SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Reclassifications

Where appropriate, certain reclassifications were made to prior years' financial statements to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during that reporting period. Areas that require the use of significant management estimates include revenue recognition, inventory obsolescence and bad debt reserves, accruals for warranty expenses and loss contingencies, income taxes and certain equity transactions. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

Orion considers all highly liquid, short-term investments with original maturities of three months or less to be cash equivalents.

Fair Value of Financial Instruments

Orion’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other, revolving credit facility and long-term debt. The carrying amounts of Orion’s financial instruments approximate their respective fair values due to the relatively short-term nature of these instruments, or in the case of long-term debt and revolving credit facility, because of the interest rates currently available to Orion for similar obligations. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

Accounts Receivable

Orion’s accounts receivable are due from companies in the commercial, industrial and agricultural industries, as well as wholesalers. Credit is extended based on an evaluation of a customer’s financial condition. Generally, collateral is not required for end users; however, the payment of certain trade accounts receivable from wholesalers is secured by irrevocable standby letters of credit and/or guarantees. Accounts receivable are generally due within 30-60 days. Accounts receivable are stated at the amount Orion expects to collect from outstanding balances. Orion provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after Orion has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. As of March 31, Orion’s accounts receivable and allowance for doubtful accounts balances were as follows (dollars in thousands):



	2016			2015
Accounts receivable, gross	$	11,394		$	18,721
Allowance for doubtful accounts	(505		)	(458		)
Accounts receivable, net	$	10,889		$	18,263

Financing Receivables

Orion considers its lease balances included in consolidated current and long-term accounts receivable from its Orion Throughput Agreement, or OTA, sales-type leases to be financing receivables. Additional disclosures on the credit quality of Orion’s financing receivables are as follows:

Age Analysis as of March 31, 2016 (dollars in thousands):



	Not Past Due		1-90 days past due		Greater than 90 days past due			Total past due			Total sales-type leases
Lease balances included in consolidated accounts receivable—current	$	294	$	4	$	10		$	14		$	308
Lease balances included in consolidated accounts receivable—long-term	101		—		—			—			101
Total gross sales-type leases	395		4		10			14			409
Allowance	—		—		(9		)	(9		)	(9		)
Total net sales-type leases	$	395	$	4	$	1		$	5		$	400

Age Analysis as of March 31, 2015 (dollars in thousands):



	Not Past Due			1-90 days past due			Greater than 90 days past due			Total past due			Total sales-type leases
Lease balances included in consolidated accounts receivable—current	$	1,346		$	47		$	186		$	233		$	1,579
Lease balances included in consolidated accounts receivable—long-term	398			—			—			—			398
Total gross sales-type leases	1,744			47			186			233			1,977
Allowance	(12		)	(3		)	(141		)	(144		)	(156		)
Total net sales-type leases	$	1,732		$	44		$	45		$	89		$	1,821

Allowance for Credit Losses on Financing Receivables

Orion’s allowance for credit losses is based on management’s assessment of the collectability of customer accounts. A considerable amount of judgment is required in order to make this assessment including a detailed analysis of the aging of the lease receivables and the current credit worthiness of Orion's customers and an analysis of historical bad debts and other adjustments. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, the estimate of the recoverability of amounts due could be adversely affected. Orion reviews in detail the allowance for doubtful accounts on a quarterly basis and adjusts the allowance estimate to reflect actual portfolio performance and any changes in future portfolio performance expectations. Orion’s provision for write-offs and credit losses against the OTA sales-type lease receivable balances in fiscal 2016, fiscal 2015 and fiscal 2014, respectively, was as follows (dollars in thousands):



		Balance at beginning of period		Provisions charged to expense		Write offs and other		Balance at end of period
March 31,		(in Thousands)
2016	Allowance for Doubtful Accounts on financing receivables	$	156	$	30	$	177	$	9
2015	Allowance for Doubtful Accounts on financing receivables	$	94	$	62	$	—	$	156
2014	Allowance for Doubtful Accounts on financing receivables	$	74	$	96	$	76	$	94

Long-Term Receivables

Orion records a long-term receivable for the non-current portion of its sales-type capital lease OTA contracts. The receivable is recorded at the net present value of the future cash flows from scheduled customer payments. Orion uses the implied cost of capital from each individual contract as the discount rate.

Inventories

Inventories consist of raw materials and components, such as ballasts, metal sheet and coil stock and molded parts; work in process inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories are stated at the lower of cost or market value with cost determined using the first-in, first-out (FIFO) method. Orion reduces the carrying value of its inventories for differences between the cost and estimated net realizable value, taking into consideration usage in the preceding 9 to 24 months, expected demand, and other information indicating obsolescence. Orion records, as a charge to cost of product revenue, the amount required to reduce the carrying value of inventory to net realizable value. As of March 31, 2016 and 2015, Orion's inventory balances were as follows (dollars in thousands):



	Cost		Obsolescence Reserve			Net
As of March 31, 2016
Raw materials and components	$	10,556	$	(1,052	)	$	9,504
Work in process	2,045		(119		)	1,926
Finished goods	6,550		(956		)	5,594
Total	$	19,151	$	(2,127	)	$	17,024

As of March 31, 2015
Raw materials and components	$	9,150	$	(677	)	$	8,473
Work in process	1,683		(94		)	1,589
Finished goods	5,069		(848		)	4,221
Total	$	15,902	$	(1,619	)	$	14,283

Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and receiving costs, are also included in cost of product revenue.

Deferred Contract Costs

Deferred contract costs consist primarily of the costs of products delivered, and services performed, that are subject to additional performance obligations or customer acceptance. These deferred contract costs are expensed at the time the related revenue is recognized. Deferred costs amounted to $36,691 as of March 31, 2016 and $90,258 as of March 31, 2015.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of prepaid insurance premiums, prepaid license fees, purchase deposits, advance payments to contractors, unbilled revenue, prepaid taxes and miscellaneous receivables. Prepaid expenses and other current assets include the following (dollars in thousands):



	March 31, 2016		March 31, 2015
Unbilled accounts receivable	$	4,307	$	1,710
Other prepaid expenses	731		697
Total	$	5,038	$	2,407

Property and Equipment

Property and equipment are stated at cost. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed as incurred. Properties sold, or otherwise disposed of, are removed from the property accounts, with gains or losses on disposal credited or charged to income from operations.

Orion periodically reviews the carrying values of property and equipment for impairment in accordance with ASC 360, Property, Plant and Equipment, if events or changes in circumstances indicate that the assets may be impaired. The estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition are compared to the assets’ carrying amount to determine if a write down to market value is required.

On March 31, 2016, Orion entered into a purchase and sale agreement (“Agreement”) with Tramontina U.S. Cookware, Inc. (“Tramontina”) to sell its Manitowoc manufacturing and distribution facility for a cash purchase price of approximately $2,600,000. Pursuant to the Agreement, Orion is negotiating a lease with Tramontina under which it will leaseback approximately 200,000 square feet of the building for not less than three years.

As a result of this pending transaction, the Company reviewed the carrying value of the manufacturing and distribution facility assets for impairment. Orion performed a probability weighted analysis of expected future cash flows. Based on this analysis, the Company concluded that the assets' carrying values were no longer supported. As such, Orion recorded an impairment charge of $1,614,000 in fiscal 2016 to write the assets down to their fair value, which approximates the expected selling price. The impairment charge was recorded to all three of Orion’s reportable segments as follows: Orion U.S. Markets $689,000, Orion Engineered Systems $804,000, and Orion Distribution Services $121,000.

In fiscal 2015, an impairment charge of $1,029,586 was recorded in connection with the assessment of carrying costs related to the wireless controls product offering.

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



	March 31, 2016			March 31, 2015
Land and land improvements	$	421		$	1,511
Buildings and building improvements	11,849			14,441
Furniture, fixtures and office equipment	7,233			8,600
Leasehold improvements	148			148
Equipment leased to customers under Power Purchase Agreements	4,997			4,997
Plant equipment	10,805			11,084
Construction in progress	128			379
	35,581			41,160
Less: accumulated depreciation and amortization	(18,577		)	(19,937		)
Net property and equipment	$	17,004		$	21,223

Equipment included above under capital leases was as follows (dollars in thousands):



	March 31, 2016			March 31, 2015
Equipment	$	408		$	—
Less: accumulated depreciation and amortization	(65		)	—
Net Equipment	$	343		$	—

Depreciation is provided over the estimated useful lives of the respective assets, using the straight-line method. Orion recorded depreciation expense of $2,950,000, $2,853,000 and $3,798,000 for the years ended March 31, 2016, 2015 and 2014, respectively.

Depreciable lives by asset category are as follows:



Land improvements	10-15 years
Buildings and building improvements	3-39 years
Furniture, fixtures and office equipment	2-10 years
Leasehold improvements	Shorter of asset life or life of lease
Equipment leased to customers under Power Purchase Agreements	20 years
Plant equipment	3-10 years

No interest was capitalized for construction in progress during fiscal 2016 or fiscal 2015.

Goodwill and Other Intangible Assets

The costs of specifically identifiable intangible assets that do not have an indefinite life are amortized over their estimated useful lives. Goodwill and intangible assets with indefinite lives are not amortized. Goodwill and intangible assets with indefinite lives are reviewed for impairment annually, as of January 1, or more frequently if impairment indicators arise. Orion has allocated goodwill to its reporting units which are also two of Orion’s reporting segments: $2,371,000 to the U.S. Markets (USM) and $2,038,000 to Engineered Systems (OES) as of March 31, 2015. Orion's annual goodwill impairment test was performed as of January 1, 2016. In accordance with ASC 350, Intangibles - Goodwill and Other, Step 1 of the impairment test compares the fair value of the reporting unit with its carrying value. Orion determined the fair value of each reporting unit using a discounted cash flow method and the guideline public entity method. After completing a Step 1 evaluation, the estimated fair value of both reporting units was determined to be lower than their carrying values. As such, each unit failed Step 1 of the goodwill impairment test.

Step 2 of the goodwill impairment test requires Orion to perform a hypothetical purchase price allocation for each reporting unit to determine the implied fair value of goodwill and compare the implied fair value of goodwill to the carrying amount of goodwill. The estimate of fair value is complex and requires significant judgment. A third-party valuation firm was engaged to assist in the Step 2 valuation process. The fair value determination was categorized as Level 3 in the fair value hierarchy (see “Fair Value of Financial Instruments” for the definition of Level 3 inputs). As a result of Step 2 of the goodwill impairment tests as of January 1, 2016, Orion’s USM segment recorded a goodwill impairment charge of $2,371,000 and Orion’s OES segment recorded a goodwill impairment charge of $2,038,000. As of March 31, 2016, the goodwill balance in the Consolidated Balance Sheets is $0.

The change in the carrying value of goodwill during fiscal 2016 and fiscal 2015 was as follows (dollars in thousands):



Balance at March 31, 2014	$	4,409
Impairments	—
Balance at March 31, 2015	4,409
Impairments	(4,409		)
Balance at March 31, 2016	$	—

Amortizable intangible assets are amortized over their estimated economic useful life to reflect the pattern of economic benefits consumed based upon the following lives and methods:



Patents	10-17 years	Straight-line
Licenses	7-13 years	Straight-line
Customer relationships	5-8 years	Accelerated based upon the pattern of economic benefits consumed
Developed technology	8 years	Accelerated based upon the pattern of economic benefits consumed
Non-competition agreements	5 years	Straight-line

Intangible assets that have a definite life are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable based primarily upon whether expected future undiscounted cash flows are sufficient to support the asset recovery. If the actual useful life of the asset is shorter than the estimated life estimated by us, the asset may be deemed to be impaired and accordingly a write-down of the value of the asset determined by a discounted cash flow analysis or shorter amortization period may be required.

The components of, and changes in, the carrying amount of other intangible assets were as follows (dollars in thousands):



	March 31, 2016							March 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,377	$	(1,053	)	$	1,324	$	2,447	$	(906	)	$	1,541
Licenses	58		(58		)	—		58		(58		)	—
Trade name and trademarks	1,956		—			1,956		1,958		—			1,958
Customer relationships	3,600		(2,512		)	1,088		3,600		(1,620		)	1,980
Developed technology	900		(265		)	635		900		(109		)	791
Non-competition agreements	100		(55		)	45		100		(35		)	65
Total	$	8,991	$	(3,943	)	$	5,048	$	9,063	$	(2,728	)	$	6,335

As of March 31, 2016, the weighted average useful life of intangible assets was 6.15 years. The estimated amortization expense for each of the next five years is shown below (dollars in thousands):



Fiscal 2017	$	877
Fiscal 2018	602
Fiscal 2019	426
Fiscal 2020	340
Fiscal 2021	266
Thereafter	581
	$	3,092

Amortization expense is set forth in the following table (dollars in thousands):



	Fiscal Year Ended March 31,
	2016		2015		2014
Amortization included in cost of sales:
Patents	$	139	$	132	$	135
Total	$	139	$	132	$	135

Amortization included in operating expenses:
Customer relationships	$	891	$	1,085	$	535
Developed technology	156		90		19
Non-competition agreements	20		20		15
Patents	9		—		—
Total	1,076		1,195		569
Total amortization	$	1,215	$	1,327	$	704

Orion’s management periodically reviews the carrying value of patent applications and related costs. When a patent application is probable of being unsuccessful or a patent is no longer in use, Orion write-offs the remaining carrying value as a charge to General and administrative expense within its consolidated Statement of Operations. Such write-offs recorded in fiscal 2016, 2015 and 2014 were $78,000, $120,000 and $45,000, respectively.

Other Long-Term Assets

Other long-term assets include the following (dollars in thousands):



	March 31, 2016		March 31, 2015
Deferred financing costs	$	92	$	202
Security deposits	87		73
Deferred contract costs	—		83
Other	6		9
Total	$	185	$	367

Deferred financing costs related to debt issuances are allocated to interest expense over the life of the debt (1 to 3 years). For the years ended March 31, 2016, 2015 and 2014, the expense was $114,000, $156,000 and $40,000 respectively.

Accrued Expenses and Other

Accrued expenses and other include the following (dollars in thousands):



	March 31, 2016		March 31, 2015
Compensation and benefits	$	1,794	$	1,314
Sales tax	913		1,168
Contract costs	586		1,267
Legal and professional fees (1)	2,348		479
Warranty	554		705
Other accruals	391		264
Total	$	6,586	$	5,197

(1)Includes a $1,400 loss contingency recorded in fiscal 2016.

Orion generally offers a limited warranty of one year on its lighting products in addition to those standard warranties offered by major original equipment component manufacturers. The manufacturers’ warranties cover lamps and ballasts, which are significant components in Orion’s lighting products. Included in other long-term liabilities is $310,000 for warranty reserves related to solar operating systems.

Changes in Orion’s warranty accrual (both current and long-term) were as follows (dollars in thousands):



	March 31,
	2016			2015
Beginning of year	$	1,015		$	263
Provision to product cost of revenue	159			776
Charges	(310		)	(24		)
End of year	$	864		$	1,015

Incentive Compensation

Orion’s compensation committee approved an Executive Fiscal Year 2016 Annual Cash Incentive Program under its 2004 Stock and Incentive Awards Plan. The plan provided for performance cash bonus payments ranging from 35-100% of the fiscal 2016 base salaries of Orion’s named executive officers and other key employees. The plan provided for bonuses to be paid out on the basis of the achievement in fiscal 2016 of at least (i) $110,000 of profit before taxes and (ii) revenue growth of 10% more than fiscal year 2015. Based upon the results for the year ended March 31, 2016, Orion did not accrue any expense related to this plan.

Orion’s compensation committee approved an Executive Fiscal Year 2015 Annual Cash Incentive Program under its 2004 Stock and Incentive Awards Plan. The plan provided for performance cash bonus payments ranging from 35-100% of the fiscal 2015 base salaries of Orion’s named executive officers and other key employees. The plan provided for bonuses to be paid out on the basis of the achievement in fiscal 2015 of at least (i) $2,300,000 of profit before taxes and (ii) revenue of at least $90,400,000. Based upon the results for the year ended March 31, 2015, Orion did not accrue any expense related to this plan.

Orion’s compensation committee approved an Executive Fiscal Year 2014 Annual Cash Incentive Program under its 2004 Stock and Incentive Awards Plan. The plan provided for performance cash bonus payments ranging from 35-100% of the fiscal 2014 base salaries of Orion’s named executive officers and other key employees. The plan provided for bonuses to be paid out on the basis of the achievement in fiscal 2014 of at least (i) $2,000,000 of profit before taxes and (ii) revenue of at least $88,000,000. Based upon the results for the year ended March 31, 2014, Orion did not accrue any expense related to this plan.

Revenue Recognition

Revenue is recognized on the sales of our lighting and related energy-efficiency systems and products when the following four criteria are met:


1.	persuasive evidence of an arrangement exists;


2.	delivery has occurred and title has passed to the customer;


3.	the sales price is fixed and determinable and no further obligation exists; and


4.	collectability is reasonably assured.

These four criteria are met for Orion’s product-only revenue upon delivery of the product and title passing to the customer. At that time, Orion provides for estimated costs that may be incurred for product warranties and sales returns. Revenues are presented net of sales tax and other sales related taxes.

For sales of Orion’s lighting and energy management technologies, consisting of multiple element arrangements, such as a combination of product sales and services, Orion determines revenue by allocating the total contract revenue to each element based on their relative selling prices in accordance with ASC 605-25, Revenue Recognition - Multiple Element Arrangements. In such circumstances, Orion uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (1) vendor-specific objective evidence (VSOE) of fair value, if available, (2) third-party evidence (TPE) of selling price if VSOE is not available, and (3) best estimate of the selling price if neither VSOE nor TPE is available (a description as to how Orion determined estimated selling price is provided below).

The nature of Orion’s multiple element arrangements for the sale of its lighting and energy management technologies is similar to a construction project, with materials being delivered and contracting and project management activities occurring according to an installation schedule. The significant deliverables include the shipment of products and related transfer of title and the installation.

To determine the selling price in multiple-element arrangements, Orion establishes the selling price for its HIF lighting and energy management system products using management's best estimate of the selling price, as VSOE or TPE does not exist. Product revenue is recognized when products are shipped. For product revenue, management's best estimate of selling price is determined using a cost plus gross profit margin method. In addition, Orion records in service revenue the selling price for its installation and recycling services using management’s best estimate of selling price, as VSOE or TPE does not exist. Service revenue is recognized when services are completed and customer acceptance has been received. Recycling services provided in connection with installation entail the disposal of the customer’s legacy lighting fixtures. Orion’s service revenues, other than for installation and recycling that are completed prior to delivery of the product, are included in product revenue using management’s best estimate of selling price, as VSOE or TPE does not exist. These services include comprehensive site assessment, site field verification, utility incentive and government subsidy management, engineering design, and project management. For these services, along with Orion's installation and recycling services, under a multiple-element arrangement, management’s best estimate of selling price is determined by considering several external and internal factors including, but not limited to, economic conditions and trends, customer demand, pricing practices, margin objectives, competition, geographies in which Orion offers its products and services and internal costs. The determination of estimated selling price is made through consultation with and approval by management, taking into account all of the preceding factors.

For sales of solar photovoltaic systems, which are governed by customer contracts that require Orion to deliver functioning solar power systems and are generally completed within three to 15 months from the start of construction, Orion recognizes revenue from fixed price construction contracts using the percentage-of-completion method in accordance with ASC 605-35, Construction-Type and Production-Type Contracts. Under this method, revenue arising from fixed price construction contracts is recognized as work is performed based upon the percentage of incurred costs to estimated total forecasted costs. Orion has determined that the appropriate method of measuring progress on these sales is measured by the percentage of costs incurred to date of the total estimated costs for each contract as materials are installed. The percentage-of-completion method requires revenue recognition from the delivery of products to be deferred and the cost of such products to be capitalized as a deferred cost and current asset on the balance sheet. Orion performs periodic evaluations of the progress of the installation of the solar photovoltaic systems using actual costs incurred over total estimated costs to complete a project. Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable.

Orion offers a financing program, called an Orion Throughput Agreement, or OTA, for a customer’s lease of Orion’s energy management systems. The OTA is structured as a sales-type lease and upon successful installation of the system and customer acknowledgment that the system is operating as specified, revenue is recognized at Orion’s net investment in the lease, which typically is the net present value of the future cash flows.

Orion offers a financing program, called a power purchase agreement, or PPA, for Orion’s renewable energy product offerings. A PPA is a supply side agreement for the generation of electricity and subsequent sale to the end user. Upon the customer’s acknowledgment that the system is operating as specified, product revenue is recognized on a monthly basis over the life of the PPA contract, which is typically in excess of 10 years.

Deferred revenue relates to advance customer billings, investment tax grants received related to PPAs and a separate obligation to provide maintenance on OTAs and is classified as a liability on the Consolidated Balance Sheet. The fair value of the maintenance is readily determinable based upon pricing from third-party vendors. Deferred revenue related to maintenance services is recognized when the services are delivered, which occurs in excess of a year after the original OTA contract is executed.

Shipping and Handling Costs

Orion records costs incurred in connection with shipping and handling of products as cost of product revenue. Amounts billed to customers in connection with these costs are included in product revenue.

Advertising

Advertising costs of $4,000, $149,000 and $28,000 for fiscal 2016, 2015 and 2014, respectively, were charged to operations as incurred.

Research and Development

Orion expenses research and development costs as incurred. Amounts are included in the Statement of Operations and Comprehensive Income on the line item Research and development.

Income Taxes

Orion recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between financial reporting and income tax basis of assets and liabilities, measured using the enacted tax rates and laws expected to be in effect when the temporary differences reverse. Deferred income taxes also arise from the future tax benefits of operating loss and tax credit carryforwards. A valuation allowance is established when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. For the fiscal year ended March 31, 2016, Orion recorded a valuation allowance of $5,740,000 against its deferred tax assets.

ASC 740, Income Taxes, also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination. Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are immaterial and are included in the unrecognized tax benefits.

Deferred tax benefits have not been recognized for income tax effects resulting from the exercise of non-qualified stock options. These benefits will be recognized in the period in which the benefits are realized as a reduction in taxes payable and an increase in additional paid-in capital. Realized tax benefits (expense) from the exercise of stock options were $0, $0 and $13,000 for the fiscal years 2016, 2015 and 2014, respectively.

Stock Based Compensation

Orion’s share-based payments to employees are measured at fair value and are recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation costs (excess tax benefits) are classified as financing cash flows. For the years ended March 31, 2016, 2015 and 2014, $0, $0 and $13,000, respectively, of such excess tax benefits were classified as financing cash flows.

Orion uses the Black-Scholes option-pricing model. Orion calculates volatility based upon the historical market price of its common stock. The risk-free interest rate is the rate available as of the option date on zero-coupon U.S. Government issues with a remaining term equal to the expected term of the option. The expected term is based upon the vesting term of Orion’s options and expected exercise behavior. Orion has not paid dividends in the past and does not plan to pay any dividends in the foreseeable future. Orion estimates its forfeiture rate of unvested stock awards based on historical experience.

Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. As more fully described in Note 9, Orion awards non-vested restricted stock to employees, executive officers and directors. Orion did not issue any stock options during fiscal 2016 or 2015. The fair value of each option grant in fiscal 2014 was determined using the assumptions in the following table:




	2014
Weighted average expected term	4.1 years
Risk-free interest rate	0.8	%
Expected volatility	73.3	%
Expected forfeiture rate	20.3	%

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period and does not consider common stock equivalents.

Diluted net income (loss) per common share reflects the dilution that would occur if warrants and stock options were exercised and restricted shares vested. In the computation of diluted net income (loss) per common share, Orion uses the “treasury stock” method for outstanding options, warrants and restricted shares. Diluted net loss per common share is the same as basic net loss per common share for the years ended March 31, 2016, March 31, 2015 and March 31,2014 because the effects of potentially dilutive securities are anti-dilutive. The effect of net income (loss) per common share is calculated based upon the following shares:



	Fiscal Year Ended March 31,
	2016			2015			2014
Numerator:
Net loss (dollars in thousands)	$	(20,126	)	$	(32,061	)	$	(6,199	)
Denominator:
Weighted-average common shares outstanding	27,627,693			22,353,419			20,987,964
Weighted-average effect of assumed conversion of stock options and restricted stock	—			—			—
Weighted-average common shares and share equivalents outstanding	27,627,693			22,353,419			20,987,964
Net income (loss) per common share:
Basic	$	(0.73	)	$	(1.43	)	$	(0.30	)
Diluted	$	(0.73	)	$	(1.43	)	$	(0.30	)

The following table indicates the number of potentially dilutive securities as of the end of each period:



	March 31,
	2016	2015	2014
Common stock options	2,017,046	2,426,836	2,716,317
Restricted shares	1,053,389	704,688	539,204
Common stock warrants	—	—	38,980
Total	3,070,435	3,131,524	3,294,501

Concentration of Credit Risk and Other Risks and Uncertainties

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

Orion purchases components necessary for its lighting products, including ballasts, lamps and LED components from multiple suppliers. For fiscal 2016, 2015 and 2014, no supplier accounted for more than 10% of total cost of revenue.

In fiscal 2016, no customer accounted for more than 10% of revenue. In fiscal 2015, one customer accounted for 12% of revenue. In fiscal 2014, one customer accounted for 23% of revenue.

As of March 31, 2016 one customer accounted for more than 10% of accounts receivable and as of March 31, 2015, no customer accounted for more than 10% of accounts receivable.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The ASU is effective for Orion in the first quarter of Orion's fiscal 2018. Management is currently assessing the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Subtopic 842)." This ASU requires that lessees recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for the Company on April 1, 2019. Management is currently assessing the impact of adoption on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” to simplify the presentation of deferred taxes. The amendments in this update require that deferred tax assets and liabilities be classified as non-current on the balance sheet. This ASU is effective for Orion's annual reporting period, and interim periods therein, beginning on April 1, 2017 with earlier adoption permitted. The guidance may be adopted either prospectively or retrospectively. Management is currently assessing the impact of this standard on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value for entities that measure inventory using first-in, first-out (FIFO) or average cost. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Orion is currently assessing the impact of this standard on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03 “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a reduction of the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. In August 2015, the FASB issued ASU 2015-15 “Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update).” This ASU indicates that the guidance in ASU 2015-03, discussed above, does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03, the SEC staff has indicated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASU’s were effective for Orion on April 1, 2016. As the Company’s only deferred debt issuance costs relate to its revolving line of credit, upon adoption of these standards a reclassification of the deferred financing costs was not required and there was no impact on the Company’s financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements - Going Concern" ("ASU 2014-15"). ASU 2014-15 requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern and if those conditions exist, the required disclosures. The standard is effective for annual periods ending after December 15, 2016, and interim periods therein. Orion does not expect adoption of this standard will have a significant impact on its consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Compensation - Stock Compensation" ("ASU 2014-12"). ASU 2014-12 is intended to resolve diverse accounting treatment for share based awards in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The standard was effective for Orion on April 1, 2016. There was no impact on Orion's consolidated financial statements upon adoption.

In May 2014, FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In April 2016, FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing." This ASU is a clarification for identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. In March 2016, FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606) Principle Versus Agent Considerations (Reporting Revenue Gross Versus Net)." This ASU is intended to improve the guidance on principle versus agent considerations by amending certain illustrative examples to assist in the application of the guidance. In May 2016, FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients." This ASU is a clarification of the collectability criterion and when to recognize revenue. These ASU’s are effective for Orion beginning on April 1, 2018 (as amended by ASU 2015-14) and early adoption is not permitted. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and management is currently evaluating which transition approach to use. Orion is currently evaluating the impact of ASU 2014-09 and ASU 2015-14.