ORION ENERGY SYSTEMS, INC.

Current report

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I - Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026, which we filed with the SEC on June 4, 2026 and in Part 1 - Item 2 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.

Previous report

The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with the Company's business previously disclosed in Part I, Item 1A of the Form 10-K for the fiscal year ended March 31, 2025, which we filed with the SEC on June 26, 2025 under the heading "Risk Factors." 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.

Previous report

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the Condensed Consolidated Financial Statements and related notes in Part I, Item 1, "Financial Statements" and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q.

Previous report

Financial Risks

Previous report

Our existing liquidity and capital resources may not be sufficient to allow us to fund or sustain our working capital requirements or pay our contractual or debt obligations.

Previous report

Our existing liquidity and capital resources may not be sufficient to allow us to effectively fund or sustain our working capital requirements or pay our contractual or debt obligations, including our senior debt to Bank of America or our remaining earnout obligations owed in connection with our acquisition of Voltrek. 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. Factors affecting the availability to us of additional equity capital or debt financing on acceptable terms and conditions, or in sufficient amounts, include:

Previous report

Our history of operating losses over the past several years;

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Our frequent inability to achieve our financial results guidance or budget expectations;

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Our senior debt and subordinated earnout debt obligations and security interests in substantially all of our assets;

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The use of funds to help satisfy our remaining Voltrek earnout obligations;

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Our current and future financial condition;

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Our limited collateral availability;

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Our current customer concentration;

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The market’s, investors’ and lenders’ view of our company, industry and products;

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Our ability to achieve budgeted expectations or revenue guidance and the perception in the equity and debt markets of our ability to execute and sustain our business plan or achieve our operating results expectations;

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The price, volatility and trading volume and history of our Common Stock; and

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The impact of tariffs and other macroeconomic and geopolitical factors on our profitability.

Previous report

Our inability to obtain the equity capital or debt financing necessary to fund our operations could force us to scale back or restructure our operations or our senior or anticipated subordinated debt obligations. If we are unable to obtain any necessary additional equity capital or debt financing, our results of operations, financial condition and cash flows could be materially adversely affected.

Previous report

We may need to raise additional equity capital or subordinated or convertible debt to provide us with additional liquidity and capital resources to help fund our operations and pay our senior debt to Bank of America and our remaining Voltrek acquisition earnout obligations. At our current stock price, such an equity or convertible debt raise would likely be materially dilutive to our shareholders.

Previous report

We may need to raise additional equity capital or subordinated or convertible debt in order to fund our operations, pay our senior debt to Bank of America and pay our remaining Voltrek earnout obligations, and may pursue equity or debt financings, which may be materially dilutive to our existing shareholders. At our current stock price, the issuance of additional Common Stock or convertible debt would significantly dilute the value our Common Stock held by existing shareholders. Similarly, any new securities we may issue may carry preferences, superior voting rights, or additional terms that could adversely affect shareholders of our Common Stock. Future capital raising efforts may incur substantial costs, such as investment banking, legal and accounting fees, and could lead to non-cash expenses that further negatively impact our financial condition.

Previous report

Our ability to achieve our budgeted fiscal 2026 revenue expectations, and related public fiscal 2026 revenue guidance, will have a significant impact on our cash flow and stock price and ability to fund our operations and satisfy our debt obligations.

Previous report

We have historically had difficulties in achieving our budgeted revenue expectations, and related public annual revenue guidance. Our ability to achieve our budgeted fiscal 2026 revenue expectations, and related public fiscal 2026 revenue guidance, will have a significant impact on our cash flow, financial condition and stock price and ability to fund our operations and satisfy our debt obligations.

Previous report

We are currently in arbitration over the final remaining earn out amount we owe for acquiring Voltrek. There can be no assurance that the arbitrator will not determine that we owe significantly more than we have currently accrued as a liability on our financial statements, which could materially adversely affect our liquidity.

Previous report

On October 5, 2022, we acquired Voltrek, a leading electric vehicle charging company that provides turnkey installation solutions with ongoing support to all commercial verticals. In connection with such acquisition, we may owe additional material earnout payments based on Voltrek’s financial performance in fiscal 2025 as described below. The related estimated liability of approximately $1.4 million of such remaining earnout is recorded as subordinated debt.

Previous report

On June 23, 2025, we entered into a term sheet with respect to our remaining earnout obligations owed to Voltrek’s prior owner. Pursuant to the term sheet, on August 1, 2025, we paid the prior owner $500,000, and on September 2, 2025 we paid an additional $375,000, in full and final payment of our fiscal 2024 Voltrek acquisition earnout obligations. Additionally, pursuant to the term sheet, on July 16, 2025, we issued $1.0 million in our Common Stock to Voltrek’s prior owner in partial payment of our fiscal 2025 and aggregate fiscal 2023 through fiscal 2025 earnout obligations.

Previous report

On September 30, 2025, we entered into a subordinated loan agreement, pursuant to which Voltrek’s prior owner agreed to defer our payment of the remaining earnout amount to be determined by binding arbitration. We agreed to pay monthly principal payments to Voltrek’s prior owner of $25,000 beginning on January 15, 2026, which will increase to $50,000 on July 15, 2026 through the maturity date of July 15, 2027. We also agreed to pay interest monthly to the prior owner at the annual rate of 7% beginning on July 15, 2025, subject to adjustment following the final determination in binding arbitration of the remaining earnout amount, as set forth in more detail in the subordinated loan agreement. We have the right to pay up to 20% of the remaining principal on the senior subordinated loan on the maturity date in shares of our Common Stock.

Previous report

In connection with our entry into the subordinated loan agreement with Voltrek’s prior owner, Bank of America agreed that the remaining earnout amount evidenced by the subordinated loan agreement could not exceed (a) $3.0 million following the final determination in binding arbitration of the remaining earnout amount or (b) such higher amount as consented to in writing by Bank of America promptly following its receipt of notice of the binding arbitration decision.

Previous report

The final remaining earnout amount determined to be owed by us pursuant to the pending binding arbitration could be in excess of our current accrued liability for such remaining earnout amount, and could materially adversely affect our future liquidity. Additionally, our payments of some of our Voltrek earnout obligations in shares of our Common Stock may result in our existing shareholders experiencing significant dilution to the value of their investment in our Common Stock.

Previous report

We are currently in mediation with respect to allegations that we did not adequately mark certain patented products that we contract manufactured on behalf of a customer. There can be no assurance that the mediator will not determine that we are liable for significant damages for such allegations.

Previous report

One of our customers has alleged that, among other matters, we did not adequately mark certain patented products that we contract manufactured for them. While we believe we have substantial defenses against such allegations, there can be no assurance that the mediator will not determine that we are liable for significant damages resulting from such allegations.

Previous report

Any economic and political uncertainty caused by tariffs posed by the United States on other countries, and any corresponding tariffs from such other countries in response, may negatively impact demand and/or increase the cost for our products and components used in our products and reduce our gross margins.

Previous report

The current United States administration is pursuing a wide range of monetary, regulatory and trade policies, including the imposition of significant tariffs on certain imports into the United States. Foreign governments, including the Chinese government, have announced their intent to implement or increase tariffs on imports from the United States in response. Certain sourced finished products and certain of the components used in our products are impacted by tariffs imposed on imports as currently in effect. If we are unable to successfully mitigate the impacts of these tariffs and other trade policies, our results of operations, financial condition and cash flows may be materially adversely affected. It remains unclear what the current United States administration or foreign governments will or will not do in the future with respect to tariffs or trade agreements and policies. A trade war, other governmental action related to tariffs or trade agreements, changes in United States social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently purchase, manufacture and sell products and components, and any resulting negative sentiments towards the United States as a result of such changes, could have a material adverse effect on our results of operations, financial condition and cash flows.

Previous report

Over the past several years we have incurred substantial net losses and negative cash flow. If these trends continue, our liquidity and financial condition will be further materially adversely affected.

Previous report

We experienced a net loss and negative cash flows in each of the last three fiscal years. There is no guarantee that we will be able to regain or sustain profitability and positive cash flows in the future. Our inability to successfully regain or sustain our profitability and positive cash flows will materially and adversely affect our ability continue our current level of operations and satisfy our debt obligations.

Previous report

We have a significant amount of goodwill and intangible assets on our balance sheet and our results of operations may be adversely affected if we are required to recognize an impairment charge against our goodwill and intangible assets.

Previous report

We had goodwill of almost $1.5 million and net intangible assets of almost $2.9 million as of September 30, 2025. In accordance with GAAP, goodwill and intangible assets with an indefinite life are not amortized but are subject to a periodic impairment evaluation. Goodwill and acquired intangible assets with an indefinite life are tested for impairment at least annually or when events and circumstances indicate that fair value of a reporting unit may be below their carrying value. Some factors that could lead to a goodwill impairment assessment would be:

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our overall financial performance, including continued net losses and low levels of liquidity;

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a material decline in the price of our Common Stock;

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macroeconomic factors;

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changes in our strategy or exiting a portion of the business;

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significant adverse changes in demand for our products and services; and