OESX

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and related notes included in this Form 10-Q, as well as our audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026. Cautionary Note Regarding Forward-Looking Statements Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to several risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events. 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. We help our customers achieve their sustainability, energy savings and carbon footprint reduction goals through innovative technology and exceptional service. We research, design, develop, manufacture, market, sell, install, and implement energy management systems consisting primarily of high-performance, energy-efficient commercial and industrial interior and exterior LED lighting systems and related services. Our products are targeted for applications in the following segments: commercial office and retail, data centers, area lighting, roadway and industrial applications and government, although we do sell and install products into other markets. Our services consist of turnkey installation and system maintenance. Virtually all of our sales occur within North America or for the US Department of Defense's military bases operating in foreign countries. 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”). Currently, most of our interior lighting products are manufactured at our leased production facility located in Manitowoc, Wisconsin, although as the LED and related IoT market continues to evolve, we are increasingly sourcing products and components from third parties in order to provide versatility in our product development and offerings. We differentiate ourselves from our competitors by offering comprehensive project management services to national account customers to retrofit their multiple locations. Our comprehensive services include initial site surveys and audits, utility incentive and government subsidy management, engineering design, and project management from delivery through to installation and controls integration. In addition, we offer lighting and electrical maintenance services which enables us to support a lifetime business relationship with our customer (which we call “Customers for Life”). We completed the acquisition of Voltrek LLC on October 5, 2022, which further expanded our turnkey services capabilities as well as capitalized on the rapidly growing market for EV charging solutions. We completed the Stay-Lite Lighting acquisition on January 1, 2022, which further expanded our maintenance services capabilities. 22 We believe the market for LED lighting products and related controls continues to grow. Due to their size and flexibility in application, we also believe that our LED lighting systems can address opportunities for retrofit applications that cannot be satisfied by other lighting technologies. Our LED lighting technologies have become the primary component of our revenue as we continue to strive to be a leader in the LED market. We see opportunity to cross-sell our three platforms of lighting, maintenance services and EV charging installation systems to our commercial and industrial customer base. We are pursuing opportunities to cross-sell to direct customers, as well as through select partners. We also see opportunity for further integration of our service capabilities to expand our geographic reach and we currently intend to pursue growth organically. Other than our multi-year maintenance service contracts, we generally do not have long-term contracts with our customers for product or turnkey services that provide us with recurring annual revenue. We typically generate substantially all of our revenue from sales of lighting and control systems and related services to governmental, commercial and industrial customers on a project-by-project basis. We also perform work under master services or product purchasing agreements with major customers with sales completed on a purchase order basis. In addition, in order to provide quality and timely service under our multi-location master retrofit agreements, we make substantial working capital expenditures and advance inventory purchases that we intend to recover through the completion of these or similar projects. We typically sell our lighting systems in replacement of our customers’ existing fixtures. We call this replacement process a "retrofit". We frequently engage our customer’s existing electrical contractor to provide installation and project management services. We also sell our lighting systems on a wholesale basis, principally to electrical distributors and ESCOs to sell to their own customer bases. The gross margins of our products can vary significantly depending upon the types of products we sell, with margins typically ranging from 10% to 50%. As a result, a change in the total mix of our sales among higher or lower margin products can cause our profitability to fluctuate from period to period. Our fiscal year ends on March 31. We refer to our current fiscal year, which ends on March 31, 2027, as "fiscal 2027", our most recently completed fiscal year, which ended on March 31, 2026, as "fiscal 2026", and our prior fiscal year which ended on March 31, 2025, as "fiscal 2025". Our fiscal first quarter of each fiscal year ends on June 30, our fiscal second quarter of each fiscal year ends on September 30, our fiscal third quarter of each fiscal year ends on December 31 and our fiscal fourth quarter of each fiscal year ends on March 31. 23 Results of Operations - Three Months Ended June 30, 2026 versus Three Months Ended June 30, 2025 The following table sets forth the line items of our Condensed 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 (dollars in thousands, except percentages): Three Months Ended June 30, 2026 2025 2026 2025 Amount Amount % Change % of Revenue % of Revenue Product revenue $ 14,219 $ 13,512 5.2 % 55.2 % 69.0 % Service revenue 11,524 6,063 90.1 % 44.8 % 31.0 % Total revenue 25,743 19,575 31.5 % 100.0 % 100.0 % Cost of product revenue 8,668 8,822 (1.7 )% 33.7 % 45.1 % Cost of service revenue 8,164 4,852 68.3 % 31.7 % 24.8 % Total cost of revenue 16,832 13,674 23.1 % 65.4 % 69.9 % Gross profit 8,911 5,901 51.0 % 34.6 % 30.1 % General and administrative 3,694 4,290 (13.9 )% 14.3 % 21.9 % Sales and marketing 2,838 2,416 17.5 % 11.0 % 12.3 % Research and development 268 208 28.8 % 1.0 % 1.1 % Income (loss) from operations 2,111 (1,013 ) 308.4 % 8.2 % (5.2 )% Interest expense (98 ) (169 ) (42.0 )% (0.4 )% (0.9 )% Amortization of debt issue costs (18 ) (51 ) (64.7 )% (0.1 )% (0.3 )% Royalty income 1 2 (50.0 )% 0.0 % 0.0 % Other (42 ) — NM (0.2 )% 0.0 % Income (loss) before income tax 1,954 (1,231 ) 258.7 % 7.6 % (6.3 )% Income tax expense (5 ) 13 (138.5 )% (0.0 )% 0.1 % Net income (loss) $ 1,959 $ (1,244 ) 257.5 % 7.6 % (6.4 )% Revenue, Cost of Revenue and Gross Margin. Product revenue increased 5.2%, or $0.7 million, for the first quarter of fiscal 2027 versus the first quarter of fiscal 2026. Service revenue increased 90.1%, or $5.5 million, for the first quarter of fiscal 2027 versus the first quarter of fiscal 2026. The resulting increase in total revenue was due to increased revenue in all three segments due to higher volume. Cost of product revenue decreased by 1.7%, or $0.2 million, in the first quarter of fiscal 2027 versus the comparable period in fiscal 2026. Cost of service revenue increased by 68.3%, or $3.3 million, in the first quarter of fiscal 2027 versus the comparable period in fiscal 2026. Gross margin increased from 30.1% of revenue in the first quarter of fiscal 2026 to 34.6% of revenue in the first quarter of fiscal 2027, due primarily to increases in the lighting and maintenance segments. Operating Expenses General and Administrative. General and administrative expenses decreased 13.9%, or $0.6 million, in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. This comparative decrease was primarily due to reductions in compensation costs. Sales and Marketing. Sales and marketing expenses increased 17.5%, or $0.4 million, in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. This comparative increase was primarily due to increased commissions expense. Research and Development. Research and development expenses increased 28.8%, or $0.1 million, in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Lighting Segment Our lighting segment develops and sells lighting products and provides construction and engineering services for our commercial lighting and energy management systems. Our lighting segment provides engineering, design, lighting products and 24 in many cases turnkey solutions for large national accounts, governments, municipalities, schools and other customers mostly through direct sales and also sells lighting products though manufacturer representative agencies and to the wholesale contractor markets through ESCOs and contractors. The following table summarizes our lighting segment operating results (dollars in thousands): Three Months Ended June 30, 2026 2025 % Change Revenue $ 17,667 $ 12,882 37.1 % Operating income (loss) $ 2,576 $ 235 996.2 % Operating margin 14.6 % 1.8 % Lighting segment revenue in the first quarter of fiscal 2027 increased by 37.2%, or $4.8 million, compared to the first quarter of fiscal 2026. The increase was primarily related to additional turnkey projects. The increase in operating income in this segment was primarily due to the increase in revenue. Maintenance Segment Our maintenance segment provides retailers, distributors and other businesses with maintenance, repair and replacement services for the lighting and related electrical components deployed in their facilities. The following table summarizes our maintenance segment operating results (dollars in thousands): Three Months Ended June 30, 2026 2025 % Change Revenue $ 4,096 $ 3,997 2.5 % Operating income (loss) $ 447 $ 128 249.2 % Operating margin 10.9 % 3.2 % Maintenance segment revenue in the first quarter of fiscal 2027 increased by 2.5%, or $0.1 million, compared to the first quarter of fiscal 2026 primarily due to increased work orders from our major customer. Operating income in this segment increased as a result of an increase in profit margins. EV Segment Our EV segment offers leading electric vehicle charging expertise and provides EV turnkey installation solutions with ongoing support to all commercial verticals. The following table summarizes our EV segment operations results (dollars in thousands): Three Months Ended June 30, 2026 2025 % Change Revenue $ 3,980 $ 2,696 47.6 % Operating income (loss) $ 142 $ (322 ) 144.1 % Operating margin 3.6 % (11.9 )% EV segment revenue in the first quarter of fiscal 2027 increased by 47.6%, or $1.3 million, compared to the first quarter of fiscal 2026. The increase in revenue was primarily due to increased projects from a major customer. Operating income increased $0.5 million in the first quarter of fiscal 2027 due to increased revenues. 25 Liquidity and Capital Resources Overview We believe our existing cash and operating cash flow provide us with the financial flexibility needed to meet our capital requirements, including to fund our budgeted capital expenditures and working capital needs for at least one year from the date of this report, as well as our longer-term capital requirements for periods beyond at least one year from the date of this report. We had approximately $5.2 million in cash and cash equivalents as of June 30, 2026, compared to $3.3 million at March 31, 2026. Our cash position increased primarily as a result of our net income position, which was partially offset by operating activities, along with additional proceeds related to our most recent credit amendment. Our future liquidity needs and forecasted cash flows are dependent upon many factors, including our relative revenue, gross margins, cash management practices, cost containment, and working capital management and capital expenditures. While we believe that we will likely have adequate available cash and equivalents and credit availability under our credit agreement to satisfy our currently anticipated working capital and liquidity requirements for at least the next 12 months based on our current cash flow forecast, 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. Cash Flows The following table summarizes our cash flows for the three months ended June 30, 2026 and 2025 (in thousands): Three Months Ended June 30, 2026 2025 Operating activities $ 1,352 $ (515 ) Investing activities (6 ) (55 ) Financing activities 554 (1,838 ) (Increase) decrease in cash and cash equivalents $ 1,900 $ (2,408 ) Cash Flows Related to Operating Activities. Cash provided by operating activities for the first three months of fiscal 2027 was $1.4 million and consisted of our net income of $2.0 million adjusted for non-cash expense items and net cash used in changes in operating assets of $0.6 million, the largest of which were revenue earned but not billed, accrued expenses and prepaid expenses, which were partially offset by a decrease in accounts receivable. Cash used in operating activities for the first three months of fiscal 2026 was $0.5 million and consisted of our net loss of $1.2 million adjusted for non-cash expense items and net cash provided in changes in operating assets of $0.7 million, the largest of which were inventories, depreciation, amortization, and prepaids, totaling $1.8 million, partially offset by a decrease in accounts payable and an increase in accounts receivable. Cash Flows Related to Investing Activities. Cash used in investing activities was relatively flat in the first three months of fiscal 2027 and consisted primarily of purchases of property and equipment, mostly related to our Enterprise Resource Planning ("ERP") system implementation. Cash used in investing activities of $55 thousand in the first three months of fiscal 2026 consisted primarily of purchases of property and equipment. Cash Flows Related to Financing Activities. Cash provided by financing activities of $0.6 million in the first three months of fiscal 2027 was primarily due to additional proceeds from our mortgage term loan, partially offset by our quarterly payment of long-term debt. 26 Cash used in financing activities of $1.8 million in the first three months of fiscal 2026 was primarily due to payments on our revolving credit facility and long-term debt. Working Capital Our net working capital as of June 30, 2026 was $13.7 million, consisting of $39.2 million in current assets and $25.6 million in current liabilities. Our net working capital as of March 31, 2026 was $11.0 million, consisting of $37.7 million in current assets and $26.7 million in current liabilities. We generally attempt to maintain at least a three-month supply of on-hand inventory of purchased components and raw materials to meet anticipated demand, as well as to reduce our risk of unexpected raw material or component shortages or supply interruptions. Our accounts receivable, net, inventories, net, accounts payable and revenue earned but not billed may increase to the extent our revenue and order levels increase. Indebtedness Revolving Credit Agreement Our credit agreement provides for a $25.0 million revolving credit facility (the “Credit Facility”) that matures on June 30, 2030. Borrowings under the Credit Facility are subject to a borrowing base requirement based on eligible receivables, inventory and cash. As of June 30, 2026, the borrowing base supported approximately $15.8 million of availability under the Credit Facility, with $3.0 million drawn against that availability. As of June 30, 2025, the borrowing base supported approximately $11.5 million of availability under the Credit Facility, with $5.3 million drawn against that availability. The credit agreement is secured by a first lien security interest in substantially all of our assets. Borrowings under the credit agreement are permitted in the form of SOFR or prime rate-based loans and generally bear interest at floating rates plus an applicable margin determined by reference to our availability under the Credit Agreement. Among other fees, we are required to pay an annual facility fee of $15,000 and a fee of 25 basis points on the unused portion of the Credit Facility. The credit agreement includes a springing minimum fixed cost coverage ratio of 1.0 to 1.0 when excess availability under the Credit Facility falls below $4.0 million of the committed facility. Currently, the required springing minimum fixed cost coverage ratio is not required. Backlog Backlog represents the amount of revenue that we expect to realize in the future as a result of firm, committed purchase orders. Backlog totaled $23.7 million and $30.1 million as of June 30, 2026 and March 31, 2026, respectively. We generally expect our backlog to be recognized as revenue within one year. Backlog does not include any amounts for contracted maintenance services. Critical Accounting Estimates There have been no material changes to our critical accounting estimates since March 31, 2026. For a full discussion of these estimates and policies, see "Critical Accounting Estimates" within "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026. Recent Accounting Pronouncements For a complete discussion of recent accounting pronouncements, refer to Note 2 in the Condensed Consolidated Financial Statements included elsewhere in this report. 27