{"url_path":"/sec/oesx/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-04","source_url":"https://www.sec.gov/Archives/edgar/data/1409375/0001193125-26-257468-index.html","accession_number":"0001193125-26-257468","cik":"0001409375","ticker":"OESX","issuer_name":"ORION ENERGY SYSTEMS, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1409375/0001193125-26-257468-index.html","primary_entity_key":"0001409375","primary_entity_name":"ORION ENERGY SYSTEMS, INC."},"word_count":8440,"has_tables":true,"body_markdown":"ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\nThis section of this Form 10-K generally discusses fiscal year 2026 and fiscal year 2025 items and year over year comparisons between fiscal year 2026 and fiscal year 2025. Discussions of the fiscal year 2024 items and the year over year comparisons between fiscal year 2025 and fiscal year 2024 that are not included in this Form 10-K can be found in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025.\n\nOverview\n\nWe provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control solutions, project engineering, energy project management design and maintenance services and electric vehicle (“EV”) charging infrastructure solutions. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products are targeted for applications in the following primary market segments: commercial office and retail, area lighting, industrial applications and government, although we do sell and install products into other markets. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America or for the US Department of Defense's military bases operating in foreign countries.\n\nOur lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems. Our principal lighting customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies (“ESCOs”). Currently, most of our interior lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development and offerings.\n\nWe differentiate ourselves from our competitors by offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we offer lighting and electrical maintenance services which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”). We completed the acquisition of Voltrek on October 5, 2022, which further expanded our turnkey services capabilities as well as capitalized on the rapidly growing market for EV charging solutions. We completed the Stay-Lite Lighting acquisition on January 1, 2022, which further expanded our maintenance services capabilities.\n\nWe believe the market for LED lighting products and related controls continues to grow. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the LED market.\n\nWe see opportunity to cross-sell our three platforms of lighting, maintenance services and EV charging installation systems to our commercial and industrial customer base. We are pursuing opportunities to cross-sell to direct customers, as well as through select partners. We also see opportunity for further integration of our service capabilities to expand our geographic reach and we currently intend to pursue growth organically.\n\nOther than our multi-year maintenance service contracts, we generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements, we\n\n28\n\n \n\nmake substantial working capital expenditures and advance inventory purchases that we intend to recoup through the completion of these or similar projects.\n\nWe 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 our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases.\n\nThe gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. 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.\n\nOur fiscal year ends on March 31. We refer to our just completed fiscal year, which ended on March 31, 2026, as \"fiscal 2026\", and our prior fiscal years which ended on March 31, 2025 and March 31, 2024 as \"fiscal 2025\" and “fiscal 2024”, respectively. 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.\n\nReportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker (\"CODM\") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. We have three segments: lighting segment, maintenance segment and EV segment.\n\nRecent Developments\n\nReverse Stock Split\n\nOn August 22, 2025, we effected a 1-for-10 reverse stock split of our common stock in order to remain compliant with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) for continued listing on the NASDAQ Capital Market (“NASDAQ”).\n\nVoltrek Earnout Settlement\n\nOn March 17, 2026, we entered into a settlement agreement (the “Settlement Agreement”) with Final Frontier, LLC (“Final Frontier”) and Kathleen M. Connors (“Ms. Connors”), personally and as Trustee of the Kathleen M. Connors 2019 Revocable Trust (“Connors Trust” together with Final Frontier and Ms. Connors, the “Connors Parties”), in order to reach a final and complete resolution and settlement of the dispute between the Connors Parties and us regarding our remaining earnout obligations owed to Final Frontier pursuant to that certain Membership Interest Purchase Agreement, dated as of October 5, 2022, entered into by and among us and the Connors Parties (the “MIPA”), pursuant to which we acquired Voltrek, as well as to reach a final and complete resolution and settlement of related arbitrations and terminate related agreements, as described below.\n\nPursuant to the MIPA and a binding term sheet (as amended, the \"Term Sheet\"), we and the Connors Parties submitted our earn out statement dispute to CPA firm arbitration (the “CPA Firm Arbitration”). The Connors Parties asserted that the remaining earn out payments owed by us totaled approximately $10 million. Our position was that we owed the Connors Parties an additional $1.4 million. The CPA arbitrators determined that we owed an additional $3.4 million of earnout payments. Subsequently, we filed an arbitration demand with the American Arbitration Association in Milwaukee, Wisconsin against the Connors Parties in order to object to the CPA firm’s decision of the earnout statement dispute as manifest error (the “AAA Arbitration”).\n\nBy entering into the Settlement Agreement, we and the Connors Parties agreed to a final and complete resolution and settlement of the CPA Firm Arbitration and the AAA Arbitration, a final and complete resolution and settlement of the earnout statement dispute, termination of the MIPA, termination of all related earnout agreements and termination of any and all claims and counterclaims between or among us and the Connors Parties, without any admission of liability and without incurring of any further payment, cost, liability,\n\n29\n\n \n\nobligation, guaranty, expense or inconvenience with respect thereto.\n\nUnder the terms of the Settlement Agreement, we made a one-time cash payment of $3.0 million (the “Settlement Amount”) to Final Frontier on March 18, 2026. Upon receipt of the Settlement Amount, all earn out payment obligations, the MIPA, all earnout agreements, the CPA Firm Arbitration and the AAA Arbitration proceedings were terminated, cancelled and released, and all liens and security interests held by Final Frontier on our assets were automatically terminated and irrevocably released. Additionally, upon payment of the Settlement Amount, we and the Connors Parties exchanged mutual general releases of all claims arising from or related to the earn out disputes, the CPA Firm Arbitration and the AAA Arbitration proceedings, the MIPA and the earnout agreements. The releases did not affect Ms. Connors’ then part-time employment relationship with us or the Connors Parties’ rights as shareholders of our Company. We also agreed to facilitate the Connors Parties’ entry into a Rule 10b5-1 trading plan during our next insider open window period to facilitate the Connors Parties’ sale of their shares of our common stock.\n\nSignificant New Exterior Lighting Project\n\nWe have been awarded a new large-scale LED exterior lighting project with a leading international retail chain, anticipated to generate approximately $14 million to $15 million of revenue. The large-scale project began in our fourth quarter of fiscal 2026, with the majority of the project expected to be completed by the end of July 2026. This new order follows our October 31, 2025 announcement of a three-year renewal of a major LED lighting maintenance contract for this customer, with the renewal having an estimated total revenue potential of between $42 million to $45 million. We will continue to maintain LED lighting systems for more than 2,000 stores operated by this retailer. There is an additional potential for significant expansion of this customer relationship in our fiscal 2027.\n\nOngoing Cost Cutting Initiatives\n\nOver the past two fiscal years, we have been successful in reducing our annual operating expenses by approximately $2.0 million. This cost cutting and overhead reduction initiative has resulted in improved gross margins and profitability.\n\nPublic Stock Offering\n\nOn February 2, 2026, we issued 500,000 shares of our common stock at a price to the public of $14.00 per share pursuant to a firmly underwritten public offering. Net proceeds from the offering of approximately $6.4 million were used to reduce amounts outstanding under our credit agreement, with the remainder used for working capital and general corporate purposes.\n\nReplacing Reduced Revenue from Primary Customer\n\nIn fiscal 2026, 2025 and 2024, one customer accounted for 26.0%, 18.1% and 25.6% of our total revenue, respectively. We continue to attempt to diversify our customer base by expanding our reach to national accounts, ESCOs, the agent driven distribution channel, lighting maintenance customers and the EV market.\n\nSolar Asset Termination Agreement\n\nEffective March 19, 2026, we executed a termination agreement with a customer to terminate two power purchase agreements (“PPAs”) that commenced in 2010. The PPAs covered two solar panel arrays on two buildings in New Jersey under which we contracted to sell the solar power generation from the respective solar panel arrays through 2030. Under the terms of the termination agreement, we transferred ownership of the solar arrays to a third party and terminated any future obligations related to those assets in exchange for a cash payment of $1.3 million.\n\nCredit Facility Extension\n\nOn May 29, 2026, we and Bank of America, N.A. as lender, executed Amendment No. 5 (“Amendment No. 5”) to our Loan and Security Agreement dated December 29, 2020 and amended previously on September 30, 2025 (as amended, the “credit agreement”). The primary purpose of Amendment No. 5 was to extend the maturity date of the Credit Facility from June 30, 2027 to June 30, 2030.\n\nTariff Relief\n\nIn February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers\n\n30\n\n \n\nAct (“IEEPA”) were unlawful. On April 20, 2026, U.S. Customs and Border Protection launched a portal intended to automate and consolidate the related refund claim process, including associated interest payments. We submitted refund claims related to certain previously paid tariffs. Due to the uncertainly surrounding payment of any potential refund claims, no amounts are reflected in our fiscal 2026 financial statements. As of May 31, 2026, we have received approximately $219 thousand in tariff refunds, including approximately $13 thousand of interest income. The ultimate amount and timing of recovery remains subject to continued administrative review and claim approval.\n\nSelected Financial Data\n\nThe selected historical consolidated financial data are not necessarily indicative of future results.\n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n2023\n\n \n\n \n\n2022\n\n \n\n \n\n \n\n(in thousands, except per share amounts)\n\n \n\nConsolidated statements of operations data:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nProduct revenue\n\n \n\n$\n\n57,029\n\n \n\n \n\n$\n\n54,368\n\n \n\n \n\n$\n\n63,307\n\n \n\n \n\n$\n\n57,210\n\n \n\n \n\n$\n\n91,889\n\n \n\nService revenue\n\n \n\n \n\n29,277\n\n \n\n \n\n \n\n25,352\n\n \n\n \n\n \n\n27,274\n\n \n\n \n\n \n\n20,173\n\n \n\n \n\n \n\n32,494\n\n \n\nTotal revenue\n\n \n\n \n\n86,306\n\n \n\n \n\n \n\n79,720\n\n \n\n \n\n \n\n90,581\n\n \n\n \n\n \n\n77,383\n\n \n\n \n\n \n\n124,383\n\n \n\nCost of product revenue (1) (2) (8)\n\n \n\n \n\n36,893\n\n \n\n \n\n \n\n37,319\n\n \n\n \n\n \n\n44,466\n\n \n\n \n\n \n\n42,979\n\n \n\n \n\n \n\n65,249\n\n \n\nCost of service revenue (1) (3) (8)\n\n \n\n \n\n21,320\n\n \n\n \n\n \n\n22,165\n\n \n\n \n\n \n\n25,204\n\n \n\n \n\n \n\n16,893\n\n \n\n \n\n \n\n25,222\n\n \n\nTotal cost of revenue\n\n \n\n \n\n58,213\n\n \n\n \n\n \n\n59,484\n\n \n\n \n\n \n\n69,670\n\n \n\n \n\n \n\n59,872\n\n \n\n \n\n \n\n90,471\n\n \n\nGross profit\n\n \n\n \n\n28,093\n\n \n\n \n\n \n\n20,236\n\n \n\n \n\n \n\n20,911\n\n \n\n \n\n \n\n17,511\n\n \n\n \n\n \n\n33,912\n\n \n\nGeneral and administrative expenses (1) (4) (8)\n\n \n\n \n\n18,691\n\n \n\n \n\n \n\n18,008\n\n \n\n \n\n \n\n16,740\n\n \n\n \n\n \n\n19,487\n\n \n\n \n\n \n\n11,680\n\n \n\nImpairment of assets (5)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n-\n\n \n\n \n\n \n\n456\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n512\n\n \n\nAcquisition related costs\n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n56\n\n \n\n \n\n \n\n765\n\n \n\n \n\n \n\n—\n\n \n\nSales and marketing expenses (1) (5) (8)\n\n \n\n \n\n10,099\n\n \n\n \n\n \n\n11,595\n\n \n\n \n\n \n\n12,988\n\n \n\n \n\n \n\n11,392\n\n \n\n \n\n \n\n11,628\n\n \n\nResearch and development expenses (1)(6) (8)\n\n \n\n \n\n945\n\n \n\n \n\n \n\n1,229\n\n \n\n \n\n \n\n1,495\n\n \n\n \n\n \n\n1,852\n\n \n\n \n\n \n\n1,701\n\n \n\n(Loss) income from operations\n\n \n\n \n\n(1,642\n\n)\n\n \n\n \n\n(10,596\n\n)\n\n \n\n \n\n(10,824\n\n)\n\n \n\n \n\n(15,985\n\n)\n\n \n\n \n\n8,391\n\n \n\nOther income\n\n \n\n \n\n51\n\n \n\n \n\n \n\n62\n\n \n\n \n\n \n\n39\n\n \n\n \n\n \n\n-\n\n \n\n \n\n \n\n1\n\n \n\nInterest expense\n\n \n\n \n\n(783\n\n)\n\n \n\n \n\n(1,026\n\n)\n\n \n\n \n\n(752\n\n)\n\n \n\n \n\n(339\n\n)\n\n \n\n \n\n(80\n\n)\n\nAmortization of debt issue costs\n\n \n\n \n\n(170\n\n)\n\n \n\n \n\n(206\n\n)\n\n \n\n \n\n(95\n\n)\n\n \n\n \n\n(73\n\n)\n\n \n\n \n\n(62\n\n)\n\nLoss on debt extinguishment\n\n \n\n \n\n(562\n\n)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\nDividend and interest income\n\n \n\n \n\n3\n\n \n\n \n\n \n\n7\n\n \n\n \n\n \n\n2\n\n \n\n \n\n \n\n34\n\n \n\n \n\n \n\n—\n\n \n\n(Loss) income before income tax\n\n \n\n \n\n(3,103\n\n)\n\n \n\n \n\n(11,759\n\n)\n\n \n\n \n\n(11,630\n\n)\n\n \n\n \n\n(16,363\n\n)\n\n \n\n \n\n8,250\n\n \n\nIncome tax expense (benefit) (7)\n\n \n\n \n\n60\n\n \n\n \n\n \n\n42\n\n \n\n \n\n \n\n41\n\n \n\n \n\n \n\n17,978\n\n \n\n \n\n \n\n2,159\n\n \n\nNet (loss) income\n\n \n\n$\n\n(3,163\n\n)\n\n \n\n$\n\n(11,801\n\n)\n\n \n\n$\n\n(11,671\n\n)\n\n \n\n$\n\n(34,341\n\n)\n\n \n\n$\n\n6,091\n\n \n\nNet (loss) income per share attributable to common\n   shareholders:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nBasic\n\n \n\n$\n\n(0.89\n\n)\n\n \n\n$\n\n(3.59\n\n)\n\n \n\n$\n\n(3.59\n\n)\n\n \n\n$\n\n(10.83\n\n)\n\n \n\n$\n\n1.96\n\n \n\nDiluted\n\n \n\n$\n\n(0.89\n\n)\n\n \n\n$\n\n(3.59\n\n)\n\n \n\n$\n\n(3.59\n\n)\n\n \n\n$\n\n(10.83\n\n)\n\n \n\n$\n\n1.95\n\n \n\nWeighted-average shares outstanding:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nBasic\n\n \n\n \n\n3,561\n\n \n\n \n\n \n\n3,283\n\n \n\n \n\n \n\n3,249\n\n \n\n \n\n \n\n3,170\n\n \n\n \n\n \n\n3,102\n\n \n\nDiluted\n\n \n\n \n\n3,561\n\n \n\n \n\n \n\n3,283\n\n \n\n \n\n \n\n3,249\n\n \n\n \n\n \n\n3,170\n\n \n\n \n\n \n\n3,130\n\n \n\n \n\n(1)\nIncludes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation, or Accounting Standards Codification (ASC) 718, as follows:\n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n2023\n\n \n\n \n\n2022\n\n \n\n \n\n \n\n(in thousands)\n\n \n\nCost of product revenue\n\n \n\n$\n\n—\n\n \n\n \n\n$\n\n7\n\n \n\n \n\n$\n\n5\n\n \n\n \n\n$\n\n4\n\n \n\n \n\n$\n\n5\n\n \n\nCost of service revenue\n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\nGeneral and administrative expenses\n\n \n\n \n\n434\n\n \n\n \n\n \n\n1,111\n\n \n\n \n\n \n\n923\n\n \n\n \n\n \n\n1,596\n\n \n\n \n\n \n\n793\n\n \n\nSales and marketing expenses\n\n \n\n \n\n46\n\n \n\n \n\n \n\n31\n\n \n\n \n\n \n\n17\n\n \n\n \n\n \n\n8\n\n \n\n \n\n \n\n12\n\n \n\nResearch and development expenses\n\n \n\n \n\n3\n\n \n\n \n\n \n\n8\n\n \n\n \n\n \n\n5\n\n \n\n \n\n \n\n4\n\n \n\n \n\n \n\n3\n\n \n\nTotal stock-based compensation expense\n\n \n\n$\n\n483\n\n \n\n \n\n$\n\n1,157\n\n \n\n \n\n$\n\n950\n\n \n\n \n\n$\n\n1,612\n\n \n\n \n\n$\n\n813\n\n \n\n \n\n31\n\n \n\n(2)\nFiscal 2025 and fiscal 2024 includes expense of $295 thousand and $26 thousand related to restructuring, respectively.\n\n(3)\nFiscal 2025 and fiscal 2024 includes expense of $176 thousand and $48 thousand related to restructuring, respectively.\n\n(4)\nFiscal 2025 and fiscal 2024 include expenses of $442 thousand and $28 thousand related to restructuring, respectively.\n\n(5)\nFiscal 2025 and fiscal 2024 includes expense of $26 thousand and $21 thousand related to restructuring, respectively.\n\n(6)\nFiscal 2025 and fiscal 2024 includes expense of $109 thousand and $0 related to restructuring, respectively.\n\n(7)\nFiscal 2021 includes tax benefit of $20.9 million related to the release of the valuation allowance on deferred tax assets. Fiscal 2023 includes tax expense of $17.8 million related to the recording of the valuation allowance on deferred tax assets.\n\n(8)\nFiscal 2022 includes an offset to payroll expenses of $1.6 million related to the anticipated employee retention payroll tax credit (“payroll tax credit”), as expanded and extended by the American Rescue Plan Act of 2021, as follows:\n\n \n\n \n\nFiscal Year Ended March 31, 2022\n\n \n\n \n\n \n\n(in thousands)\n\n \n\nCost of product revenue\n\n \n\n$\n\n649\n\n \n\nCost of service revenue\n\n \n\n \n\n144\n\n \n\nGeneral and administrative expenses\n\n \n\n \n\n273\n\n \n\nSales and marketing expenses\n\n \n\n \n\n416\n\n \n\nResearch and development expenses\n\n \n\n \n\n105\n\n \n\nTotal payroll tax credit\n\n \n\n$\n\n1,587\n\n \n\nResults of Operations: Fiscal 2026 versus Fiscal 2025\n\nThe following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period, together with the relative percentage change in such line item between applicable comparable periods (in thousands, except percentages):\n\n \n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\nAmount\n\n \n\n \n\nAmount\n\n \n\n \n\n%\nChange\n\n \n\n \n\n% of\nRevenue\n\n \n\n \n\n% of\nRevenue\n\n \n\nProduct revenue\n\n \n\n$\n\n57,029\n\n \n\n \n\n$\n\n54,368\n\n \n\n \n\n \n\n4.9\n\n%\n\n \n\n \n\n66.1\n\n%\n\n \n\n \n\n68.2\n\n%\n\nService revenue\n\n \n\n \n\n29,277\n\n \n\n \n\n \n\n25,352\n\n \n\n \n\n \n\n15.5\n\n%\n\n \n\n \n\n33.9\n\n%\n\n \n\n \n\n31.8\n\n%\n\nTotal revenue\n\n \n\n \n\n86,306\n\n \n\n \n\n \n\n79,720\n\n \n\n \n\n \n\n8.3\n\n%\n\n \n\n \n\n100.0\n\n%\n\n \n\n \n\n100.0\n\n%\n\nCost of product revenue\n\n \n\n \n\n36,893\n\n \n\n \n\n \n\n37,319\n\n \n\n \n\n \n\n(1.1\n\n)%\n\n \n\n \n\n42.7\n\n%\n\n \n\n \n\n46.8\n\n%\n\nCost of service revenue\n\n \n\n \n\n21,320\n\n \n\n \n\n \n\n22,165\n\n \n\n \n\n \n\n(3.8\n\n)%\n\n \n\n \n\n24.7\n\n%\n\n \n\n \n\n27.8\n\n%\n\nTotal cost of revenue\n\n \n\n \n\n58,213\n\n \n\n \n\n \n\n59,484\n\n \n\n \n\n \n\n(2.1\n\n)%\n\n \n\n \n\n67.4\n\n%\n\n \n\n \n\n74.6\n\n%\n\nGross profit\n\n \n\n \n\n28,093\n\n \n\n \n\n \n\n20,236\n\n \n\n \n\n \n\n38.8\n\n%\n\n \n\n \n\n32.6\n\n%\n\n \n\n \n\n25.4\n\n%\n\nGeneral and administrative expenses\n\n \n\n \n\n18,691\n\n \n\n \n\n \n\n18,008\n\n \n\n \n\n \n\n3.8\n\n%\n\n \n\n \n\n21.7\n\n%\n\n \n\n \n\n22.6\n\n%\n\nSales and marketing expenses\n\n \n\n \n\n10,099\n\n \n\n \n\n \n\n11,595\n\n \n\n \n\n \n\n(12.9\n\n)%\n\n \n\n \n\n11.7\n\n%\n\n \n\n \n\n14.5\n\n%\n\nResearch and development expenses\n\n \n\n \n\n945\n\n \n\n \n\n \n\n1,229\n\n \n\n \n\n \n\n(23.1\n\n)%\n\n \n\n \n\n1.1\n\n%\n\n \n\n \n\n1.5\n\n%\n\n(Loss) income from operations\n\n \n\n \n\n(1,642\n\n)\n\n \n\n \n\n(10,596\n\n)\n\n \n\n \n\n(84.5\n\n)%\n\n \n\n \n\n(1.9\n\n)%\n\n \n\n \n\n(13.3\n\n)%\n\nOther income\n\n \n\n \n\n51\n\n \n\n \n\n \n\n62\n\n \n\n \n\n \n\n(17.7\n\n)%\n\n \n\n \n\n0.1\n\n%\n\n \n\n \n\n0.1\n\n%\n\nInterest expense\n\n \n\n \n\n(783\n\n)\n\n \n\n \n\n(1,026\n\n)\n\n \n\n \n\n23.7\n\n%\n\n \n\n \n\n(0.9\n\n)%\n\n \n\n \n\n(1.3\n\n)%\n\nAmortization of debt issue costs\n\n \n\n \n\n(170\n\n)\n\n \n\n \n\n(206\n\n)\n\n \n\n \n\n17.5\n\n%\n\n \n\n \n\n(0.2\n\n)%\n\n \n\n \n\n(0.3\n\n)%\n\nLoss on debt extinguishment\n\n \n\n \n\n(562\n\n)\n\n \n\n \n\n—\n\n \n\n \n\nNM\n\n \n\n \n\n \n\n(0.7\n\n)%\n\n \n\n \n\n—\n\n \n\nInterest income\n\n \n\n \n\n3\n\n \n\n \n\n \n\n7\n\n \n\n \n\n \n\n(57.1\n\n)%\n\n \n\n \n\n0.0\n\n%\n\n \n\n \n\n0.0\n\n%\n\n(Loss) income before income tax\n\n \n\n \n\n(3,103\n\n)\n\n \n\n \n\n(11,759\n\n)\n\n \n\n \n\n73.6\n\n%\n\n \n\n \n\n(3.6\n\n)%\n\n \n\n \n\n(14.8\n\n)%\n\nIncome tax expense\n\n \n\n \n\n60\n\n \n\n \n\n \n\n42\n\n \n\n \n\n \n\n(42.9\n\n)%\n\n \n\n \n\n0.1\n\n%\n\n \n\n \n\n0.1\n\n%\n\nNet (loss) income\n\n \n\n$\n\n(3,163\n\n)\n\n \n\n$\n\n(11,801\n\n)\n\n \n\n \n\n73.2\n\n%\n\n \n\n \n\n(3.7\n\n)%\n\n \n\n \n\n(14.8\n\n)%\n\n* NM = Not Meaningful\n\n32\n\n \n\nRevenue, Cost of Revenue and Gross Margin. Product revenue increased by 4.9%, or $2.7 million, for fiscal 2026 versus fiscal 2025. Service revenue increased by 15.5%, or $3.9 million, for fiscal 2026 versus fiscal 2025. The increase in product revenue was primarily due to an increase in the maintenance segment along with the contract modification of our solar agreement leading to additional recognized revenue. The increase in service revenue was due to an increase in projects in our lighting segment. Cost of product revenue decreased by 1.1%, or $0.4 million, in fiscal 2026 versus the comparable period in fiscal 2025. Cost of service revenue decreased by 3.8%, or $0.8 million, in fiscal 2026 versus fiscal 2025. The decreases were primarily due to the cost savings initiatives put into place in fiscal 2025. Gross margin increased to 32.6% of revenue in fiscal 2026 from 25.4% in fiscal 2025, due primarily to a more favorable sales mix along with better overall margins in the lighting and EV segments.\n\nOperating Expenses\n\nGeneral and Administrative. General and administrative expenses increased 3.8%, or $0.7 million, in fiscal 2026 compared to fiscal 2025. This comparative increase was primarily due to earnout compensation costs, sign-on bonus costs and disposal of solar assets costs, which were partially offset by a reduction in workforce related to restructuring that occurred in the first half of fiscal 2025.\n\nSales and Marketing. Our sales and marketing expenses decreased 12.9%, or $1.5 million, in fiscal 2026 compared to fiscal 2025. The decrease was primarily due to decreases in employment costs throughout fiscal 2026.\n\nResearch and Development. Research and development expenses decreased 23.1%, or $0.3 million, in fiscal 2026 compared to fiscal 2025 primarily due to a decrease in employment costs.\n\nInterest Expense. Interest expense in fiscal 2026 decreased by $0.2 million to $0.8 million primarily due to lower outstanding amounts on the line of credit throughout fiscal 2026.\n\nLighting Segment\n\nOur lighting segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting segment provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers. Our lighting segment sells through ESCOs, Lighting Agents, Distributors and direct (turnkey) to end users.\n\nThe following table summarizes our lighting segment operating results (dollars in thousands):\n\n \n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nRevenues\n\n \n\n$\n\n55,880\n\n \n\n \n\n$\n\n47,704\n\n \n\nOperating (loss) income\n\n \n\n$\n\n2,175\n\n \n\n \n\n$\n\n(2,765\n\n)\n\nOperating margin\n\n \n\n \n\n3.9\n\n%\n\n \n\n \n\n(5.8\n\n)%\n\nFiscal 2026 Compared to Fiscal 2025\n\nLighting segment revenue increased in fiscal 2026 by 17.1%, or $8.2 million, and operating income increased $4.9 million, compared to fiscal 2025, due to increased project volumes in fiscal 2025 along with the recognition of solar revenue due to the contract modification in March of 2026. This increase in revenues led to a corresponding operating income increase in this segment, along with increased project margins.\n\nMaintenance Segment\n\nOur maintenance segment provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities.\n\nThe following table summarizes our maintenance segment operating results (dollars in thousands):\n\n33\n\n \n\n \n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nRevenues\n\n \n\n$\n\n16,042\n\n \n\n \n\n$\n\n15,190\n\n \n\nOperating (loss) income\n\n \n\n$\n\n1,166\n\n \n\n \n\n$\n\n(1,188\n\n)\n\nOperating margin\n\n \n\n \n\n7.3\n\n%\n\n \n\n \n\n(7.8\n\n)%\n\nFiscal 2026 Compared to Fiscal 2025\n\nMaintenance segment revenue increased $0.9 million, or 5.6%, in fiscal 2026 compared to fiscal 2025 primarily due to increased projects for a large customer. As a result, operating income increased $2.4 million in fiscal 2026 compared to fiscal 2025 primarily due to better project margins throughout the segment.\n\nEV Segment\n\nOur EV segment offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.\n\nThe following table summarizes our EV segment operations results (dollars in thousands):\n\n \n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nRevenues\n\n \n\n$\n\n14,384\n\n \n\n \n\n$\n\n16,826\n\n \n\nOperating loss\n\n \n\n$\n\n(648\n\n)\n\n \n\n$\n\n(2,356\n\n)\n\nOperating margin\n\n \n\n \n\n(4.5\n\n)%\n\n \n\n \n\n(14.0\n\n)%\n\nFiscal 2026 Compared to Fiscal 2025\n\nEV segment revenue decreased 14.5%, or $2.4 million, in fiscal 2026 compared to fiscal 2025 primarily due to project delays. EV segment operating loss decreased $1.7 million, or 72.5%, in fiscal 2026 compared to fiscal 2025 primarily due to a more beneficial sales mix leading to higher margins.\n\nLiquidity and Capital Resources\n\nOverview\n\nWe had $3.3 million in cash and cash equivalents as of March 31, 2026, compared to $6.0 million at March 31, 2025. Our cash position decreased due to the results in our operations, satisfaction of the final Voltrek earnout obligation and paydown of our Credit Facility. These decreases were partially offset by net proceeds from our February 2026 underwritten public stock offering of approximately $6.4 million.\n\nAs of March 31, 2026, our borrowing base supported $15.6 million of availability under our credit facility, with $3.0 million drawn against that availability. As of March 31, 2025, our borrowing base supported $15.0 million of availability under our credit facility, with $7.0 million drawn against that availability.\n\nAdditional information on our credit agreement can be found in the “Indebtedness” section located below.\n\nIn March 2023, we filed a universal shelf registration statement with the Securities and Exchange Commission. Under our shelf registration statement, we currently have the flexibility to publicly offer and sell from time to time debt and/or equity securities. The filing of the 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. Based on\n\n34\n\n \n\nour current market capitalization, we are subject to the \"baby-shelf\" rule which limits the amount of securities that can be issued at any given time.\n\nOn February 2, 2026, we issued 500,000 shares of our common stock at a price to the public of $14.00 per share pursuant to a firmly underwritten public offering. Net proceeds from the offering of approximately $6.4 million were used to reduce amounts outstanding under our credit agreement, with the remainder used for working capital and general corporate purposes.\n\nIn April 2024, we and our lender executed Amendment No.2 to our credit agreement to add a $3.5 million term loan to the credit facility. The amendment also expanded the pool of eligible receivables to include government receivables in the calculation of the borrowing base. See Note 12 - Debt to our accompanying audited consolidated financial statements for more information.\n\nIn October 2024, we and our lender executed Amendment No.3 to our credit agreement to extend the maturity date of the Credit Facility from December 29, 2025 to June 30, 2027.\n\nOn September 30, 2025, we and our lender executed Amendment No. 4 to our credit agreement, pursuant to which Bank of America consented to certain subordinated liens we granted in favor of Final Frontier and consented to the Remaining Earnout Amount (as defined herein) evidenced by the Subordinated Loan Agreement (as defined herein), subject to certain limitations, and to permit us to make cash interest and principal payments to Final Frontier as set forth in the Subordinated Loan Agreement. On March 18, 2026, the Subordinated Loan Agreement was terminated and cancelled, and all related liens and security interests held by Final Frontier on our assets were automatically terminated and irrevocably released.\n\nOn May 29, 2026, we and our lender executed Amendment No. 5 to our credit agreement to extend the maturity date of the Credit Facility from June 30, 2027 to June 30, 2030.\n\nWe regularly explore various alternative sources of liquidity to help ensure that we will have the best allocation of invested capital to satisfy our working capital needs.\n\nOur future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, working capital management, capital expenditures. While we believe that we will likely have adequate available cash and equivalents and credit availability under our credit agreement to satisfy our currently anticipated working capital and liquidity requirements during the next 12 months and beyond based on our current cash flow forecast, there can be no assurance to that effect. If we experience significant liquidity constraints, we may be required to issue equity or debt securities, reduce our sales efforts, implement additional cost savings initiatives or undertake other efforts to conserve our cash.\n\nCash Flows\n\nThe following table summarizes our cash flows for our fiscal 2026, fiscal 2025 and fiscal 2024:\n\n \n\n \n\n \n\nFiscal Year Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n \n\n(in thousands)\n\n \n\nOperating activities\n\n \n\n$\n\n(1,079\n\n)\n\n \n\n$\n\n599\n\n \n\n \n\n$\n\n(10,092\n\n)\n\nInvesting activities\n\n \n\n \n\n(86\n\n)\n\n \n\n \n\n128\n\n \n\n \n\n \n\n(731\n\n)\n\nFinancing activities\n\n \n\n \n\n(1,542\n\n)\n\n \n\n \n\n90\n\n \n\n \n\n \n\n(14\n\n)\n\n(Decrease) increase in cash and cash equivalents\n\n \n\n$\n\n(2,707\n\n)\n\n \n\n$\n\n817\n\n \n\n \n\n$\n\n(10,837\n\n)\n\n \n\nCash Flows Related to Operating Activities. Cash used in operating activities for fiscal 2026 was $1.1 million and consisted of our net loss of $3.2 million adjusted for non-cash expense items and net cash provided by changes in operating assets of $2.1 million, the largest of which was an increase of $3.5 million in accounts receivable, a $3.1 million increase in revenue earned but not billed, an increase of $2.2 million in accounts payable, and an increase of $1.3 million in accrued expenses and other.\n\n \n\n35\n\n \n\nCash provided by operating activities for fiscal 2025 was $0.6 million and consisted of our net loss of $11.8 million adjusted for non-cash expense items and net cash provided by changes in operating assets of $12.4 million, the largest of which was a decrease of $6.1 million in inventories, a $5.1 million decrease in accounts payable, and an increase of $1.9 million in accrued expenses.\n\n \n\nCash used in operating activities for fiscal 2024 was $10.1 million and consisted of our net loss of $11.7 million adjusted for non-cash expense items and net cash used in changes in operating assets of $1.6 million, the largest of which was a $5.0 million increase in accounts payable, an increase of $3.2 million in revenue earned but not billed, and a $2.3 million decrease in accrued liabilities.\n\nCash Flows Related to Investing Activities. Cash used in investing activities in fiscal 2026 was $0.1 million and consisted primarily of purchases of property and equipment.\n\nCash provided by investing activities in fiscal 2025 was $0.1 million and consisted primarily of $0.2 million of sales of property and equipment and $0.1 million of purchases of property and equipment.\n\nCash used in investing activities in fiscal 2024 was $0.7 million and consisted primarily of $0.8 million of purchases of property and equipment.\n\n \n\nCash Flows Related to Financing Activities. Cash used in financing activities in fiscal 2026 was $1.5 million and consisted primarily of payment of long-term debt and paying down the line of credit. These payments were partially offset by proceeds from a public stock issuance along with a draw on the line of credit.\n\nCash provided by financing activities in fiscal 2025 was $0.1 million and consisted primarily of proceeds from the term loan that originated in the first quarter of fiscal 2025, which was partially offset by payments on the revolving credit facility.\n\nCash used in financing activities in fiscal 2024 was $14 thousand.\n\nWorking Capital\n\nOur net working capital as of March 31, 2026 was $11.0 million, consisting of $37.7 million of current assets and $26.7 million of current liabilities. Our net working capital as of March 31, 2025 was $8.7 million, consisting of $35.5 million of current assets and $26.8 million of current liabilities. The change was primarily due to an increase in accounts receivable, revenue earned but not billed, and decreases in our revolving line of credit and accrued expenses and other.\n\nOur net working capital as of March 31, 2025 was $8.7 million, consisting of $35.5 million of current assets and $26.8 million of current liabilities. Our net working capital as of March 31, 2024 was $16.7 million, consisting of $44.8 million of current assets and $28.1 million of current liabilities. The change was primarily due to a decrease in inventories along with a decrease in accounts payable.\n\nWe generally attempt to maintain a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions.\n\nIndebtedness\n\nRevolving Credit Agreement\n\nOur credit agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that now matures on June 30, 2030. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of March 31, 2026, the borrowing base supported approximately $15.6 million of availability under the Credit Facility with $3.0 million drawn against that availability. As of March 31, 2025, the borrowing base supported approximately $15.0 million of availability under the Credit Facility with $7.0 million drawn against that availability.\n\nThe credit agreement is secured by a first lien security interest in substantially all of our assets.\n\n36\n\n \n\nBorrowings under the credit agreement are permitted in the form of SOFR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the credit agreement. Among other fees, we are required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility.\n\nThe credit agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility falls below $4.0 million of the committed facility. Currently, the required springing minimum fixed cost coverage ratio is not required.\n\nThe credit agreement also contains customary events of default and other covenants, including certain restrictions on our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our stock, redeem, retire or purchase shares of our stock, make investments or pledge or transfer assets. If an event of default under the credit agreement occurs and is continuing, then the lender may cease making advances under the credit agreement and declare any outstanding obligations under the credit agreement to be immediately due and payable. In addition, if we become the subject of voluntary or involuntary proceedings under any bankruptcy or similar law, then any outstanding obligations under the credit agreement will automatically become immediately due and payable.\n\nEffective April 22, 2024, we, along with our lender, executed Amendment No. 2 (“Amendment No. 2”) to the credit agreement. The primary purpose of Amendment No. 2 was to add a $3.525 million mortgage loan facility to the credit agreement secured by our office headquarters property in Manitowoc, Wisconsin. Amendment No. 2 also broadened the definition of receivables to encompass government receivables as being eligible to be included in our borrowing base calculation for the purpose of establishing our monthly borrowing availability under the credit agreement. Quarterly installments of $88,125 are due on the first day of each fiscal quarter.\n\nEffective October 30, 2024, we and our lender, executed Amendment No. 3 (\"Amendment No. 3\") to our credit agreement. The primary purpose of Amendment No. 3 was to extend the maturity date of the Credit Facility from December 29, 2025 to June 30, 2027.\n\nOn September 30, 2025, we and our lender executed Amendment No. 4 to our credit agreement, pursuant to which Bank of America consented to certain subordinated liens we granted in favor of Final Frontier and consented to the Remaining Earnout Amount evidenced by the Subordinated Loan Agreement, subject to certain limitations, and to permit us to make cash interest and principal payments to Final Frontier as set forth in the Subordinated Loan Agreement. On March 18, 2026, the Subordinated Loan Agreement was terminated and cancelled, and all related liens and security interests held by Final Frontier on our assets were automatically terminated and irrevocably released.\n\nOn March 17, 2026, we entered into the Settlement Agreement with Final Frontier and the Connors Parties, in order to reach a final and complete resolution and settlement of the dispute between the Connors Parties and us regarding our remaining earnout obligations owed to Final Frontier pursuant to the MIPA, pursuant to which we acquired Voltrek, as well as to reach a final and complete resolution and settlement of related arbitrations and terminate related agreements, as described below.\n\nUnder the terms of the Settlement Agreement, we made a one-time cash payment of the Settlement Amount to Final Frontier on March 18, 2026. Upon receipt of the Settlement Amount, all earn out payment obligations, the MIPA, all related earnout agreements, including the Subordinated Loan Agreement, the CPA Firm Arbitration and the AAA Arbitration proceedings were terminated, cancelled and released, and all liens and security interests held by Final Frontier on our assets were automatically terminated and irrevocably released. Additionally, upon payment of the Settlement Amount, we and the Connors Parties exchanged mutual general releases of all claims arising from or related to the earn out disputes, the CPA Firm Arbitration and the AAA Arbitration proceedings, the MIPA and the related earnout agreements. The releases did not affect Ms. Connors’ then part-time employment relationship with us or the Connors Parties’ rights as our shareholders. We also agreed to facilitate the Connors Parties’ entry into a Rule 10b5-1 trading plan during our next insider open window period to facilitate the Connors Parties’ sale of their shares of our common stock.\n\nOn May 29, 2026, we and our lender executed Amendment No. 5 to our credit agreement to extend the maturity date of the Credit Facility from June 30, 2027 to June 30, 2030.\n\n37\n\n \n\nPublic Offering\n\nOn February 2, 2026, we issued 500,000 shares of our common stock at a price to the public of $14.00 per share pursuant to a firmly underwritten public offering. Net proceeds from the offering of approximately $6.4 million were used to reduce amounts outstanding under our credit agreement, with the remainder used for working capital and general corporate purposes.\n\nCapital Spending\n\nOur capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems. Our capital expenditures totaled $0.1 million in fiscal 2026, $0.1 million in fiscal 2025 and $0.8 million in fiscal 2024. Our capital spending plans predominantly consist of investments related to maintenance fleet vehicles, new product development tooling and equipment and information technology systems, exclusive of any capital spending for potential acquisitions. We expect to finance these capital expenditures primarily through our existing cash, equipment secured loans and leases, to the extent needed, long-term debt financing, or by using our Credit Facility. As discussed in Item 1A. Risk Factors, we will be commencing implementation efforts of a new ERP system in fiscal 2027, with an expected go-live date at the beginning of the second quarter of fiscal 2027. The expected cost for the project is approximately $2.0 million.\n\nCritical Accounting Estimates\n\nThe discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make certain estimates and judgments that affect our reported assets, liabilities, revenue and expenses, and our related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory valuation, collectability of receivables, stock-based compensation, warranty reserves and income taxes. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting estimates is set forth below.\n\nRevenue Recognition. We recognize revenue in accordance with the guidance in “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) when control 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 the consideration we expect to receive in exchange for those goods or services.\n\nIf there are multiple performance obligations in a single contract, the contract’s total transaction price per GAAP is allocated to each individual performance obligation based on their relative standalone selling price. A performance obligation’s standalone selling price is the price at which we would sell such promised good or service separately to a customer. We use an observable price to determine the stand-alone selling price for separate performance obligations or an expected cost-plus margin per GAAP approach when one is not available. When the expected cost-plus margin approach is used to determine the estimated stand-alone selling price it is based on average historical margins for that performance obligation in contracts with similar customers.\n\nRevenue derived from customer contracts which include performance obligation(s) for the sale of lighting fixtures and components we manufacture, lighting fixtures we source, and EV charging stations and related software and warranty arrangements we source, are classified as product revenue in the consolidated statements of operations. The revenue for these transactions is recorded at the point in time when management believes that the customer obtains control of the products, generally either upon shipment or upon delivery to the customer’s facility. This point in time is determined separately for each contract and requires judgment by management of the contract terms and the specific facts and circumstances concerning the transaction.\n\nRevenue from a customer contract which includes both the sale of our manufactured or sourced 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.\n\n38\n\n \n\nRevenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue. Service revenue is recorded over-time as we fulfill our obligation to install the light fixtures. We measure our performance toward fulfilling our performance obligations for installations using an output method that calculates the number of light fixtures completely removed and installed as of the measurement date in comparison to the total number of light fixtures to be removed and installed under the contract.\n\nRevenue from the maintenance offering that includes both the sale of our manufactured or sourced product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the consolidated statement of operations.\n\nThe sale of installation and services related to the EV charging business is presented in Service revenue. Revenue from the EV segment that includes both the sale of product and service is allocated between the product and service performance obligations based on relative standalone selling prices, and is recorded in Product revenue and Service revenue, respectively, in the consolidated statement of operations.\n\nInventories, Net. Inventories consist of raw materials and components, such as drivers, metal sheet and coil stock and molded parts; work in process inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out (FIFO) method. In determining the lower of cost or net realizable value, we consider assumptions such as business and economic conditions, expected demand for our products, changes in technology or customer requirements, recent historical sales activity (including usage in the preceding 9 to 12 months) and selling prices, as well as estimates of future selling prices. When the net realizable value of inventories exceeds the carrying value, we record, as a charge to cost of product revenue, the amount required to reduce the carrying value of inventory to net realizable value.\n\nRecoverability of Long-Lived Assets. We evaluate long-lived assets such as property, equipment and definite lived intangible assets, such as patents, for impairment whenever events or circumstances indicate that the carrying value of the assets recognized in our financial statements may not be recoverable. Factors that we consider include whether there has been a significant decrease 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 strategy for that asset, or a significant change in the macroeconomic environment. Our assessment of the recoverability of long-lived assets involves significant judgment and estimation. These assessments reflect our assumptions, which, we believe, are consistent with the assumptions hypothetical marketplace 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 determine if the total estimated future cash flows on an undiscounted basis are less than the carrying amounts of the asset or assets. If so, an impairment loss is measured and recognized.\n\nOur impairment loss calculations require that we apply judgment in identifying asset groups, estimating future cash flows, determining asset fair values, and estimating asset’s useful lives. To make these judgments, we may use internal discounted cash flow estimates, quoted market prices, when available, and independent appraisals, as appropriate, to determine fair value.\n\nIf actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be required to recognize future impairment losses which could be material to our results of operations.\n\nIndefinite Lived Intangible Assets and Goodwill. We test indefinite lived intangible assets and goodwill for impairment at least annually on the first day of our fiscal fourth quarter, or when indications of potential impairment exist. We monitor for the existence of potential impairment indicators throughout the fiscal year. Our annual impairment test may begin with a qualitative test to determine whether it is more likely than not that an indefinite lived intangible asset's carrying value is greater than its fair value. If our qualitative assessment reveals that asset impairment is more likely than not, we perform a quantitative impairment test by comparing the fair value of the indefinite lived intangible asset to its carrying value. Alternatively, we may bypass the qualitative test and initiate impairment testing with the quantitative impairment test.\n\n39\n\n \n\nWe perform a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets and goodwill as of January 1, 2026. This qualitative assessment considered our operating results for the first nine months of fiscal 2026 in comparison to prior years as well as our anticipated fourth quarter results and fiscal 2026 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.\n\nWe performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets and goodwill as of January 1, 2025. This qualitative assessment considered our operating results for the first nine months of fiscal 2025 in comparison to prior years as well as our anticipated fourth quarter results and fiscal 2025 plan. As a result of the conditions that existed as of the assessment date, an asset impairment was not deemed to be more likely than not and a quantitative analysis was not required.\n\nStock-Based Compensation. We currently issue time-based and performance-based restricted stock awards to our employees, consultants, executive officers and directors. In fiscal 2026, we also issued stock options to certain employees, consultants, and executive officers. We apply the provisions of ASC 718, Compensation - Stock Compensation, to these restricted stock and stock option awards which requires us to expense the estimated fair value of the awards based on the fair value of the award on the date of grant. Additionally, it is necessary to estimate the achievement of the performance-based awards to ensure the expense remains accurate. Compensation costs for equity incentives are recognized in earnings, on a straight-line basis over the requisite service period.\n\nAccounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to determine our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expenses, together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within the tax provision in our statements of operations.\n\nOur judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. During fiscal 2023, we established a full valuation allowance on our net deferred tax assets due to end of the period of sustained profitability. In making these determinations, we considered all available positive and negative evidence, including projected future taxable income, tax planning strategies, recent financial performance and ownership changes.\n\nWe 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 net operating 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 a result, our ability to use our net operating loss carry-forwards attributable to the period prior to such ownership change to offset taxable income will be subject to limitations in a particular year, which could potentially result in increased future tax liability for us.\n\nAs of March 31, 2026, we had net operating loss carryforwards of approximately $87.2 million for federal tax purposes, $73.4 million for state tax purposes, and $0.6 million for foreign tax purposes.\n\nWe also had federal tax credit carryforwards of $1.1 million and state tax credit carryforwards of $0.1 million, which are reserved for as part of our valuation allowance. Of these tax attributes, $37.8 million of the federal and state net operating loss carryforwards are not subject to time restrictions on use but may only be used to offset 80% of future adjusted taxable income. The $123.4 million net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2026 and 2056.\n\nWe recognize penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest were immaterial as of the date of adoption and are included in unrecognized tax benefits.\n\n40\n\n \n\nBy their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under Financial Accounting Standards Board (\"FASB\") ASC 740, Income Taxes. ASC 740 utilizes a two-step approach for evaluating tax positions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment that depends on all available evidence. As of March 31, 2026, the balance of gross unrecognized tax benefits was approximately $0.2 million, all of which would reduce our effective tax rate if recognized. We believe that our estimates and judgments discussed herein are reasonable, however, actual results could differ, which could result in gains or losses that could be material.\n\nRecent Accounting Pronouncements\n\nSee Note 2 – Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition."}