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What changed in ORION ENERGY SYSTEMS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ORION ENERGY SYSTEMS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+290 added−315 removedSource: 10-K (2023-06-12) vs 10-K (2022-06-10)

Top changes in ORION ENERGY SYSTEMS, INC.'s 2023 10-K

290 paragraphs added · 315 removed · 227 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

62 edited+17 added−21 removed41 unchanged
Biggest changeOur 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. 6 Reportable Segments Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance.
Biggest changeReportable Segments Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Historically, we have had three reportable segments: Orion Services Group Division ("OSG"), Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM").
However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on a purchase order basis.
However, our maintenance services contracts usually consist of multi-year arrangements. We typically generate substantially all of our lighting revenue from sales of lighting systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under global services or product purchasing agreements with major customers with sales completed on a purchase order basis.
Services We 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 and controls including IoT enabled devices 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 utility incentives or government subsidies; 11 • engineering design, which involves designing a customized system to suit our customers' facility lighting and energy management needs, and providing the customer with a written analysis of the potential energy savings and lighting and environmental benefits associated with the designed system; • project management, which involves us working with the electrical contractor in overseeing and managing all phases of implementation from delivery 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; • complete facility design commissioning of IoT enabled control devices • recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting fixtures; and • lighting and electrical system maintenance services both preventative and reactive in nature.
Services We 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 and controls including IoT enabled devices 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 utility incentives or government subsidies; • engineering design, which involves designing a customized system to suit our customers' facility lighting and energy management needs, and providing the customer with a written analysis of the potential energy savings and lighting and environmental benefits associated with the designed system; • project management, which involves us working with the electrical contractor in overseeing and managing all phases of implementation from delivery 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; • complete facility design commissioning of IoT enabled control devices • recycling in connection with our retrofit installations, where we remove, dispose of and recycle our customer’s legacy lighting fixtures; and • lighting and electrical system maintenance services both preventative and reactive in nature.
We utilize both solar and wind power to support the energy requirements for our manufacturing facility, allowing us to reduce our carbon footprint. We generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract with transportation companies to ship our products and manage all aspects of distribution logistics.
We utilize both solar and wind power to support the energy requirements for our manufacturing facility, allowing us to reduce our carbon footprint. 13 We generally maintain a significant supply of raw material and purchased and manufactured component inventory. We contract with transportation companies to ship our products and manage all aspects of distribution logistics.
Our office LED Troffer Door Retrofit ( " LDR TM ") products are designed to allow for fast and easy installation without disrupting the ceiling space or the office workspace. We believe our system’s design reduces installation time and expense compared to other lighting solutions, which further improves our customers’ return on investment.
Our office LED Troffer Door Retrofit ( " LDR TM ") products are designed to allow for fast and easy installation without disrupting the ceiling space or the office workspace. We believe our system’s design reduces installation time and 8 expense compared to other lighting solutions, which further improves our customers’ return on investment.
We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. We pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry. We are committed to hiring, developing and supporting a diverse and inclusive workplace.
We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. We pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry. 14 We are committed to hiring, developing and supporting a diverse and inclusive workplace.
Ballasts, lamps, drivers, LED chips and other electrical components are excluded from our standard warranty as they are covered by separate warranties offered by the original equipment manufacturers. We coordinate and process customer warranty inquiries and claims, including inquiries and claims relating to ballast and lamp components, through our customer service department.
Ballasts, lamps, drivers, LED chips and other electrical components are excluded from our standard warranty as they are covered by separate warranties offered by the original equipment manufacturers. 11 We coordinate and process customer warranty inquiries and claims, including inquiries and claims relating to ballast and lamp components, through our customer service department.
Currently, a significant amount of our 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 diversify our product offerings.
Currently, a significant amount of our 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 diversify our product offerings.
Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other solutions on a digital platform.
Beyond the benefits of our lighting fixtures, we believe that there is also an opportunity to utilize our system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other solutions on a digital 9 platform.
In most retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one to four year, but most often 18 – 24 months, payback period on our lighting systems.
Rapid Payback Period Retrofit Lighting. In most lighting retrofit projects where we replace HID and HIF fixtures, our customers typically realize a one to four year, but most often 18 – 24 months, payback period on our lighting systems.
Our Growth Strategies In fiscal 2022, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting and controls systems with design, build, installation and project management services, including being awarded large additional projects for a major national account.
Our Growth Strategies In fiscal 2023, we continued to successfully capitalize on our capability of being a full service, turn-key provider of LED lighting and controls systems with design, build, installation and project management services, including being awarded large additional projects for a major national account.
These attributes coupled with our superior customer service, high quality designs and expedited delivery responsiveness resulted in our contract to retrofit multiple locations for a significant single national account beginning in fiscal 2020 that continued into fiscal 2022. Continue Product Innovation.
These attributes coupled with our superior customer service, high quality designs and expedited delivery responsiveness resulted in our contract to retrofit multiple locations for a significant single national account beginning in fiscal 2020 that continued into fiscal 2023. Continue Product Innovation.
As a result, a change in the total mix of our sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period. Our fiscal year ends on March 31. We refer to our current fiscal year which ended on March 31, 2022 as "fiscal 2022".
As a result, a change in the total mix of our sales among higher or lower gross margin products can cause our profitability to fluctuate from period to period. Our fiscal year ends on March 31. We refer to our current fiscal year which ended on March 31, 2023 as "fiscal 2023".
Our LDR TM product is unique in that the LED optics and electronics are housed within the doorframe that allows for installation of the product in approximately one to two minutes. Our LDR TM product also provides reduced maintenance expenses based upon improved LED chips. Other Products.
Our LDR TM product is unique in that the LED optics and electronics are housed within the doorframe that allows for installation of the product in approximately one to two minutes. Our LDR TM product also provides reduced maintenance expenses based upon improved LED chips.
We offer our customers a single source, turnkey solution for project implementation in which we manage and maintain responsibility for entire multi-facility rollouts of our energy management solutions across North American commercial and industrial facility portfolios. This capability allows us to offer our customers an orderly, timely and scheduled process for recognizing energy reductions and cost savings. Rapid Payback Period.
We offer our customers a single source, turnkey solution for project implementation in which we manage and maintain responsibility for entire multi-facility rollouts of our energy management solutions across North American commercial and industrial facility portfolios. This capability allows us to offer our customers an orderly, timely and scheduled process for recognizing energy reductions and cost savings.
By permanently reducing lighting-related electricity usage, our systems help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals without compromising quantity and quality of light in their facilities. As a result, our products offer our customers a rapid return on their investment, without relying on government subsidies or utility incentives. Comprehensive Project Management.
By permanently reducing lighting-related electricity usage, our systems help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals without compromising quantity and quality of light in their facilities. As a result, our products offer our customers a rapid return on their investment, without relying on government subsidies or utility incentives.
We believe we can leverage our construction management process expertise to develop a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large installed base of fixtures position us well to extend a maintenance offering to historical customers, as well as to new customers.
We believe we can leverage our construction management process expertise to develop a high-quality, quick-response, multi-location maintenance service offering. Our experience with large national customers and our large installed base of fixtures positions us well to extend our maintenance services to historical customers, as well as to new customers.
Our “Industrial Internet of Things” or IoT enabled devices not only contain energy management control functions, but also have the ability to collect facility usage and traffic data as well as collect data from other facility mechanical systems, providing our customers with a path to digitization for their business operations. Expanded Sales and Distribution Network.
Our “Industrial Internet of Things”, or IoT, enabled devices not only contain energy management control functions, but also have the ability to collect facility usage and traffic data as well as collect data from other facility mechanical systems, providing our customers with a path to digitization for their business operations.
Products The following is a description of our primary products: Interior LED High Bay Fixtures: Our LED interior high bay lighting products consist of our Harris high bay, Apollo TM high bay and ISON® high bay products.
Products The following is a description of our primary products: Interior LED High Bay Fixture: Our LED interior high bay lighting products consist of our Harris high bay, Apollo TM high bay and ISON® high bay products.
These efforts have included participating in national, regional and local trade 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. 12 Competition The market for energy-efficient lighting products and services is fragmented.
These efforts have included participating in national, regional and local trade 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. Competition The market for energy-efficient lighting products, EV charging solutions and maintenance services is fragmented.
Our warranty policy generally provides for a limited one-year warranty on our HIF products and a limited five-year warranty on our LED products, although we do offer warranties ranging up to 10 years for certain LED products.
Our warranty policy generally provides for a limited five-year warranty on our LED products, although we do offer warranties ranging up to 10 years for certain LED products.
Lighting companies such as Acuity Brands, Inc., Signify Co., Cree, Inc., LSI Industries, Inc. and GE Current, a Daintree Company, are some of our main competitors within the commercial office, retail and 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.
Lighting companies such as Acuity Brands, Inc., Signify Co., Cree, Inc., LSI Industries, Inc. and GE Current, a Daintree Company, are some of our main competitors within the commercial office, retail and industrial markets. We are also facing increased competition from manufacturers in low-cost countries.
See "Products and Services" below. Environmental Benefits. By allowing for the permanent reduction of electricity consumption, we believe our energy management systems significantly reduce indirect CO2 emissions that are a negative by-product of energy generation which help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals. 8 Our Competitive Strengths Compelling Value Proposition.
By allowing for the permanent reduction of electricity consumption, we believe our energy management systems significantly reduce indirect CO2 emissions that are a negative by-product of energy generation which help enable our customers to achieve their sustainability, energy savings and carbon footprint reduction goals. Our Competitive Strengths Compelling Value Proposition.
We are not including the information contained on our website as part of, or incorporating it by reference into, this report. Human Capital As of March 31, 2022, we had approximately 314 full-time employees. We also employ temporary employees in our manufacturing facility as demand requires, at times in excess of 100 temporary employees.
We are not including the information contained on our website as part of, or incorporating it by reference into, this report. Human Capital As of March 31, 2023, we had approximately 265 full-time employees. We also employ temporary employees in our manufacturing facility as demand requires.
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 one or a few customers.
As we continue 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, we expect to continue to derive a significant percentage of our revenue from contracts with one or a few customers.
We refer to our most recently completed fiscal year, which ended on March 31, 2021, as “fiscal 2021”, and our prior fiscal year which ended on March 31, 2020 as "fiscal 2020".
We refer to our most recently completed fiscal year, which ended on March 31, 2022, as “fiscal 2022”, and our prior fiscal year which ended on 6 March 31, 2021 as "fiscal 2021".
We believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities starting with energy audits and site assessments that lead to custom engineering and manufacturing through to fully managed installations.
Focus on executing and marketing our turnkey LED retrofit capabilities to large national account customers. We believe one of our competitive advantages is our ability to deliver full turnkey LED lighting project capabilities starting with energy audits and site assessments that lead to custom engineering and manufacturing through to fully managed installations.
Overview We 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. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service.
Overview We provide state-of-the-art light emitting diode (“LED”) lighting systems, wireless Internet of Things (“IoT”) enabled control solutions, commercial and industrial electric vehicle "EV" charging infrastructure solutions and maintenance services. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service.
We operate research and development lab and test facilities in our Jacksonville, Florida and Manitowoc, Wisconsin locations. 13 Regulatory Matters Our operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment, and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety.
Regulatory Matters Our operations are subject to federal, state, and local laws and regulations governing, among other things, emissions to air, discharge to water, the remediation of contaminated properties and the generation, handling, storage, transportation, treatment, and disposal of, and exposure to, waste and other materials, as well as laws and regulations relating to occupational health and safety.
In fiscal 2022, we introduced a range of air movement products capable of virus elimination. We also offer our customers a variety of other LED and HIF fixtures to address their lighting and energy management needs, including fixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and private label resale. Warranty Policy .
We also offer our customers a variety of other LED fixtures to address their lighting and energy management needs, including fixtures designed for agribusinesses, parking lots, roadways, retail, mezzanine, outdoor applications and private label resale. Warranty Policy .
We differentiate ourselves from our competitors thorough 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.
We differentiate ourselves from our competitors by offering very efficient light fixtures (measured in lumens per watt) coupled with our 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.
We believe that the willingness of our blue-chip customers to install our products across multiple facilities represents a significant endorsement of our value proposition, which in turn helps us sell our energy management systems to new customers.
We believe that the willingness of our blue-chip customers to install our products across multiple facilities represents a significant endorsement of our value proposition, which in turn helps us sell our energy management systems to new customers. Innovative Technology. We have developed a portfolio of United States patents primarily covering various elements of our products.
We plan to continue developing creative new LED retrofit products in order to offer our customers a variety of integrated energy management services, such as system design, project management and installation.
We are focused on researching, developing and/or acquiring new innovative LED products and technologies for the retrofit markets. We plan to continue developing creative new LED retrofit products in order to offer our customers a variety of integrated energy management services, such as system design, project management and installation.
Over the last three fiscal years, we have focused our development on additional LED products, resulting in our development and commercialization of several new suites of LED interior high bay products.
Over the last three fiscal years, we have focused our development on additional LED products, resulting in our development and commercialization of several new suites of LED interior high bay products. We operate research and development lab and test facilities in our Jacksonville, Florida and Manitowoc, Wisconsin locations.
Backlog Backlog 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, 2022 and March 31, 2021 totaled $10.1 million and $15.5 million, respectively.
Backlog Backlog 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, 2023 and March 31, 2022 totaled $17.2 million and $10.1 million, respectively. We generally expect our backlog to be recognized as revenue within one year.
We work cooperatively with our indirect channels 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 customer education and active participation in trade shows and energy management seminars.
We have historically focused our marketing efforts on traditional direct advertising, as well as developing brand awareness through customer education and active participation in trade shows and energy management seminars.
Our smart lighting controls allow our lighting fixtures to 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.
Our patented LDR TM product allows for a significantly quicker installation when compared to competitor's commercial office lighting products. Our smart lighting controls allow our lighting fixtures to 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 offer our customers a single source solution whereby we manage and are responsible for an entire retrofit lighting project, from initial site surveys and energy audits through to installation and controls integration and subsequent maintenance.
We also help our customers with their mobility infrastructure needs supporting the transition to passenger and fleet EVs. Comprehensive Project Management. We offer our customers a single source solution whereby we manage and are responsible for an entire retrofit lighting project, from initial site surveys and energy audits through to installation and controls integration and subsequent maintenance.
Our customers with legacy lighting systems typically realize a one to four-year payback period, and most often 18 – 24 months, from electricity cost savings generated by our 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 and their carbon footprint.
Our customers with legacy lighting systems typically realize a one to four-year payback period, and most often 18 – 24 months, from electricity cost savings generated by our lighting systems without considering utility incentives or government subsidies.
Currently, most of our products are manufactured at our leased production facility location in Manitowoc, Wisconsin, although as the LED market continues to evolve, we also source products and components from third parties in order to have versatility in our product development. We are focused on researching, developing and/or acquiring new innovative LED products and technologies for the retrofit markets.
Currently, a significant amount of our lighting products are manufactured at our leased production facility location in Manitowoc, Wisconsin, although as the LED market continues to evolve, we also source products and components from third parties in order to have versatility in our product development.
Markets Division Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors. Our Market Opportunity We provide enterprise-grade LED lighting and energy management project solutions. We are primarily focused on providing commercial and industrial facilities lighting retrofit solutions in North America using solid-state LED technology.
Our Market Opportunity We provide enterprise-grade LED lighting and energy management project solutions. We are primarily focused on providing commercial and industrial facilities lighting retrofit solutions in North America using solid-state LED technology. We believe the market for lighting products has shifted to LED lighting systems and continues to grow.
All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination. At times during fiscal 2022, in response to the COVID-19 pandemic, we continued to implement safety protocols and procedures to protect our employees and our customers.
All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination. 15
We face strong competition primarily from manufacturers and distributors of lighting products and services as well as electrical contractors. We compete primarily on the basis of technology, cost, performance, quality, customer experience, 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.
We face strong competition primarily from manufacturers and distributors of lighting products and services as well as electrical contractors. We compete primarily on the basis of technology, cost, performance, quality, customer experience, energy efficiency, customer service and marketing support. We compete against other value-added resellers and electrical contractors in the EV charging market.
We also provide other services that comprise a small amount of our revenue. These services primarily include management and control of power quality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and fixture components into the after-market.
These services primarily include management and control of power quality and remote monitoring and control of our installed systems. We also sell and distribute replacement lamps and fixture components into the after-market. Our Customers We primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing and office facilities.
We estimate that approximately 25-30% of this market still utilizes inefficient high intensity discharge ("HID") lighting technologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and earlier generation of LED fixtures . Exterior Area lighting. Our market for area lighting includes parking garages, surface lots, automobile dealerships and gas service stations.
Commercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional fluorescents, LED and incandescent lighting fixtures. We estimate that approximately 25-30% of this market still utilizes inefficient high intensity discharge ("HID") lighting technologies. Our lighting systems typically replace less efficient HID, HIF fixtures, and earlier generation of LED fixtures. Exterior Area lighting.
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 technologies. Our products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their quantity or quality of light.
We believe that LED lighting technology allows for better optical performance, significantly reduced energy consumption. Due to their size and flexibility in application, we also believe that LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other technologies.
Sales and Marketing We sell our products in one of three ways: (i) directly through our relationships with our national account partners; (ii) indirectly through independent sales agencies and broadline North American distributors; and (iii) through ESCOs. Our ODS segment focuses on developing and expanding customer relationships with independent manufacturer’s sales agents and broadline distributors.
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. 12 Sales and Marketing We sell our lighting products in one of three ways: (i) directly through our relationships with our national account partners or through Voltrek; (ii) indirectly through independent sales agencies and broadline North American distributors; and (iii) through ESCOs.
Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America. Our principal customers include large national account end-users, electrical distributors, electrical contractors and energy service companies (“ESCOS”).
Our principal lighting customers include large national account end-users, electrical distributors, electrical contractors and energy service companies (“ESCOS”).
As of the end of fiscal 2022 we had 27 independent lighting agencies representing us in substantially all of North America expanding our reach with broadline distributors. We attempt to leverage the customer relationships of these distributors to further extend the geographic scope of our selling efforts.
Our ODS segment focuses on developing and expanding customer relationships with independent manufacturer’s sales agents and broadline distributors. As of the end of fiscal 2023 we had 33 independent lighting agencies representing us in substantially all of North America expanding our reach with broadline distributors.
Few LED lighting providers are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations. Incrementally, we are also able to help customers deploy state-of-the-art control systems that provide even greater long-term value from their lighting system investments.
The success of this approach has resulted in what we call a “Customer for Life” relationship with customers that encourages additional projects and maintenance services. Few LED lighting providers are organized to serve every step of a custom retrofit project in a comprehensive, non-disruptive and timely fashion, from custom fixture design and initial site surveys to final installations.
These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels. 10 Products and Services Our primary focus has been the sale of our LED lighting fixtures with integrated controls technology and related installation services.
Products and Services Our primary focus has been the sale of our LED lighting fixtures with integrated controls technology and related installation services. We will continue to focus on these products and services, as well as on expanding our maintenance service offerings and our EV charging station solutions.
This “smart ceiling” can be integrated with other technologies to collect data and manage assets and resources more efficiently. Orion’s percentage of systems utilizing IoT enabled devices has grown significantly over the past few years and we expect this trend to continue.
This “smart ceiling” can be integrated with other technologies to collect data and manage assets and resources more efficiently.
We serve government and private sector end-customers in the following primary markets: commercial office and retail, exterior 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. Industrial applications.
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. Industrial applications. Our market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities, government buildings and agricultural buildings. These facilities typically contain "high-bay" lighting fixtures for ceiling heights of 20-60 feet.
We generally expect our backlog to be recognized as revenue within one year, although the COVID-19 pandemic extended this time period. Manufacturing and Distribution We lease an approximately 266,000 square foot primary manufacturing and distribution facility located in Manitowoc, Wisconsin, where most of our products are manufactured.
Backlog does not include any amounts for contracted maintenance services. Manufacturing and Distribution We lease an approximately 266,000 square foot primary manufacturing and distribution facility located in Manitowoc, Wisconsin, where most of our products are manufactured.
In addition to selling directly to national accounts, electrical contractors and ESCOs, we sell our lighting products and services to electrical distributors through a North American network of independent lighting agencies. As of the end of fiscal 2022, we had 27 independent lighting agencies representing us in substantially all of North America.
Our percentage of systems utilizing IoT enabled devices has grown significantly over the past few years and we expect this trend to continue. Expanded Sales and Distribution Network. In addition to selling directly to national accounts, electrical contractors and ESCOs, we sell our lighting products and services to electrical distributors through a North American network of independent lighting agencies.
We intend to continue to selectively evaluate our sales network in the future, with a focus on geographic regions where we do not currently have a strong sales presence. Impact of COVID-19 in Fiscal 2022 The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally.
As of the end of fiscal 2023, we had 33 independent lighting agencies representing us in substantially all of North America. We intend to continue to selectively evaluate our sales network in the future, with a focus on geographic regions where we do not currently have a strong sales presence.
In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customers. Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems provided by third parties. We believe the market for LED lighting products continues to grow.
On October 5, 2022, we acquired Voltrek, which is intended to leverage our project management and maintenance expertise into the rapidly growing EV sector. Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems provided by third parties. We believe the market for LED lighting products continues to grow.
Our Customers We primarily target commercial, institutional and industrial customers who have warehousing, retail, manufacturing, and office facilities. In fiscal 2022, one customer accounted for 49.1% of our total revenue. In fiscal 2021, that same customer accounted for 56.0% of our total revenue, and in fiscal 2020, this same customer accounted for 74.1% of our total revenue.
In fiscal 2023, one customer accounted for 16.2% of our total revenue. In fiscal 2022, that same customer accounted for 49.1% of our total revenue, and in fiscal 2021, this same customer accounted for 56.0% of our total revenue. In fiscal 2024, we expect that our customer concentration will continue at the approximate level experienced in fiscal 2023.
Our CODM is our chief executive officer. We have three reportable segments: Orion Services Group Division ("OSG"), and Orion Distribution Services Division ("ODS"), and Orion U.S. Markets Division ("USM"). For financial results by reportable segment, please refer to Note 18 – Segment Data in our consolidated financial statements included in Item 8. of this Annual Report.
With the acquisition of Voltrek on October 5, 2022, we added a fourth reporting segment, Orion Electric Vehicle Charging Division (“EV Division”). For financial results by reportable segment, please refer to Note 18 – Segment Data in our consolidated financial statements included in Item 8. of this Annual Report.
Large and Growing Customer Base. We have developed a large and growing national customer base and have installed our products in commercial and industrial facilities across North America.
Incrementally, we are also able to help customers deploy state-of-the-art IoT control systems that provide even greater long-term value from their lighting system investments. Large and Growing Customer Base. We have developed a large and growing national customer base and have installed our products in commercial and industrial facilities across North America.
Some of these competitors, such as Ameresco, Inc., Johnson Controls International and Honeywell International, provide basic systems and controls designed to further energy efficiency. Intellectual Property As of March 31, 2022, we had been issued over 100 United States patents and have applied for a number of additional United States patents.
Intellectual Property As of March 31, 2023, we had been issued over 100 United States patents and have applied for a number of additional United States patents. The patented and patent pending technologies cover various innovative elements of our products, including our HIF and LED fixtures.
To build on this success, we are evolving our business strategy to further leverage this unique capability, while making targeted additions to the scope and nature of our products and services to enhance the value we can provide to our customers.
To build on this success, we are evolving our business strategy to further leverage this unique capability, along with a strong network of ESCO partners, agents and distributors to offer more products and services to our customers. We have adopted a “Customers for Life” philosophy that broadens our view of platforms that can be offered to deliver our mission.
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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 three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets.
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We sell our products and services into many vertical markets within the broader commercial and industrial market segment. Primary verticals include: big box retail, manufacturing, warehousing/logistics, commercial office, federal and municipal government, healthcare and schools. Our services consist of turnkey installation (lighting and EV) and system maintenance. Virtually all of our sales occur within North America.
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We believe the market for lighting products has shifted to LED lighting systems and continues to grow. We believe that LED lighting technology allows for better optical performance, significantly reduced maintenance costs due to performance longevity and reduced energy consumption.
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In addition, we began to offer lighting and electrical maintenance services in fiscal 2021, which enable us to support a long-term business relationship with our customers. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities.
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Our market for industrial facilities includes manufacturing facilities, distribution and warehouse facilities, government buildings and agricultural buildings. These facilities typically contain "high-bay" lighting fixtures. 7 Commercial and industrial facilities in the United States employ a variety of lighting technologies, including HID, traditional fluorescents, LED and incandescent lighting fixtures.
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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.
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These turnkey services were the principal reason we achieved significant revenue growth in fiscal 2020 as we executed on our commitment to retrofit multiple locations for a major national account customer. This roll-out resumed in the second half of fiscal 2021 after a suspension in the first half of fiscal 2021 related to the COVID-19 pandemic response.
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Markets Division Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors. Orion Electric Vehicle Charging Division Our EV Division offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals.
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Our success in the national account market segment centers on our turnkey design, engineering, manufacturing and project management capabilities and subsequent maintenance, which represent a very clear competitive advantage for us among large enterprises seeking to benefit from the illumination benefits and energy savings of LED lighting across locations nationwide.
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Our lighting products deliver energy savings and efficiency gains to our commercial and industrial customers without compromising their quantity or quality of light.
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We intend to leverage our expertise in managing projects across multiple facilities within our new LED product markets, which now include new customer opportunities with banks, insurance companies, hospitals, fast food chains, retail storefronts, grocery and pharmacies. Innovative Technology. We have developed a portfolio of United States patents primarily covering various elements of our products.
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Energy-efficient lighting systems are cost-effective and environmentally responsible solutions allowing end users to reduce operating expenses and their carbon footprint. 7 We serve government and private sector end-customers in the following primary markets: commercial office and retail, exterior area lighting and industrial applications. Commercial office and retail.
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Our business was adversely impacted by measures taken by customers, suppliers, government entities and others to control the spread of 9 the virus beginning in March 2020 ( the last few weeks of our 2020 fiscal year ) , and continuing most significantly into the second quarter of fiscal 2021.
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Our market for area lighting includes parking garages, surface lots, automobile dealerships and gas service stations. EV Charging Infrastructure: Our market for designing/engineering and installing EV charging systems (we do not make equipment) includes commercial and industrial customers including government.
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During the third quarter of fiscal 2021, we experienced a rebound in business as project installations resumed for our largest customer. However, potential future risks remain due to the COVID-19 pandemic.
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We focus largely on level 2 EV charging solutions for employee and guest charging of passenger vehicles and level 3 DC fast charge systems for fleet applications and high speed passenger vehicle charging. Maintenance Business: Our maintenance business services customers generally require third party lighting maintenance services. along with modest electrical maintenance service.
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It is not possible to predict the overall impact the COVID-19 pandemic will have on our business, liquidity, capital resources or financial results, although the economic and regulatory impacts of COVID-19 significantly reduced our revenue and profitability in the first half of fiscal 2021.
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See "Products and Services" below. In addition, we offer lighting maintenance services on both a preventative and reactive basis to the commercial and industrial verticals. In October, 2022, we acquired Voltrek LLC, which offers leading EV charging expertise and provides turnkey EV installation solutions with ongoing support to all commercial verticals. Environmental Benefits.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of these risks are summarized below: • Our business has been, and could again in the future be, negatively impacted by the Coronavirus (“COVID-19”) pandemic. • Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply. • Our ability to achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives. • Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business. • As we evolve our business strategy to increase our focus on new product and service offerings, the nature of our business may be significantly changed, or transformed. • We do not have major sources of recurring revenue and the loss of any significant customers or a major customer would likely materially adversely affect us. • Our evolving business strategy includes actively exploring potential acquisitions, which involves substantial risks. • Government tariffs and other actions may adversely affect our business. • The success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our competitors. • We increasingly rely on third-party manufacturers for the manufacture and development of our products and product components. • Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results. • Our continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution channels has had limited success to date. • The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow. • Our ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee staffing could negatively impact our business. 15 Risks Related to Our Business Operational Risks Our business has been, and could again in the future be, negatively impacted by the COVID-19 pandemic.
Biggest changeThe reduction of revenue from our most significant customer over the past three fiscal years has had, and the potential future loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows. • Our ability to replace the substantially reduced revenue from our prior most significant customer, regain and sustain our profitability and achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives. • We may not realize the anticipated benefits of our recent acquisitions of Stay-Lite Lighting and Voltrek, and the integration of Stay-Lite Lighting and Voltrek may disrupt our business and management, which could adversely affect our business, financial condition or results of operations • Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply. • Our ability to balance customer demand and production capacity and increased difficulty in obtaining permanent employee staffing could negatively impact our business. • We increasingly rely on third-party manufacturers for the manufacture and development of our products and product components. • Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results. • Our existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving strategies, complete potential acquisitions or otherwise fund or sustain growth initiatives. • Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business. • As we evolve our business strategy to increase our focus on new product and service offerings, the nature of our business may be significantly changed, or transformed. • Our continued emphasis on indirect distribution channels to sell our products and services to supplement our direct distribution channels has had limited success to date. • The success of our LED lighting retrofit solutions depends, in part, on our ability to claim market share away from our competitors. 16 • Government tariffs and other actions may adversely affect our business. • The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow.
We may not realize the anticipated benefits of the Stay-Lite Acquisition or such other business combinations or acquisitions, and we may encounter substantial difficulties, costs and delays involved in integrating our operations with such businesses, including: • Exposure to unknown liabilities; • Potential conflicts between business cultures; • Adverse changes in business focus perceived by third-party constituencies; • Disruption of our ongoing business; • Potential conflicts in distribution, marketing or other important relationships; • Potential constraints of management resources; • Inability to implement uniform standards, controls, procedures and policies; • Failure to maximize our financial and strategic position; • Failure to achieve planned synergies or expected financial results benefits; • Failure to realize the potential of the acquired businesses' technologies, complete product development, or properly obtain or secure appropriate protection of intellectual property rights; and • Loss of key employees and/or the diversion of management's attention from other ongoing business concerns.
We may not realize the anticipated benefits of the Stay-Lite or Voltrek acquisition or such other business combinations or acquisitions, and we may encounter substantial difficulties, costs and delays involved in integrating our operations with such businesses, including: • Exposure to unknown liabilities; • Potential conflicts between business cultures; • Adverse changes in business focus perceived by third-party constituencies; • Disruption of our ongoing business; • Potential conflicts in distribution, marketing or other important relationships; • Potential constraints of management resources; • Inability to implement uniform standards, controls, procedures and policies; • Failure to maximize our financial and strategic position; • Failure to achieve planned synergies or expected financial results benefits; • Failure to realize the potential of the acquired businesses' technologies, complete product development, or properly obtain or secure appropriate protection of intellectual property rights; and • Loss of key employees and/or the diversion of management's attention from other ongoing business concerns.
Business combinations and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of Stay-Lite Lighting or other acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of such acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
Business combinations and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of Stay-Lite Lighting or Voltrek or other acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of such acquisitions to the extent anticipated, which could adversely affect our business, financial condition or results of operations.
These different characteristics may include, among other things, rapidly changing technologies, different supply chains, different competitors and methods of competition, new product development rates, client concentrations and performance and compatibility requirements. Our failure to make the necessary adaptations to our business model to address these different characteristics, complexities and new market dynamics could adversely affect our operating results.
These different characteristics may include, among other things, rapidly changing technologies, different supply chains, different competitors and methods of competition, 25 new product development rates, client concentrations and performance and compatibility requirements. Our failure to make the necessary adaptations to our business model to address these different characteristics, complexities and new market dynamics could adversely affect our operating results.
Particularly because our products often incorporate new technologies or designs, we cannot predict whether or not product liability claims will be brought against us in the future or result in negative publicity about our business or adversely affect our customer relations. Moreover, we may not have adequate resources in the event of a successful claim against us.
Particularly because our products often incorporate new technologies or designs, we cannot predict whether or not product liability claims will be brought against us in the future or result in negative publicity about our business or adversely affect our customer relations. Moreover, we may not have adequate 29 resources in the event of a successful claim against us.
The operation of our manufacturing facility entails risks in these areas and there can be no assurance that we will not incur material costs or liabilities in the future that could adversely affect our results of operations, financial condition and cash flows. Risks Related to Our Common Stock We expect our quarterly revenue and operating results to fluctuate.
The operation of our manufacturing facility entails risks in these areas and there can be no assurance that we will not incur material costs or liabilities in the future that could adversely affect our results of operations, financial condition and cash flows. 30 Risks Related to Our Common Stock We expect our quarterly revenue and operating results to fluctuate.
The matters discussed in the following risk factors, and additional risks and uncertainties 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.
The matters discussed in the following risk factors, and additional risks and uncertainties 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. 1.
If we are unable to attract and retain sufficient talent, we may be unable to broaden our customer base, which will adversely affect our results of operations, financial condition and cash flows. Legal, Regulatory and Compliance Risks Our retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous materials.
If we are unable to attract and retain sufficient talent, we may be unable to broaden our customer base, which will adversely affect our results of operations, financial condition and cash flows. 28 Legal, Regulatory and Compliance Risks Our retrofitting process frequently involves responsibility for the removal and disposal of components containing hazardous materials.
We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event 28 of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely affected.
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 other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely affected.
Any breach or failure of our information technology 18 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, financial condition and cash flows . Some of our existing information technology systems are in need of enhancement, updating and replacement.
Any breach or failure 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, financial condition and cash flows. Some of our existing information technology systems are in need of enhancement, updating and replacement.
Participants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely to gain a competitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life 26 of several years following installation.
Participants in the LED market who are able to quickly establish customer relationships and achieve market penetration are likely to gain a competitive advantage as the lighting retrofit solutions offered by us and our competitors generally have a product life of several years following installation.
If we are successful in introducing new product and services offerings, including expanded energy management and maintenance services and products with new technology, software and controls, the nature of our business may significantly change or 23 be transformed away from being principally lighting products focused.
If we are successful in introducing new product and services offerings, including expanded energy management and maintenance services and products with new technology, software and controls, the nature of our business may significantly change or be transformed away from being principally lighting products focused.
If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline. 29 The price of our common stock has been, and may continue to be, volatile.
If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline. The price of our common stock has been, and may continue to be, volatile.
The conflict in Ukraine may also exacerbate geopolitical tensions globally. We operate in a highly competitive industry and, if we are unable to compete successfully, our results of operations, financial condition and cash flows will likely be materially adversely affected.
The conflict in Ukraine may also continue to exacerbate geopolitical tensions globally. We operate in a highly competitive industry and, if we are unable to compete successfully, our results of operations, financial condition and cash flows will likely be materially adversely affected.
Such an event could materially adversely affect our financial condition and liquidity. Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any credit renewal terms. Any failure to comply with such covenants may be a disclosable event and may be perceived 22 negatively.
Such an event could materially adversely affect our financial condition and liquidity. Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any credit renewal terms. Any failure to comply with such covenants may be a disclosable event and may be perceived negatively.
We may be unable to successfully develop and market new products or services that keep pace with technological or industry changes, differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and industry regulations and technology standards.
We may be unable to successfully develop and market new products or services that keep pace with technological or industry changes, differentiate ourselves from our competition, satisfy changes in customer demands or comply with present or emerging government and 27 industry regulations and technology standards.
Further, the risk of a security breach or disruption, particularly through cyber attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber attacks have become more prevalent and harder to detect and fight against.
Further, the risk of a security breach or disruption, particularly through cyber attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber 19 terrorists, has generally increased as cyber attacks have become more prevalent and harder to detect and fight against.
While we do not purchase any of significant raw materials directly from Russia, it is a significant global producer of fuel, nickel, and copper. Disruptions in the markets for those inputs could negatively impact the macroeconomy.
While we do not purchase any of our significant raw materials directly from Russia, it is a significant global producer of fuel, nickel and copper. Disruptions in the markets for those inputs could negatively impact the macroeconomy.
In the event any of the foregoing occur, the market price of our common stock could be highly volatile and may materially 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 executive officers and directors.
In the event any of the foregoing occur, the market price of our common stock could be highly volatile and may materially decline 31 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 executive officers and directors.
In addition, our ability to attract talented new employees, particularly in our sales group and our innovation and engineering team, is also critical to our success. We also depend on our distribution channels and network of 17 manufacturer sales representative agencies.
In addition, our ability to attract talented new employees, particularly in our sales group and our innovation and engineering team, is also critical to our success. We also depend on our distribution channels and network of manufacturer sales representative agencies.
Factors affecting the availability to us of additional equity capital or debt financing on acceptable terms and conditions, or in sufficient amounts, include: • Our history of operating losses prior to our fiscal 2020; • Our current and future financial results and condition; • Our limited collateral availability; • Our current customer concentration; • 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 and sustain our business plan or achieve our operating results expectations; and • The price, volatility and trading volume and history of our common stock.
Factors affecting the availability to us of additional equity capital or debt financing on acceptable terms and conditions, or in sufficient amounts, include: • Our operating loss in fiscal 2023; • Our history of operating losses prior to our fiscal 2020; • Our current and future financial results and condition; • Our limited collateral availability; • Our current customer concentration; • 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 and sustain our business plan or achieve our operating results expectations; and • The price, volatility and trading volume and history of our common stock.
Our results of operations, financial condition and cash flows could be materially adversely affected if our third-party manufacturers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in their manufacturing process or delivery of the finished products and components or the raw materials used to make such products and components. 19 Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results.
Our results of operations, financial condition and cash flows could be materially adversely affected if our third-party manufacturers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in their manufacturing process or delivery of the finished products and components or the raw materials used to make such products and components. 20 Macroeconomic pressures in the markets in which we operate or anticipate operating in the future may adversely affect our financial results.
For example, the adoption of new tariffs by the new United States administration or by other countries and the ongoing impact of COVID-19 in China could continue to adversely affect our profitability and availability of raw materials and components, as there can be no assurance that future price increases will be successfully passed through to customers or that we will 16 be able to find alternative suppliers.
For example, the adoption of new tariffs by the United States administration or by other countries and the ongoing impact of COVID-19 in China could continue to adversely affect our profitability and availability of raw materials and components, as there 18 can be no assurance that future price increases will be successfully passed through to customers or that we will be able to find alternative suppliers.
Similarly, there can be no assurance that any completed acquisitions will be successful. Acquisitions may involve significant cash expenditures, debt incurrence, stock issuances, operating losses and expenses that would otherwise be directed to investments in our existing business and could have a material adverse effect on our financial condition, results of operations and cash flows.
Similarly, there can be no assurance that our recently completed acquisitions will be successful. Acquisitions may involve significant cash expenditures, debt incurrence, stock issuances, operating losses and expenses that would otherwise be directed to investments in our existing business and could have a material adverse effect on our financial condition, results of operations and cash flows.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our consolidated financial statements or fraud. As of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls for fiscal 2022 were designed and operating effectively.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our consolidated financial statements or fraud. As of March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls for fiscal 2023 were designed and operating effectively.
There can be no assurance that we will not experience a material weakness in our internal control over financial reporting in the future.
However, there can be no assurance that we will not experience a material weakness in our internal control over financial reporting in the future.
ITEM 1A. RISK FACTORS You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K.
ITEM 1A. RI SK FACTORS You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K.
The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets in the United States and globally.
The COVID-19 pandemic disrupted business, trade, commerce, financial and credit markets in the United States and globally.
For example, the ultimate impact of the conflict in Ukraine on fuel prices, inflation, the global supply chain and other macroeconomic conditions is unknown and could materially adversely affect global economic growth, disrupting discretionary spending habits and generally decreasing demand for our products and services, including our planned retrofit project in Germany in fiscal year 2023.
For example, the ultimate impact of the conflict in Ukraine on fuel prices, inflation, the global supply chain and other macroeconomic conditions is unknown and could materially adversely affect global economic growth, disrupting discretionary spending habits and generally decreasing demand for our products and services, including our planned retrofit project in Germany in fiscal 2024.
Our existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving growth strategy, complete potential acquisitions or otherwise fund or sustain our growth initiatives. If we require additional capital resources, we may not be able to obtain sufficient equity capital and/or debt financing on acceptable terms or conditions, or at all.
Our existing liquidity and capital resources may not be sufficient to allow us to effectively pursue our evolving growth strategies, complete potential acquisitions or otherwise fund or sustain our growth initiatives. If we require additional capital resources, we may 22 not be able to obtain sufficient equity capital and/or debt financing on acceptable terms or conditions, or at all.
If the COVID-19 pandemic becomes more pronounced in our markets or experiences a resurgence in markets recovering from the spread of COVID-19, or if another significant natural disaster or pandemic were to occur in the future, our results of operation would likely be materially adversely affected.
If the COVID-19 pandemic experiences a resurgence in markets recovering from the spread of COVID-19, or if another significant natural disaster or pandemic were to occur in the future, our results of operation would likely be materially adversely affected.
Our inability to successfully sustain our profitability and positive cash flows could materially and adversely affect our ability to pursue our evolving strategy and growth initiatives. Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business. Our operations and financial performance are impacted by worldwide economic conditions.
Our inability to successfully regain or sustain our profitability and positive cash flows could materially and adversely affect our ability to pursue our evolving strategies and growth initiatives. Adverse conditions in the global economy have negatively impacted, and could in the future negatively impact, our customers, suppliers and business. Our operations and financial performance are impacted by worldwide economic conditions.
Government tariffs and other actions may adversely affect our business. The United States government has been implementing various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs imposed on China imports.
Government tariffs and other actions may adversely affect our business. The United States government has, from time to time, implemented various monetary, regulatory, and trade importation restraints, penalties, and tariffs. Certain sourced finished products and certain of the components used in our products have been impacted by tariffs imposed on China imports.
Any future policy changes that may be implemented by the new United States administration could have a negative consequence on our financial performance.
Any future policy changes that may be implemented by the current or future United States administration could have a negative consequence on our financial performance.
Our business has been adversely impacted by measures taken by customers, suppliers, government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our prior fiscal year, and continuing most significantly into the second quarter of fiscal 2021.
Our business was adversely impacted by measures taken by customers, suppliers, government entities and others to control the spread of the virus beginning in March 2020, the last few weeks of our fiscal 2020, and continuing most significantly into the second quarter of fiscal 2021.
In addition, acquisitions involve numerous other risks, including: • the failure of the acquired business to achieve its revenue or profit forecasts; • the business culture of the acquired business may not match well with our culture; • our business strategies and focus may change in ways that adversely affect our results of operations; • technological and product synergies, economies of scale and cost reductions from the acquisition may not occur as expected; • unforeseen expenses, delays or conditions may result from the acquisition, including required regulatory approvals or consents; • potential changes may result to our management team and/or board of directors; • we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions or legal consequences; • faulty assumptions may be made regarding the macroeconomic environment or the integration process that form a basis for the acquisition; • unforeseen difficulties, delays and costs may arise in integrating the acquired business’s operations, processes and systems; 24 • higher than expected investments may be required to implement necessary compliance processes and related systems, including information technology systems, accounting systems and internal controls over financial reporting; • we may fail to retain, motivate and integrate key management and other employees of the acquired business; • higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any jurisdiction in which the acquired business conducts its operations; • we may adversely impact our sales channels and our sales channel partners; and • we may experience problems in retaining customers and integrating customer bases.
In addition, acquisitions involve numerous other risks, including: • the failure of the acquired business to achieve its revenue or profit forecasts; • the business culture of the acquired business may not match well with our culture; • our business strategies and focus may change in ways that adversely affect our results of operations; • technological and product synergies, economies of scale and cost reductions from the acquisition may not occur as expected; • unforeseen expenses, delays or conditions may result from the acquisition, including required regulatory approvals or consents; • potential changes may result to our management team and/or board of directors; • we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions or legal consequences; • faulty assumptions may be made regarding the macroeconomic environment or the integration process that form a basis for the acquisition; • unforeseen difficulties, delays and costs may arise in integrating the acquired business’s operations, processes and systems; • higher than expected investments may be required to implement necessary compliance processes and related systems, including information technology systems, accounting systems and internal controls over financial reporting; • we may fail to retain, motivate and integrate key management and other employees of the acquired business; • higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any jurisdiction in which the acquired business conducts its operations; • we may adversely impact our sales channels and our sales channel partners; and • we may experience problems in retaining customers and integrating customer bases. 26 Many of these factors will be outside of our control and any one of them could result in increased costs and reduced profitability, decreases in the amount of expected revenues and diversion of our management’s time and attention.
We are actively exploring potential business acquisitions which would more quickly add expanded and different capabilities to our product and services offerings, including potential acquisitions that could significantly change, or even transform, the nature of our business. There can be no assurance that we will identify or successfully complete transactions with suitable acquisition candidates in the future.
We may explore additional potential business acquisitions which could more quickly add expanded and different capabilities to our product and services offerings, including potential acquisitions that could significantly change, or even transform, the nature of our business. There can be no assurance that we will identify or successfully complete transactions with suitable acquisition candidates in the future.
In addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of benefits, including accelerated vesting of stock options and restricted stock awards, upon a change of control and a subsequent qualifying termination (other than for our Chief Executive Officer).
In addition, our employment arrangements with senior management provide for severance payments and accelerated vesting of benefits, including accelerated vesting of stock options and restricted stock awards, upon a change of control and a subsequent qualifying termination.
Our evolving business strategy includes actively exploring potential acquisitions, including potential acquisitions that could significantly change, or even transform, the nature of our business. These acquisitions could be unsuccessful or consume significant resources, which could materially adversely affect our results of operations, financial condition and cash flows.
Our evolving business strategies may include exploring potential acquisitions, including potential acquisitions that could significantly change, or even transform, the nature of our business. These potential acquisitions could be unsuccessful or consume significant resources, which could materially adversely affect our results of operations, financial condition and cash flows.
Historically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common stock will continue to be volatile in the future. The trading price of our common stock has ranged from $2.74 to $7.30 per share during the period from April 1, 2021 to March 31, 2022.
Historically, the market price of our common stock has fluctuated over a wide range, and it is likely that the price of our common stock will continue to be volatile in the future. The trading price of our common stock has ranged from $1.45 to $2.94 per share during the period from April 1, 2022 to March 31, 2023.
While we recently implemented a general price increase applicable to many new product orders, there is no assurance that such price increase will be accepted by our customers or succeed in increasing the average selling price of our products.
While we have previously implemented general price increases applicable to many new product orders, there is no assurance that such price increases will be accepted by our customers or succeed in increasing the average selling price of our products.
Our net operating loss carry-forwards provide a future benefit only if we continue to be 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. If we are unable to maintain our recent profitability, we may not be able to fully utilize these tax benefits.
Our net operating loss carry-forwards provide a future benefit only if we regain sustained profitability and may be subject to limitation based upon ownership changes. 23 We have significant federal net operating loss carry-forwards and state net operating loss carry-forwards. If we are unable to regain sustained profitability, we will not be able to fully utilize these tax benefits.
Prior to fiscal 2020, we experienced net losses and negative cash flows for the prior five fiscal years. There is no guarantee that we will be able to sustain our recent profitability and positive cash flows in the future.
We experienced a net loss in fiscal 2023, and prior to fiscal 2020, we experienced net losses and negative cash flows for the prior five fiscal years. There is no guarantee that we will be able to regain or sustain profitability and positive cash flows in the future.
This circumstance has resulted in our increased reliance on temporary employee staffing to support our production operations. Temporary employees can be less reliable and require more ongoing training than permanent employees. These factors can adversely affect our operational efficiencies.
We have, in the past, experienced difficulty in hiring sufficient permanent employees to support our production demands. This circumstance has resulted in our increased reliance on temporary employee staffing to support our production operations. Temporary employees can be less reliable and require more ongoing training than permanent employees. These factors can adversely affect our operational efficiencies.
The market for lighting products has experienced a significant technology shift to LED lighting systems. In addition, we continue to explore utilizing our system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other business technology or data information solutions on our lighting platform.
In addition, we continue to explore utilizing our system platform as a “connected ceiling” or “smart ceiling”, or a framework or network that can support the installation and integration of other business technology or data information solutions on our lighting platform.
Changes in government budget priorities and political gridlock, and future potential government shutdown, could negatively impact our results of operations, financial condition and cash flows. Actual and perceived changes in governmental budget priorities as a result of the new United States administration, and future potential government shutdowns, could adversely affect our results of operations, financial condition and cash flows.
Changes in government budget priorities and political gridlock, and future potential government shutdown, could negatively impact our results of operations, financial condition and cash flows. Actual and perceived changes in governmental budget priorities, and future potential government shutdowns, could adversely affect our results of operations, financial condition and cash flows.
Our ability to achieve our desired revenue and profitability goals depends on how effectively and timely we execute on our following key strategic initiatives: • executing and marketing our turnkey LED retrofit capabilities to large national account customers; • continuing our product innovation; • leveraging our smart lighting systems to support IoT applications; • developing our maintenance service offerings; and • supporting the success of our ESCO and distribution sales channels.
Our ability to replace the substantially reduced revenues from our prior most significant customer, regain profitability and achieve our desired revenue and profitability goals depends on how effectively and timely we execute on our following key strategic initiatives: • executing and marketing our turnkey LED retrofit capabilities to large national account customers; • continuing our product innovation; • leveraging our smart lighting systems to support IoT applications; • developing our maintenance service offerings; • supporting the success of our ESCO and distribution sales channels; and • cross selling our EV charging solutions to our historical sales channels and customers.
We cannot predict 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 such sales, will have on the market price of our common stock. 30 We are not currently paying dividends on our common stock and will likely continue not paying dividends for the foreseeable future .
We cannot predict 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 such sales, will have on the market price of our common stock.
In addition, the terms of our existing revolving credit agreement restrict the payment of cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions and other factors that our board of directors deems relevant.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions and other factors that our board of directors deems relevant.
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 to fund the continued development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We currently intend to retain all available funds and any future earnings to fund the continued development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the terms of our existing revolving credit agreement restrict the payment of cash dividends on our common stock.
We are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the credit agreement, resulting in our being unable to borrow under our credit agreement and materially adversely impact our liquidity.
Our business and results of operations will be adversely affected to the extent these adverse economic conditions affect our customers’ purchasing decisions. 24 We are subject to financial and operating covenants in our credit agreement and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the credit agreement, resulting in our being unable to borrow under our credit agreement and materially adversely impact our liquidity.
If we are unable to maintain supply sources of our components and raw materials or if our sources fail to satisfy our supply requirements, we may lose sales and experience increased component costs.
Our products use components and raw materials that may be subject to price fluctuations, shortages or interruptions of supply, including semiconductor chips. If we are unable to maintain supply sources of our components and raw materials or if our sources fail to satisfy our supply requirements, we may lose sales and experience increased component costs.
A failure to maintain an effective system of internal 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 consolidated financial statements, and could also cause a loss of investor confidence and decline in the market price of our common stock. 20 Financial Risks We do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue.
A failure to maintain an effective system of internal 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 consolidated financial statements, and could also cause a loss of investor confidence and decline in the market price of our common stock.
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 could be subject to limitations in a particular year, which could potentially result in our increased future tax liability. 21 Until fiscal 2020, we had a history of losses and negative cash flow and we may be unable to sustain our recent profitability and positive cash flows in the future .
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 could be subject to limitations in a particular year, which could potentially result in our increased future tax liability.
Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices.
Our efforts to mitigate the impact of added costs resulting from these government actions include a variety of activities, such as sourcing from non-tariff impacted countries and raising prices. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations may be adversely affected.
Any acquisitions we complete may not achieve their initially intended results and benefits, and may be viewed negatively by investors and other stakeholders. We may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities, including through the new issuance of our common stock or debt securities as consideration in an acquisition transaction.
We may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities, including through the new issuance of our common stock or debt securities as consideration in an acquisition transaction.
Our ability to achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives.
Our ability to replace the substantially reduced revenue from our prior most significant customer, regain and sustain profitability and achieve our desired revenue and profitability goals depends on our ability to effectively and timely execute on our key strategic initiatives.
As a result, we may have difficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative effect on our ability to attract and obtain customers, which could have an adverse impact on our business. 25 The success of our business depends upon our adaptation to the quickly changing market conditions in the lighting industry and on market acceptance of our lighting retrofit solutions using LED and control technologies.
As a result, we may have difficulty attracting and retaining sales agents and distributors and any inability to do so could have a negative effect on our ability to attract and obtain customers, which could have an adverse impact on our business.
If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, our ability to execute our operating plan could be adversely affected We have recently experienced increased difficulty in hiring sufficient permanent employees to support our production demands.
We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, our ability to execute our operating plan could be adversely affected.
We also may identify and pursue strategic acquisition candidates that would help support these initiatives. There can be no assurance that we will be able to successfully implement these initiatives or, even if implemented, that they will result in the anticipated benefits to our business.
There can be no assurance that we will be able to successfully implement these initiatives or, even if implemented, that they will result in the anticipated benefits to our business. 17 We may not realize the anticipated benefits of our recent acquisitions of Stay-Lite Lighting and Voltrek.
We and our executive officers and directors may from time to time sell shares of our common stock in the public market or otherwise. On February 18, 2021, we reported that Michael W. Altschaefl, our Chief Executive Officer and Board Chair, and Scott A.
We and our executive officers and directors may from time to time sell shares of our common stock in the public market or otherwise.
The loss of any significant customers or a major customer would likely have a materially adverse effect on our results of operations, financial condition and cash flows. We do not have any significant long-term contracts with our customers that provide us with recurring revenue from period to period.
The reduction of revenue from our prior most significant customer has had, and the loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows.
Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future. We may not be able to obtain equity capital or debt financing necessary to effectively pursue our evolving strategy and sustain our growth initiatives.
Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future.
Since semiconductor chips have been recently subject to an ongoing significant shortage, our ability to source these important components that use semiconductor chips has been adversely affected. This has resulted in increased component delivery lead times, delays in our product production and increased costs to obtain components with available semiconductor chips.
For example, our ability to source semiconductor chips has been adversely affected in the recent past and could occur again. Difficulty in sourcing necessary components in the past has resulted in increased component delivery lead times, delays in our product production and increased costs to obtain components with available semiconductor chips.
We currently generate a substantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new and existing customers. As a result, our dependence on individual key customers can vary from period to period due to the significant size of some of our retrofit and multi-facility roll-out projects.
We do not have any significant long-term contracts with our customers that provide us with recurring revenue from period to period. We currently generate a substantial portion of our revenue by securing large retrofit and multi-facility roll-out projects from new and existing customers.
Effective on January 1, 2022, the Company acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc. (“Stay-Lite Lighting”), a nationwide lighting and electrical maintenance service provider (the “Stay-Lite Acquisition”); and, we may acquire additional companies or enter into other business combinations or strategic initiatives in the future.
The integrations of Stay-Lite Lighting and Voltrek may disrupt our business and management, which could adversely affect our business, financial condition or results of operations. Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, Inc., a nationwide lighting and electrical maintenance service provider.
To the extent this semiconductor chip shortage continues, our production ability and results of operations will be adversely affected. We also source certain finished goods externally.
To the extent a semiconductor chip shortage occurs or our ability to acquire the parts necessary to conduct our business operations, such as other necessary finished goods, is materially affected, our production ability and results of operations will be adversely affected.
Risk Factor Summary Our business is subject to a number of risks and uncertainties, including those highlighted immediately following this summary.
Risk Factor Summary Our business is subject to a number of risks and uncertainties, including those highlighted immediately following this summary. Some of these risks are summarized below: • We do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue.
Moreover, our management team has limited experience in, and limited time to dedicate to, pursuing, negotiating or integrating acquisitions. If we do identify suitable candidates, we may not be able to negotiate or consummate such acquisitions on favorable terms or at all.
If we do identify suitable candidates, we may not be able to negotiate or consummate such acquisitions on favorable terms or at all. Any acquisitions we complete may not achieve their initially intended results and benefits, and may be viewed negatively by investors and other stakeholders.
Further, suppliers’ inventories of certain components that our products require may be limited and are subject to acquisition by others. As a result of disruption to our supply chain due to COVID-19, which has caused supplier delivery constraints and concerns over component availability, we have attempted to purchase excess quantities of certain components that are critical to our product manufacturing.
Further, suppliers’ inventories of certain components that our products require may be limited and are subject to acquisition by others and we may not, as a result, have the necessary inventory of parts and goods necessary to conduct our operations.
Our top 10 customers accounted for approximately 69.4%, 80% and 83% respectively, of our total revenue for fiscal 2022, 2021 and 2020. In fiscal 2020, one customer accounted for 74.1% of our total revenue compared to 56.0% in fiscal 2021. In fiscal 2022, this customer accounted for 49.1% of our total revenue.
In fiscal 2021, one customer accounted for 56.0% of our total revenue compared to 49.1% in fiscal 2022 and in fiscal 2023, this customer accounted for 16.2% of our total revenue. In fiscal 2024, we expect our customer concentration will continue at the approximate level experienced in fiscal 2023.
They may also delay, decrease or eliminate the realization of some or all of the benefits we anticipate when we enter into the transaction. Because we have historically only made one acquisition to date, our ability to do so again successfully is unproven.
They may also delay, decrease or eliminate the realization of some or all of the benefits we anticipate when we enter into the transaction. Our management team has limited experience in, and limited time to dedicate to, pursuing, negotiating or integrating acquisitions.
The loss of this customer or our failure to satisfy its installation requirements could have a material adverse effect on our results of operations, financial condition and cash flows, as well as on our reputation and our ability to execute our business strategy.
The reduction of revenue from this customer has had a material advent effect on our results of operations, financial condition and cash flow.
Removed
As part of our response to the impacts of the COVID-19 pandemic, during the fourth quarter of fiscal 2020, we implemented a number of cost reduction and cash conservation measures, including reducing headcount.
Added
Risks Related to Our Business Operational Risks We do not have major sources of recurring revenue and we depend upon a limited number of customers in any given period to generate a substantial portion of our revenue.
Removed
While certain COVID-19 related restrictions began to initially lessen in certain jurisdictions during the second half of fiscal 2021, stay-at-home, face mask or lockdown orders remain in effect in others, with employees asked to work remotely if possible.
Added
The reduction of revenue from our most significant customer over the past three fiscal years has had, and the potential future loss of other significant customers or a major customer would likely have, a materially adverse effect on our results of operations, financial condition and cash flows. In fiscal 2023, one customer accounted for 16.2% of our total revenue.
Removed
Certain areas of the country have seen spikes of COVID-19 cases (including in and around our headquarters in Manitowoc, Wisconsin and our office in Jacksonville, Florida), which could result in renewed restrictions and lockdown orders.
Added
In fiscal 2022, that same customer accounted for 49.1% of our total revenue, and in fiscal 2021, this same customer accounted for 56.0% of our total revenue. In fiscal 2024, we expect that our customer concentration will continue at the approximate level experienced in fiscal 2023.
Removed
Some of our customers and projects are in areas where travel restrictions have been imposed, certain customers have either closed or reduced on-site activities, and timelines for the completion of several projects have been delayed, extended or terminated.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Manitowoc and Jacksonville facilities noted above are utilized by all our business segments, and the Pewaukee facility by our Orion Services Group Division.
Biggest changeThe Manitowoc and Jacksonville facilities noted above are utilized by all our business segments, the Lawrence facility by our EV Division and the Pewaukee facility by our Orion Services Group Division.
ITEM 2. PROPERTIES We lease our approximately 266,000 square foot manufacturing and distribution facility located in Manitowoc, Wisconsin. On January 31, 2020, we entered a new lease for the facility with a ten-year term, and an option to terminate after six years.
ITEM 2. P ROPERTIES We lease our approximately 266,000 square foot manufacturing and distribution facility located in Manitowoc, Wisconsin. On January 31, 2020, we entered a new lease for the facility with a ten-year term, and an option to terminate after six years.
We own our approximately 70,000 square foot technology center and corporate headquarters adjacent to our leased Manitowoc manufacturing and distribution facility, of which we sub-lease a portion to third parties. We also lease approximately 10,500 square feet of office space in Jacksonville, Florida, and 9,180 square feet of office space in Pewaukee, Wisconsin.
We own our approximately 70,000 square foot technology center and corporate headquarters adjacent to our leased Manitowoc manufacturing and distribution facility, of which we sub-lease a portion to third parties. We also lease approximately 10,500 square feet of office space in Jacksonville, Florida, 5,375 square feet in Lawrence, Massachusetts and 9,180 square feet of office space in Pewaukee, Wisconsin.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeEquity Compensation Plan Information Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares Weighted Average Exercise Price of Outstanding Options Number of Shares Remaining Available for Future Issuances Under the 2016 Omnibus Incentive Plan Plans (1) Equity Compensation plans approved by security holders 592,886 $ 2.28 1,387,612 Equity Compensation plans not approved by security holders — — — Total 592,886 $ 2.28 1,387,612 (1) Excludes shares reflected in the column titled “Number of Shares to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares”.
Biggest changeEquity Compensation Plan Information Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares Weighted Average Exercise Price of Outstanding Options Number of Shares Remaining Available for Future Issuances Under the 2016 Omnibus Incentive Plan Plans (1) Equity Compensation plans approved by security holders 816,590 $ 2.41 545,146 Equity Compensation plans not approved by security holders — — — Total 816,590 $ 2.41 545,146 (1) Excludes shares reflected in the column titled “Number of Shares to be Issued Upon Exercise of Outstanding Options and Vesting of Restricted Shares”.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions (including those under our loan agreements) and other factors that our board of directors deems relevant. 32 Securities Authorized for Issuance under Equity Compensation Plans The following table represents shares outstanding under our 2004 Stock and Incentive Awards Incentive Plan, and our 2016 Omnibus Incentive Plan as of March 31, 2022.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, contractual restrictions (including those under our loan agreements) and other factors that our board of directors deems relevant. 33 Securities Authorized for Issuance under Equity Compensation Plans The following table represents shares outstanding under our 2004 Stock and Incentive Awards Incentive Plan, and our 2016 Omnibus Incentive Plan as of March 31, 2023.
Unregistered Sales of Securities We did not make any unregistered sales of our common stock during the year ended March 31, 2022 that were not previously disclosed in a Quarterly Report on Form 10-Q or a current report on Form 8-K during such period. ITE M 6 .[RESERVED] 33
Unregistered Sales of Securities We did not make any unregistered sales of our common stock during the year ended March 31, 2023 that were not previously disclosed in a Quarterly Report on Form 10-Q or a current report on Form 8-K during such period. ITE M 6. [RESERVED] 34
Issuer Purchase of Equity Securities We did not purchase shares of our common stock during the fiscal year ended March 31, 2022.
Issuer Purchase of Equity Securities We did not purchase shares of our common stock during the fiscal year ended March 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Shares of our common stock are traded on the NASDAQ Capital Market under the symbol “OESX”. Shareholders As of May 31, 2022, there were approximately 159 record holders of the 31,098,938 outstanding shares of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHA REHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Shares of our common stock are traded on the NASDAQ Capital Market under the symbol “OESX”. Shareholders As of May 31, 2023, there were approximately 160 record holders of the 32,295,408 outstanding shares of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations: Fiscal 2021 versus Fiscal 2020 The 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): Fiscal Year Ended March 31, 2021 2020 2021 2020 Amount Amount % Change % of Revenue % of Revenue Product revenue $ 87,664 $ 113,352 (22.7 )% 75.0 % 75.1 % Service revenue 29,176 37,489 (22.2 )% 25.0 % 24.9 % Total revenue 116,840 150,841 (22.5 )% 100.0 % 100.0 % Cost of product revenue 63,233 83,588 (24.4 )% 54.1 % 55.4 % Cost of service revenue 23,483 30,130 (22.1 )% 20.1 % 20.0 % Total cost of revenue 86,716 113,718 (23.7 )% 74.2 % 75.4 % Gross profit 30,124 37,123 (18.9 )% 25.8 % 24.6 % General and administrative expenses 11,262 11,184 0.7 % 9.6 % 7.4 % Sales and marketing expenses 10,341 11,113 (6.9 )% 8.9 % 7.4 % Research and development expenses 1,685 1,716 (1.8 )% 1.4 % 1.1 % Income from operations 6,836 13,110 (47.9 )% 5.9 % 8.7 % Other income 56 28 100.0 % 0.0 % 0.0 % Interest expense (127 ) (279 ) 54.5 % (0.1 )% (0.2 )% Amortization of debt issue costs (157 ) (243 ) 35.4 % (0.1 )% (0.2 )% Loss on debt extinguishment (90 ) — NM (0.1 )% 0.0 % Interest income — 5 NM 0.0 % 0.0 % Income before income tax 6,518 12,621 48.4 % 5.6 % 8.4 % Income tax (benefit) expense (19,616 ) 159 NM (16.8 )% 0.1 % Net income $ 26,134 $ 12,462 (109.7 )% 22.4 % 8.3 % * NM = Not Meaningful Revenue.
Biggest changeWe 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, in order to replace this reduced level of revenue from our prior most significant customer. 39 Results of Operations: Fiscal 2023 versus Fiscal 2022 The 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): Fiscal Year Ended March 31, 2023 2022 2023 2022 Amount Amount % Change % of Revenue % of Revenue Product revenue $ 57,210 $ 91,889 (37.7 )% 73.9 % 73.9 % Service revenue 20,173 32,494 (37.9 )% 26.1 % 26.1 % Total revenue 77,383 124,383 (37.8 )% 100.0 % 100.0 % Cost of product revenue 42,979 65,249 (34.1 )% 55.5 % 52.5 % Cost of service revenue 16,893 25,222 (33.0 )% 21.8 % 20.3 % Total cost of revenue 59,872 90,471 (33.8 )% 77.4 % 72.7 % Gross profit 17,511 33,912 (48.4 )% 22.6 % 27.3 % General and administrative expenses 19,487 11,680 66.8 % 25.2 % 9.4 % Acquisition related costs 765 512 49.4 % 1.0 % 0.4 % Sales and marketing expenses 11,392 11,628 (2.0 )% 14.7 % 9.3 % Research and development expenses 1,852 1,701 8.9 % 2.4 % 1.4 % (Loss) income from operations (15,985 ) 8,391 NM (20.7 )% 6.7 % Other income — 1 NM 0.0 % 0.0 % Interest expense (339 ) (80 ) (323.8 )% (0.4 )% (0.1 )% Amortization of debt issue costs (73 ) (62 ) (17.7 )% (0.1 )% (0.0 )% (Loss) income before income tax (16,363 ) 8,250 NM (21.1 )% 6.6 % Income tax expense 17,978 2,159 NM 23.2 % 1.7 % Net (loss) income $ (34,341 ) $ 6,091 NM (44.4 )% 4.9 % * NM = Not Meaningful Revenue, Cost of Revenue and Gross Margin.
General and administrative expenses increased 3.7%, or $0.4 million, in fiscal 2022 compared to fiscal 2021. This comparative increase was primarily due to the acquisition of Stay-Lite Lighting and lower employment costs in fiscal 2021 as a result of COVID-19 related actions, partially offset by the payroll tax credit . Acquisition Costs .
General and administrative expenses increased 3.7%, or $0.4 million, in fiscal 2022 compared to fiscal 2021. This comparative increase was primarily due to the acquisition of Stay-Lite Lighting and lower employment costs in fiscal 2021 as a result of COVID-19 related actions, partially offset by the payroll tax credit. Acquisition Related Costs .
Loss on Debt Extinguishment . Loss on debt extinguishment in fiscal 2021 related to the write-off of fees incurred with respect to our prior credit facility, which was recognized upon execution of our new credit facility during the third quarter of fiscal 2021. Income Taxes. In fiscal 2022, we recognized a tax expense of $2.2 million.
Loss on debt extinguishment in fiscal 2021 related to the write-off of fees incurred with respect to our prior credit facility, which was recognized upon execution of our new credit facility during the third quarter of fiscal 2021. Income Taxes. In fiscal 2022, we recognized a tax expense of $2.2 million.
OSG provides engineering, design, lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
OSG provides engineering, design and lighting products and in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers.
Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase. Indebtedness Revolving Credit Agreement The Credit Agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025.
Our accounts receivables, inventory and payables may increase to the extent our revenue and order levels increase Indebtedness Revolving Credit Agreement Our Credit Agreement provides for a five-year $25.0 million revolving credit facility (the “Credit Facility”) that matures on December 29, 2025.
Looking forward, we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing new national account opportunities that leverage our customized, comprehensive turnkey project solutions, and 37 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.
Looking forward, we are focused on continuing to successfully execute on existing national account opportunities while also actively pursuing new national 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.
Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business. Our fiscal 2022 income tax provision reflects a more normalized effective income tax rate; however, we do not expect to remit significant cash taxes for the next several years.
Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business. Our fiscal 2022 income tax provision reflects a more normalized effective income tax rate. We do not expect to remit significant cash taxes for the next several years.
Currently, most of our 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.
Currently, most of our 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.
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 to recognize future impairment losses which could be material to our results of operations. Indefinite Lived Intangible Assets.
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 to recognize future impairment losses which could be material to our results of operations. Indefinite Lived Intangible Assets and Goodwill.
This process involves estimating our actual current tax 48 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.
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.
Our experience with large national customers and our large installed base of fixtures positions us well to extend a maintenance offering to historical customers, as well as to new customers. Development of this recurring revenue stream is making progress and we believe there is significant market opportunity.
Our experience with large national customers and our large installed base of fixtures positions us well to extend a maintenance offering to historical customers, as well as to new customers. 38 Development of this recurring revenue stream is making progress and we believe there is significant market opportunity.
We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. A summary of our critical accounting policies is set forth below. Revenue Recognition.
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. Revenue Recognition.
The increase in product costs was primarily due to the increase in product revenue. Gross margin increased to 27.3% of revenue in fiscal 2022 from 25.8% in fiscal 2021, due primarily to cost management and a change in customer sales mix. Operating Expenses General and Administrative.
The 41 increase in product costs was primarily due to the increase in product revenue. Gross margin increased to 27.3% of revenue in fiscal 2022 from 25.8% in fiscal 2021, due primarily to cost management and a change in customer sales mix. Operating Expenses General and Administrative.
Recent Accounting Pronouncements See Note 3 – 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. 49
Recent Accounting Pronouncements See Note 3 – 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.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
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.
Our annual impairment test may begin with a qualitative test to determine 48 whether it is more likely than not that an indefinite lived intangible asset's carrying value is greater than its fair value.
As of March 31, 2022, 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.
As of March 31, 2023, 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.
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 based on our current cash flow forecast, there can be no assurance to that effect.
While we believe that we 44 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.
Cash provided by (used in) operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.
Cash provided by (used in) operating activities primarily consists of net loss adjusted for certain non-cash items, including depreciation, amortization of intangible assets, stock-based compensation, amortization of debt issue costs, provisions for reserves, and the effect of changes in working capital and other activities.
We test indefinite lived intangible assets 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.
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.
We also had federal tax credit carryforwards of $1.3 million and state tax credit carryforwards of $0.8 million, which are partially reserved for as part of our valuation allowance.
We also had federal tax credit carryforwards of $1.3 million and state tax credit carryforwards of $0.3 million, which are reserved for as part of our valuation allowance.
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. Orion has three reportable segments: Orion Services Group Division ("OSG"), and Orion Distribution Services Division ("ODS"), and Orion U.S.
Reportable segments are components of an entity that have separate financial data that the entity's chief operating decision maker ("CODM") regularly reviews when allocating resources and assessing performance. Our CODM is our chief executive officer. We have four reportable segments: Orion Services Group Division ("OSG"), Orion Distribution Services Division ("ODS"), Orion U.S.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
The acquisition accelerates the growth of our maintenance services offerings through our Orion Services Group, which provides lighting and electrical services to customers. 38 Results of Operations: Fiscal 2022 versus Fiscal 2021 The 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): Fiscal Year Ended March 31, 2022 2021 2022 2021 Amount Amount % Change % of Revenue % of Revenue Product revenue $ 91,889 $ 87,664 4.8 % 73.9 % 75.0 % Service revenue 32,494 29,176 11.4 % 26.1 % 25.0 % Total revenue 124,383 116,840 6.5 % 100.0 % 100.0 % Cost of product revenue 65,249 63,233 3.2 % 52.5 % 54.1 % Cost of service revenue 25,222 23,483 7.4 % 20.3 % 20.1 % Total cost of revenue 90,471 86,716 4.3 % 72.7 % 74.2 % Gross profit 33,912 30,124 12.6 % 27.3 % 25.8 % General and administrative expenses 11,680 11,262 3.7 % 9.4 % 9.6 % Acquisition costs 512 — NM 0.4 % 0.0 % Sales and marketing expenses 11,628 10,341 12.4 % 9.3 % 8.9 % Research and development expenses 1,701 1,685 0.9 % 1.4 % 1.4 % Income from operations 8,391 6,836 22.7 % 6.7 % 5.9 % Other income 1 56 (98.2 )% 0.0 % 0.0 % Interest expense (80 ) (127 ) 37.0 % (0.1 )% (0.1 )% Amortization of debt issue costs (62 ) (157 ) 60.5 % (0.0 )% (0.1 )% Loss on debt extinguishment — (90 ) NM — (0.1 )% Income before income tax 8,250 6,518 26.6 % 6.6 % 5.6 % Income tax expense (benefit) 2,159 (19,616 ) NM 1.7 % -16.8 % Net income $ 6,091 $ 26,134 (76.7 )% 4.9 % 22.4 % * NM = Not Meaningful Revenue, Cost of Revenue and Gross Margin.
Results of Operations: Fiscal 2022 versus Fiscal 2021 The 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): Fiscal Year Ended March 31, 2022 2021 2022 2021 Amount Amount % Change % of Revenue % of Revenue Product revenue $ 91,889 $ 87,664 4.8 % 73.9 % 75.0 % Service revenue 32,494 29,176 11.4 % 26.1 % 25.0 % Total revenue 124,383 116,840 6.5 % 100.0 % 100.0 % Cost of product revenue 65,249 63,233 3.2 % 52.5 % 54.1 % Cost of service revenue 25,222 23,483 7.4 % 20.3 % 20.1 % Total cost of revenue 90,471 86,716 4.3 % 72.7 % 74.2 % Gross profit 33,912 30,124 12.6 % 27.3 % 25.8 % General and administrative expenses 11,680 11,262 3.7 % 9.4 % 9.6 % Acquisition related costs 512 — NM 0.4 % 0.0 % Sales and marketing expenses 11,628 10,341 12.4 % 9.3 % 8.9 % Research and development expenses 1,701 1,685 0.9 % 1.4 % 1.4 % Income from operations 8,391 6,836 22.7 % 6.7 % 5.9 % Other income 1 56 (98.2 )% 0.0 % 0.0 % Interest expense (80 ) (127 ) 37.0 % (0.1 )% (0.1 )% Amortization of debt issue costs (62 ) (157 ) 60.5 % (0.0 )% (0.1 )% Loss on debt extinguishment — (90 ) NM 0.0 % (0.1 )% Income before income tax 8,250 6,518 26.6 % 6.6 % 5.6 % Income tax expense (benefit) 2,159 (19,616 ) NM 1.7 % (16.8 )% Net income $ 6,091 $ 26,134 (76.7 )% 4.9 % 22.4 % * NM = Not Meaningful Revenue, Cost of Revenue and Gross Margin.
We performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets as of January 1, 2022. This qualitative assessment considered our operating results for the first nine months of fiscal 2022 in comparison to prior years as well as its anticipated fourth quarter results and fiscal 2023 plan.
We performed a qualitative assessment in conjunction with our annual impairment test of our indefinite lived intangible assets and goodwill as of January 1, 2023. These qualitative assessments considered our operating results for the first nine months of fiscal 2023 in comparison to prior years as well as its anticipated fourth quarter results and fiscal 2023 plan.
We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. For fiscal 2020 we recorded a full valuation allowance against our net federal and net state deferred tax assets due to our cumulative three-year taxable losses.
We continue to monitor the realizability of our deferred tax assets and adjust the valuation allowance accordingly. Prior to fiscal 2021, we recorded a full valuation allowance against our net federal and net state deferred tax assets due to our cumulative three-year taxable losses.
We continue to focus on building our relationships and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels.
We continue to focus on building our relationships and product and sales support for our ESCO and agent driven distribution channels. These efforts include an array of product and sales training efforts as well as the development of new products to cater to the unique needs of these sales channels. Grow EV Charging Installation Business.
No share sales were effected pursuant to the ATM program through March 31, 2022. We also are exploring various alternative sources of liquidity to help ensure that we will have the best allocation of investing capital to satisfy our working capital needs.
No share sales have yet been effected pursuant to the ATM program through March 31, 2023. We also are exploring various alternative sources of liquidity to help ensure that we will have the best allocation of investing capital to satisfy our working capital needs.
Cash provided by changes in operating assets and liabilities included an increase in accrued expenses of $5.8 million due to the timing of project completions and the receipt of invoices.
Cash provided by changes in operating assets and liabilities included an increase in accrued expenses of $5.8 million due to the timing of project completions and the receipt of invoices. Cash Flows Related to Investing Activities.
We also plan to pursue the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to our customers.
We also are pursuing the expansion of our IoT, “smart-building” and “connected ceiling” and other related technology, software and controls products and services that we offer to our customers.
Research and development expenses were essentially flat in fiscal 2022 compared to fiscal 2021 and also remained consistent as a percentage of sales between years. 39 Interest Expense. Interest expense in fiscal 2022 decreased by 37.0 %, or $ 47 thousand , from fiscal 2021 . The decrease in interest expense was due to fewer sale s of receivables .
Research and development expenses were essentially flat in fiscal 2022 compared to fiscal 2021 and also remained consistent as a percentage of sales between years. Interest Expense. Interest expense in fiscal 2022 decreased by 37.0%, or $47 thousand, from fiscal 2021. The decrease in interest expense was due to fewer sales of receivables. Loss on Debt Extinguishment .
Revenue from a customer contract which includes both the sale of Orion 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.
Revenue from a customer contract which includes both the sale of Orion 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. 47 Revenue from turnkey projects that is allocated to the single installation performance obligation is reflected in Service revenue.
We refer to our just completed fiscal year, which ended on March 31, 2022, as "fiscal 2022", and our prior fiscal years which ended on March 31, 2021 and March 31, 2020 as "fiscal 2021" and “fiscal 2020”, respectively.
We refer to our just completed fiscal year, which ended on March 31, 2023, as "fiscal 2023", and our prior fiscal years which ended on March 31, 2022 and March 31, 2021 as "fiscal 2022" and “fiscal 2021”, respectively.
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.
However, our maintenance services contracts usually consist of multi-year arrangements. 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.
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.
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.
Fiscal Year Ended March 31, 2022 2021 2020 2019 2018 (in thousands, except per share amounts) Consolidated statements of operations data: Product revenue $ 91,889 $ 87,664 $ 113,352 $ 56,261 $ 55,595 Service revenue 32,494 29,176 37,489 9,493 4,705 Total revenue 124,383 116,840 150,841 65,754 60,300 Cost of product revenue (1) (2) (10) 65,249 63,233 83,588 44,111 41,415 Cost of service revenue (1) (3) (10) 25,222 23,483 30,130 7,091 4,213 Total cost of revenue 90,471 86,716 113,718 51,202 45,628 Gross profit 33,912 30,124 37,123 14,552 14,672 General and administrative expenses (1) (4) (10) 11,680 11,262 11,184 10,231 13,159 Impairment of assets (5) — — — — 710 Acquisition expenses (9) 512 — — — — Sales and marketing expenses (1) (6) (10) 11,628 10,341 11,113 9,104 11,879 Research and development expenses (1) (7) (10) 1,701 1,685 1,716 1,374 1,905 Income (loss) from operations 8,391 6,836 13,110 (6,157 ) (12,981 ) Other income 1 56 28 80 248 Interest expense (80 ) (127 ) (279 ) (493 ) (333 ) Amortization of debt issue costs (62 ) (157 ) (243 ) (101 ) (92 ) Loss on debt extinguishment — (90 ) — — — Dividend and interest income — — 5 11 15 Income (loss) before income tax 8,250 6,518 12,621 (6,660 ) (13,143 ) Income tax (benefit) expense (8) 2,159 (19,616 ) 159 14 (15 ) Net income (loss) $ 6,091 $ 26,134 $ 12,462 $ (6,674 ) $ (13,128 ) Net income (loss) per share attributable to common shareholders: Basic $ 0.20 $ 0.85 $ 0.41 $ (0.23 ) $ (0.46 ) Diluted $ 0.19 $ 0.83 $ 0.40 $ (0.23 ) $ (0.46 ) Weighted-average shares outstanding: Basic 31,018 30,635 30,105 29,430 28,784 Diluted 31,295 31,304 30,965 29,430 28,784 (1) Includes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, as follows: Fiscal Year Ended March 31, 2022 2021 2020 2019 2018 (in thousands) Cost of product revenue $ 5 $ 4 $ 3 $ 2 $ 12 Cost of service revenue — — (1 ) 3 — General and administrative expenses 793 716 576 764 929 Sales and marketing expenses 12 29 38 54 155 Research and development expenses 3 4 2 2 6 Total stock-based compensation expense $ 813 $ 753 $ 618 $ 825 $ 1,102 36 (2) Fiscal 2020 includes expenses of $0.1 million related to restructuring.
Fiscal Year Ended March 31, 2023 2022 2021 2020 2019 (in thousands, except per share amounts) Consolidated statements of operations data: Product revenue $ 57,210 $ 91,889 $ 87,664 $ 113,352 $ 56,261 Service revenue 20,173 32,494 29,176 37,489 9,493 Total revenue 77,383 124,383 116,840 150,841 65,754 Cost of product revenue (1) (2) (7) 42,979 65,249 63,233 83,588 44,111 Cost of service revenue (1) (3) (7) 16,893 25,222 23,483 30,130 7,091 Total cost of revenue 59,872 90,471 86,716 113,718 51,202 Gross profit 17,511 33,912 30,124 37,123 14,552 General and administrative expenses (1) (4) (7) 19,487 11,680 11,262 11,184 10,231 Acquisition related costs 765 512 — — — Sales and marketing expenses (1) (5) (7) 11,392 11,628 10,341 11,113 9,104 Research and development expenses (1) (7) 1,852 1,701 1,685 1,716 1,374 (Loss) income from operations (15,985 ) 8,391 6,836 13,110 (6,157 ) Other income — 1 56 28 80 Interest expense (339 ) (80 ) (127 ) (279 ) (493 ) Amortization of debt issue costs (73 ) (62 ) (157 ) (243 ) (101 ) Loss on debt extinguishment — — (90 ) — — Dividend and interest income 34 — — 5 11 (Loss) income before income tax (16,363 ) 8,250 6,518 12,621 (6,660 ) Income tax expense (benefit) (6) 17,978 2,159 (19,616 ) 159 14 Net (loss) income $ (34,341 ) $ 6,091 $ 26,134 $ 12,462 $ (6,674 ) Net (loss) income per share attributable to common shareholders: Basic $ (1.08 ) $ 0.20 $ 0.85 $ 0.41 $ (0.23 ) Diluted $ (1.08 ) $ 0.19 $ 0.83 $ 0.40 $ (0.23 ) Weighted-average shares outstanding: Basic 31,704 31,018 30,635 30,105 29,430 Diluted 31,704 31,295 31,304 30,965 29,430 (1) Includes stock-based compensation expense recognized under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, as follows: Fiscal Year Ended March 31, 2023 2022 2021 2020 2019 (in thousands) Cost of product revenue $ 4 $ 5 $ 4 $ 3 $ 2 Cost of service revenue — — — (1 ) 3 General and administrative expenses 1,596 793 716 576 764 Sales and marketing expenses 8 12 29 38 54 Research and development expenses 4 3 4 2 2 Total stock-based compensation expense $ 1,612 $ 813 $ 753 $ 618 $ 825 (2) Fiscal 2020 includes expenses of $0.1 million related to restructuring.
As of March 31, 2022, we had net operating loss carryforwards of approximately $69.4 million for federal tax purposes, $61.8 million for state tax purposes, and $0.8 million for foreign tax purposes. As of the prior fiscal year, this amount is inclusive of the entire loss carryforward on the filed returns.
As of March 31, 2023, we had net operating loss carryforwards of approximately $71.4 million for federal tax purposes, $66.1 million for state tax purposes, and $0.8 million for foreign tax purposes. As of the fiscal 2018, this amount is inclusive of the entire loss carryforward on the filed returns.
The following table summarizes our OSG segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2022 2021 2020 Revenues $ 82,568 $ 84,243 $ 122,744 Operating income $ 6,462 $ 7,472 $ 16,164 Operating margin 7.8 % 8.9 % 13.2 % Fiscal 2022 Compared to Fiscal 2021 OSG segment revenue decreased in fiscal 2022 by 2.0%, or $1.7 million, and operating income decreased by 13.5%, or $1.0 million, compared to fiscal 2021, due to an overall reduction in project volume performed for our largest customer, partially offset by the acquisition of Stay-Lite Lighting.
The following table summarizes our OSG segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2023 2022 2021 Revenues $ 38,002 $ 82,568 $ 84,243 Operating (loss) income $ (6,982 ) $ 6,462 $ 7,472 Operating margin (18.4 )% 7.8 % 8.9 % Fiscal 2023 Compared to Fiscal 2022 OSG segment revenue decreased in fiscal 2023 by 54.0%, or $44.6 million, and operating income decreased $13.4 million to an operating loss, compared to fiscal 2022, due to an overall reduction in project volume performed for our largest customer, partially offset 42 by revenue from the acquisition of Stay-Lite Lighting.
Cash used in investing activities in fiscal 2022 was $4.9 million and consisted primarily of the $4.0 million acquisition of Stay-Lite Lighting, the $0.5 million investment in ndustrial.io and purchases of property and equipment. Cash used in investing activities in fiscal 2021 was $0.9 million and consisted primarily of purchases of property and equipment.
Cash used in investing activities in fiscal 2022 was $4.9 million and consisted primarily of the $4.0 million acquisition of Stay-Lite Lighting, and an investment of a non-controlling equity stake in ndustrial, Inc. of $0.5 million and purchases of property and equipment.
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") Accounting Standards Codification ("ASC") 740, Income Taxes. ASC 740 utilizes a two-step approach for evaluating tax positions.
By 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") Accounting Standards Codification ("ASC") 740, Income Taxes.
Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of March 31, 2022, the borrowing base supports approximately $21 million of availability of the Credit Facility. As of March 31, 2022, no amounts were borrowed under the Credit Facility.
Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of March 31, 2023, the borrowing base supported approximately $17.3 million of availability under the Credit Facility with $10.0 million drawn against that availability. As of March 31, 2022, no amounts were borrowed under the Credit Facility.
Cash used in investing activities in fiscal 2020 was $0.9 million and consisted primarily of purchases of property and equipment of $0.8 million. Cash Flows Related to Financing Activities. Cash provided by financing activities in fiscal 2022 was $0.1 million. Cash used in financing activities in fiscal 2021 was $10.1 million.
Cash used in investing activities in fiscal 2021 was $0.9 million and consisted primarily of purchases of property and equipment. Cash Flows Related to Financing Activities. Cash provided by financing activities in fiscal 2023 was $10.0 million which consisted of proceeds from the revolving credit facility. 45 Cash provided by financing activities in fiscal 2022 was $0.1 million.
Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities. Leverage of our Smart Lighting Systems to Support Internet of Things Applications.
Orion is launching a new line of exterior products in FY’24 Q2 designed to increase sales and market share in the application market. Our goal is to provide state-of-the-art lighting products with modular plug-and-play designs to enable lighting system customization from basic controls to advanced IoT capabilities. Leverage of our Smart Lighting Systems to Support Internet of Things Applications.
Additional information on our Credit Agreement can be found in the “Indebtedness” section located below. In March 2020, 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 up to $100.0 million of debt and/or equity securities.
In 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 up to $100 million of debt and/or equity securities.
The increase in our working capital from the fiscal 2021 year-end was primarily due to an overall reduction in project volume performed for our largest customer and partially offset by the acquisition of Stay-Lite Lighting.
Our net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million in current liabilities. The increase in our working capital from the fiscal 2021 year-end was primarily due to an overall reduction in project volume performed for our largest customer and partially offset by the acquisition of Stay-Lite Lighting.
The following table summarizes our ODS segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2022 2021 2020 Revenues $ 22,209 $ 21,122 $ 15,087 Operating income (loss) $ 3,114 $ 2,430 $ (852 ) Operating margin 14.0 % 11.5 % (5.6 )% Fiscal 2022 Compared to Fiscal 2021 ODS segment revenue increased $1.1 million or 5.1% and operating income increased by $0.7 million or 28.1%, in fiscal 2022 compared to fiscal 2021 primarily due to sales to a more diversified customer base.
The following table summarizes our ODS segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2023 2022 2021 Revenues $ 15,395 $ 22,209 $ 21,122 Operating (loss) income $ (186 ) $ 3,114 $ 2,430 Operating margin (1.2 )% 14.0 % 11.5 % Fiscal 2023 Compared to Fiscal 2022 ODS segment revenue decreased $6.8 million, or 30.7%, and operating income decreased $3.3 million, or 106.0%, in fiscal 2023 compared to fiscal 2022 primarily due to reduced sales to a large global on-line retailer.
Our capital spending plans predominantly consist of investments 45 related to maintenance fleet vehicles, new product development tooling and equipment and information technology systems, exclusive of any capital spending for potential acquisitions.
Our capital expenditures totaled $0.7 million in fiscal 2023, $0.5 million in fiscal 2022 and $0.9 million in fiscal 2021. 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.
Of these tax attributes, $8.4 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 $123.6 million net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2022 and 2040.
Of these tax attributes, $19.7 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.
Our inventory obsolescence reserves at March 31, 2022 were $ 2.1 million, or 9.5 % of gross inventory, and $ 1.9 million, or 8.9 % of gross inventory , at March 31, 2021 . Allowance for Doubtful Accounts.
Our inventory obsolescence reserves at March 31, 2023 were $1.8 million, or 8.9% of gross inventory, and $2.1 million, or 9.5% of gross inventory, at March 31, 2022. Recoverability of Long-Lived Assets.
Markets Division (“USM”). 35 Selected Financial Data The selected historical consolidated financial data are not necessarily indicative of future results.
Markets Division (“USM”) and Orion Electric Vehicle Charging Division (“EV Division”). 36 Selected Financial Data The selected historical consolidated financial data are not necessarily indicative of future results.
See also “Forward-Looking Statements” and Item 1A “Risk Factors”. Overview We 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. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service.
See also “Forward-Looking Statements” and Item 1A “Risk Factors”. Overview We 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.
(8) Fiscal 2021 includes tax benefit of $20.9 million related to the release of the valuation allowance on deferred tax assets. (9) Fiscal 2022 includes expenses of $0.5 million related to acquisition.
(3) Fiscal 2020 includes expenses of $0.1 million related to restructuring. (4) Fiscal 2020 includes expenses of $28 thousand related to restructuring. (5) Fiscal 2020 includes expenses of $0.2 million related to restructuring. (6) Fiscal 2021 includes tax benefit of $20.9 million related to the release of the valuation allowance on deferred tax assets.
Major Developments in Fiscal 2022 Acquisition of Stay-Lite Lighting Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $4.0 million.
The acquisition was funded from existing cash and credit resources and has been operating as Voltrek, a division of Orion Energy Systems. Acquisition of Stay-Lite Lighting Effective on January 1, 2022, we acquired all of the issued and outstanding capital stock of Stay-Lite Lighting, a nationwide lighting and electrical maintenance service provider, for a cash purchase price of $4.0 million.
Revenue 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.
Service revenue is recorded over-time as we fulfill our obligation to install the light fixtures.
Our principal customers include large national account end-users, federal and state government facilities, large regional account end-users, electrical distributors, electrical contractors and energy service companies ("ESCOs").
Our 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”).
Markets Division Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.
This sales increase led to a corresponding increase in operating income in this segment based on operating leverage. Orion U.S. Markets Division Our USM segment sells commercial lighting systems and energy management systems to the wholesale contractor markets. USM customers include ESCOs and contractors.
The following table summarizes our USM segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2022 2021 2020 Revenues $ 19,606 $ 11,475 $ 13,010 Operating income $ 3,963 $ 1,683 $ 2,447 Operating margin 20.2 % 14.7 % 18.8 % Fiscal 2022 Compared to Fiscal 2021 USM segment revenue increase $8.1 million, or 70.9% and operating income increased by $2.3 million or 135.5%, in fiscal 2022 compared to fiscal 2021, primarily due to the impact of COVID-19 on fiscal 2021 and an increased focus on sales opportunities in this segment. 42 Fiscal 2021 Compared to Fiscal 2020 USM segment revenue in fiscal 2021 decreased 11.8%, or $1.5 million, from fiscal 2020, primarily due to the impact of COVID-19, and resulted in a corresponding decrease in operating income in this segment based on operating leverage.
The following table summarizes our USM segment operating results (dollars in thousands): Fiscal Year Ended March 31, 2023 2022 2021 Revenues $ 17,710 $ 19,606 $ 11,475 Operating income $ 1,605 $ 3,963 $ 1,683 Operating margin 9.1 % 20.2 % 14.7 % Fiscal 2023 Compared to Fiscal 2022 USM segment revenue decreased $1.9 million, or 9.7%, and operating income decreased by $2.4 million, or 59.5%, in fiscal 2023 compared to fiscal 2022, primarily due to a less diversified customer base.
The project installations for this customer resumed during the second quarter of fiscal 2021. This sales decrease led to a corresponding decrease in operating income in this segment . Orion Distribution Services Division Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.
Orion Distribution Services Division Our ODS segment focuses on selling lighting products through manufacturer representative agencies and a network of North American broadline and electrical distributors and contractors.
( 10 ) Fiscal 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: Fiscal Year Ended March 31, 2022 (in thousands) Cost of product revenue $ 649 Cost of service revenue 144 General and administrative expenses 273 Sales and marketing expenses 416 Research and development expenses 105 Total payroll tax credit $ 1,587 Impact of COVID-19 The COVID-19 pandemic has disrupted business, trade, commerce, financial and credit markets, in the U.S. and globally.
Fiscal 2023 includes tax expense of $17.8 million related to the recording of the valuation allowance on deferred tax assets. 37 (7) Fiscal 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: Fiscal Year Ended March 31, 2022 (in thousands) Cost of product revenue $ 649 Cost of service revenue 144 General and administrative expenses 273 Sales and marketing expenses 416 Research and development expenses 105 Total payroll tax credit $ 1,587 Fiscal 2024 Outlook In fiscal 2024, we plan on focusing on the following initiatives: Executing and marketing our turnkey LED retrofit capabilities to large national account customers .
We did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million on the write-off of unamortized debt issue costs related to the Prior Credit Agreement. The Prior Credit Agreement was scheduled to mature on October 26, 2021.
We did not incur any early termination fees in connection with the termination of the Prior Credit Agreement, but did recognize a loss on debt extinguishment of $0.1 million on the write-off of unamortized debt issue costs related to the Prior Credit Agreement. 46 Capital Spending Our capital expenditures are primarily for general corporate purposes for our corporate headquarters and technology center, production equipment and tooling and for information technology systems.
In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer. We completed the acquisition of Stay-Lite Lighting on January 1, 2022, which is intended to further expand our maintenance services capabilities.
In addition, we began to offer lighting and electrical maintenance services in fiscal 2021 which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”).
Liquidity and Capital Resources Overview We had $14.5 million in cash and cash equivalents as of March 31, 2022, compared to $19.4 million at March 31, 2021.
Operating loss in this segment was primarily a result of $4.0 million earn-out expense included in general and administrative costs. Liquidity and Capital Resources Overview We had $16.0 million in cash and cash equivalents as of March 31, 2023, compared to $14.5 million at March 31, 2022.
During fiscal 2021, we reduced our valuation allowance on the basis of our reassessment of the amount of our deferred tax assets that are more likely than not to be realized. 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.
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.
While we intend to pursue these expansion strategies organically, we also are actively exploring potential business acquisitions, like our acquisition of Stay-Lite Lighting, which would more quickly add these types of expanded and different capabilities to our product and services offerings.
While we currently intend to primarily pursue these expansion strategies organically, we also may explore potential additional business acquisitions, like our acquisition of Stay-Lite Lighting and Voltrek, which have more quickly added these types of expanded and different capabilities to our product and services offerings. 35 We generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue.
Product revenue decreased by 22.7%, or $25.7 million, for fiscal 2021 versus fiscal 2020. Service revenue decreased by 22.2%, or $8.3 million, for fiscal 2021 versus fiscal 2020.
Product revenue decreased by 37.7%, or $34.7 million, for fiscal 2023 versus fiscal 2022. Service revenue decreased by 37.9%, or $12.3 million, for fiscal 2023 versus fiscal 2022.
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. 43 Cash Flows The following table summarizes our cash flows for our fiscal 2022, fiscal 2021 and fiscal 2020: Fiscal Year Ended March 31, 2022 2021 2020 (in thousands) Operating activities $ (113 ) $ 1,729 $ 20,343 Investing activities (4,918 ) (946 ) (936 ) Financing activities 104 (10,141 ) 615 (Decrease) increase in cash and cash equivalents $ (4,927 ) $ (9,358 ) $ 20,022 Cash Flows Related to Operating Activities.
Cash Flows The following table summarizes our cash flows for our fiscal 2023, fiscal 2022 and fiscal 2021: Fiscal Year Ended March 31, 2023 2022 2021 (in thousands) Operating activities $ (2,291 ) $ (113 ) $ 1,729 Investing activities (6,195 ) (4,918 ) (946 ) Financing activities 10,012 104 (10,141 ) Increase (decrease) in cash and cash equivalents $ 1,526 $ (4,927 ) $ (9,358 ) Cash Flows Related to Operating Activities.
We 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. By their nature, tax laws are often subject to interpretation.
The $120.2 million net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2023 and 2033. 49 We 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.
Working Capital Our net working capital as of March 31, 2022 was $32.9 million, consisting of $51.2 million in current assets and $18.4 million in current liabilities. Our net working capital as of March 31, 2021 was $26.2 million, consisting of $56.5 million in current assets and $30.4 million in current liabilities.
Our net working capital as of March 31, 2022 was $32.9 million, consisting of $51.2 million in current assets and $18.4 million in current liabilities. The change was primarily due to decreases in inventory and collection of the employee retention tax credit plus increases in accounts payable, accrued expenses and accounts receivable.
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 three primary market segments: commercial office and retail, area lighting, and industrial applications, although we do sell and install products into other markets.
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.
This cash used consisted primarily of a net payment of $10.0 million under our Credit Facility. 44 Cash provided by financing activities in fiscal 2020 was $0.6 million.
Cash used in financing activities in fiscal 2021 was $10.1 million. This cash used consisted primarily of a net payment of $10.0 million under our Credit Facility. Working Capital Our net working capital as of March 31, 2023 was $25.9 million, consisting of $50.4 million of current assets and $24.5 million of current liabilities.
Cash provided by operating activities for fiscal 2020 was $20.3 million and consisted of a net income adjusted for non-cash expense items of $15.2 million and net cash provided by changes in operating assets and liabilities of $5.2 million.
Cash used in operating activities for fiscal 2023 was $2.3 million and consisted of our net loss of $34.3 million adjusted for non-cash expense items and net cash used in changes in operating assets of $32.1 million, the largest of which was a $17.8 million decrease in deferred income tax assets as a result of the valuation allowance.
Our sales and marketing expenses decreased 6.9%, or $0.8 million, in fiscal 2021 compared to fiscal 2020. The decrease year over year was primarily due to a decrease in commission expense on lower sales and a decrease in travel, both a result of COVID-19 restrictions. Research and Development.
Sales and Marketing. Our sales and marketing expenses decreased 2.0%, or $0.2 million, in fiscal 2023 compared to fiscal 2022. The decrease was primarily due to an decrease in commission expense on lower sales partially offset by expenses associated with the Stay-Lite Lighting and Voltrek businesses. 40 Research and Development.
Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business.
This resulted in substantially and disproportionately decreasing our reported net income and our earnings per share compared to our operating results. Historical and future comparisons to these amounts are not, and will not be, indicative of actual profitability trends for our business. Our fiscal 2022 income tax provision reflects a more normalized effective income tax rate.
Fiscal 2021 Compared to Fiscal 2020 ODS segment revenue in fiscal 2021 increased 40.0%, or $6.0 million, compared to fiscal 2020, primarily due to sales to one customer who represented 5.9% of fiscal 2021 total consolidated revenue. This sales increase led to a corresponding increase in operating income in this segment based on operating leverage. Orion U.S.
Operating income in this segment decreased as a result of increased allocation of corporate costs. Fiscal 2022 Compared to Fiscal 2021 ODS segment revenue in fiscal 2022 increased 5.1%, or $1.1 million, compared to fiscal 2021, primarily due to sales to a more diversified customer base.
In fiscal 2021, we recognized a tax benefit of $19.6 million. The benefit was driven by the release of the valuation allowance on a significant portion of our deferred tax assets. This resulted in substantially and disproportionately increasing our reported net income and our earnings per share compared to our operating results.
In fiscal 2023, we recognized tax expense of $18.0 million. In fiscal 2022, we recognized tax expense of $2.2 million. The fiscal 2023 expense was driven by a $17.8 million non-cash charge to increase the valuation allowance on a significant portion of our deferred tax assets.
Cost of service revenue decreased by 22.1%, or $6.6 million, in fiscal 2021 versus fiscal 2020. The 40 decrease in product and service costs was primarily due to the decrease in revenue. Gross margin increased from 24.6% of revenue in fiscal 2020 to 25.8% in fiscal 2021, due primarily to cost management and a change in customer sales mix .
Cost of service revenue decreased by 33.0%, or $8.3 million, in fiscal 2023 versus fiscal 2022. The decreases were primarily because of decreases in revenue described above. Gross margin decreased to 22.6% of revenue in fiscal 2023 from 27.3% in fiscal 2022, due primarily to lower absorption of fixed costs on reduced revenue volume. Operating Expenses General and Administrative.
Operating Expenses General and Administrative. General and administrative expenses increased 0.7%, or $0.1 million, in fiscal 2021 compared to fiscal 2020, primarily due to a decrease in travel as a result of COVID-19 restrictions, offset by an increase in services and insurance costs. Sales and Marketing.
Operating income in this segment decreased as a result of lower revenue and increased allocation of corporate costs. 43 Fiscal 2022 Compared to Fiscal 2021 USM segment revenue increased $8.1 million, or 70.9%, and operating income increased by $2.3 million, or 135.5%, in fiscal 2022 compared to fiscal 2021, primarily due to the impact of COVID-19 on fiscal 2021 and an increased focus on sales opportunities in this segment.
The replacement of the existing credit agreement with the Credit Agreement provides us with increased financing capacity and liquidity to fund our operations and implement our strategic plans. As of March 31, 2022, the borrowing base supported $21.5 million of availability of the Credit Facility. As of March 31, 2022, no amounts were borrowed under the Credit Facility.
As of March 31, 2023, our borrowing base supported $17.3 million of availability under our Credit Facility, with $10.0 million drawn against that availability. As of March 31, 2022, no amounts were borrowed under the Credit Facility. Additional information on our Credit Agreement can be found in the “Indebtedness” section located below.
Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America. Our lighting products consist primarily of LED lighting fixtures, many of which include IoT enabled control systems.
Our products are targeted for applications in 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.
Removed
We currently plan on investing significant time, resources and capital into expanding our offerings in these areas with no expectation that they will result in us realizing material revenue in the near term and without any assurance they will succeed or be profitable.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIt is our policy not to enter into interest rate derivative financial instruments. As a result, we do not currently have any significant interest rate exposure. As of March 31, 2022, we had no outstanding debt with floating interest rates. Commodity Price Risk.
Biggest changeAs a result, we do not currently have any significant interest rate exposure. As of March 31, 2023, we had $10 million of outstanding debt with floating interest rates. Commodity Price Risk. We are exposed to certain commodity price risks associated with our purchases of raw materials, most significantly our aluminum purchases.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity pricing that may adversely impact our consolidated financial position, results of operations or cash flows. Inflation.
Item 7A. Quantitative and Qualita tive Disclosure About Market Risk Market risk is the risk of loss related to changes in market prices, including interest rates, foreign exchange rates and commodity pricing that may adversely impact our consolidated financial position, results of operations or cash flows. Inflation.
We are monitoring input costs and cannot currently predict the future impact to our operations by inflation. Foreign Exchange Risk. We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign currency losses for all reporting periods have been nominal. Interest Rate Risk. Our investments consist primarily of investments in money market funds.
We are monitoring input costs and cannot currently predict the future impact to our operations by inflation. Foreign Exchange Risk. We face minimal exposure to adverse movements in foreign currency exchange rates. Our foreign currency losses for all reporting periods have been nominal. Interest Rate Risk.
While the instruments we hold are subject to changes in the 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, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.
We do not believe that we are subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. It is our policy not to enter into interest rate derivative financial instruments.
A hypothetical additional 20% increase in aluminum prices would have had a negative impact of $0.8 million on our net income in fiscal 2022. 50
During fiscal 2023, we have experienced commodity price increases; however, as of the date of this report, we are not able to predict the future impact of on this risk. A hypothetical additional 20% increase in aluminum prices would have had a negative impact of $0.7 million on our net income in fiscal 2023. 50
Removed
We are exposed to certain commodity price risks associated with our purchases of raw materials, most significantly our aluminum purchases. During fiscal 2022, we have experienced commodity price increases; however, as of the date of this report, we are not able to predict the future impact of on this risk.

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