672 Liabilities and Shareholders’ Equity Accounts payable $19,706 $987 $20,693 Accrued expenses and other 7,410 (1,193) 6,217 Deferred revenue, current 123 51 174 Current maturities of long-term debt 96 — 96 Total current liabilities 27,335 (155) 27,180 Revolving credit facility 9,202 — 9,202 Long-term debt, less current maturities 81 — 81 Deferred revenue, long-term 791 104 895 Other long-term liabilities 642 (104) 538 Total liabilities 38,051 (155) 37,896 Commitments and contingencies Shareholders’ equity: Preferred stock — — — Common stock — — — Additional paid-in capital 155,828 — 155,828 Treasury stock (36,091) — (36,091)Retained deficit (101,767) (194) (101,961)Total shareholders’ equity 17,970 (194) 17,776 Total liabilities and shareholders’ equity $56,021 $(349) $55,672 64 Year Ended March 31, 2019 (in thousands) As Reported Adjustments Balanceswithoutapplication ofASC 606 Product revenue $56,261 $2,191 $58,452 Service revenue 9,493 (2,143) 7,350 Total revenue 65,754 48 65,802 Cost of product revenue 44,111 1 44,112 Cost of service revenue 7,091 (1,472) 5,619 Total cost of revenue 51,202 (1,471) 49,731 Gross profit 14,552 1,519 16,071 Operating expenses: General and administrative 10,231 — 10,231 Sales and marketing 9,104 1,459 10,563 Research and development 1,374 — 1,374 Total operating expenses 20,709 1,459 22,168 Loss from operations (6,157) 60 (6,097)Other income (expense): Other income 80 — 80 Interest expense (493) 19 (474)Amortization of debt issue costs (101) (101)Interest income 11 — 11 Total other expense (503) 19 (484)Loss before income tax (6,660) 79 (6,581)Income tax expense 14 — 14 Net loss $(6,674) $79 $(6,595) 65 Year Ended March 31, 2019 (in thousands) As Reported Adjustments Balanceswithoutapplication ofASC 606 Operating activities Net loss $(6,674) $79 $(6,595)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,339 — 1,339 Amortization of intangible assets 444 — 444 Stock-based compensation 825 — 825 Amortization of debt issue costs 101 — 101 Provision for inventory reserves (202) — (202)Provision for bad debts 56 — 56 Other 57 — 57 Changes in operating assets and liabilities: Accounts receivable (5,840) (217) (6,057)Revenue earned but not billed (1,390) 1,390 — Inventories (4,689) (335) (5,024)Deferred contract costs 0 599 599 Prepaid expenses and other assets 68 (1,512) (1,444)Accounts payable 8,916 102 9,018 Accrued expenses and other 1,975 84 2,059 Deferred revenue, current and long-term (44) (190) (234)Net cash used in operating activities (5,058) — (5,058)Investing activities Purchases of property and equipment (381) — (381)Additions to patents and licenses (68) — (68)Net cash used in investing activities (449) — (449)Financing activities Payment of long-term debt (80) — (80)Proceeds from revolving credit facility 60,270 — 60,270 Payment of revolving credit facility (54,976) — (54,976)Payments to settle employee tax withholdings on stock-based compensation (10) — (10)Debt issue costs (396) — (396)Net proceeds from employee equity exercises 4 — 4 Net cash used in financing activities 4,812 — 4,812 Net decrease in cash and cash equivalents (695) — (695)Cash and cash equivalents at beginning of period 9,424 — 9,424 Cash and cash equivalents at end of period $8,729 $— $8,729 66 NOTE 4 — ACCOUNTS RECEIVABLEOrion’s accounts receivable are due from companies in the commercial, governmental, 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 ofcertain trade accounts receivable from wholesalers is secured by irrevocable standby letters of credit and/or guarantees. Accounts receivable are generallydue within 30-60 days. Accounts receivable are stated at the amount Orion expects to collect from outstanding balances. Orion provides for probableuncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based on its assessment of the current status ofindividual accounts. Balances that are still outstanding after Orion has used reasonable collection efforts are written off through a charge to the allowance fordoubtful accounts and a credit to accounts receivable. Orion's accounts receivable and allowance for doubtful accounts balances were as follows (dollars inthousands): 2019 2018 Accounts receivable, gross $15,011 $8,886 Allowance for doubtful accounts (207) (150)Accounts receivable, net $14,804 $8,736 NOTE 5 — INVENTORIESInventories consist of raw materials and components, such as drivers, metal sheet and coil stock and molded parts; work in process inventories, such asframes and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories are stated at the lower of cost or netrealizable value with cost determined using the first-in, first-out (FIFO) method. Orion reduces the carrying value of its inventories for differences between thecost and estimated net realizable value, taking into consideration usage in the preceding 9 to 12 months, expected demand, and other information indicatingobsolescence. Orion records, as a charge to cost of product revenue, the amount required to reduce the carrying value of inventory to net realizable value. Asof March 31, 2019 and 2018, Orion's inventory balances were as follows (dollars in thousands): Cost Excess andObsolescenceReserve Net As of March 31, 2019 Raw materials and components $9,161 $(1,393) $7,768 Work in process 1,010 (269) 741 Finished goods 6,056 (1,162) 4,894 Total $16,227 $(2,824) $13,403 As of March 31, 2018 Raw materials and components $6,073 $(1,363) $4,710 Work in process 1,190 (263) 927 Finished goods 3,934 (1,745) 2,189 Total $11,197 $(3,371) $7,826 Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and receiving costs, are alsoincluded in cost of product revenue.67 NOTE 6 — PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consist primarily of prepaid insurance premiums, prepaid license fees, purchase deposits, advance paymentsto contractors, unbilled receivables, and prepaid taxes. Prepaid expenses and other current assets include the following (dollars in thousands): March 31, 2019 March 31, 2018 Unbilled accounts receivable (1) $— $1,910 Other prepaid expenses 695 557 Total $695 $2,467 (1)As of April 1, 2018, in conjunction with the adoption of ASC 606, the balance of Unbilled accounts receivable was included in Revenue earned butnot billed on the Consolidated Balance Sheets.NOTE 7 — PROPERTY AND EQUIPMENTProperty and equipment are stated at cost. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs,which do not improve or extend the lives of the respective assets, are expensed as incurred. Properties and equipment sold, or otherwise disposed of, areremoved from the property and equipment accounts, with gains or losses on disposal credited or charged to income from operations.Orion periodically reviews the carrying values of property and equipment for impairment in accordance with ASC 360, Property, Plant and Equipment,if events or changes in circumstances indicate that the assets may be impaired. The estimated future undiscounted cash flows expected to result from the useof the assets and their eventual disposition are compared to the assets' carrying amount to determine if a write down to market value is required.As of September 30, 2018, a triggering event occurred requiring Orion to evaluate its long-lived assets for impairment. Due to the central nature of itsoperations, Orion’s tangible and intangible definite-lived assets support its full operations, are utilized by all three of its reportable segments, and do notgenerate separately identifiable cash flows. As such, these assets together represent a single asset group. In reviewing the asset group for impairment, Orionelected to bypass the qualitative impairment assessment and went directly to performing the Step 1 recoverability test. Orion performed the Step 1recoverability test for the asset group comparing its carrying value to the group’s expected future undiscounted cash flows. Orion concluded that theundiscounted cash flows of the long lived asset group exceeded its carrying value. As such the asset group was deemed recoverable and no impairment wasrecorded.Property and equipment were comprised of the following (dollars in thousands): March 31, 2019 March 31, 2018 Land and land improvements $433 $424 Buildings and building improvements 9,245 9,245 Furniture, fixtures and office equipment 7,238 7,096 Leasehold improvements 324 324 Equipment leased to customers 4,997 4,997 Plant equipment 12,211 12,106 Construction in progress 43 — 34,491 34,192 Less: accumulated depreciation and amortization (22,481) (21,298)Net property and equipment $12,010 $12,894 Equipment included above under capital leases was as follows (dollars in thousands): March 31, 2019 March 31, 2018 Equipment $581 $581 Less: accumulated depreciation and amortization (486) (344)Net equipment $95 $237 68 Depreciation is recognized over the estimated useful lives of the respective assets, using the straight-line method. Orion recorded depreciation expenseof $1.3 million, $1.4 million and $1.5 million for the years ended March 31, 2019, 2018 and 2017, respectively.Depreciable lives by asset category are as follows: Land improvements 10-15 yearsBuildings and building improvements 10-39 yearsFurniture, fixtures and office equipment 2-10 yearsLeasehold improvements Shorter of asset life or life of leaseEquipment leased to customers under Power Purchase Agreements 20 yearsPlant equipment 3-10 years No interest was capitalized for construction in progress during fiscal 2019 or fiscal 2018.NOTE 8 — OTHER INTANGIBLE ASSETSThe costs of specifically identifiable intangible assets that do not have an indefinite life are amortized over their estimated useful lives. Intangibleassets with indefinite lives are not amortized.Amortizable intangible assets are amortized over their estimated economic useful life to reflect the pattern of economic benefits consumed based uponthe following lives and methods: Patents 10-17 years Straight-lineLicenses 7-13 years Straight-lineCustomer relationships 5-8 years Accelerated based upon the pattern of economic benefitsconsumedDeveloped technology 8 years Accelerated based upon the pattern of economic benefitsconsumedNon-competition agreements 5 years Straight-line Intangible assets that have a definite life are evaluated for potential impairment whenever events or circumstances indicate that the carrying value maynot be recoverable based primarily upon whether expected future undiscounted cash flows are sufficient to support the asset recovery. If the actual useful lifeof the asset is shorter than the estimated life, the asset may be deemed to be impaired and accordingly a write-down of the value of the asset determined by adiscounted cash flow analysis or shorter amortization period may be required.Indefinite lived intangible assets are evaluated for impairment at least annually on the first day of Orion’s fiscal fourth quarter, or when indications ofpotential impairment exist. This annual impairment review may begin with a qualitative test to determine whether it is more likely than not that an indefinitelived intangible asset's carrying value is greater than its fair value. If the qualitative assessment reveals that asset impairment is more likely than not, aquantitative impairment test is performed comparing the fair value of the indefinite lived intangible asset to its carrying value. Alternatively, the qualitativetest may be bypassed and the quantitative impairment test may be immediately performed. If the fair value of the indefinite lived intangible asset exceeds itscarrying value, the indefinite lived intangible asset is not impaired and no further review is performed. If the carrying value of the indefinite lived intangibleasset exceeds its fair value, an impairment loss would be recognized in an amount equal to such excess. Once an impairment loss is recognized, the adjustedcarrying value becomes the new accounting basis of the indefinite lived intangible asset.Orion performed a qualitative assessment in conjunction with its annual impairment test of its indefinite lived intangible assets as of January 1, 2019.This qualitative assessment considered Orion’s operating results for the first nine months of fiscal 2019 in comparison to prior years as well as its anticipatedfourth quarter results and fiscal 2019 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be morelikely than not and a quantitative analysis was not required.69 During the second quarter of fiscal 2018, as a result of lower than anticipated operating results in the first half of fiscal 2018, Orion revised its full yearfiscal 2018 forecast. As such, a triggering event occurred as of September 30, 2017, requiring Orion to evaluate its long-lived assets for impairment. Orionperformed a quantitative impairment review of its indefinite lived intangible assets related to the Harris trade name applying the royalty replacement methodto determine the asset’s fair value as of September 30, 2017. Under the royalty replacement method, the fair value of the Harris tradename was determinedbased on a market participant’s view of the royalty that would be paid to license the right to use the tradename. This quantitative analysis incorporatedseveral assumptions including forecasted future revenues and cash flows, estimated royalty rate, based on similar licensing transactions and market royaltyrates, and discount rate, which incorporates assumptions such as weighted-average cost of capital and risk premium. As a result of this impairment test, thecarrying value of the Harris trade name exceeded its estimated fair value and an impairment of $0.7 million was recorded to Impairment of intangible assetsduring the quarter ended September 30, 2017 to reduce the asset’s carrying value to its calculated fair value. This fair value determination was categorized asLevel 3 in the fair value hierarchy.During the fourth quarter of fiscal 2017, Orion achieved lower than anticipated operating results, made a strategic shift in its manufacturing strategyand approach to the fluorescent and LED exterior lighting market, and revised its fiscal 2018 forecast. As a result, a triggering event occurred requiring theCompany to reassess its indefinite lived intangible assets for impairment. As such Orion performed a quantitative impairment review of its indefinite livedintangible assets related to the Harris trade name applying the royalty replacement method to determine the asset’s fair value as of March 31, 2017. Under theroyalty replacement method, the fair value of the Harris tradename was determined based on a market participant’s view of the royalty that would be paid tolicense the right to use the tradename. This quantitative analysis incorporated several assumptions including forecasted future revenues and cash flows,estimated royalty rate, based on similar licensing transactions and market royalty rates, and discount rate, which incorporates assumptions such as weighted-average cost of capital and risk premium. As a result of this impairment test, the carrying value of the Harris trade name exceeded its estimated fair value andan impairment of $0.3 million was recorded to Impairment of assets during the fourth quarter of fiscal 2017 to reduce the asset’s carrying value to itscalculated fair value. This fair value determination was categorized as Level 3 in the fair value hierarchy (see “Fair Value of Financial Instruments” for thedefinition of Level 3 inputs).The components of, and changes in, the carrying amount of other intangible assets were as follows (dollars in thousands): March 31, 2019 March 31, 2018 GrossCarryingAmount AccumulatedAmortization Net GrossCarryingAmount AccumulatedAmortization Net Patents $2,667 $(1,529) $1,138 $2,636 $(1,370) $1,266 Licenses 58 (58) — 58 (58) — Trade name and trademarks 1,007 — 1,007 1,005 — 1,005 Customer relationships 3,600 (3,459) 141 3,600 (3,326) 274 Developed technology 900 (717) 183 900 (582) 318 Non-competition agreements — — — 100 (95) 5 Total $8,232 $(5,763) $2,469 $8,299 $(5,431) $2,868 As of March 31, 2019, the weighted average useful life of intangible assets was 5.04 years. The estimated amortization expense for each of the nextfive years is shown below (dollars in thousands): Fiscal 2020 $363 Fiscal 2021 288 Fiscal 2022 191 Fiscal 2023 100 Fiscal 2024 96 Thereafter 424 $1,462 70 Amortization expense is set forth in the following table (dollars in thousands): Fiscal Year Ended March 31, 2019 2018 2017 Amortization included in cost of sales: Patents $171 $159 $158 Total $171 $159 $158 Amortization included in operating expenses: Customer relationships $133 $272 $542 Developed technology 135 156 161 Non-competition agreements 5 20 20 Patents — — — Total 273 448 723 Total amortization of intangible assets $444 $607 $881 Orion’s management periodically reviews the carrying value of patent applications and related costs. When a patent application is probable of beingunsuccessful or a patent is no longer in use, Orion writes off the remaining carrying value as a charge to general and administrative expense within itsConsolidated Statement of Operations. In fiscal years 2019, 2018, and 2017, write-offs were immaterial.Included in other income are product royalties received from licensing agreements for our patents. NOTE 9 — ACCRUED EXPENSES AND OTHERAs of March 31, 2019 and March 31, 2018, Accrued expenses and other included the following (dollars in thousands): March 31, 2019 March 31, 2018 Compensation and benefits $1,212 $1,786 Sales tax 713 237 Contract costs 3,293 985 Legal and professional fees 356 400 Warranty 282 402 Sales returns reserve (1) 141 — Credits due to customers (1) 987 — Other accruals 426 361 Total $7,410 $4,171 (1)Sales returns reserve was previously classified in Accounts receivable, net and Credits due to customers was previously classified in Accountspayable. As of April 1, 2018, in conjunction with the adoption of ASC 606, these balances are now included in Accrued expenses and other on theConsolidated Balance Sheets. Orion generally offers a limited warranty of one to ten years on its lighting products including the pass through of standard warranties offered by majororiginal equipment component manufacturers. The manufacturers’ warranties cover lamps, ballasts, LED modules, LED chips, LED drivers, control devices,and other fixture related items, which are significant components in Orion's lighting products.Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands): March 31, 2019 2018 Beginning of year $673 $759 Reclassification on adoption of ASC 606 73 — Accruals 158 43 Warranty claims (net of vendor reimbursements) (247) (129)Ending balance $657 $67371 NOTE 10 — NET LOSS PER COMMON SHAREBasic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted-average number of commonshares outstanding for the period and does not consider common stock equivalents.Diluted net loss per common share reflects the dilution that would occur if stock options were exercised and restricted shares vested. In thecomputation of diluted net loss per common share, Orion uses the treasury stock method for outstanding options, warrants and restricted shares. Diluted netloss per common share is the same as basic net loss per common share for the years ended March 31, 2019, March 31, 2018 and March 31, 2017 because theeffects of potentially dilutive securities would be anti-dilutive. The effect of net loss per common share is calculated based upon the following shares: Fiscal Year Ended March 31, 2019 2018 2017 Numerator: Net loss (dollars in thousands) $(6,674) $(13,128) $(12,288)Denominator: Weighted-average common shares outstanding 29,429,540 28,783,830 28,156,382 Weighted-average common shares and share equivalents outstanding 29,429,540 28,783,830 28,156,382 Net loss per common share: Basic $(0.23) $(0.46) $(0.44)Diluted $(0.23) $(0.46) $(0.44) The following table indicates the number of potentially dilutive securities as of the end of each period: March 31, 2019 2018 2017 Common stock options 467,836 629,667 1,520,953 Restricted shares 1,312,593 1,485,799 1,704,543 Total 1,780,429 2,115,466 3,225,496 NOTE 11 — LONG-TERM DEBTLong-term debt as of March 31, 2019 and 2018 consisted of the following (dollars in thousands): March 31, 2019 2018 Revolving credit facility $9,202 $3,908 Equipment debt obligations 177 184 Total long-term debt 9,379 4,092 Less current maturities (96) (79)Long-term debt, less current maturities $9,283 $4,013 72 Revolving Credit AgreementOn October 26, 2018, Orion and its subsidiaries entered into a new secured revolving Business Financing Agreement with Western Alliance Bank, aslender (the “New Credit Agreement”). The New Credit Agreement replaced Orion’s prior Credit Agreement.The New Credit Agreement provides for a two-year revolving credit facility (the “New Credit Facility”) that matures on October 26, 2020. Borrowingsunder the New Credit Facility are initially limited to $20.15 million, subject to a borrowing base requirement based on eligible receivables andinventory. The New Credit Agreement includes a $2.0 million sublimit for the issuance of letters of credit. As of March 31, 2019, Orion’s borrowing base was$10.6 million, and Orion had $9.2 million in borrowings outstanding which were included in non-current liabilities in the accompanying ConsolidatedBalance Sheets. Orion had no outstanding letters of credit leaving additional borrowing availability of $1.4 million. The New Credit Agreement is secured by a security interest in substantially all of Orion's and its subsidiaries’ personal property.Borrowings under the New Credit Agreement generally bear interest at floating rates based upon the prime rate (but not be less than 5.00% per year)plus an applicable margin determined by reference to Orion’s quick ratio (defined as the aggregate amount of unrestricted cash, unrestricted marketablesecurities and, with certain adjustments, receivables convertible into cash divided by total current liabilities, including the obligations under the New CreditAgreement). As of March 31, 2019, the interest rate was 6.0%. Among other fees, Orion is required to pay an annual facility fee equal to 0.45% of the creditlimit under the New Credit Agreement, which was paid at commencement (October 26, 2018) and is due on each anniversary thereof. With certainexceptions, if the New Credit Agreement is terminated prior to the first anniversary of the closing date of the New Credit Agreement, Orion is required to paya termination fee equal to 0.50% of the credit limit under the New Credit Agreement.The New Credit Agreement requires Orion to maintain nine months’ of “RML” as of the end of each month. For purposes of the New CreditAgreement, RML is defined as, as of the applicable determination date, unrestricted cash on deposit with Western Alliance Bank plus availability under theNew Credit Agreement divided by an amount equal to, for the applicable trailing three-month period, consolidated net profit before tax, plus depreciationexpense, amortization expense and stock-based compensation, minus capital lease principal payments, tested as of the end of each month.The New Credit Agreement also contains customary events of default and other covenants, including certain restrictions on Orion’s ability to incuradditional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on Orion’s stock, redeem, retire or purchase shares ofOrion’s stock, make investments or pledge or transfer assets. If an event of default under the New Credit Agreement occurs and is continuing, then WesternAlliance Bank may cease making advances under the New Credit Agreement and declare any outstanding obligations under the New Credit Agreement to beimmediately due and payable. In addition, if Orion becomes the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, thenany outstanding obligations under the New Credit Agreement will automatically become immediately due and payable. As of March 31, 2019, Orion was incompliance with all covenants under the New Credit Agreement.The prior Credit Agreement (“Prior Credit Agreement”) with Wells Fargo Bank, NA, as lender, provided for a revolving credit facility ("Prior CreditFacility") subject to a borrowing base requirement based on eligible receivables and inventory. Subject in each case to Orion's applicable borrowing baselimitations, the Prior Credit Agreement otherwise provided for a $15.0 million Prior Credit Facility.The Prior Credit Agreement contained additional customary covenants, including certain restrictions on Orion’s ability to incur additionalindebtedness, consolidate or merge, enter into acquisitions, guarantee obligations of third parties, make loans or advances, declare or pay any dividend ordistribution on Orion’s stock, redeem or repurchase shares of Orion’s stock, or pledge or dispose of assets.Each subsidiary of Orion was a joint and several co-borrower or guarantor under the Prior Credit Agreement, and the Prior Credit Agreement wassecured by a security interest in substantially all of Orion’s and each subsidiary’s personal property (excluding various assets relating to customer OrionThroughput Agreements ("OTAs") and a mortgage on certain real property.73 Borrowings under the Prior Credit Agreement bore interest at the daily three-month LIBOR plus 3.0% per annum, with a minimum interest charge foreach year or portion of a year during the term of the Credit Agreement of $0.1 million, regardless of usage. Orion was required to pay an unused line fee of0.25% per annum of the daily average unused amount of the Prior Credit Facility and a letter of credit fee at the rate of 3.0% per annum on the undrawnamount of letters of credit outstanding from time to time under the Prior Credit Facility.Equipment Debt ObligationIn June 2015, Orion entered into an agreement with a financing company in the principal amount of $ $0.4 million to fund the purchase of certainequipment. The debt is secured by the related equipment. The debt bears interest at a rate of 5.94% and matures in June 2020. In February 2019, Orion entered into additional debt agreements with a financing company in the principal amount of $44 thousand and $30 thousandfund certain equipment. The debts are secured by the related equipment. The debts bear interest at a rate of 6.43% and 8.77% respectively and both debtsmature in January 2024.Customer Equipment Finance Notes PayableIn December 2014, Orion entered into a secured borrowing agreement with a financing company in the principal amount of $0.4 million to fundcompleted customer contracts under its OTA finance program that were previously funded under a different OTA credit agreement. The loan amount wassecured by the OTA-related equipment and the expected future monthly payments under the supporting 25 individual OTA customer contracts. Theborrowing agreement bore interest at a rate of 8.36% and matured in April 2018.Aggregate MaturitiesAs of March 31, 2019, aggregate maturities of long-term debt were as follows (dollars in thousands): Fiscal 2020 $96 Fiscal 2021 9,238 Fiscal 2022 15 Fiscal 2023 16 Fiscal 2024 14 $9,379 NOTE 12 — INCOME TAXESThe total provision (benefit) for income taxes consists of the following for the fiscal years ended (dollars in thousands): Fiscal Year Ended March 31, 2019 2018 2017 Current $(5) $4 $(261)Deferred 19 (19) — Total $14 $(15) $(261) 2019 2018 2017 Federal $3 $(28) $(283)State 11 13 22 Total $14 $(15) $(261) 74 A reconciliation of the statutory federal income tax rate and effective income tax rate is as follows: Fiscal Year Ended March 31, 2019 2018 2017 Statutory federal tax rate 21.0% 30.8% 34.0%State taxes, net 5.6% 2.2% 3.5%Federal tax credit (0.3)% (0.3)% —%Change in valuation reserve (23.8)% 51.4% (37.6)%Permanent items (1.1)% (1.4)% (0.5)%Change in tax contingency reserve —% (0.1)% 1.0%Federal refunds 0.3% 0.3% 1.4%U.S. tax reform, corporate rate reduction —% (75.2)% —%Equity compensation cancellations (1.0)% (15.7)% —%Federal loss, ASU 2016-09 —% 7.7% —%Other, net (0.9)% 0.4% 0.3%Effective income tax rate (0.2)% 0.1% 2.1% The net deferred tax assets and liabilities reported in the accompanying consolidated financial statements include the following components (dollarsin thousands): March 31, 2019 2018 Inventory, accruals and reserves 1,118 1,316 Interest deduction carry-forward 127 — Federal and state operating loss carry-forwards 22,909 21,333 Tax credit carry-forwards 1,921 1,939 Equity compensation 288 402 Deferred revenue (90) (81)Fixed assets (781) (878)Intangible assets (300) (363)Other 194 154 Valuation allowance (25,386) (23,803)Total net deferred tax assets $— $19 The Tax Cut and Jobs Act ("Act") was enacted December 22, 2017. The Act significantly changes U.S tax law by, among other things, reducing theU.S. federal corporate tax rate from 35% to 21%, imposing a one-time transition tax on earnings of certain foreign subsidiaries that were previously taxdeferred, and creating new taxes on certain foreign sourced earnings. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address accounting for income tax effects of the TaxReform Act. At March 31, 2018, Orion had not completed its accounting for the tax effects of enactment of the Act; however, as described below, Orion hadmade a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.Orion remeasured its deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally the 21% federalcorporate tax rate. The provisional amount recorded related to the remeasurement of its deferred tax balance decreased deferred tax assets by $9.9 million infiscal 2018. Substantially all of this decrease to deferred tax assets was offset by a corresponding decrease to the valuation allowance. There was no impact onthe prior year income tax expense for the federal corporate tax rate change due to Orion's prior year taxable loss.The Act also required companies to pay a one-time transition tax on Orion's total post-1986 earnings and profits ("E&P") of its foreign subsidiary thatwere previously tax deferred from US income taxes. Since Orion's foreign subsidiary had negative E&P, the company estimated there was no transition tax tobe reported in income tax expense. As of December 31, 2018, Orion did not adjust its estimates and considered all changes due to the Act final.75 As of March 31, 2019, Orion has federal net operating loss carryforwards of approximately $88.1 million, and state net operating loss carry-forwards ofapproximately $74.1 million. Upon adoption of ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-BasedPayment Accounting, in the prior fiscal year, the federal and state loss carryforwards associated with historic exercises of NQSOs have been recorded asdeferred tax assets. Orion also has federal tax credit carry-forwards of approximately $1.3 million and state tax credits of $0.8 million. All of Orion's taxcredit carry-forwards and $155.1 million of its net operating loss carry-forwards will begin to expire in varying amounts between 2020 and 2039. Theremaining $7.1 million of its federal and state loss carry-forwards are not subject to time restrictions but may only be used to offset 80% of adjusted taxableincome. Additionally, Orion has approximately $0.5 million of interest expense carry-forward that is not subject to time restrictions but subject to a 30%adjusted taxable income limitation. All of its carry-forwards are offset by a valuation allowanceFor the fiscal year ended March 31, 2019, Orion has recorded a valuation allowance of $25.4 million against its net deferred tax assets due to theuncertainty of its realization value in the future. For the fiscal year ended March 31, 2019, the valuation allowance against Orion's net federal and net statedeferred tax assets increased $1.6 million, primarily due to the current year loss. For the fiscal year ended March 31, 2018, the valuation allowance decreased$6.8 million, primarily because of the reduction in the corporate tax rate. Orion considers future taxable income and ongoing prudent and feasible taxplanning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the deferred tax assets are able to be realized, anadjustment to the deferred tax asset would increase income in the period such determination is made.Generally, a change of more than 50% in the ownership of Orion's stock, by value, over a three-year period constitutes an ownership change for federalincome tax purposes as defined under Section 382 of the Internal Revenue Code. As a result, Orion's ability to use its net operating loss carry-forwards,attributable to the period prior to such ownership change, to offset taxable income can be subject to limitations in a particular year, which could potentiallyresult in increased future tax liability for Orion. There was no limitation of net operating loss carry-forwards that occurred for fiscal 2019, fiscal 2018, orfiscal 2017.Orion records its tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where Orion believes that atax position is supportable for income tax purposes, the item is included in their income tax returns. Where treatment of a position is uncertain, a liability isrecorded based upon the expected most likely outcome taking into consideration the technical merits of the position based on specific tax regulations andfacts of each matter. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute oflimitations.Orion files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company's federal tax returns for taxyears beginning April 1, 2015 or later are open. For states in which Orion files state income tax returns, the statute of limitations is generally open for taxyears ended March 31, 2015 and forward.State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of anyfederal changes remains subject to examination by various states for a period of up to two years after formal notification to the states. Orion currently has nostate income tax return positions in the process of examination, administrative appeals or litigation.Uncertain tax positionsAs of March 31, 2019, the balance of gross unrecognized tax benefits was approximately $0.1 million, all of which would affect Orion’s effective taxrate if recognized.76 Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment isnot anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest areincluded in the unrecognized tax benefits. Orion had the following unrecognized tax benefit activity (dollars in thousands): Fiscal Year Ended March 31, 2019 2018 2017 Unrecognized tax benefits as of beginning of fiscal year $129 $113 $227 Additions based on tax positions related to the current period positions 1 2 2 Additions/(Reductions) for tax positions of prior years — 14 (116)Unrecognized tax benefits as of end of fiscal year $130 $129 $113 NOTE 13 — COMMITMENTS AND CONTINGENCIESOperating LeasesOrion leases office space and equipment under operating leases expiring at various dates through 2021. Rent expense under operating leases was $0.7,$0.9 and $0.9 for fiscal 2019, 2018 and 2017, respectively. Total annual commitments under non-cancelable operating leases with terms in excess of one yearat March 31, 2019 are as follows (dollars in thousands): Fiscal 2020 $506 Fiscal 2021 323 $829 On April 28, 2017, Orion renewed the lease for its Jacksonville, Florida office space for an additional three-year term with annual rent expense ofapproximately $0.1 million.On March 31, 2016, Orion entered into a purchase and sale agreement ("Agreement") with third party to sell and leaseback Orion's manufacturing anddistribution facility for gross cash proceeds of $2.6 million. The transaction closed on June 30, 2016. Pursuant to the Agreement, a lease was entered into onJune 30, 2016, in which Orion is leasing approximately 197,000 square feet of the building for not less than three years, with rent at $2.00 per square foot perannum. Orion's monthly payment under this lease is approximately $33,000. The lease contains options by either party to reduce the amount of leased spaceafter March 1, 2017. On March 22, 2018, both parties agreed to extend the lease until December 31, 2020. Annual rent expense is approximately $0.4million.Purchase CommitmentsOrion enters into non-cancellable purchase commitments for certain inventory items in order to secure better pricing and ensure materials on hand. Asof March 31, 2019, Orion had entered into $13.6 million of purchase commitments related to fiscal 2020 for inventory purchases.Retirement Savings PlanOrion sponsors a tax deferred retirement savings plan that permits eligible employees to contribute varying percentages of their compensation up tothe limit allowed by the Internal Revenue Service. This plan also provides for discretionary contributions by Orion. In fiscal 2019, 2018 and 2017, Orionmade matching contributions of approximately $9 thousand in each of those fiscal years.LitigationOrion is subject to various claims and legal proceedings arising in the ordinary course of business. As of the date of this report, Orion is unable tocurrently assess whether the final resolution of any of such claims or legal proceedings may have a material adverse effect on our future results ofoperations. In addition to ordinary-course litigation, Orion is a party to the proceedings described below.77 On November 10, 2017, a purported shareholder, Stephen Narten, filed a civil lawsuit in the Circuit Court for Manitowoc County against thoseindividuals who served on Orion's board of directors during fiscal years 2015, 2016, and 2017 and certain current and former officers during the sameperiod. The plaintiff, who purported to bring the suit derivatively on behalf of Orion, alleged that the director defendants breached their fiduciary duties inconnection with granting certain stock-based incentive awards under Orion's 2004 Stock and Incentive Awards Plan and that the directors and current andformer officers breached their fiduciary duties by accepting those awards. During the first quarter of fiscal 2019, the parties reached a settlement of the claimsand the case was dismissed. The settlement did not have a material impact on Orion's results of operations, cash flows or financial condition.State Tax AssessmentIn June 2016, Orion negotiated a settlement with the Wisconsin Department of Revenue with respect to an assessment regarding the properclassification of its products for tax purposes under Wisconsin law for $0.5 million.During fiscal year 2018, Orion was notified of a pending sales and use tax audit by the Wisconsin Department of Revenue for the period coveringApril 1, 2013 through March 31, 2017. Although the final resolution of the Company’s sales and use tax audit is uncertain, based on current information, inthe opinion of the Company’s management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidatedbalance sheet, statements of operations, or liquidity.During fiscal 2019, Orion was notified of a pending sales and use tax audit by the California Department of Tax and Fee Administration for the periodcovering April 1, 2015 through March 31, 2018. Although the final resolution of Orion’s sales and use tax audit is uncertain, based on current information, inthe opinion of Orion’s management, the ultimate disposition of these matters will not have a material adverse effect on Orion’s consolidated balance sheets,statement of operations, or liquidity. NOTE 14 — SHAREHOLDERS’ EQUITYShare Repurchase Program and Treasury StockIn October 2011, Orion’s Board of Directors approved a share repurchase program authorizing Orion to repurchase in aggregate up to a maximum of$1,000,000 of Orion’s outstanding common stock. In November 2011, Orion’s Board of Directors approved an increase to the share repurchase programauthorizing Orion to repurchase in aggregate up to a maximum of $2,500,000 of Orion’s outstanding common stock. In April 2012, Orion's Board approvedanother increase to the share repurchase program authorizing Orion to repurchase in aggregate up to a maximum of $7,500,000 of Orion's outstandingcommon stock. As of March 31, 2019, Orion had repurchased 3,022,349 shares of common stock at a cost of $6.8 million under the program. Orion did notrepurchase any shares in fiscal 2019, fiscal 2018 or fiscal 2017 and does not intend to repurchase any additional common stock under this program in thenear-term.In prior years, Orion issued loans to non-executive employees to purchase shares of its stock. The loan program has been discontinued and new loansare no longer issued. As of March 31, 2017, $4 thousand of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equityaccount. During the quarter ended June 30, 2017, Orion entered into agreements with the counterparties to these loans. In exchange for the forgiveness oftheir outstanding loan balance, the employees returned their shares to Orion. As a result of this transaction, 1,230 shares were recorded within treasury stockand the loan balances have been eliminated.Shareholder Rights PlanOn January 3, 2019, Orion entered into Amendment No. 1 to the Rights Agreement, which amends the Rights Agreement dated as of January 7,2009. Under the amendment, each common share purchase right, if exercisable, will initially represent the right to purchase from Orion, one share of Orion’scommon stock, no par value per share, for a purchase price of $7.00 per share.The Rights will not be exercisable (and will be transferable only with Orion’s common stock) until a “Distribution Date” occurs (or the Rights areearlier redeemed or expire). A Distribution Date generally will occur on the earlier of a public announcement that a person or group of affiliated or associatedpersons (Acquiring Person) has acquired beneficial ownership of 20% or more of Orion’s outstanding common stock (Shares Acquisition Date) or 10 businessdays after the commencement of, or the announcement of an78 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 receivethat number of shares of Orion’s common stock having a market value of two times the then-current Purchase Price, and all Rights beneficially owned by anAcquiring Person, or by certain related parties or transferees, will be null and void. If, after a Shares Acquisition Date, Orion is acquired in a merger or otherbusiness 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 aRight (except as otherwise provided in the shareholder rights plan) will thereafter have the right to receive that number of shares of the acquiring company’scommon stock which at the time of such transaction will have a market value of two times the then-current Purchase Price.Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of Orion. At any time prior to a person becoming anAcquiring Person, the Board of Directors of Orion may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. Unless they are extended orearlier redeemed or exchanged, the Rights will expire on January 7, 2022.Employee Stock Purchase PlanIn August 2010, Orion’s Board of Directors approved a non-compensatory employee stock purchase plan, or ESPP. The ESPP authorizes 2,500,000shares to be issued from treasury or authorized shares to satisfy employee share purchases under the ESPP. All full-time employees of Orion are eligible to begranted a non-transferable purchase right each calendar quarter to purchase directly from Orion up to $20,000 of Orion’s common stock at a purchase priceequal to 100% of the closing sale price of Orion’s common stock on The NASDAQ Capital Market on the last trading day of each quarter. In prior years,Orion issued loans to non-executive employees to purchase shares of its stock. The loan program has been discontinued and new loans are no longerissued. Orion had the following shares issued from treasury during fiscal 2019 and fiscal 2018: As of March 31, 2019 Shares IssuedUnder ESPPPlan Closing MarketPrice Shares IssuedUnder LoanProgram Dollar Value ofLoans Issued Settlement ofLoans Quarter Ended March 31, 2019 1,581 $ 0.89 — $— $— Quarter Ended December 31, 2018 1,708 $ 0.57 — — — Quarter Ended September 30, 2018 938 $ 0.96 — — — Quarter Ended June 30, 2018 415 $ 1.10 — — — Total 4,642 $0.57 - 1.10 — — — As of March 31, 2018 Shares IssuedUnder ESPPPlan Closing MarketPrice Shares IssuedUnder LoanProgram Dollar Value ofLoans Issued Settlement ofLoans Quarter Ended March 31, 2018 1,780 $ 0.85 — $— $— Quarter Ended December 31, 2017 3,446 $ 0.88 — — — Quarter Ended September 30, 2017 2,681 $ 1.12 — — — Quarter Ended June 30, 2017 2,150 $ 1.28 — — 4,000 Total 10,057 $0.85 - 1.28 — — $4,000 As of March 31, 2017, $4 thousand of such loans remained outstanding and were reflected on Orion’s balance sheet as a contra-equity account. Duringfiscal 2018, Orion entered into agreements with the counterparties to these loans. In exchange for the forgiveness of their outstanding loan balance, theemployees returned their shares to Orion. As a result of these transactions, 1,230 shares were recorded within treasury stock and the loan balances wereeliminated.NOTE 15 — STOCK OPTIONS AND RESTRICTED SHARESAt Orion's 2016 Annual Meeting of Shareholders held on August 3, 2016, Orion's shareholders approved the Orion Energy Systems, Inc. 2016Omnibus Incentive Plan (the "Plan"). The Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan'sadministrator. Awards under the Plan may consist of stock options, stock appreciation79 rights, performance shares, performance units, shares of Orion's common stock ("Common Stock"), restricted stock, restricted stock units, incentive awards ordividend equivalent units. An aggregate of 1,750,000 shares of Common Stock are reserved for issuance under the Plan. As of March 31, 2019, the number ofshares available for grant under the plans were 107,860.Prior to shareholder approval of the Plan, the Company maintained its 2004 Stock and Incentive Awards Plan, as amended, which authorized the grantof cash and equity awards to employees (the “Former Plan”). No new awards will be granted under the Former Plan, however, all awards granted under theFormer Plan that were outstanding as of August 3, 2016 will continue to be governed by the Former Plan. Forfeited awards originally issued under the FormerPlan are canceled and are not available for subsequent issuance under the 2016 Omnibus Plan.Certain non-employee directors have elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program. The Plan and the Former Plan also permit accelerated vesting in the event of certain changes of control of Orion aswell as under other special circumstances.Orion historically granted stock options and restricted stock under the Former Plan. Orion has not issued stock options since fiscal 2014 and insteadhas issued restricted stock.Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognitionprovisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably overthe requisite service period.In fiscal 2019, an aggregate of 529,000 restricted shares were granted valued at a price per share between $0.84 and $1.00, which was the closingmarket price as of each grant date. In fiscal 2018, an aggregate of 730,410 restricted shares were granted valued at a price per share between $0.88 and $1.95,which was the closing market price as of each grant date. In fiscal 2017, an aggregate of 1,132,392 restricted shares were granted valued at a price per sharebetween $1.35 and $2.22, which was the closing market price as of each grant date.In fiscal 2018, Orion granted 24,747 shares from the 2004 Stock and Incentive Awards Plan and the 2016 Omnibus Incentive Plan to certain non-employee directors who elected to receive stock awards in lieu of cash compensation. The shares were valued ranging from $0.80 to $1.28 per share, theclosing market price as of the issuance dates. In fiscal 2017, Orion granted 53,501 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 $1.38 to $1.85 per share, theclosing market price as of the issuance dates. On June 7, 2016, Orion issued and sold 57,065 shares of its common stock to an executive. On August 5, 2016, Orion sold an aggregate of 63,381shares of its common stock, in equal amounts, to three recently retired members of Orion's board of directors. In each case above, the purchase price for theshares was calculated based on the closing price of Orion's common stock on the NASDAQ Capital Market of the date of the issuance. The shares of commonstock were offered and sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)and Rule 701.The following amounts of stock-based compensation expense for restricted shares and options were recorded (dollars in thousands): Fiscal Year Ended March 31, 2019 2018 2017 Cost of product revenue $2 $12 $30 Cost of service revenue 3 — — General and administrative 764 929 1,337 Sales and marketing 54 155 139 Research and development 2 6 99 $825 $1,102 $1,605 80 The following table summarizes information with respect to outstanding stock options: Number ofShares WeightedAverageExercisePrice Outstanding at March 31, 2016 2,017,046 $3.32 Granted — $— Exercised (80,000) $2.20 Forfeited (416,093) $3.41 Outstanding at March 31, 2017 1,520,953 $3.36 Granted — $— Exercised — $— Forfeited (891,286) $3.51 Outstanding at March 31, 2018 629,667 $3.14 Granted — $— Exercised — $— Forfeited (161,831) $3.61 Outstanding at March 31, 2019 467,836 $2.98 Exercisable at March 31, 2019 463,836 The aggregate intrinsic value represents the total pre-tax intrinsic value, which is calculated as the difference between the exercise price of theunderlying stock options and the fair value of Orion’s closing common stock price of $0.89 as of March 31, 2019.The following table summarizes the range of exercise prices on outstanding stock options at March 31, 2019: March 31, 2019 Outstanding WeightedAverageRemainingContractualLife (Years) WeightedAverageExercisePrice Vested WeightedAverageExercisePrice $1.62 - 2.20 143,292 3.51 $1.90 143,292 $1.90 $2.41 - 2.75 100,936 3.91 2.48 100,936 2.48 $2.86 - 4.28 194,308 1.51 3.68 190,308 3.68 $4.49 - 4.76 5,000 0.84 4.70 5,000 4.70 $5.35 - 5.44 24,300 0.85 5.44 24,300 5.44 467,836 2.60 $2.98 463,836 $2.97 During fiscal 2019, Orion recognized $5,365 of stock-based compensation expense related to stock options.During fiscal 2019, Orion granted restricted shares as follows: Balance at March 31, 2018 1,485,799 Shares issued 529,000 Shares vested (653,394)Shares forfeited (48,812)Shares outstanding at March 31, 2019 1,312,593 Per share price on grant date $0.84 - 1.00 During fiscal 2019, Orion recognized $0.8 million of stock-based compensation expense related to restricted shares.As of March 31, 2019, the weighted average grant-date fair value of restricted shares granted was $0.84.81 Unrecognized compensation cost related to non-vested common stock-based compensation as of March 31, 2019 is expected to be recognized asfollows (dollars in thousands): Fiscal 2020 $535 Fiscal 2021 239 Fiscal 2022 40 Fiscal 2023 2 Fiscal 2024 — Thereafter — $816 Remaining weighted average expected term 1.7 years NOTE 16 — SEGMENT DATAOrion has the following business segments: Orion Engineered Services Division (“OES”), Orion Distribution Services Division (“ODS”), and OrionU.S. Markets Division (“USM”). The accounting policies are the same for each business segment as they are on a consolidated basis.Orion Engineered Systems Division (“OES”)The OES segment develops and sells lighting products and provides construction and engineering services for Orion's commercial lighting and energymanagement systems. OES provides turnkey solutions for large national accounts, governments, municipalities and schools.Orion Distribution Services Division (“ODS”)The ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of broadline North Americandistributors. Orion U.S. Markets Division (“USM”)The USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers areprimarily comprised of ESCOs. Corporate and OtherCorporate and Other is comprised of operating expenses not directly allocated to Orion’s segments and adjustments to reconcile to consolidatedresults (dollars in thousands). Revenues Operating Loss For the year ended March 31, For the year ended March 31, (dollars in thousands) 2019 2018 2017 2019 2018 2017 Segments: Engineered Systems $30,925 $23,827 $29,501 $(1,237) $(3,792) $(3,647)Distribution Services 24,173 27,906 22,858 (1,742) (325) (927)U.S. Markets 10,656 8,567 17,852 1,132 (3,123) (1,357)Corporate and Other — — — (4,310) (5,741) (6,596) $65,754 $60,300 $70,211 $(6,157) $(12,981) $(12,527)82 Depreciation and AmortizationFor the year ended March 31, Capital ExpendituresFor the year ended March 31, 2019 2018 2017 2019 2018 2017 Segments: Engineered Systems $774 $988 $1,249 $165 $151 $224 Distribution Services 485 275 148 44 217 184 U.S. Markets 233 267 $359 $31 73 150 Corporate and Other 291 481 576 215 71 102 $1,783 $2,011 $2,332 $455 $512 $660 Total Assets March 31, 2019 March 31, 2018 Segments: Engineered Systems $28,486 $13,570 Distribution Services 5,704 9,315 U.S. Markets 4,578 3,354 Corporate and Other 17,253 19,086 $56,021 $45,325 Orion’s revenue outside the United States is insignificant and Orion has no long-lived assets outside the United States.NOTE 17 — RESTRUCTURING EXPENSEDuring fiscal 2018, we executed on a cost reduction plan by entering into separation agreements with multiple employees and recognized $43thousand and $2.1 million of expense in fiscal 2019 and fiscal 2018, respectively, in employee separation related costs. Our restructuring expense for thetwelve months ended March 31, 2019 and March 31, 2018 is reflected within our consolidated statements of operations as follows (dollars in thousands): Year EndedMarch 31, Year EndedMarch 31, 2019 2018 Cost of product revenue $— $34 General and administrative 26 1,822 Sales and marketing 17 211 Research and development — 79 Total $43 $2,146 Total restructuring expense by segment was recorded as follows (dollars in thousands): Year EndedMarch 31, Year EndedMarch 31, 2019 2018 Orion Distribution Systems $12 $117 Corporate and Other 31 2,029 Total $43 $2,146 We recorded no restructuring expense to the Orion U.S. Markets or Orion Engineered Systems segments.Cash payments for employee separation costs in connection with the reorganization of business plans were $26 thousand for fiscal 2019 and $1.8million for fiscal 2018. The remaining restructuring cost accruals as of March 31, 2019 were $0.1 million, which represents post-retirement medical benefitsfor one former employee which will be paid over several years.83 NOTE 18 — SUBSEQUENT EVENTSOn June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the New Credit Agreement. The FirstAmendment amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included inthe borrowing base and provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions.NOTE 19 — QUARTERLY FINANCIAL DATA (UNAUDITED)Summary quarterly results for the years ended March 31, 2019 and March 31, 2018 are as follows: Three Months Ended Mar 31, 2019 Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Total (in thousands, except per share amounts) Total revenue $22,443 $16,291 $13,198 $13,822 $65,754 Gross profit $4,384 $4,170 $2,542 $3,456 $14,552 Net loss $(882) $(662) $(2,438) $(2,692) $(6,674)Basic net loss per share $(0.03) $(0.02) $(0.08) $(0.09) $(0.23)Shares used in basic per share calculation 29,590 29,569 29,488 29,070 29,430 Diluted net loss per share $(0.03) $(0.02) $(0.08) $(0.09) $(0.23)Shares used in diluted per share calculation 29,590 29,569 29,488 29,070 29,430 Three Months Ended Mar 31, 2018 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Total (in thousands, except per share amounts) Total revenue $15,057 $17,263 $15,422 $12,558 $60,300 Gross profit $3,225 $5,116 $3,620 $2,711 $14,672 Net loss (1) $(1,462) $(1,433) $(3,669) $(6,564) $(13,128)Basic net loss per share $(0.05) $(0.05) $(0.13) $(0.23) $(0.46)Shares used in basic per share calculation 28,935 28,910 28,835 28,455 28,784 Diluted net loss per share $(0.05) $(0.05) $(0.13) $(0.23) $(0.46)Shares used in diluted per share calculation 28,935 28,910 28,835 28,455 28,784 (1)Includes a $2.1 million restructuring charge, a $1.4 million loss contingency reversal, and an intangible impairment of $0.7 million.The four quarters for net earnings per share may not add to the total year because of differences in the weighted average number of shares outstandingduring the quarters and the year.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENoneITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principalfinancial officers, as appropriate, to allow timely decisions regarding required disclosure.84 Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosurecontrols and procedures and our internal control over financial reporting as of March 31, 2019, pursuant to Exchange Act Rule 13a-15(b) and 15d-15. Basedon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the disclosure controls and procedures are effective at alevel of reasonable assurance as of March 31, 2019.Management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated financial statements included in thisAnnual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periodspresented in accordance with U.S. GAAP.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officerand Chief Financial Officer, or persons performing similar functions, and effected by the board of directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withGAAP and includes those policies and procedures that: i.pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on our financial statements.Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, ourmanagement has assessed the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control - IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).BDO USA, LLP, independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as ofMarch 31, 2019. Their report is in Item 8 under the heading "Reports of Independent Registered Public Accounting Firm" of this Annual Report on Form 10-K.In connection with the assessment of our internal control over financial reporting as of March 31, 2019, management remediated the followingmaterial weaknesses that existed as of March 31, 2018: •Information & Communication. We determined that our controls pertaining to information and communication did not operate effectively,resulting in a material weakness pertaining to these COSO components. Specifically, we did not have sufficient communication of the status andevolution of a project to ensure timely and accurate recognition of contract costs. In addition, we did not have sufficient communication andresolution of matters identified through management’s review impacting the accounting close as noted in the Control Activities discussionbelow. •Control Activities - Accounting Close. The operating effectiveness of our controls were inadequate related to management review controls overthe accounting close process and forecasts used to support certain fair value estimates. Specifically, we did not have an accurate forecast thatimpacted our assessment of triggering events and potential impairment. In addition, matters identified through management review controls werenot brought to a timely resolution.85 A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not be prevented or detected.We have reviewed and obtained acceptance of completion of the remediation effort by our Chief Executive Officer, our Chief Financial Officer, andthe Audit & Finance Committee. Based on the remediation actions and our assessment using the COSO criteria, management believes that, as of March 31,2019, our internal control over financial reporting was effective.We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknessesidentified in the prior years.Changes in Internal Control over Financial ReportingThere were no other changes in our internal control over financial reporting during the quarter ended March 31, 2019, that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting, other than with respect to the implementation of our RemediationPlans, as described above.ITEM 9B.OTHER INFORMATIONOn June 3, 2019, we and certain of our subsidiaries entered into an amendment (the “First Amendment”) to the New Credit Agreement. The FirstAmendment amended the New Credit Agreement to increase the maximum borrowing base credit available for certain of the customer receivables included inthe borrowing base and to provide for a borrowing base credit of up to $3.0 million based on inventory, in each case, subject to certain conditions. The foregoing is a summary of the First Amendment and is qualified in its entirety by reference to the full text of the First Amendment, a copy of whichis filed herewith as Exhibit 10.2 and incorporated herein by reference. 86 PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item with respect to directors, executive officers and corporate governance is incorporated by reference to Orion'sProxy Statement for its 2019 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2019.Code of ConductWe have adopted a Code of Conduct that applies to all of our directors, employees and officers, including our principal executive officer, our principalfinancial officer, our controller and persons performing similar functions. Our Code of Conduct is available on our web site at www.orionlighting.com. Futurematerial amendments or waivers relating to the Code of Conduct will be disclosed on our web site referenced in this paragraph within four business daysfollowing the date of such amendment or waiver.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to our Proxy Statement for its 2019 Annual Meeting of Shareholders to be filed withthe SEC within 120 days after the end of the fiscal year ended March 31, 2019.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERSSee Item 5, Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchaser of Securities, under the heading “EquityCompensation Plan Information” for information regarding our securities authorized for issuance under equity compensation plans. The additionalinformation required by this item is incorporated by reference to Orion's Proxy Statement for its 2019 Annual Meeting of Shareholders to be filed with theSEC within 120 days after the end of the fiscal year ended March 31, 2019.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to our Proxy Statement for its 2019 Annual Meeting of Shareholders to be filed withthe SEC within 120 days after the end of the fiscal year ended March 31, 2019.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to our Proxy Statement for its 2019 Annual Meeting of Shareholders to be filed withthe SEC within 120 days after the end of the fiscal year ended March 31, 2019.87 PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)Financial StatementsOur financial statements are set forth in Item 8 of this Form 10-K. 88 EXHIBIT INDEX Number Exhibit Title 3.1 Amended and Restated Articles of Incorporation of Orion Energy Systems, Inc., filed as Exhibit 3.3 to the Registrant’s Form S-1 filedAugust 20, 2007, is hereby incorporated by reference. 3.2 Amended and Restated Bylaws of Orion Energy Systems, Inc., filed as Exhibit 3.2 to the Registrant’s Form 10-Q filed November 8, 2013, ishereby incorporated by reference. 4.1 Rights Agreement, dated as of January 7, 2009, between Orion Energy Systems, Inc. and Wells Fargo Bank, N.A., which includes as Exhibit Athereto the Form of Right Certificate and as Exhibit B thereto the Summary of Common Share Purchase Rights, filed as Exhibit 4.1 to theRegistrant’s Form 8-A filed January 8, 2009, is hereby incorporated by reference. 4.2 Amendment No. 1 to the Rights Agreement, dated as of January 3, 2019, between the Company and Equiniti Trust Company (as successor toWells Fargo Bank, N.A.), as Rights Agent, filed as Exhibit 4.1 to the Registrants Form 8-K filed January 3, 2019, is hereby incorporated byreference. 4.3 Description of Orion Energy Systems, Inc. Capital Stock.+ 10.1 Business Financing Agreement dated as of October 26, 2018 among Orion Energy Systems, Inc., Western Alliance Bank, as lender, and thesubsidiary borrowers party thereto, filed as Exhibit 10.1 to Registrant’s Form 8-K filed on October 30, 2018, is hereby incorporated byreference. 10.2 Amendment No. 1 to Business Financing Agreement, dated as of June 3, 2019 among Orion Energy Systems, Inc., Western Alliance Bank, aslender, and the subsidiary borrowers party thereto.+** 10.3 Orion Energy Systems, Inc. 2003 Stock Option Plan, as amended, filed as Exhibit 10.6 to the Registrant’s Form S-1 filed August 20, 2007, ishereby incorporated by reference.* 10.4 Form of Stock Option Agreement under the Orion Energy Systems, Inc. 2003 Stock Option Plan, filed as Exhibit 10.7 to the Registrant’sForm S-1 filed August 20, 2007, is hereby incorporated by reference.* 10.5 Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, filed as Exhibit 10.9 to the Registrant’s Form S-1 filed August 20, 2007, ishereby incorporated by reference.* 10.5(a) Amendment to Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, filed September 9, 2011 as Appendix A to the Registrant’sdefinitive proxy statement is hereby incorporated by reference.* 10.6 Form of Stock Option Agreement under the Orion Energy Systems, Inc. 2004 Equity Incentive Plan, filed as Exhibit 10.10 to the Registrant’sForm S-1 filed August 20, 2007, is hereby incorporated by reference.* 10.7 Form of Stock Option Agreement as of May 14, 2013 under the Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, filed asExhibit 10.7 to the Registrant’s Form 10-K filed on June 13, 2014, is hereby incorporated by reference.* 10.8 Form of Restricted Stock Award Agreement as of May 14, 2013 under the Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan,filed as Exhibit 10.8 to the Registrant’s Form 10-K filed on June 13, 2014, is hereby incorporated by reference.* 10.9 Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, filed as Annex A to the Registrant’s Form 8-K filed July 8, 2016, is herebyincorporated by reference.* 10.10 Form of Non-Employee Director Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems, Inc. 2016 OmnibusIncentive Plan, filed as Exhibit 4.5 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.* 10.11 Form of Non-Employee Director Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, filedas Exhibit 4.6 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.* 10.12 Form of Executive Tandem Restricted Stock and Cash Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan,filed as Exhibit 4.7 to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.* 10.13 Form of Executive Restricted Stock Award Agreement under the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan, filed as Exhibit 4.8to the Registrant’s Form S-8 filed August 10, 2016, is hereby incorporated by reference.* 10.14 Orion Energy Systems, Inc. Non-Employee Director Compensation Plan, updated and effective as of June 6, 2017, filed as Exhibit 10.14 to theRegistrant's Form 10-K filed June 13, 2017, is hereby incorporated by reference.* 10.15 Executive Employment and Severance Agreement, dated as of June 8, 2017, by and between Orion Energy Systems, Inc. and Michael W.Altschaefl, filed as Exhibit 10.16 to the Registrant's Form 10-K filed June 13, 2017, is hereby incorporated by reference. * 89 10.16 Executive Employment and Severance Agreement by and between Orion Energy Systems, Inc. and William T. Hull, filed as Exhibit 10.1 to theRegistrant’s Form 8-K filed on October 5, 2015, is hereby incorporated by reference.* 10.17 Executive Employment and Severance Agreement, dated as of August 3, 2016, by and between Orion Energy Systems, Inc. and Scott A. Green,filed as Exhibit 10.1 to Registrant’s Form 8-K filed on August 4, 2016, is hereby incorporated by reference.* 10.18 Letter Agreement effective June 13, 2017 between Orion and William T. Hull, filed as Exhibit 10.19 to the Registrant's Form 10-K filed June13, 2017, is hereby incorporated by reference. * 10.19 Executive Employment and Severance Agreement, dated as of January 1, 2014, by and between Orion Energy Systems, Inc. and Marc Meadefiled as Exhibit 10.1 to the Registrant’s Form 8-K filed on January 6, 2014, is hereby incorporated by reference.* 10.20 Form of Executive Restricted Stock Award Agreement as of May 26, 2015 under the Orion Energy Systems, Inc. 2004 Stock and IncentiveAwards Plan , filed as Exhibit 10.18 to the Registrant’s Form 10-K for the year ended March 31, 2015, is hereby incorporated by reference.* 10.21 Form of Executive Tandem Restricted Stock and Cash Award Agreement as of May 26, 2015 under the Orion Energy Systems, Inc. 2004 Stockand Incentive Awards Plan, filed as Exhibit 10.19 to the Registrant’s Form 10-K for the year ended March 31, 2015, is hereby incorporated byreference.* 10.22 Form of Non-Employee Director Restricted Stock Award Agreement as of May 26, 2015 under the Orion Energy Systems, Inc. 2004 Stock andIncentive Awards Plan, filed as Exhibit 10.20 to the Registrant’s Form 10-K for the year ended March 31, 2015, is hereby incorporated byreference.* 10.23 Form of Non-Employee Director Tandem Restricted Stock and Cash Award Agreement as of May 26, 2015 under the Orion Energy Systems,Inc. 2004 Stock and Incentive Awards Plan, filed as Exhibit 10.21 to the Registrant’s Form 10-K for the year ended March 31, 2015, is herebyincorporated by reference.* 10.24 Mutual Retirement and Severance Agreement, dated as of June 30, 2017, by and between Orion Energy Systems, Inc. and Michael J. Potts, filedas Exhibit 10.1 to the Registrant's Form 8-K filed on June 30, 2017, is hereby incorporated by reference. * 21.1 Subsidiaries of Orion Energy Systems, Inc.+ 23.1 Consent of Independent Registered Public Accounting Firm. + 31.1 Certification of Chief Executive Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under theSecurities Exchange Act of 1934, as amended. + 31.2 Certification of Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under theSecurities Exchange Act of 1934, as amended. + 32.1 Certification of Chief Executive Officer and Chief Financial Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgatedunder the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002. + 101 101.INS XBRL Instance Document+ 101.SCH Taxonomy extension schema document+ 101.CAL Taxonomy extension calculation linkbase document+ 101.DEF Taxonomy extension definition linkbase document+ 101.LAB Taxonomy extension label linkbase document+ 101.PRE Taxonomy extension presentation linkbase document+ Documents incorporated by reference by Orion Energy Systems, Inc. are filed with the Securities and Exchange Commission under File No. 001-33887. *Management contract or compensatory plan or arrangement.**Portions of this exhibit have been omitted pursuant to Rule 601(6)(10) of Regulation S-K. The omitted information is not material and would likelycause competitive harm to the Registrant if publicly disclosed.+Filed herewithITEM 16.FORM 10-K SUMMARYNone.90 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on June 4, 2019. ORION ENERGY SYSTEMS, INC. By: /s/ MICHAEL W. ALTSCHAEFL Michael W. Altschaefl Chief Executive Officer and Board Chair Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons onbehalf of the Registrant in the capacities indicated on June 4, 2019. Signature Title /s/ Michael W. Altschaefl Chief Executive Officer and Board Chair (PrincipalMichael W. Altschaefl Executive Officer) /s/ William T. Hull Chief Financial Officer, Chief Accounting Officer andWilliam T. Hull Treasurer (Principal Financial Officer) /s/ Anthony L. Otten Lead Independent DirectorAnthony L. Otten /s/ Alan B. Howe DirectorAlan B. Howe /s/ Michael J. Potts DirectorMichael J. Potts /s/ Ellen B. Richstone DirectorEllen B. Richstone /s/ Mark C. Williamson DirectorMark C. Williamson /s/ Kenneth M. Young DirectorKenneth M. Young 91Exhibit 4.3 ORION ENERGY SYSTEMS, INC.DESCRIPTION OF CAPITAL STOCKOur authorized capital stock consists of 230,000,000 shares, consisting of 200,000,000 shares of common stock, no par value per share, and30,000,000 shares of preferred stock, par value $0.01 per share. As of May 31, 2019, 29,601,669 shares of our common stock were outstanding and no sharesof our preferred stock were outstanding.The description below summarizes the material terms of our common stock, preferred stock and provisions of our amended and restated articles ofincorporation and amended and restated bylaws. This description is only a summary. For more detailed information, you should refer to our amended andrestated articles of incorporation and bylaws filed as exhibits to our most recent Annual Report on Form 10-K.Common StockHolders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not havecumulative voting rights. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors,subject to any preferential dividend rights of outstanding preferred stock. Upon our liquidation, dissolution or winding up, the holders of common stock areentitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstandingpreferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock arefully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights ofthe holders of shares of any series of preferred stock that we may designate and issue in the future.We have entered into a rights agreement pursuant to which each outstanding share of our common stock has attached a right to purchase one share ofour common stock. A right will also attach to each share of common stock that we subsequently issue prior to the expiration of the rights agreement. Undercircumstances described below, the rights will entitle the holder of the rights to purchase additional shares of common stock. In this description of our capitalstock, unless the context requires otherwise, all references to our common stock include the accompanying rights.Currently, the rights are not exercisable and trade with the common stock. If the rights become exercisable, each right, unless held by a person orgroup that beneficially owns more than 20% of our outstanding common stock, will initially entitle the holder to purchase one share of our common stock ata purchase price of $7 per share, subject to adjustment. The rights will become exercisable only if a person or group has acquired, or announced an intentionto acquire, 20% or more of our outstanding common stock. Under some circumstances, including the existence of a 20% acquiring party, each holder of aright, other than the acquiring party, will be entitled to purchase at the right’s then-current exercise price, shares of our common stock having a market valueof two times the exercise price. If another corporation acquires us after a party acquires 20% or more of our common stock, each holder of a right will beentitled to receive the acquiring corporation’s common shares having a market value of two times the exercise price. The rights may be redeemed at a price of$0.001 per right until a party acquires 20% or more of our common stock and, after that time, may be exchanged for one share of our common stock per rightuntil a party acquires 50% or more of our common stock. The rights expire on January 7, 2022, subject to extension. Under the rights agreement, our board ofdirectors may reduce the thresholds applicable to the rights from 20% to not less than 10%. The rights do not have voting or dividend rights and, until theybecome exercisable, have no dilutive effect on our earnings.The rights have certain anti-takeover effects, in that they could have the effect of delaying, deferring or preventing a change of control of ourcompany by causing substantial dilution to a person or group that attempts to acquire a significant interest in our company on terms not approved by ourboard of directors. Preferred Stock Our board of directors is authorized to issue from time to time up to 30 million shares of preferred stock in one or more series without shareholderapproval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights,conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. It is not possible to state the actual effect of theissuance of any shares of preferred stock on the rights of holders of common stock until our board of directors determines the specific rights associated withthat preferred stock. The effects of issuing preferred stock could include one or more of the following: • decreasing the amount of earnings and assets available for distribution to holders of common stock; • restricting dividends on the common stock; • diluting the voting power of the common stock; • impairing the liquidation rights of the common stock; or • delaying, deferring or preventing changes in our control or management.As of the May 31, 2019, there were no shares of preferred stock outstanding.Wisconsin Anti-Takeover Law and Certain Articles of Incorporation and Bylaw ProvisionsWisconsin law and our amended and restated articles of incorporation and amended and restated bylaws that will be effective upon closing of thisoffering contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our shareholders mightconsider favorable. The following is a summary of these provisions.Amended and Restated Articles of Incorporation and Amended and Restated BylawsClassified board of directors; removal of directors for cause. Our amended and restated articles of incorporation and amended and restated bylawsprovide that our board of directors is divided into three classes, with the term of office of each class expiring at successive annual meetings of shareholders.At each annual meeting of shareholders, each director is elected for a term ending on the date of the third annual shareholders’ meeting following the annualshareholders’ meeting at which such director was elected and until his or her successor shall be elected and shall qualify, subject to prior death, resignation orremoval from office. Our amended and restated articles of incorporation also provide that the affirmative vote of shareholders possessing at least 75% of the voting powerof the then outstanding shares of our capital stock is required to amend, alter, change or repeal, or to adopt any provision inconsistent with, the relevantsections of the bylaws establishing the classified board. The board of directors (or its remaining members, even if less than a quorum) is also empowered to fillvacancies on the board of directors occurring for any reason for the remainder of the term of the class of directors in which the vacancy occurred, unless thevacancy was caused by the action of shareholders (in which event such vacancy will be filled by the shareholders and may not be filled by the directors).Members of the board of directors may be removed only for cause at a meeting of the shareholders called for the purpose of removing the director,and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director and must state the alleged cause uponwhich the director’s removal would be based.These provisions are likely to increase the time required for shareholders to change the composition of our board of directors. For example, ingeneral, at least two annual meetings will be necessary for shareholders to effect a change in a majority of the members of our board of directors.Advance notice provisions for shareholder proposals and shareholder nominations of directors. Our amended and restated bylaws provide that, fornominations to the board of directors or for other business to be properly brought by a shareholder before a meeting of shareholders, the shareholder must firsthave given timely notice of the proposal in writing to our secretary. For an annual meeting, a shareholder’s notice generally must be delivered on or beforeDecember 31 of the year immediately preceding the annual meeting, unless the date of the annual meeting is on or after May 1 in any year, in which case notice must be received not later than the close of business on the day which is determined by adding toDecember 31 of the year immediately preceding such annual meeting the number of days starting with May 1 and ending on the date of the annual meetingin such year. Detailed requirements as to the form of the notice and information required in the notice are specified in the amended and restated bylaws. If it isdetermined that business was not properly brought before a meeting in accordance with our amended and restated bylaws, such business will not beconducted at the meeting.Wisconsin Business Corporation LawSections 180.1140 to 180.1144 of the Wisconsin Business Corporation Law, or the WBCL, restrict a broad range of business combinations between aWisconsin corporation and an “interested stockholder” for a period of three years unless specified conditions are met. The WBCL defines a “businesscombination” as including certain mergers or share exchanges, sales of assets, issuances of stock or rights to purchase stock and other related partytransactions. An “interested stockholder” is a person who beneficially owns, directly or indirectly, 10% of the outstanding voting stock of a corporation orwho is an affiliate or associate of the corporation and beneficially owned 10% of the voting stock within the last three years. During the initial three-yearperiod after a person becomes an interested stockholder in a Wisconsin corporation, with some exceptions, the WBCL prohibits a business combination withthe interested stockholder unless the corporation’s board of directors approved the business combination or the acquisition of the stock by the interestedstockholder prior to the acquisition date. Following this three-year period, the WBCL also prohibits a business combination with an interested stockholderunless: • the board of directors approved the acquisition of the stock prior to the acquisition date; • the business combination is approved by a majority of the outstanding voting stock not owned by the interested stockholder; • the consideration to be received by shareholders meets certain requirements of the statute with respect to form and amount; or • the business combination is of a type specifically excluded from the coverage of the statute. Sections 180.1130 to 180.1133 of the WBCL govern certain mergers or share exchanges between public Wisconsin corporations and significantshareholders, and sales of all or substantially all of the assets of public Wisconsin corporations to significant shareholders. These transactions must beapproved by 80% of all shareholders and two-thirds of shareholders other than the significant shareholder, unless the shareholders receive a statutory “fairprice.” Section 180.1130 of the WBCL generally defines a “significant shareholder” as the beneficial owner of 10% or more of the voting power of theoutstanding voting shares, or an affiliate of the corporation who beneficially owned 10% or more of the voting power of the then outstanding shares withinthe last two years.Section 180.1150 of the WBCL provides that in particular circumstances the voting power of shares of a public Wisconsin corporation held by anyperson in excess of 20% of the voting power is limited to 10% of the voting power these excess shares would otherwise have. Full voting power may berestored if a majority of the voting power of shares represented at a meeting, including those held by the party seeking restoration, are voted in favor of therestoration. This voting restriction does not apply to shares acquired directly from the corporation.Section 180.1134 of the WBCL requires shareholder approval for some transactions in the context of a tender offer or similar action for more than 5%of any class of a Wisconsin corporation’s stock. Shareholder approval is required for the acquisition of more than 5% of the corporation’s stock at a priceabove market value from any person who holds more than 3% of the voting shares and has held the shares for less than two years, unless the corporationmakes an equal offer to acquire all shares. Shareholder approval is also required for the sale or option of assets that amount to at least 10% of the market valueof the corporation, but this requirement does not apply if the corporation has at least three independent directors and a majority of the independent directorsvote not to have this provision apply to the corporation. Limitations of Directors’ Liability and IndemnificationOur amended and restated bylaws provide that, to the fullest extent permitted or required by Wisconsin law, we will indemnify all of our directors andofficers, any trustee of any of our employee benefit plans, and person who is serving at our request as a director, officer, employee or agent of another entity,against certain liabilities and losses incurred in connection with these positions or services. We will indemnify these parties to the extent the parties aresuccessful in the defense of a proceeding and in proceedings in which the party is not successful in defense of the proceeding unless, in the latter case only, itis determined that the party breached or failed to perform his or her duties to us and this breach or failure constituted: • a willful failure to deal fairly with us or our shareholders in connection with a matter in which the director or officer has a material conflict ofinterest; • a violation of criminal law, unless the director or officer had reasonable cause to believe his or her conduct was unlawful; • a transaction from which the director or officer derived an improper personal profit; or • willful misconduct.Our amended and restated bylaws provide that we are required to indemnify our directors and executive officers and may indemnify our employeesand other agents to the fullest extent required or permitted by Wisconsin law. Additionally, our amended and restated bylaws require us under certaincircumstances to advance reasonable expenses incurred by a director or officer who is a party to a proceeding for which indemnification may be available.Wisconsin law further provides that it is the public policy of the State of Wisconsin to require or permit indemnification, allowance of expenses andinsurance to the extent required or permitted under Wisconsin law for any liability incurred in connection with a proceeding involving a federal or statestatute, rule or regulation regulating the offer, sale or purchase of securities. Under Wisconsin law, a director is not personally liable for breach of any duty resulting solely from his or her status as a director, unless it is provedthat the director’s conduct constituted conduct described in the bullet points above. In addition, we maintain directors’ and officers’ liability insurance thatwill insure against certain liabilities, subject to applicable restrictions.NASDAQ Capital Market ListingOur common stock is listed on the NASDAQ Capital Market under the symbol “OESX.”Transfer Agent and RegistrarThe transfer agent and registrar for our common stock is EQ Shareowner Services. Exhibit 10.2 CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND WOULD LIKELYCAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED. [***] INDICATES THAT INFORMATION HAS BEENREDACTED. AMENDMENT NUMBER ONE TO BUSINESS FINANCING AGREEMENTThis AMENDMENT NUMBER ONE TO BUSINESS FINANCING AGREEMENT (this “Amendment”), dated as of June 3rd, 2019, isentered into by and between WESTERN ALLIANCE BANK, an Arizona corporation Lender”), one the one hand, and, ORION ENERGYSYSTEMS, INC., a Wisconsin corporation (“Parent”), the Subsidiaries of Parent listed on Schedule 1 attached to the Agreement defined below,and such other direct or indirect Subsidiaries of Parent that may hereafter become parties hereto (collectively with Parent, “Borrowers” and each a“Borrower”), on the other hand, with reference to the following facts:A.Borrowers and Lender previously entered into that certain Business Financing Agreement, dated as of October 26, 2018 (the“Agreement”).B.Borrowers and Lender desire to amend the Agreement in accordance with the terms and conditions set forth herein.NOW, THEREFORE, in consideration of the foregoing, the parties hereto hereby agree as follows:1.Defined Terms. All initially capitalized terms used but not defined herein shall have the meanings assigned to suchterms in the Agreement.2.Amendment to Section 1.12. Section 1.12 of the Agreement is hereby amended in its entirety as follows: 1.12Overadvances. Upon any occurrence of an Overadvance, Borrowers shall immediately pay down theAdvances such that, after giving effect to such payments, no Overadvance exists; provided that ifany Overadvance occurs due to the termination of the Inventory Sublimit Availability Period, thenBorrowers shall pay down all Advances supported by the Inventory Sublimit on a monthly basis,commencing with the first day of the month following the termination of the Inventory SublimitAvailability Period in an amount equal to the lesser of $1,000,000 or the unpaid balance of Advancessupported by the Inventory Sublimit. 3.Amendments to Section 12.1.(a)The following definitions set forth in Section 12.1 of the Agreement are hereby amended in theirentirety as follows:“Inventory Sublimit” means $3,000,000.“Inventory Sublimit Availability Period” means the period commencing on the Amendment Number OneEffective Date and terminating, if ever, when Adjusted EBITDA for any fiscal quarter of Borrower is less than75% of plan. (b)Clause (m) of the definition of “Eligible Receivable” set forth in Section 12.1 of the Agreement ishereby amended in its entirety as follows: (m)The Receivable is not that portion of Receivables due from an Account Debtor which is in excess ofthe Maximum Concentration Percentage of Borrowers’ aggregate dollar amount of all outstandingReceivables. (c)The following new defined terms are hereby added to Section 12.1 of the Agreement inalphabetical order:“Adjusted EBITDA” means consolidated net profit before tax plus interest expense, depreciation expense andamortization expense, plus stock-based compensation expense.“Amendment Number One” means that certain Amendment Number One to Business Financing Agreement,dated as of June 3rd, 2019, among Borrowers and Lender, amending this Agreement.“Amendment Number One Effective Date” means the date when all of the conditions set forth in Section 4 ofthe Amendment Number One have been fulfilled to the satisfaction of Lender.“Maximum Concentration Percentage” means the percentage indicated in the table below opposite theapplicable Account Debtor:Account DebtorMaximum Concentration Percentage[***]50%[***]50%[***]75%All others35%4.Conditions Precedent to Effectiveness of Amendment. The effectiveness of this Amendment is subject to andcontingent upon the fulfillment of each and every one of the following conditions to the satisfaction of Lender:(a)Lender shall have received this Amendment, duly executed by Borrowers;(b)Lender shall have received an amendment fee in the amount of $2,000, which fee shall be fully-earned and non-refundable, part of the Obligations, and secured by the Collateral;(c)No Event of Default or Default shall have occurred and be continuing; and(d)All of the representations and warranties set forth herein and in the Agreement shall be true,complete and accurate in all respects as of the date hereof (except for representations and warranties which are expressly stated to be true andcorrect as of the date of the Agreement).5.Representations and Warranties. In order to induce Lender to enter into this Amendment, each Borrower herebyrepresents and warrants to Lender that:2 (a)No Event of Default or Default is continuing;(b)All of the representations and warranties set forth in the Agreement and in the Agreement aretrue, complete and accurate in all respects (except for representations and warranties which are expressly stated to be true and correct as of thedate of the Agreement); and(c)This Amendment has been duly executed and delivered by Borrowers, and the Agreementcontinues to constitute the legal, valid and binding agreements and obligations of Borrowers, enforceable in accordance with its terms, except asenforceability may be limited by bankruptcy, insolvency, and similar laws and equitable principles affecting the enforcement of creditors’ rightsgenerally.6.Counterparts; Electronic Execution. This Amendment may be executed in any number of counterparts and bydifferent parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, whentaken together, shall constitute but one and the same Amendment. Delivery of an executed counterpart of this Amendment electronically(including by e-mail delivery of a “.pdf” format data file) shall be equally as effective as delivery of a manually executed counterpart of thisAmendment. Any party delivering an executed counterpart of this Amendment electronically also shall deliver a manually executed counterpart ofthis Amendment but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of thisAmendment.7.Integration. The Agreement as amended by this Amendment constitutes the entire agreement and understandingbetween the parties hereto with respect to the subject matter hereof and thereof, and supersedes any and all prior agreements and understandings,oral or written, relating to the subject matter hereof and thereof.8.No Waiver. The execution of this Amendment and the acceptance of all other agreements and instruments relatedhereto shall not be deemed to be a waiver of any Default or Event of Default, whether or not known to Lender and whether or not existing on thedate of this Amendment.9.Release.(a)Each Borrower hereby absolutely and unconditionally releases and forever discharges Lender,and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assignsthereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims,demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state orfederal law or otherwise, which such Borrower has had, now has or has made claim to have against any such person for or by reason of any act,omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims,demands and causes of action are matured or unmatured or known or unknown. Each Borrower hereto certifies that it has read the followingprovisions of California Civil Code Section 1542:A general release does not extend to claims that the creditor or releasing party does not know orsuspect to exist in his or her favor at the time of executing the release and that, if known by him orher, would have materially affected his or her settlement with the debtor or released party.(b)Each Borrower understands and acknowledges that the significance and consequence of thiswaiver of California Civil Code Section 1542 is that even if it should eventually suffer additional damages arising out of the facts referred to above,it will not be able to make any claim for those damages. Furthermore, each Borrower acknowledges that it intends these consequences even as toclaims for damages that may exist as of the date of this release but which it does not know exist, and3 which, if known, would materially affect its decision to execute this Agreement, regardless of whether its lack of knowledge is the result ofignorance, oversight, error, negligence, or any other cause.10.Reaffirmation of the Agreement. The Agreement as amended hereby and the Loan Documents remain in fullforce and effect.[remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first hereinabove written.BORROWERS:ORION ENERGY SYSTEMS, INC.,a Wisconsin corporation By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer CLEAN ENERGY SOLUTIONS, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer GREAT LAKES ENERGY TECHNOLOGIES, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer ORION SHARED SERVICES, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer ORION AVIATION, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer ORION TECHNOLOGY VENTURES, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer Amendment Number One to Business Financing Agreement ORION ASSET MANAGEMENT, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer ORION OPERATIONS, LLC,a Wisconsin limited liability company By: /s/ William T. HullName: William T. HullTitle: Chief Financial Officer LENDER:WESTERN ALLIANCE BANK,an Arizona corporation By: /s/ Lisa ChangName: Lisa ChangTitle: Vice President Amendment Number One to Business Financing Agreement Exhibit 21.1Subsidiaries Entity Jurisdiction of OrganizationGreat Lakes Energy Technologies, LLC WisconsinClean Energy Solutions, LLC WisconsinOrion Asset Management, LLC WisconsinOrion LED Canada, Inc. British Columbia, Canada Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMOrion Energy Systems, Inc.Manitowoc, WisconsinWe hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-216324) and Form S-8 (No. 333-148401, 333-169611, 333-176176, and 333-213042) of Orion Energy Systems, Inc. of our reports dated June 4, 2019, relating to the consolidatedfinancial statements, and the effectiveness of Orion Energy Systems, Inc.’s internal control over financial reporting, which appear in this Form10-K. /s/ BDO USA, LLPMilwaukee, WisconsinJune 4, 2019 Exhibit 31.1Certification of Chief Executive OfficerPursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934I, Michael W. Altschaefl, certify that: 1.I have reviewed this Annual Report on Form 10-K of Orion Energy Systems, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: June 4, 2019 /s/ Michael W. AltschaeflMichael W. AltschaeflChief Executive Officer Exhibit 31.2Certification of Chief Financial OfficerPursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934I, William T. Hull, certify that:1.I have reviewed this Annual Report on Form 10-K of Orion Energy Systems, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: June 4, 2019 /s/ William T. HullWilliam T. HullChief Financial Officer, Chief Accounting Officer and Treasurer Exhibit 32.1Written Statement of the Chief Executive Officer and Chief Financial OfficerPursuant to 18 U.S.C. Section 1350Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, theundersigned Chief Executive Officer and Chief Financial Officer of Orion Energy Systems, Inc. (the “Company”), hereby certify, based on our knowledge,that the Annual Report on Form 10-K of the Company for the twelve-month period ended March 31, 2019 , (the "Report”) fully complies with therequirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company. /s/ Michael W. Altschaefl Michael W. AltschaeflChief Executive Officer /s/ William T. Hull William T. HullChief Financial Officer,Chief Accounting Officer and Treasurer Date:June 4, 2019 Executive Officers Michael W. Altschaefl Chief Executive Officer and Board Chair Marc E. Meade Executive Vice President Scott A. Green Executive Vice President and Chief Operating Officer William T. Hull Executive Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer Board of Directors Michael W. Altschaefl (4) Chief Executive Officer and Board Chair Anthony L. Otten (1), (2), (3), (5) Retired Chief Executive Officer, Versar, Inc. Managing Member, Stillwater LLC Founding and Managing Partner, Rugged, LLC Retired Executive Vice President and Chief Risk Officer, Orion Energy Systems, Inc. Michael J. Potts Alan B. Howe Managing Partner, Broadband Initiatives, LLC Ellen B. Richstone (1a), (3) Director and Program Committee Chair, National Association of Corporate Directors (NACD-New England) Director, Superior Industries and eMargin Corporation Advisory Board Member, American College of Corporate Directors Mark C. Williamson (1), (2a) Retired Partner, Putnam Roby Williamson Communications of Madison, Wis. Kenneth M. Young (2), (3a) President, B. Riley Financial Chief Executive Officer, Babcock & Wilcox (1) Audit and Finance Committee (2) Compensation Committee (3) Nominating and Corporate Governance Committee (4) Board Chair (5) Lead Independent Director (a) Committee Chair NASDAQ Capital Market: OESX 2210 Woodland Drive, Manitowoc, WI 54220
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