UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC~~, DC~~ 20549

_________________________

FORM 10-Q

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2020~~2021 OR

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

Commission File No. 0-13375

LSI Industries Inc.

(Exact name of registrant as specified in its charter)

Ohio

31-0888951

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer Identification No.)

10000 Alliance Road, Cincinnati, Ohio		45242
(Address of principal executive offices)		(Zip Code)
(513) 793-3200
Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	LYTS	NASDAQ Global Select Market

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐		Accelerated filer ☒	Emerging growth company ☐
	Non-accelerated filer ☐		Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ NO ☒

As of ~~January 22,~~April 23, 2021, there were ~~26,435,719~~26,498,775 shares of the registrant's common stock, no par value per share, outstanding.

Page 1

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~DECEMBER~~MARCH 31, ~~2020~~2021

INDEX

			Begins on Page
PART I. Financial Information

	ITEM 1.	Financial Statements (Unaudited)

		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income	4
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Shareholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	8

		Notes to Condensed Consolidated Financial Statements	9

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3031

	ITEM 4.	Controls and Procedures	3031

PART II. Other Information


	ITEM 5.
Other Information			32
	~~ITEM 5.~~	~~Other Information~~	30

	ITEM 6.	Exhibits	32

Signatures			33

Page 2

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	December 31						December 31						March 31						March 31
(In thousands, except per share data)	2020			2019			2020			2019			2021			2020			2021			2020

Net Sales	$	76,387		$	82,377		$	146,393		$	171,078		$	72,204		$	71,010		$	218,597		$	242,088

Cost of products and services sold		56,676			62,136			108,407			128,724			54,112			54,834			162,519			183,558

Severance costs		5			0			5			0			0			11			5			11

Restructuring costs		0			277			3			535			0			223			3			758

Gross profit		19,706			19,964			37,978			41,819			18,092			15,942			56,070			57,761

Selling and administrative expenses		17,004			18,151			33,074			38,013			15,996			17,032			49,070			55,045

Severance costs		16			54			16			54			0			8			16			62

Restructuring gains		0			(1	)		0			(4,847	)		0			(3,729	)		0			(8,576	)

Operating income		2,686			1,760			4,888			8,599			2,096			2,631			6,984			11,230

Interest (income)		(1	)		(1	)		(2	)		(2	)		(2	)		(1	)		(4	)		(3	)

Interest expense		63			234			121			666			54			129			175			795

Other (income) expense		(135	)		(91	)		(240	)		(9	)
Other expense (income)														43			642			(197	)		633

Income before income taxes		2,759			1,618			5,009			7,944			2,001			1,861			7,010			9,805

Income tax expense (benefit)		551			(125	)		811			1,726
Income tax expense														529			0			1,340			1,726

Net income	$	2,208		$	1,743		$	4,198		$	6,218		$	1,472		$	1,861		$	5,670		$	8,079


Earnings per common share (see Note 4)
Basic	$	0.08		$	0.07		$	0.16		$	0.24		$	0.05		$	0.07		$	0.21		$	0.31
Diluted	$	0.08		$	0.07		$	0.15		$	0.24		$	0.05		$	0.07		$	0.21		$	0.31


Weighted average common shares outstanding
Basic		26,639			26,280			26,580			26,257			26,771			26,301			26,642			26,250
Diluted		27,360			26,534			27,161			26,364			27,727			26,623			27,352			26,423

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 3

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Six Months Ended				Three Months Ended						Nine Months Ended
	December 31				December 31				March 31						March 31
(In thousands)	2020		2019		2020		2019		2021			2020			2021		2020

Net Income	$	2,208	$	1,743	$	4,198	$	6,218	$	1,472		$	1,861		$	5,670	$	8,079

Foreign currency translation adjustment		102		29		147		6		(54	)		(116	)		93		(110	)

Comprehensive Income	$	2,310	$	1,772	$	4,345	$	6,224	$	1,418		$	1,745		$	5,763	$	7,969

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 4

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			June 30,			March 31,			June 30,
(In thousands, except shares)	2020			2020			2021			2020

ASSETS

Current assets

Cash and cash equivalents	$	13,584		$	3,517		$	23,528		$	3,517

Accounts receivable, less allowance for doubtful accounts of $336 and $273, respectively		44,475			37,836
Accounts receivable, less allowance for doubtful accounts of $241 and $273, respectively								44,974			37,836

Inventories		34,825			38,752			40,390			38,752

Refundable income tax		3,319			2,776			3,233			2,776

Other current assets		3,214			2,977			4,277			2,977

Total current assets		99,417			85,858			116,402			85,858

Property, Plant and Equipment, at cost
Land		3,943			3,933			3,943			3,933
Buildings		20,663			20,638			20,667			20,638
Machinery and equipment		68,298			67,796			68,444			67,796
Buildings under finance leases		2,033			2,033			2,033			2,033
Construction in progress		418			440			778			440
		95,355			94,840			95,865			94,840
Less accumulated depreciation		(70,599	)		(68,305	)		(71,713	)		(68,305	)
Net property, plant and equipment		24,756			26,535			24,152			26,535

Goodwill		10,373			10,373			10,373			10,373

Other Intangible Assets, net		28,619			29,960			27,948			29,960

Operating Lease Right-of-Use Assets		7,684			8,663			7,673			8,663

Other Long-Term Assets, net		10,432			10,874			10,546			10,874

Total assets	$	181,281		$	172,263		$	197,094		$	172,263

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 5

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			June 30,			March 31,			June 30,
(In thousands, except shares)	2020			2020			2021			2020

LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable	$	18,499		$	14,216		$	25,003		$	14,216
Accrued expenses		22,737			20,433			30,302			20,433

Total current liabilities		41,236			34,649			55,305			34,649

Long-Term Debt		0			0			0			0

Finance Lease Liabilities		1,631			1,755			1,568			1,755

Operating Lease Liabilities		8,118			9,021			8,105			9,021

Other Long-Term Liabilities		1,023			1,138			1,046			1,138

Commitments and Contingencies (Note 12)		-			-			-			-

Shareholders' Equity
Preferred shares, without par value; Authorized 1,000,000 shares, none issued		0			0
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 26,385,721 and 26,286,009 shares, respectively		129,622			127,713
Preferred shares, without par value;
Authorized 1,000,000 shares, none issued								0			0
Common shares, without par value;
Authorized 40,000,000 shares;
Outstanding 26,490,385 and 26,286,009 shares, respectively								131,330			127,713
Treasury shares, without par value		(1,692	)		(1,121	)		(2,111	)		(1,121	)
Deferred compensation plan		1,692			1,121			2,111			1,121
Retained (loss)		(403	)		(1,920	)		(260	)		(1,920	)
Accumulated other comprehensive income (loss)		54			(93	)		0			(93	)

Total shareholders' equity		129,273			125,700			131,070			125,700

Total liabilities & shareholders' equity	$	181,281		$	172,263		$	197,094		$	172,263

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 6

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Common Shares				Treasury Shares						Key Executive			Accumulated Other		Retained			Total
	Number Of				Number Of						Compensation			Comprehensive		Earnings			Shareholders'			Common Shares				Treasury Shares						Key Executive			Accumulated Other			Retained			Total
(In thousands, except per share data)	Shares		Amount		Shares			Amount			Amount			Income		(Loss)			Equity			Number Of Shares		*Amount*		Number Of Shares			*Amount*			Compensation Amount			Comprehensive Income (Loss)			Earnings (Loss)			Shareholders' Equity

Balance at June 30, 2019		26,176	$	125,729		(209	)	$	(1,468	)	$	1,468			16	$	(5,808	)	$	119,937			26,176	$	125,729		(209	)	$	(1,468	)	$	1,468			16		$	(5,808	)	$	119,937

Net Income		-		0		-			0			0			0		6,218			6,218			-		0		-			0			0			0			8,079			8,079
Other comprehensive income		-		0		-			0			0			6		0			6
Other comprehensive loss																							-		0		-			0			0			(110	)		0			(110	)
Stock compensation awards		36		150		0			0			0			0		0			150			48		225		0			0			0			0			0			225
Restricted stock units issued		18		0		0			0			0			0		0			0			21		0		0			0			0			0			0			0
Shares issued for deferred compensation		10		47		0			0			0			0		0			47			54		296		0			0			0			0			0			296
Activity of treasury shares, net		0		0		87			660			0			0		0			660			0		0		42			411			0			0			0			411
Deferred stock compensation		-		0		-			0			(660	)		0		0			(660	)		-		0		-			0			(413	)		0			0			(413	)
Stock compensation expense		-		597		-			0			0			0		0			597			-		494		-			0			0			0			0			494
Stock options exercised, net		6		29		0			0			0			0		0			29			29		174		0			0			0			0			0			174
Dividends — $0.20 per share		-		0		-			0			0			0		(2,643	)		(2,643	)
Dividends — $0.20 per share																							-		0		-			0			0			0			(3,958	)		(3,958	)
Cumulative effect of adoption of accounting guidance		-		0		-			0			0			0		(428	)		(428	)		-		0		-			0			0			0			(428	)		(428	)

Balance at December 31, 2019		26,246	$	126,552		(122	)	$	(808	)	$	808		$	22	$	(2,661	)	$	123,913
Balance at March 31, 2020																							26,328	$	126,918		(167	)	$	(1,057	)	$	1,055		$	(94	)	$	(2,115	)	$	124,707

	Common Shares				Treasury Shares						Key Executive		Accumulated Other			Retained			Total			Common Shares				Treasury Shares						Key Executive		Accumulated Other			Retained			Total
	Number Of				Number Of						Compensation		Comprehensive			Earnings			Shareholders'			Number Of				Number Of						Compensation		Comprehensive			Earnings			Shareholders'
	Shares		Amount		Shares			Amount			Amount		Income (Loss)			(Loss)			Equity			Shares		Amount		Shares			Amount			Amount		Income (Loss)			(Loss)			Equity

Balance at June 30, 2020		26,466	$	127,713		(180	)	$	(1,121	)	$	1,121		(93	)	$	(1,920	)	$	125,700			26,466	$	127,713		(180	)	$	(1,121	)	$	1,121		(93	)	$	(1,920	)	$	125,700

Net Income		-		0		-			0			0		0			4,198			4,198			-		0		-			0			0		0			5,670			5,670
Other comprehensive income		-		0		-			0			0		147			0			147			-		0		-			0			0		93			0			93
Stock compensation awards		25		150		0			0			0		0			0			150			35		242		0			0			0		0			0			242
Restricted stock units issued		28		0		0			0			0		0			0			0			28		0		0			0			0		0			0			0
Shares issued for deferred compensation		96		679		0			0			0		0			0			679			141		1,096		0			0			0		0			0			1,096
Activity of treasury shares, net		0		0		(83	)		(571	)		0		0			0			(571	)		0		0		(128	)		(990	)		0		0			0			(990	)
Deferred stock compensation		-		0		-			0			571		0			0			571			-		0		-			0			990		0			0			990
Stock compensation expense		-		902		-			0			0		0			0			902			-		1,317		-			0			0		0			0			1,317
Stock options exercised, net		33		178		0			0			0		0			0			178			128		962		0			0			0		0			0			962
Dividends — $0.20 per share		-		0		-			0			0		0			(2,681	)		(2,681	)
Dividends — $0.20 per share																							-		0		-			0			0		0			(4,010	)		(4,010	)

Balance at December 31, 2020		26,648	$	129,622		(263	)	$	(1,692	)	$	1,692	$	54		$	(403	)	$	129,273
Balance at March 31, 2021																							26,798	$	131,330		(308	)	$	(2,111	)	$	2,111	$	0		$	(260	)	$	131,070

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 7

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended						Nine Months Ended
	December 31						March 31
(In thousands)	2020			2019			2021			2020

Cash Flows from Operating Activities
Net income	$	4,198		$	6,218		$	5,670		$	8,079
Non-cash items included in net income
Depreciation and amortization		4,023			4,551			5,943			6,631
Deferred income taxes		315			1,893			332			2,637
Deferred compensation plan		679			47			1,096			296
Stock compensation expense		902			597			1,317			494
Issuance of common shares as compensation		150			150			242			225
Gain on disposition of fixed assets		0			(4,753	)		0			(8,510	)
Allowance for doubtful accounts		96			(356	)		(15	)		(105	)
Inventory obsolescence reserve		817			(212	)		1,226			1,720

Changes in certain assets and liabilities
Accounts receivable		(6,476	)		10,552			(6,867	)		8,322
Inventories		3,195			413			(2,817	)		(1,981	)
Refundable income taxes		(522	)		(112	)		(444	)		(1,170	)
Accounts payable		3,933			1,864			10,450			1,015
Accrued expenses and other		834			406			1,269			(258	)
Customer prepayments		1,273			(355	)		7,232			(298	)
Net cash flows provided by operating activities		13,417			20,903			24,634			17,097

Cash Flows from Investing Activities
Purchases of property, plant and equipment		(880	)		(1,119	)		(1,517	)		(1,538	)
Proceeds from the sale of fixed assets		0			12,340			0			20,040
Net cash flows (used in) provided by investing activities		(880	)		11,221			(1,517	)		18,502

Cash Flows from Financing Activities
Payments of long-term debt		0			(99,746	)		0			(169,671	)
Borrowings of long-term debt		0			70,642			0			138,049
Cash dividends paid		(2,639	)		(2,643	)		(3,963	)		(3,958	)
Shares withheld for employees' taxes		(28	)		(124	)		(28	)		(124	)
Payments on financing lease obligations		(118	)		0			(178	)		0
Proceeds from stock option exercises		178			29			962			174
Net cash flows used in financing activities		(2,607	)		(31,842	)		(3,207	)		(35,530	)

Change related to foreign currency		137			0			101			(215	)

Increase in cash and cash equivalents		10,067			282
Increase (Decrease) in cash and cash equivalents								20,011			(146	)

Cash and cash equivalents at beginning of period		3,517			966			3,517			966

Cash and cash equivalents at end of period	$	13,584		$	1,248		$	23,528		$	820

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 8

LSI INDUSTRIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1-INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of ~~December~~March 31, ~~2020,~~2021, the results of its operations for the three and ~~six~~nine month periods ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, and its cash flows for the ~~six~~nine month periods ended ~~December~~March 31, ~~2020~~2021 and ~~2019.~~2020. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2020 Annual Report on Form 10-K. Financial information as of June 30, 2020 has been derived from the Company’s audited consolidated financial statements.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting Accounting Standards Update (“ASU”) 2016-02 (“ASU 2016-02”), “Leases (Topic 842)” (ASC 842) in the first quarter of fiscal 2020 are discussed below.

Revenue Recognition:

The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.

Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.

A number of the Company's Graphics and select Lighting products are highly customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows:

●

Customer specific print graphics branding

●

Electrical components based on customer specifications

●

Digital signage and related media content

The Company also offers installation services for its Graphics and select Lighting products. Installation revenue is recognized over time as our customer simultaneously receives and consumes the benefits provided through the installation process.

For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the contract.

Page 9

Disaggregation of Revenue

The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
(In thousands)	December 31, 2020				December 31, 2020				March 31, 2021				March 31, 2021
	Lighting Segment		Graphics Segment		Lighting Segment		Graphics Segment		Lighting Segment		Graphics Segment		Lighting Segment		Graphics Segment
Timing of revenue recognition
Products and services transferred at a point in time	$	39,941	$	15,987	$	79,981	$	30,441	$	39,497	$	12,550	$	119,478	$	42,991
Products and services transferred over time		5,185		15,274		10,550		25,421		6,243		13,914		16,793		39,335
	$	45,126	$	31,261	$	90,531	$	55,862	$	45,740	$	26,464	$	136,271	$	82,326

Three Months Ended

Nine Months Ended

March 31, 2021

March 31, 2021

Lighting
Segment

Graphics
Segment

Lighting
Segment

Graphics
Segment

Type of Product and Services

LED lighting, digital signage solutions, electronic circuit boards
$ 40,298 $ 8,595 $ 118,681 $ 20,546
Poles, printed graphics, non-LED lighting
5,071 11,809 16,299 41,526
Project management, installation services, shipping and handling
371 6,060 1,291 20,254
$ 45,740 $ 26,464 $ 136,271 $ 82,326

Three Months Ended

Six Months Ended

December 31, 2020

December 31, 2020

Lighting Segment

Graphics Segment

Lighting Segment

Graphics Segment

Type of Product and Services

LED lighting, digital signage solutions, electronic circuit boards
$ 40,514 $ 6,870 $ 78,383 $ 11,951
Poles, printed graphics, non-LED lighting
4,154 15,392 11,228 29,717
Project management, installation services, shipping and handling
458 8,999 920 14,194
$ 45,126 $ 31,261 $ 90,531 $ 55,862

Practical Expedients and Exemptions

●
The Company’s contracts with customers have an expected duration of one year or less, as such, the Company applies the practical expedient to expense sales commissions as incurred, and has omitted disclosures on the amount of remaining performance obligations.

●
Shipping costs that are not material in context of the delivery of products are expensed as incurred.

●
The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing, therefore, payments do not contain significant financing components.

●
The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations.

New Accounting Pronouncements:

On July 1, 2019, the Company adopted ASU 2016-02 using a modified-retrospective transition method, under which it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new guidance. In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.

The Company’s most significant leases are those related to certain manufacturing facilities along with a small office space. Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts and various office equipment. The adoption of the new lease standard resulted in the recognition of right-of-use assets (“ROU assets”) of $10.4 million, lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant improvement allowances and a $0.4 million adjustment to retained earnings on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.

~~Page~~ 10

On July 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amended the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements and related disclosures.

Page 10
In March 2020 and January 2021, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform: Scope,” respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures, if adopted.
Subsequent Events:

The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.

NOTE 3 - SEGMENT REPORTING INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s two operating segments are Lighting and Graphics, with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.

The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the Company’s markets, which primarily consist of petroleum/convenience stores, parking lot and garage markets, automotive dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company serves these lighting product customers through the commercial, industrial, stock and flow, and renovation channels. The Lighting Segment also includes the design, engineering, and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.

The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics, interior branding, electrical and architectural signage, active digital signage along with the management of media content related to digital signage and menu board systems that are either digital or print by design. These products are used in visual image programs in several markets including the petroleum/convenience store market, quick-service restaurant market, the grocery store and pharmacy markets, as well as customers with multi-site retail operations. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item.  These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit expenses, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

There was 0 concentration of consolidated net sales in the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019.~~2020. There was 0 concentration of accounts receivable at ~~December~~March 31, ~~2020~~2021 or June 30, 2020.

Page 11

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of ~~December~~March 31, ~~2020~~2021 and ~~December~~March 31, ~~2019:~~2020:

Three Months Ended

Six Months Ended

Three Months Ended

Nine Months Ended

(In thousands)

December 31

December 31

March 31

March 31

2020

2019

2020

2019

2021

2020

2021

2020

Net Sales:

Lighting Segment
$ 45,126 $ 53,436 $ 90,531 $ 116,627 $ 45,740 $ 49,013 $ 136,271 $ 165,640
Graphics Segment
31,261 28,941 55,862 54,451 26,464 21,997 82,326 76,448
$ 76,387 $ 82,377 $ 146,393 $ 171,078 $ 72,204 $ 71,010 $ 218,597 $ 242,088

Operating Income (Loss):

Lighting Segment
$ 2,134 $ 3,150 $ 5,722 $ 12,309 $ 3,797 $ 1,102 $ 9,519 $ 13,411
Graphics Segment
3,143 1,362 4,966 2,379 1,230 4,015 6,196 6,394
Corporate and Eliminations
(2,591 ) (2,752 ) (5,800 ) (6,089 ) (2,931
)
(2,486
)
(8,731
)
(8,575
)
$ 2,686 $ 1,760 $ 4,888 $ 8,599 $ 2,096 $ 2,631 $ 6,984 $ 11,230

Capital Expenditures:

Lighting Segment
$ 275 $ 557 $ 644 $ 887 $ 605 $ 126 $ 1,249 $ 1,013
Graphics Segment
40 45 67 45 17 234 84 279
Corporate and Eliminations
160 162 169 187 15 59 184 246
$ 475 $ 764 $ 880 $ 1,119 $ 637 $ 419 $ 1,517 $ 1,538

Depreciation and Amortization:

Lighting Segment
$ 1,610 $ 1,661 $ 3,229 $ 3,439 $ 1,566 $ 1,650 $ 4,795 $ 5,089
Graphics Segment
304 374 662 760 278 347 940 1,107
Corporate and Eliminations
76 117 132 352 76 83 208 435
$ 1,990 $ 2,152 $ 4,023 $ 4,551 $ 1,920 $ 2,080 $ 5,943 $ 6,631

December 31,
2020

June 30,
2020

March 31,
2021

June 30,
2020

Identifiable Assets:

Lighting Segment
$ 115,265 $ 118,819 $ 121,245 $ 118,819
Graphics Segment
37,085 35,021 36,738 35,021
Corporate and Eliminations
28,931 18,423 39,111 18,423
$ 181,281 $ 172,263 $ 197,094 $ 172,263

The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations.

The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

Three Months Ended

Six Months Ended

(In thousands)

December 31

December 31

2020

2019

2020

2019

Lighting Segment inter-segment net sales
$ 5,038 $ 860 $ 9,118 $ 1,671

Graphics Segment inter-segment net sales
$ 75 $ 74 $ 113 $ 98

Three Months Ended

Nine Months Ended

(In thousands)

March 31

March 31

2021

2020

2021

2020

Lighting Segment inter-segment net sales
$ 6,880 $ 744 $ 15,998 $ 2,415

Graphics Segment inter-segment net sales
$ 46 $ 153 $ 159 $ 251

The Company’s operations are located solely within North America. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within North America.

Page 12

NOTE 4 -EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):

Three Months Ended

Six Months Ended

December 31

December 31

2020

2019

2020

2019

BASIC EARNINGS PER SHARE

Net income
$ 2,208 $ 1,743 $ 4,198 $ 6,218

Weighted average shares outstanding during the period, net of treasury shares
26,367 26,101 26,343 26,063
Weighted average vested restricted stock units outstanding
20 39 15 31
Weighted average shares outstanding in the Deferred Compensation Plan during the period
252 140 222 163
Weighted average shares outstanding
26,639 26,280 26,580 26,257

Basic income per share
$ 0.08 $ 0.07 $ 0.16 $ 0.24

DILUTED EARNINGS PER SHARE

Net income
$ 2,208 $ 1,743 $ 4,198 $ 6,218

Weighted average shares outstanding:

Basic
26,639 26,280 26,580 26,257

Effect of dilutive securities (a):

Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any
721 254 581 107
Weighted average shares outstanding
27,360 26,534 27,161 26,364

Diluted income per share
$ 0.08 $ 0.07 $ 0.15 $ 0.24

Anti-dilutive securities (b)
1,062 1,904 1,101 2,506

Three Months Ended

Nine Months Ended

March 31

March 31

2021

2020

2021

2020

BASIC EARNINGS PER SHARE

Net income
$ 1,472 $ 1,861 $ 5,670 $ 8,079

Weighted average shares outstanding during the period, net of treasury shares
26,467 26,151 26,384 26,087
Weighted average vested restricted stock units outstanding
20 6 16 7
Weighted average shares outstanding in the Deferred Compensation Plan during the period
284 144 242 156
Weighted average shares outstanding
26,771 26,301 26,642 26,250

Basic income per share
$ 0.05 $ 0.07 $ 0.21 $ 0.31

DILUTED EARNINGS PER SHARE

Net income
$ 1,472 $ 1,861 $ 5,670 $ 8,079

Weighted average shares outstanding:

Basic
26,771 26,301 26,642 26,250

Effect of dilutive securities (a):

Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any
956 322 710 173
Weighted average shares outstanding
27,727 26,623 27,352 26,423

Diluted income per share
$ 0.05 $ 0.07 $ 0.21 $ 0.31

Anti-dilutive securities (b)
654 1,875 1,017 2,038

(a)
Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.

(b)
Anti-dilutive securities were excluded from the computation of diluted net income per share for the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~December~~March 31, ~~2019~~2020 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.

Page 13

NOTE 5-INVENTORIES

The following information is provided as of the dates indicated:

December 31,

June 30,

(In thousands)

2020

2020

Inventories:

Raw materials
$ 25,541 $ 27,331
Work-in-progress
1,189 1,566
Finished goods
8,095 9,855
Total Inventories
$ 34,825 $ 38,752

March 31,

June 30,

(In thousands)

2021

2020

Inventories:

Raw materials
$ 28,915 $ 27,331
Work-in-progress
1,423 1,566
Finished goods
10,052 9,855
Total Inventories
$ 40,390 $ 38,752

NOTE 6- ACCRUED EXPENSES

The following information is provided as of the dates indicated:

December 31,

June 30,

March 31,

June 30,

(In thousands)

2020

2020

2021

2020

Accrued Expenses:

Customer prepayments
$ 8,938 $ 1,698
Compensation and benefits
6,738 5,271
Accrued warranty
$ 6,275 $ 6,956 5,786 6,956
Compensation and benefits
4,754 5,271
Customer prepayments
2,985 1,698
Accrued FICA
2,189 730 2,239 730
Accrued sales commissions
1,757 1,289 2,039 1,289
Operating lease liabilities
298 376 304 376
Finance lease liabilities
245 239 248 239
Other accrued expenses
4,234 3,874 4,010 3,874
Total Accrued Expenses
$ 22,737 $ 20,433 $ 30,302 $ 20,433

NOTE 7-GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The fair value measurements of the reporting units are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined by ASC 820 “Fair Value Measurements.” The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired.

The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of 2two reporting units that contain goodwill. There is one reporting unit within the Lighting Segment and one reporting unit within the Graphics Segment. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

As of March 1, 2021, the Company performed its annual preliminary goodwill impairment test on the two reporting units that contain goodwill. The preliminary goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $28.2 million or 26% above the carrying value of the reporting unit including goodwill. The preliminary goodwill impairment test of the reporting unit with goodwill in the Graphics Segment passed with an estimated business enterprise value of $11.4 million or 2,065% above the carrying value of the reporting unit including goodwill. The definitive impairment test is expected to be completed in the fourth quarter of fiscal 2021. It is anticipated that the results of the definitive test will not change when the test is complete.
Page 14

The following table presents information about the Company's goodwill on the dates or for the periods indicated:

Goodwill

(In thousands)

Lighting

Graphics

Segment

Segment

Total

Balance as of December 31, 2020

Goodwill
$ 70,971 $ 28,690 $ 99,661
Accumulated impairment losses
(61,763 ) (27,525 ) (89,288 )
Goodwill, net as of December 31, 2020
$ 9,208 $ 1,165 $ 10,373

Balance as of June 30, 2020

Goodwill
$ 86,711 $ 28,690 $ 115,401
Accumulated impairment losses
(77,503 ) (27,525 ) (105,028 )
Goodwill, net as of June 30, 2020
$ 9,208 $ 1,165 $ 10,373
Goodwill

(In thousands)

Lighting

Graphics

Segment

Segment

Total

Balance as of March 31, 2021

Goodwill
$ 70,971 $ 28,690 $ 99,661
Accumulated impairment losses
(61,763
)
(27,525
)
(89,288
)
Goodwill, net as of March 31, 2021
$ 9,208 $ 1,165 $ 10,373

Balance as of June 30, 2020

Goodwill
$ 86,711 $ 28,690 $ 115,401
Accumulated impairment losses
(77,503
)
(27,525
)
(105,028
)
Goodwill, net as of June 30, 2020
$ 9,208 $ 1,165 $ 10,373

In the second quarter of fiscal 2021, the Company wrote-off the goodwill and impairment loss for a dissolved entity. The net impact to the consolidated financial statements, including the goodwill, net balance, was zero.

The Company performed its annual review of indefinite-lived intangible assets as of March 1, 2021 and determined there was 0 impairment. The preliminary indefinite-lived intangible impairment test passed with a fair market value of $15.7 million or 358% above its carrying value. The definitive indefinite-lived impairment test is expected to be completed in the fourth quarter of fiscal 2021. It is anticipated that the results of the definitive test will not change when the test is complete.
The following table presents the gross carrying amount and accumulated amortization by each major asset class:

Other Intangible Assets

December 31, 2020

March 31, 2021

(In thousands)

Gross

Gross

Carrying

Accumulated

Net

Carrying

Accumulated

Net

Amount

Amortization

Amount

Amount

Amortization

Amount

Amortized Intangible Assets

Customer relationships
$ 30,163 $ 9,758 $ 20,405 $ 30,163 $ 10,273 $ 19,890
Patents
268 222 46 268 230 38
LED technology firmware, software
16,066 13,094 2,972 16,066 13,215 2,851
Trade name
2,658 884 1,774 2,658 911 1,747
Total Amortized Intangible Assets
49,155 23,958 25,197 49,155 24,629 24,526

Indefinite-lived Intangible Assets

Trademarks and trade names
3,422 - 3,422 3,422 - 3,422
Total indefinite-lived Intangible Assets
3,422 - 3,422 3,422 - 3,422

Total Other Intangible Assets
$ 52,577 $ 23,958 $ 28,619 $ 52,577 $ 24,629 $ 27,948

Other Intangible Assets

June 30, 2020

(In thousands)

Gross

Carrying

Accumulated

Net

Amount

Amortization

Amount

Amortized Intangible Assets

Customer relationships
$ 35,563 $ 14,129 $ 21,434
Patents
338 277 61
LED technology firmware, software
16,066 12,852 3,214
Trade name
2,658 829 1,829
Total Amortized Intangible Assets
54,625 28,087 26,538

Indefinite-lived Intangible Assets

Trademarks and trade names
3,422 - 3,422
Total indefinite-lived Intangible Assets
3,422 - 3,422

Total Other Intangible Assets
$ 58,047 $ 28,087 $ 29,960
Page 15

Other Intangible Assets

June 30, 2020

(In thousands)

Gross

Carrying

Accumulated

Net

Amount

Amortization

Amount

Amortized Intangible Assets

Customer relationships
$ 35,563 $ 14,129 $ 21,434
Patents
338 277 61
LED technology firmware, software
16,066 12,852 3,214
Trade name
2,658 829 1,829
Total Amortized Intangible Assets
54,625 28,087 26,538

Indefinite-lived Intangible Assets

Trademarks and trade names
3,422 - 3,422
Total indefinite-lived Intangible Assets
3,422 - 3,422

Total Other Intangible Assets
$ 58,047 $ 28,087 $ 29,960
In the second quarter of fiscal 2021, the Company wrote-off intangible assets’ gross carrying amount and accumulated amortization for a dissolved entity. The net impact to the consolidated financial statements, including the total other intangible assets, was zero.

Three Months Ended

Six Months Ended

Three Months Ended

Nine Months Ended

December 31

December 31

March 31

March 31

(In thousands)

2020

2019

2020

2019

2021

2020

2021

2020

Amortization Expense of Other Intangible Assets
$ 670 $ 671 $ 1,341 $ 1,346 $ 671 $ 670 $ 2,012 $ 2,016

The Company expects to record annual amortization expense as follows:

(In thousands)

2021
$ 2,682
2022
$ 2,461
2023
$ 2,412
2024
$ 2,412
2025
$ 2,412
After 2025
$ 14,159

NOTE 8-REVOLVING LINE OF CREDIT

~~The~~In March 2021, the Company ~~has~~amended its secured line of credit to a $100 million facility from a $75 million ~~secured line of credit~~facility that expires in the third quarter of fiscal ~~2022.~~2026. Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate ~~as periodically determined,~~ or ~~at the bank’s~~a base ~~lending~~ rate, at the Company’s option. The base rate is calculated as the highest of (a) the Prime rate, (b) the sum of the Overnight Funding Rate plus 50 basis points and (c) the sum of the Daily LIBOR Rate plus 100 basis points as long as a Daily LIBOR rate is offered, ascertainable and not unlawful. The increment over the LIBOR borrowing rate ~~as periodically determined,~~ fluctuates between ~~125~~100 and ~~250~~200 basis points, ~~depending~~and the increment over the Base Rate fluctuates between 0 and 100 basis points, both of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will be ~~125~~100 basis points for the ~~third~~fourth quarter of fiscal 2021. ~~The Company expects to seek additional provisions for alternative interest rates when certain interbank offered rates are~~ no ~~longer available.~~ The fee on the unused balance of the ~~$75~~$100 million committed line of credit ~~is 20~~fluctuates between 15 and 22.5 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum ~~fixed charge~~interest coverage ratio. As of ~~December~~March 31, ~~2020,~~2021, there were 0 borrowings against the line of credit, and ~~$75.0~~$100.0 million was available as of that date.

The Company is in compliance with all of its loan covenants as of ~~December~~March 31, ~~2020.~~2021.
Page 16

NOTE 9-CASH DIVIDENDS

The Company paid cash dividends of ~~$2.6~~$4.0 million in both the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~December~~March 31, ~~2019.~~2020. Dividends on restricted stock units in the amount of ~~$104,346~~$109,685 and ~~$52,383~~$59,077 were accrued as of ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In ~~January~~April 2021, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable ~~February 9,~~May 11, 2021 to shareholders of record as of ~~February 1,~~May 3, 2021. The indicated annual cash dividend rate is $0.20 per share.

NOTE 10 – EQUITY COMPENSATION

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (“2019 Omnibus Plan”). The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan is ~~2,839,677~~2,722,480 as of ~~December~~March 31, ~~2020.~~2021. The 2019 Omnibus Plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other stock-based awards.

In the ~~first~~nine ~~half of fiscal~~months ended March 31, 2021,the Company granted 318,406 non-qualified stock options with a weighted average exercise price of $6.86, 134,017 PSUs with a weighted average fair value of $6.80 and 133,126 RSUs with a weighted average fair value of $6.81. Stock compensation expense was $0.4 million and ~~$0.2~~($0.1) million for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$0.9~~$1.3 million and ~~$0.6~~$0.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~Page~~ 16

NOTE 1111-SUPPLEMENTAL CASH FLOW INFORMATION

Six Months Ended

Nine Months Ended

(In thousands)

December 31

March 31

2020

2019

2021

2020

Cash Payments:

Interest
$ 48 $ 742 $ 71 $ 889
Income taxes
$ 1,123 $ 0 $ 1,473 $ 8

Non-cash investing and financing activities

Issuance of common shares as compensation
$ 150 $ 150 $ 242 $ 225
Issuance of common shares to fund deferred compensation plan
$ 679 $ 47 $ 1,096 $ 296

NOTE 1122- COMMITMENTS AND CONTINGENCIES

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

The Company may occasionally issue a standby letter of credit in favor of third parties. As of ~~December~~March 31, ~~2020,~~2021, there were 0 such standby letters of credit issued.

Page 17

NOTE 113–3 – SEVERANCE COSTS
The activity in the Company’s accrued severance liability is as follows for the periods indicated:

Six Months

Six Months

Fiscal Year

Ended

Ended

Ended

December 31,

December 31,

June 30,

(In thousands)

2020

2019

2020

Balance at beginning of period
$ 639 $ 1,134 $ 1,134
Accrual of expense
21 46 344
Payments
(392 ) (319 ) (839 )
Balance at end of period
$ 268 $ 861 $ 639

Nine Months

Nine Months

Fiscal Year

Ended

Ended

Ended

March 31,

March 31,

June 30,

(In thousands)

2021

2020

2020

Balance at beginning of period
$ 639 $ 1,134 $ 1,134
Accrual of expense
21 73 344
Payments
(555
)
(481
)
(839
)
Balance at end of period
$ 105 $ 726 $ 639

The ~~$0.3~~$0.1 million severance reserve reported as of ~~December~~March 31, ~~2020~~2021 has been classified as a current liability and will be paid out over the next twelve months.

NOTE 114–4 – RESTRUCTURING COSTS

In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility. The net proceeds from the sale were $12.3 million resulting in a gain of $4.8 million. The Company also incurred additional restructuring costs totaling $0.2 million in the first quarter of fiscal 2020 related to the closure of the New Windsor facility, which impacted both the Lighting and Graphics segment.

Restructuring costs incurred in the second quarter of fiscal 2020 related to the realignment of the Company’s manufacturing footprint at its Houston, Texas facility, which impacted the Graphics segment.

~~Page~~
In the 17third

quarter of fiscal 2020, the Company sold its North Canton, Ohio facility. The net proceeds from the sale were $7.7 million resulting in a net gain of $3.7 million. Restructuring charges incurred in the third quarter of fiscal 2020 related to the relocation of the North Canton facility, which impacted the Graphics Segment. The Company also incurred $0.5 million of expense to write-down inventory which is not included in the tables below.
The following table presents information about restructuring costs for the periods indicated:

Three Months Ended

Six Months Ended

Three Months Ended

Nine Months Ended

December 31

December 31

March 31

March 31

(In thousands)

2020

2019

2020

2019

2021

2020

2021

2020

Exit costs
$ 0 $ 0 $ 3 $ 184 $ 0 $ 235 $ 3 $ 419
Impairment of fixed assets and accelerated depreciation
0 0 0 49 0 0 0 49
Gain on sale of facility
0 0 0 (4,821 ) 0 (3,741
)
0 (8,562
)
Manufacturing realignment costs
0 276 0 276 0 0 0 276
Total
$ 0 $ 276 $ 3 $ (4,312 ) $ 0 $ (3,506
)
$ 3 $ (7,818
)

The following table presents a roll forward of the beginning and ending liability balances related to the restructuring costs:

Balance as of

Balance as of

Balance as of

Balance as of

June 30,

Restructuring

December 31,

June 30,

Restructuring

March 31,

(In thousands)

2020

Expense

Payments

Adjustments

2020

2020

Expense

Payments

Adjustments

2021

Severance and termination benefits
$ 27 $ 0 $ 0 $ 0 $ 27 $ 27 $ 0 $ 0 $ 0 $ 27
Other restructuring costs
0 3 (3 ) 0 $ 0 0 3 (3
)
0 $ 0
Total
$ 27 $ 3 $ (3 ) $ 0 $ 27 $ 27 $ 3 $ (3
)
$ 0 $ 27

NOTE 15 - LEASES

The Company leases certain manufacturing facilities along with a small office space, ~~a company vehicle,~~ several forklifts, several small tooling items and various items of office equipment. All but one of the Company’s leases are operating leases. Leases have a remaining term of one to seven years some of which have an option to renew. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments.

Page 18
The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The Company elected not to record these leases on the balance sheet. For the three and ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 and ~~2019,~~2020, the rent expense for these leases is immaterial.

The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component.

Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of ROU assets of $10.4 million and lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the new standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.

Three months ended

Six months ended

Three Months Ended

Nine Months Ended

December 31

December 31

March 31

March 31

(In thousands)

2020

2019

2020

2019

2021

2020

2021

2020

Operating lease cost
$ 565 $ 575 $ 1,138 $ 1,162 $ 576 $ 574 $ 1,714 $ 1,736
Financing lease cost:

Amortization of right of use assets
72 0 145 0 73 0 218 0
Interest on lease liabilities
23 0 47 0 22 0 69 0
Variable lease cost
1 0 2 0 0 0 2 0
Total lease cost
$ 661 $ 575 $ 1,332 $ 1,162 $ 671 $ 574 $ 2,003 $ 1,736

~~Page~~ 18

Supplemental Cash Flow Information:

December 31

(In thousands)

2020

2019

Cash flows from operating leases

Fixed payments - operating cash flows
$ 1,141 $ 1,139
Liability reduction - operating cash flows
$ 929 $ 885

Cash flows from finance leases

Interest - operating cash flows
$ 47 $ 0
Repayments of principal portion - financing cash flows
$ 118 $ 0

Operating Leases:

December 31,

June 30,

2020
2020

Total operating right-of-use assets
$ 7,684 $ 8,663

Accrued expenses (Current liabilities)
$ 298 $ 376
Long-term operating lease liability
8,118 9,021
Total operating lease liabilities
$ 8,416 $ 9,397

Weighted Average remaining Lease Term (in years)
4.13 4.59

Weighted Average Discount Rate
4.85 % 4.85 %
Supplemental Cash Flow Information:

Nine Months Ended

March 31

(In thousands)

2021

2020

Cash flows from operating leases

Fixed payments - operating cash flows
$ 1,707 $ 1,707
Liability reduction - operating cash flows
$ 1,397 $ 1,334

Cash flows from finance leases

Interest - operating cash flows
$ 69 $ 0
Repayments of principal portion - financing cash flows
$ 178 $ 0

Finance Leases:

December 31,

June 30,

2020
2020

Buildings under finance leases
$ 2,033 $ 2,033
Accumulated depreciation
(194 ) (48 )
Total finance lease assets, net
$ 1,839 $ 1,985

Accrued expenses (Current liabilities)
$ 245 $ 239
Long-term finance lease liability
1,631 1,755
Total finance lease liabilities
$ 1,876 $ 1,994

Weighted Average remaining Lease Term (in years)
6.33 6.83

Weighted Average Discount Rate
4.86 % 4.86 %
Operating Leases:

March 31,

June 30,

2021

2020

Total operating right-of-use assets
$ 7,673 $ 8,663

Accrued expenses (Current liabilities)
$ 304 $ 376
Long-term operating lease liability
8,105 9,021
Total operating lease liabilities
$ 8,409 $ 9,397

Weighted Average remaining Lease Term (in years)
3.99 4.59

Weighted Average Discount Rate
4.86
%
4.85
%

Page 19

Maturities of Lease Liability:

Operating
Lease
Liabilities

Finance
Lease
Liabilities

2021
$ 1,387 $ 210
2022
2,278 329
2023
2,227 329
2024
1,913 335
2025
1,345 362
Thereafter
357 664
Total lease payments
9,507 2,229
Less: Interest
(1,091 ) (353 )
Present Value of Lease Liabilities
$ 8,416 $ 1,876

Finance Leases:

March 31,

June 30,

2021

2020

Buildings under finance leases
$ 2,033 $ 2,033
Accumulated depreciation
(266 ) (48 )
Total finance lease assets, net
$ 1,767 $ 1,985

Accrued expenses (Current liabilities)
$ 248 $ 239
Long-term finance lease liability
1,568 1,755
Total finance lease liabilities
$ 1,816 $ 1,994

Weighted Average remaining Lease Term (in years)
6.08 6.83

Weighted Average Discount Rate
4.86 % 4.86 %
Maturities of Lease Liability:

Operating
Lease
Liabilities

Finance
Lease
Liabilities

2021
$ 914 $ 149
2022
2,362 329
2023
2,351 329
2024
2,037 335
2025
1,469 362
Thereafter
435 665
Total lease payments
9,568 2,169
Less: Interest
(1,159 ) (353 )
Present Value of Lease Liabilities
$ 8,409 $ 1,816

NOTE 116–6 – INCOME TAXES

The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020. The CARES Act ~~allows~~allowed the Company to carry back a federal net operating loss to prior tax years, offset taxable income in those earlier tax years and ~~obtain~~request a refund of income taxes that were paid at a higher statutory tax rate. ~~During~~The Company recognized tax benefits of $0.3 million in the third quarter of fiscal 2020 and $0.4 million in the first quarter of fiscal 2021 for utilizing the ~~IRS issued Treasury Regulations resulting in an increase to the expected~~ net operating ~~loss that can be carried back and~~losses in the prior tax years. The Company ~~recognized an additional tax benefit of $0.4 million.~~
Insold its North Canton, Ohio facility in the ~~first~~third quarter of fiscal 2020 which generated a capital gain and allowed the Company ~~sold its New Windsor facility resulting in a book gain of $4.8 million. The Company was able~~ to utilize a ~~deferred~~capital loss carryforward. The resulting tax ~~asset of $0.9 million related to~~benefit reduced the ~~sale of the facility.~~anticipated full year fiscal 2020 estimated effective income tax rate.

Three Months Ended

Six Months Ended

December 31

December 31

2020

2019

2020

2019

Reconciliation of effective tax rate:

Provision for income taxes at the anticipated annual tax rate
25.0
%
(2.6
)%
24.5
%
18.1
%
Uncertain tax positions
(4.8 ) (5.5 ) (2.2 ) (0.7 )
Tax rate changes
0 0 (7.0 ) 0
Shared-based compensation
(0.2 ) 0.3 0.9 3.5
Other
0 0 0 0.8
Effective tax rate
20.0
%
(7.8
)%
16.2
%
21.7
%

Three Months Ended

Nine Months Ended

March 31

March 31

2021

2020

2021

2020

Reconciliation of effective tax rate:

Provision for income taxes at the anticipated annual tax rate
23.8
%
10.8
%
24.3
%
16.7
%
Uncertain tax positions
0.8 1.5 (1.3 ) (0.3 )
Tax rate changes
0 (16.7 ) (5.0 ) (2.5 )
Shared-based compensation
1.8 4.4 1.1 3.7
Effective tax rate
26.4
%
0
%
19.1
%
17.6
%
Page 20

ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

N~~ote~~Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2020, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
Our condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

COVID-19 Pandemic

The COVID-19 pandemic continues to impact business activity across industries in the U.S. and ~~worldwide.~~worldwide, including, but not limited to, workforce and supply chain disruptions. We remain committed to taking actions to address the health, safety and welfare of our employees, customers, agents and suppliers. Future developments, such as the actions taken by governmental authorities in response to future outbreaks that are highly uncertain and unpredictable, will determine the extent to which COVID-19 continues to impact our results of operations and financial conditions. See the risk factor captioned “Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent novel coronavirus disease (“COVID-19”) outbreak or other outbreaks of infectious disease or similar public health threats and the resulting economic impact” in Item 1A, Risk Factors, included in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for an additional discussion of risks related to COVID-19.

Net Sales by Business Segment

Three Months Ended

Six Months Ended

December 31

December 31

(In thousands)

2020

2019

2020

2019

Lighting Segment
$ 45,126 $ 53,436 $ 90,531 $ 116,627
Graphics Segment
31,261 28,941 55,862 54,451
$ 76,387 $ 82,377 $ 146,393 $ 171,078
Summary of Consolidated Results

Operating Income (Loss) by Business Segment

Net Sales by Business Segment

Three Months Ended

Six Months Ended

Three Months Ended

Nine Months Ended

December 31

December 31

March 31

March 31

(In thousands)

2020

2019

2020

2019

2021

2020

2021

2020

Lighting Segment
$ 2,134 $ 3,150 $ 5,722 $ 12,309 $ 45,740 $ 49,013 $ 136,271 $ 165,640
Graphics Segment
3,143 1,362 4,966 2,379 26,464 21,997 82,326 76,448
Corporate and Eliminations
(2,591 ) (2,752 ) (5,800 ) (6,089 )
$ 2,686 $ 1,760 $ 4,888 $ 8,599 $ 72,204 $ 71,010 $ 218,597 $ 242,088

Page 21

~~Summary~~ ~~of Consolidated Results~~
Operating Income (Loss) by Business Segment

Three Months Ended

Nine Months Ended

March 31

March 31

(In thousands)

2021

2020

2021

2020

Lighting Segment
$ 3,797 $ 1,102 $ 9,519 $ 13,411
Graphics Segment
1,230 4,015 6,196 6,394
Corporate and Eliminations
(2,931 ) (2,486 ) (8,731 ) (8,575 )
$ 2,096 $ 2,631 $ 6,984 $ 11,230

Net sales of ~~$76.4~~$72.2 million for the three months ended ~~December~~March 31, ~~2020 decreased $6.0~~2021 increased $1.2 million or 7%2% as compared to net sales of ~~$82.4~~$71.0 million for the three months ended ~~December~~March 31, ~~2019.~~2020. Net sales were ~~unfavorably influenced~~driven by increased net sales of the Graphics Segment (an increase of $4.5 million or 20%), partially offset by decreased net sales of the Lighting Segment (a decrease of ~~$8.3~~$3.3 million or ~~16%~~7%).
Net sales of $218.6 million for the nine months ended March 31, 2021 decreased $23.5 million or 10% as compared to net sales of $242.1 million for the nine months ended March 31, 2020. Net sales were driven by decreased net sales of the Lighting Segment (a decrease of $29.4 million or 18%), partially offset by increased net sales of the Graphics Segment (an increase of ~~$2.3~~$5.9 million or 8%).

Net sales of $146.4 million for the six months ended December 31, 2020 decreased $24.7 million or 14% as compared to net sales of $171.1 million for the six months ended December 31, 2019. Net sales were unfavorably influenced by decreased net sales of the Lighting Segment (a decrease of $26.1 million or 22%), partially offset by increased net sales of the Graphics Segment (an increase of $1.4 million or 3%).
Operating income of ~~$2.7~~$2.1 million for the three months ended ~~December~~March 31, ~~2020~~2021 represents a ~~$0.9~~$0.5 million ~~increase~~decrease from operating income of ~~$1.8~~$2.6 million in the three months ended ~~December~~March 31, ~~2019.~~2020. The $0.5 decrease from fiscal 2020 was impacted by the sale of the North Canton, Ohio facility in the third quarter of fiscal 2020 which resulted in a pre-tax gain of $3.7 million. When the impact of the sale of the North Canton facility, other restructuring and plant closure costs, stock compensation expense and severance costs are removed from the operating results, adjusted operating income (loss), a Non-GAAP measure, was ~~$3.1~~$2.5 million in the three months ended ~~December~~March 31, ~~2020~~2021 compared to ~~$2.3~~($0.5) million in the three months ended ~~December~~March 31, ~~2019.~~2020. Refer to “Non-GAAP Financial Measures” below.

Operating income of ~~$4.9~~$7.0 million for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 represents a ~~$3.7~~$4.2 million decrease from operating income of ~~$8.6~~$11.2 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. The ~~$3.7~~$4.2 million decrease from fiscal 2020 was impacted by the sale of the New Windsor, New York facility in the first quarter of fiscal 2020, which ~~favorably~~ resulted in a pre-tax gain of $4.8 million and the sale of the North Canton, Ohio facility in the third quarter of fiscal 2020, which resulted in a pre-tax gain of $3.7 million. When the impact of the ~~sale~~sales of the New Windsor ~~facility,~~and North Canton facilities, other restructuring and plant closure costs, stock compensation expense and severance costs are removed from the operating results, adjusted operating income, a Non-GAAP measure, was ~~$5.8~~$8.3 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to ~~$4.9~~$4.4 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. Refer to “Non-GAAP Financial Measures” below.

As of ~~December~~March 31, ~~2020,~~2021, we reported a cash balance of ~~$13.6~~$23.5 million and no long-term debt. We believe that our liquidity position is adequate to meet our projected needs in the reasonably foreseeable future.

Non-GAAP Financial Measures

We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income and earnings per share, which exclude the impact of restructuring and plant closure costs (gains), stock compensation expense and severance costs are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow and Net Debt. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. Below is a reconciliation of these Non-GAAP measures to operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow and Net Debt.

Reconciliation of operating income to adjusted operating income:

Three Months Ended

December 31

(In thousands)

2020

2019

Operating Income as reported
$ 2,686 $ 1,760

Stock compensation expense
397 199

Severance costs
21 54

Restructuring and plant closure costs
- 276

Adjusted Operating Income
$ 3,104 $ 2,289
Page 22

Reconciliation of net income to adjusted net income

Three Months Ended

December 31

(In thousands, except per share data)

2020

2019

Diluted EPS

Diluted EPS

Net Income as reported
$ 2,208 $ 0.08 $ 1,743 $ 0.07

Stock compensation expense
318 (1) 0.01 161 (3) 0.01

Severance costs
17 (2) - 44 (4) -

Restructuring and plant closure costs
- - 223 (5) 0.01

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes
- - (436 ) (0.02 )

Net Income adjusted
$ 2,543 $ 0.09 $ 1,735 $ 0.07
Reconciliation of operating income to adjusted operating income (loss):
Three Months Ended

March 31

(In thousands)

2021

2020

Operating Income as reported
$ 2,096 $ 2,631

Stock compensation expense
415 (103 )

Severance costs
- 19

Restructuring, plant closure costs (gains) and related inventory write-downs
- (3,055 )

Adjusted Operating Income (Loss)
$ 2,511 $ (508 )
Reconciliation of net income to adjusted net income (loss)

Three Months Ended

March 31

(In thousands, except per share data)

2021

2020

Diluted EPS

Diluted EPS

Net Income as reported
$ 1,472 $ 0.05 $ 1,861 $ 0.07

Stock compensation expense
314 (1) 0.01 (86 )(2) -

Severance costs
- - 16 (3) -

Restructuring, plant closure costs (gains) and related inventory write-downs
- - (2,565 )(4) (0.10 )

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes
44 - (300 ) (0.01 )

Net Income (Loss) adjusted
$ 1,830 $ 0.07 $ (1,074 ) $ (0.04 )

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S. and Mexico effective income tax rates for the periods indicated (in thousands):

⁽¹⁾$79101
⁽²⁾$4($17)
⁽^{(3) $3}⁾~~$38~~
⁽⁴⁾~~$10~~
⁽⁵⁾ ~~$53~~(4) ($490)

Reconciliation of operating income to adjusted operating income:

Six Months Ended

December 31

(In thousands)

2020

2019

Operating Income as reported
$ 4,888 $ 8,599

Stock compensation expense
902 597

Severance costs
21 54

Restructuring, plant closure costs (gains) and related inventory write-downs
3 (4,312 )

Adjusted Operating Income
$ 5,814 $ 4,938

Reconciliation of net income to adjusted net income

Six Months Ended

December 31

(In thousands, except per share data)

2020

2019

Diluted EPS

Diluted EPS

Net Income as reported
$ 4,198 $ 0.15 $ 6,218 $ 0.24

Stock compensation expense 698 (1) 0.03 460 (4) 0.02

Severance costs
17 (2) - 44 (5) -

Restructuring, plant closure costs (gains) and related inventory write-downs
2 (3) - (3,223 ) (6) (0.12 )

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes
(297 ) (0.01 ) (160 ) (0.01 )

Net Income adjusted
$ 4,618 $ 0.17 $ 3,339 $ 0.13
Reconciliation of operating income to adjusted operating income:

Nine Months Ended

March 31

(In thousands)

2021

2020

Operating Income as reported
$ 6,984 $ 11,230

Stock compensation expense
1,317 494

Severance costs
21 73

Restructuring, plant closure costs (gains) and related inventory write-downs
3 (7,367 )

Adjusted Operating Income
$ 8,325 $ 4,430

Page 23

Reconciliation of net income to adjusted net income

Nine Months Ended

March 31

(In thousands, except per share data)

2021

2020

Diluted EPS

Diluted EPS

Net Income as reported
$ 5,670 $ 0.21 $ 8,079 $ 0.31

Stock compensation expense
1,012 (1) 0.04 373 (4) 0.01

Severance costs
17 (2) - 60 (5) -

Restructuring, plant closure costs (gains) and related inventory write-downs
2 (3) - (5,788 ) (6) (0.22 )

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes
(254 ) (0.01 ) (459 ) (0.02 )

Net Income adjusted
$ 6,447 $ 0.24 $ 2,265 $ 0.09

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S. and Mexico effective income tax rates for the periods indicated (in thousands):

⁽¹⁾$~~204~~305
⁽²⁾(2) $4
⁽³⁾(3) $1
⁽⁴⁾(4) $~~137~~121
⁽⁵⁾(5) $1013
⁽⁶⁾(6) ($~~1,089)~~1,579)

The reconciliation of reported net income and earnings per share to adjusted net income and earnings per share may not agree due to rounding differences and due to the difference between basic and dilutive weighted average shares outstanding in the computation of earnings per share.

Reconciliation of operating income to EBITDA and Adjusted EBITDA

Three Months Ended

Six Months Ended

December 31

December 31

(In thousands)

2020

2019

2020

2019

Operating Income as reported
$ 2,686 $ 1,760 $ 4,888 $ 8,599

Depreciation and Amortization
1,990 2,152 4,023 4,551

EBITDA
$ 4,676 $ 3,912 $ 8,911 $ 13,150

Stock compensation expense
397 199 902 597

Severance costs
21 54 21 54

Restructuring, plant closure costs (gains) and related inventory write-downs
- 276 3 (4,312 )

Adjusted EBITDA
$ 5,094 $ 4,441 $ 9,837 $ 9,489
Reconciliation of operating income to EBITDA and Adjusted EBITDA

Three Months Ended

Nine Months Ended

March 31

March 31

(In thousands)

2021

2020

2021

2020

Operating Income as reported
$ 2,096 $ 2,631 $ 6,984 $ 11,230

Depreciation and Amortization
1,920 2,080 5,943 6,631

EBITDA
$ 4,016 $ 4,711 $ 12,927 $ 17,861

Stock compensation expense
415 (103 ) 1,317 494

Severance costs
- 19 21 73

Restructuring, plant closure costs (gains) and related inventory write-downs
- (3,055 ) 3 (7,367 )

Adjusted EBITDA
$ 4,431 $ 1,572 $ 14,268 $ 11,061

Reconciliation of cash flow from operations to free cash flow

Three Months Ended

Six Months Ended

December 31

December 31

(In thousands)

2020

2019

2020

2019

Cash Flow from Operations
$ 5,778 $ 14,544 $ 13,417 $ 20,903

Proceeds from sale of fixed assets
- - - 12,332

Capital expenditures
(475 ) (764 ) (880 ) (1,119 )

Free Cash Flow
$ 5,303 $ 13,780 $ 12,537 $ 32,116
Reconciliation of cash flow from operations to free cash flow
Reconciliation of Net Debt

December 31,

June 30,

(In thousands)

2020

2020

Long-Term Debt as reported
$ - $ -

Less:

Cash and cash equivalents as reported
13,584 3,517

Net Debt
$ (13,584 ) $ (3,517 )

Three Months Ended

Nine Months Ended

March 31

March 31

(In thousands)

2021

2020

2021

2020

Cash Flow from Operations
$ 11,217 $ (3,806 ) $ 24,634 $ 17,097

Proceeds from sale of fixed assets
- 7,700 - 20,032

Capital expenditures
(637 ) (419 ) (1,517 ) (1,538 )

Free Cash Flow
$ 10,580 $ 3,475 $ 23,117 $ 35,591

Page 24

Reconciliation of Net Debt

March 31,

June 30,

(In thousands)

2021

2020

Long-Term Debt as reported
$ - $ -

Less:

Cash and cash equivalents as reported
23,528 3,517

Net Debt
$ (23,528 ) $ (3,517 )
Results of Operations

THREE MONTHS ENDED ~~DECEMBER~~MARCH 31,~~, 2020~~ 2021 COMPARED TO THREE MONTHS ENDED ~~DECEMBER~~MARCH 31,~~, 2019~~ 2020

Lighting Segment

Three Months Ended

Three Months Ended

December 31

March 31

(In thousands)

2020

2019

2021

2020

Net Sales
$ 45,126 $ 53,436 $ 45,740 $ 49,013
Gross Profit
$ 13,704 $ 15,501 $ 14,159 $ 12,637
Operating Income
$ 2,134 $ 3,150 $ 3,797 $ 1,102

Lighting Segment net sales of ~~$45.1~~$45.7 million in the three months ended ~~December~~March 31, ~~2020~~2021 decreased ~~16%~~7% from net sales of ~~$53.4~~$49.0 million in the same period in fiscal 2020. The decrease is due to the impact of COVID-19 disruptions onin construction markets, ~~continued~~however; the sales gap versus the prior year continues to ~~adversely affect sales in~~narrow, having improved each quarter of the ~~Lighting segment.~~current fiscal year.

Gross profit of ~~$13.7~~$14.2 million in the three months ended ~~December~~March 31, ~~2020 decreased $1.8~~2021 increased $1.5 million or 12% from the same period of fiscal 2020. Gross profit as a percentage of net sales was ~~30.4%~~31.0% in the three months ended ~~December~~March 31, ~~2020~~2021 compared to ~~29.0%~~25.8% in the same period of fiscal 2020. The growth in gross profit as a percentage of net sales reflects ~~the ongoing impact of~~ our continued focus on ~~higher-value market~~the entire lighting model, including higher value applications, price management, new and cost ~~management.~~reduced products and supply chain and operations productivity.

Selling and administrative expenses of ~~$11.6~~$10.4 million in the three months ended ~~December~~March 31, ~~2020~~2021 decreased ~~$0.8~~$1.2 million from the same period of fiscal 2020, primarily driven by programs to reduce spending as a result of the pandemic.

Lighting Segment operating income of ~~$2.1~~$3.8 million for the three months ended ~~December~~March 31, ~~2020 decreased $1.0~~2021 increased $2.7 million from operating income of ~~$3.1~~$1.1 million in the same period of fiscal 2020 primarily due to higher gross profit and lower ~~sales~~operating expenses, partially offset by lower ~~operating expenses.~~sales.

Graphics Segment

Three Months Ended

Three Months Ended

December 31

March 31

(In thousands)

2020

2019

2021

2020

Net Sales
$ 31,261 $ 28,941 $ 26,464 $ 21,997
Gross Profit
$ 6,006 $ 4,465 $ 3,933 $ 3,293
Operating Income
$ 3,143 $ 1,362 $ 1,230 $ 4,015

Graphics Segment net sales of ~~$31.3~~$26.5 million in the three months ended ~~December~~March 31, ~~2020~~2021 increased ~~$2.3~~$4.5 million or 8%20% from net sales of ~~$28.9~~$22.0 million in the same period in fiscal ~~2020.~~2021. The increase in sales is primarily due to growth in our ~~Grocery and~~ Quick-Service Restaurants ~~verticals.~~vertical.

Gross profit of ~~$6.0~~$3.9 million in the three months ended ~~December~~March 31, ~~2020~~2021 increased ~~$1.5~~$0.6 million or ~~35%~~19% from the same period of fiscal 2020. Gross profit as a percentage of net sales ~~increased to 19.2%~~ in the three months ended ~~December~~March 31, ~~2020 compared to 15.4%~~2021 was consistent with gross profit as a percentage of net sales in the same period inof fiscal ~~2020, primarily within the Petroleum and Grocery verticals.~~2020.

Selling and administrative expenses of ~~$2.9~~$2.7 million ~~decreased $0.2~~in the three months ended March 31, 2021 increased $3.4 million from ~~$3.1~~($0.7) million in the same period of fiscal 2020. Selling and administrative expenses in the three months ended March 31, 2020 were reduced by the $3.7 million pre-tax gain on the sale of the North Canton, Ohio facility. When the $3.7 million gain is removed from the third quarter of fiscal 2020 results, selling and administrative expenses remained relatively flat in fiscal 2021 compared to the prior year.
Graphics Segment operating income of $1.2 million in the three months ended March 31, 2021 decreased $2.8 million from operating income of $4.0 million in the same period of fiscal 2020. The decrease ~~in selling and administrative expenses~~of $2.8 million was ~~due to programs to reduce spending~~primarily as a result of the ~~pandemic.~~
$3.7 million pre-tax gain on the sale of the North Canton, Ohio facility in the third quarter of fiscal 2020. When all Non-GAAP items are removed from both fiscal years, Non-GAAP adjusted operating income for the three months ended March 31, 2021 was $1.2 million, or $0.2 million higher than Non-GAAP adjusted operating income of $1.0 million for the three months ended March 31, 2020 (refer to the Non-GAAP table below for a reconciliation of Graphics Segment operating income ~~of $3.1 million in the three months ended December 31, 2020 increased $1.8 million from~~(loss) to adjusted operating ~~income of $1.4 million in the same period of fiscal 2020.~~income). The increase ~~of $1.8 million was~~is primarily due to improved gross profit ~~margin and a reduction in operating expenses.~~margin.

Page 25

Corporate and Eliminations

Three Months Ended

December 31

(In thousands)

2020

2019

Gross Profit (Loss)
$ (4 ) $ (2 )
Operating (Loss)
$ (2,591 ) $ (2,752 )
Reconciliation of Graphics Segment operating income to adjusted operating income:

Three Months Ended

March 31

(In thousands)

2021

2020

Operating Income
$ 1,230 $ 4,015
Stock compensation expense
8 (28 )
Severance
- 27
Restructuring and plant closure costs (gains)
- (3,044 )
Adjusted operating income
$ 1,238 $ 970
Corporate and Eliminations

Three Months Ended

March 31

(In thousands)

2021

2020

Gross Profit (Loss)
$ - $ 12
Operating (Loss)
$ (2,931 ) $ (2,486 )

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

Administrative expenses of ~~$2.6~~$2.9 million in the three months ended ~~December~~March 31, ~~2020 decreased $0.2~~2021 increased $0.4 million or 6%18% from the same period of fiscal 2020. The net ~~decrease~~increase was primarily due to an increase in stock compensation expense due to prior year forfeitures and an increase in the employer match related to the deferred compensation plan as result of ~~programs to contain and reduce costs during the pandemic.~~additional participants.

Consolidated Results

We reported ~~$0.1 million~~$52,000 and $128,000 of net interest expense in the three months ended ~~December~~March 31, 2021 and March 31, 2020, ~~compared to $0.2 million net interest~~respectively. We also recorded other expense of $43,000 and $642,000 in the three months ended ~~December~~March 31, ~~2019. The decrease in interest expense from fiscal 2020 to fiscal~~ 2021 ~~is the result of lower levels of debt outstanding on our line of credit. We also recorded other income of $0.1 million in both the three months ended December~~and March 31, 2020, ~~and 2019, both of~~respectively, which ~~are~~is related to net foreign exchange currency transaction gains and losses through our Mexican subsidiary.

~~The $0.6 million income tax expense in~~In the three months ended ~~December~~March 31, ~~2020~~2021, we recorded $0.5 million of income tax expense, which represents a consolidated effective tax rate of ~~20.0%~~26.4%. ~~This compares to a $0.1 million income tax benefit in~~In the three months ended ~~December~~March 31, ~~2019 due to the utilization~~2020, we recorded less than $1,000 of tax expense, which was driven by a ~~capital loss carryforward~~favorable deferred tax asset adjustment related to a NOL carryback from the ~~capital gain on the sale of the North Canton, Ohio facility.~~ CARES Act.

We reported net income of ~~$2.2~~$1.5 million in the three months ended ~~December~~March 31, ~~2020~~2021 compared to net income of ~~$1.7~~$1.9 million in the three months ended ~~December~~March 31, ~~2019.~~2020. Non-GAAP adjusted net income was ~~$2.5~~$1.8 million for the three months ended ~~December~~March 31, ~~2020~~2021 compared to adjusted net ~~income~~loss of ~~$1.7~~($1.1) million for the three months ended ~~December~~March 31, ~~2019~~2020 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an improved gross profit margin, a reduction in operating expenses and decreased interest expense, partially offset by decreased net sales. Diluted earnings per share of ~~$0.08~~$0.05 was reported in the three months ended ~~December~~March 31, ~~2020~~2021 as compared to $0.07 diluted earnings per share in the same period of fiscal 2020. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended ~~December~~March 31, ~~2020~~2021 were ~~27,360,000~~27,727,000 shares as compared to ~~26,534,000~~26,623,000 shares in the same period last year.

Page 26
~~SIX~~
NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2020~~2021 COMPARED TO ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

Lighting Segment

Six Months Ended

Nine Months Ended

December 31

March 31

(In thousands)

2020

2019

2021

2020

Net Sales
$ 90,531 $ 116,627 $ 136,271 $ 165,640
Gross Profit
$ 27,530 $ 32,720 $ 41,689 $ 45,357
Operating Income
$ 5,722 $ 12,309 $ 9,519 $ 13,411

Lighting Segment net sales of ~~$90.5~~$136.3 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 decreased ~~22%~~18% from net sales of ~~$116.6~~$165.6 million in the same period in fiscal 2020. The decrease is due to the impact of COVID-19 disruptions onin construction markets, however; the sales gap versus the prior year continues to ~~adversely affect sales in~~narrow, having improved each quarter of the ~~Lighting segment.~~current fiscal year.

Gross profit of ~~$27.5~~$41.7 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 decreased ~~$5.2~~$3.7 million or ~~16%~~8% from the same period of fiscal 2020. Gross profit as a percentage of net sales was ~~30.4%~~30.6% in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to ~~28.1%~~27.4% in the same period of fiscal 2020. The growth in gross profit as a percentage of net sales reflects ~~the ongoing impact of~~ our continued focus on ~~higher-value market~~the entire lighting model, including higher value applications, price management, new and cost ~~management.~~reduced products and supply chain and operations productivity.

Selling and administrative expenses of ~~$21.8~~$32.2 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 increased ~~$1.4~~$0.3 million from $31.9 million in the same period of fiscal 2020. Selling and administrative expenses in the nine months ended March 31, 2020 ~~primarily due to~~were reduced by the $4.8 million pre-tax gain on the sale of the New Windsor ~~facility~~facility. When the $4.8 million gain is removed from the fiscal 2020 results, selling and administrative expenses in fiscal 2021 decreased from the prior year, ~~partially offset~~driven by programs to reduce spending as a result of the ~~pandemic~~pandemic.
~~Page 26~~

Lighting Segment operating income of ~~$5.7~~$9.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 decreased ~~$6.6~~$3.9 million from operating income of ~~$12.3~~$13.4 million in the same period of fiscal 2020 primarily due to the $4.8 million pre-tax gain on the sale of the New Windsor facility in ~~the first half of~~ fiscal 2020. Non-GAAP adjusted operating income was ~~$5.9~~$9.7 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to adjusted operating income of ~~$7.7~~$8.8 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 (refer to the Non-GAAP table below for a reconciliation of Lighting Segment operating income to adjusted operating income).

Reconciliation of Lighting Segment operating income to adjusted operating income:

Six Months Ended

Nine Months Ended

December 31

March 31

(In thousands)

2020

2019

2021

2020

Operating Income
$ 5,722 $ 12,309 $ 9,519 $ 13,411
Stock compensation expense
175 75 199 91
Severance
2 18 2 18
Restructuring and plant closure costs (gains)
- (4,651 ) - (4,674 )
Adjusted operating income
$ 5,899 $ 7,751 $ 9,720 $ 8,846

Graphics Segment

Six Months Ended

December 31

(In thousands)

2020

2019

Net Sales
$ 55,862 $ 54,451
Gross Profit
$ 10,448 $ 9,091
Operating Income
$ 4,966 $ 2,379
Graphics Segment

Nine Months Ended

March 31

(In thousands)

2021

2020

Net Sales
$ 82,326 $ 76,448
Gross Profit
$ 14,381 $ 12,384
Operating Income
$ 6,196 $ 6,394
Page 27

Graphics Segment net sales of ~~$55.9~~$82.3 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 increased ~~$1.4~~$5.9 million or 3%8% from net sales of ~~$54.5~~$76.4 million in the same period in fiscal 2020. The increase in sales is from growth in our Grocery and Quick-Service Restaurants verticals partially offset by a reduction in our Petroleum vertical.

Gross profit of ~~$10.4~~$14.4 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 increased ~~$1.4~~$2.0 million or ~~15%~~16% from the same period of fiscal 2020. Gross profit as a percentage of net sales increased to ~~18.7 %~~17.5% in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to ~~16.7%~~16.2% in the same period in fiscal 2020, primarily within our Petroleum and Grocery verticals.

Selling and administrative expenses of ~~$5.5~~$8.2 million ~~decreased $1.2~~increased $2.2 million from ~~$6.7~~$6.0 million in the same period of fiscal 2020. ~~The decrease~~Selling and administrative expenses in the nine months ended March 31, 2020 were reduced by the $3.7 million pre-tax gain on the sale of the North Canton, Ohio facility. When the $3.7 million gain is removed from the fiscal 2020 results, selling and administrative expenses ~~was due to lower operating costs as a result of an organizational restructuring executed~~ in fiscal 2021 decreased from the ~~second half of fiscal 2020 and a program~~prior year, driven by programs to reduce spending as a result of the pandemic.

Graphics Segment operating income of ~~$5.0~~$6.2 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020 increased $2.6~~2021 decreased $0.2 million from operating income of ~~$2.4~~$6.4 million in the same period of fiscal 2020. Non-GAAP adjusted operating income was $6.3 million in the nine months ended March 31, 2021 compared to adjusted operating income of $3.7 million in the nine months ended March 31, 2020 (refer to the Non-GAAP table below for a reconciliation of Graphics Segment operating income to adjusted operating income). The increase ~~of $2.6 million was~~is primarily due to improved gross profit ~~margin and a reduction in operating expenses.~~margin.

Corporate and Eliminations

Six Months Ended

December 31

(In thousands)

2020

2019

Gross Profit (Loss)
$ - $ 8
Operating (Loss)
$ (5,800 ) $ (6,089 )
Reconciliation of Graphics Segment operating income to adjusted operating income:

Nine Months Ended

March 31

(In thousands)

2021

2020

Operating Income
$ 6,196 $ 6,394
Stock compensation expense
113 19
Severance
13 44
Restructuring and plant closure costs (gains)
3 (2,711 )
Adjusted operating income
$ 6,325 $ 3,746
Corporate and Eliminations

Nine Months Ended

March 31

(In thousands)

2021

2020

Gross Profit (Loss)
$ - $ 20
Operating (Loss)
$ (8,731 ) $ (8,575 )

The gross profit relates to the change in the intercompany profit in inventory elimination.

Administrative expenses of ~~$5.8~~$8.7 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020 decreased $0.3 million or 5% from~~2021 remained relatively consistent with the ~~same period of fiscal 2020. The net decrease was the result of conscientious efforts to contain and reduce costs during the pandemic.~~prior year period.
~~Page 27~~

Consolidated Results

We reported ~~$0.1~~$0.2 million net interest expense in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to ~~$0.7~~$0.8 million net interest expense in the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. The decrease in interest expense from fiscal 2020 to fiscal 2021 is the result of lower levels of debt outstanding on our line of credit. We also recorded other income of $0.2 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to other ~~income~~expense of ~~$9,000~~$0.6 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019, both of~~2020, which ~~are~~is related to net foreign exchange currency transaction gains and losses through our Mexican subsidiary.

The ~~$0.8~~$1.3 million income tax expense in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 represents a consolidated effective tax rate of ~~16.2%~~19.1% and was driven by a favorable deferred tax asset adjustment related to a net operating loss carryback from the CARES Act. The $1.7 million income tax expense in the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 represents a consolidated effective tax rate of ~~21.7% influenced~~17.6%. The effective tax rate is mostly driven by the following: 1) a discrete item related to stock-based compensation ~~expense~~expense; 2) a deferred tax asset adjustment related to a NOL carryback from the CARES Act; and 3) the utilization of a capital loss carryforward related to the capital gain on the sale of the North Canton, Ohio facility.
Page 28

We reported net income of ~~$4.2~~$5.7 million in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to net income of ~~$6.2~~$8.1 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. Non-GAAP adjusted net income was ~~$4.6~~$6.4 million for the ~~six~~nine months ended ~~December~~March 31, 2020 compared to adjusted net income of ~~$3.3~~$2.3 million for the ~~six~~nine months ended ~~December~~March 31, ~~2019~~2020 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an improved gross profit margin, decreased interest expense and ~~a lower effective tax rate,~~other expense, partially offset by decreased net sales. Diluted earnings per share of ~~$0.15~~$0.21 was reported in the ~~six~~mine months ended ~~December~~March 31, ~~2020~~2021 as compared to ~~$0.24~~$0.31 diluted earnings per share in the same period of fiscal 2020. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 were ~~27,161,000~~27,352,000 shares as compared to ~~26,364,000~~26,423,000 shares in the same period last year.

Liquidity and Capital Resources

We consider our level of cash on hand, borrowing capacity, current ratio and working capital levels to be our most important measures of short-term liquidity. For long-term liquidity indicators, we believe our ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.

At ~~December~~March 31, ~~2020,~~2021, we had working capital of ~~$58.2~~$61.1 million compared to $51.2 million at June 30, 2020. The ratio of current assets to current liabilities was ~~2.41~~2.10 to 1 as compared to a ratio of 2.48 to 1 at June 30, 2020. The ~~$7.0~~$9.9 million increase in working capital from June 30, 2020 to ~~December~~March 31, ~~2020~~2021 is primarily driven by a ~~$10.1~~$20.0 million increase in ~~cash.~~cash, $7.1 million increase in net accounts receivable, $1.8 million increase in other current assets and $1.6 million increase in net inventory, partially offset by a $10.8 million increase in accounts payable and a $9.6 million increase in accrued expenses. While working capital has increased, non-cash working capital decreased as we continue to effectively manage it in the face of constantly changing market conditions due to COVID-19.

Net accounts receivable was ~~$44.5~~$45.0 million and $37.8 million at ~~December~~March 31, ~~2020~~2021 and June 30, 2020, respectively. DSO decreased to 52 days at ~~December~~March 31, ~~2020~~2021 from 56 days at June 30, 2020. We believe that our receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.

Net inventories of ~~$34.8~~$40.4 million at ~~December~~March 31, ~~2020 decreased $3.9~~2021 increased $1.6 million from $38.8 million at June 30, 2020. The ~~decrease~~increase of ~~$3.9~~$1.6 million is the result of ~~a decrease~~an increase in gross inventory of ~~$3.6~~$2.2 million and an increase in obsolescence reserves of ~~$0.3~~$0.6 million. Based on a strategy of balancing inventory ~~reductions~~levels with customer service and the timing of shipments, net inventory ~~decreased $4.2~~increased $1.8 million ~~in the six months ended December 31, 2020~~ in the Lighting Segment ~~which was partially offset by an increase in net inventory~~and $0.2 million in the Graphics ~~Segment of $0.3 million.~~segment in the nine months ended March 31, 2021.

Cash generated from operations and borrowing capacity under our line of credit is our primary source of liquidity. ~~We have a~~In March 2021, the Company amended its secured ~~$75 million revolving~~ line of credit to a $100 million facility from a $75 million facility, with ~~our bank, with $75~~$100 million of the credit line available as of ~~January 22,~~April 23, 2021. This ~~line of credit is a $75~~$100 million five-year credit line ~~expiring~~expires in the third quarter of fiscal ~~2022.~~2026. We are in compliance with all of our loan covenants. We believe that our ~~$75~~$100 million line of credit plus cash flows from operating activities are adequate for fiscal 2021 operational and capital expenditure needs. However, as the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs.

We generated ~~$13.4~~$24.6 million of cash from operating activities in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 as compared to ~~$20.9~~$17.1 million in the same period of fiscal 2020. ~~This~~The $7.5 million ~~decrease~~increase in net cash flows from operating activities is the result of our improved earnings as well as a ~~$10.2~~$9.4 million ~~decrease~~increase in accounts ~~receivable~~payable, $7.5 million increase in customer project prepayments and $2.1 million increase in Accrued FICA from deferred payroll taxes allowed under the ~~six months ended December 31, 2019,~~CARES Act, partially offset by ~~our improved earnings~~an increase of $15.2 million in ~~the current year period.~~accounts receivable.
~~Page 28~~

We used ~~$0.9~~$1.5 million of cash related to investing activities in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 as compared to ~~$11.2~~$18.5 million of cash provided by investing activities in the same period of fiscal 2020, resulting in a decrease of ~~$12.1~~$20.0 million. Capital expenditures were ~~$0.9~~$1.5 million in both the ~~six~~nine months ended ~~December~~March 31, ~~2020 compared to $1.1 million in the same period in fiscal~~2021 and March 31, 2020. We sold our New Windsor manufacturing facility for $12.3 million and our North Canton facility for $7.7 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019,~~2020, which was the primary contributing factor to the decrease in cash flow from investing activities from fiscal 2020 to fiscal 2021.

We used ~~$2.6~~$3.2 million of cash related to financing activities in the ~~six~~nine months ended ~~December~~March 31, ~~2020~~2021 compared to ~~$31.8~~$35.5 million in the ~~six~~nine months ended ~~December~~March 31, ~~2019.~~2020. The ~~$29.2~~$32.3 million change in cash flow was primarily the net result of payments of long-term debt in excess of borrowings which was primarily driven by cash flow from operations and cash flow from investments due to the sale of the New Windsor ~~facility.~~and North Canton facilities.
Page 29

We have on our balance sheet financial instruments consisting primarily of cash and cash equivalents, short-term investments, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.

Off-Balance Sheet Arrangements

We have no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.

Cash Dividends

In ~~January~~April 2021, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable ~~February 9,~~May 11, 2021 to shareholders of record as of ~~February 1,~~May 3, 2021. The indicated annual cash dividend rate for fiscal 2021 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

Critical Accounting Policies and Estimates

A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form 10-K.
As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses effective July 1, 2020 from the critical accounting policies previously disclosed in our audited financial statements for the year ended June 30, 2020 as follows:
All trade account receivables are reported net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. The Company regularly performs detailed reviews of our pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.

Page 2930

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except for the broad effects of the COVID-19 pandemic as a result of its negative impact on the global economy and major financial markets, there have been no material changes in our exposure to market risk since June 30, 2020. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 12 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~December~~March 31, ~~2020,~~2021, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

Changes in Internal Control

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended ~~December~~March 31, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 31

PART II.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Effective January 26, 2021, the Company entered into Change in Control Agreements and Supplemental Benefits Agreements with each of the following executive officers: James A. Clark, Chief Executive Officer; James E. Galeese, Executive Vice President and Chief Financial Officer; and Thomas A. Caneris, Senior Vice President, Human Resources and General Counsel.None.
The Change in Control Agreements provide that if the executive’s employment terminates during a change in control period (generally defined as the twenty-four months after a change in control) other than in connection with death, disability, “cause” or “good reason,” (each as defined in such agreements), he is entitled to a severance payment equal to a multiple of his then-current base salary plus his target bonus for the severance period. The multiple for Mr. Clark is two and one-half times (2.5x); the multiple for each of Mr. Galeese and Mr. Caneris is two times (2.0x). The agreements provide for continued participation in medical and dental plans, with full COBRA payments to be paid by the Company. The agreements also provide that in the event of a change in control and upon a subsequent qualifying termination of employment, unless the successor company agrees to assume, replace or substitute the executive’s stock options, restricted stock awards, and/or restricted stock unit awards (“RSUs”), such awards shall become vested in full and exercisable in their entirety. The agreements further provide that in the event of a change in control all performance stock units granted to the executive will convert at the target performance level into time-based RSUs vesting in equal installments over three years.
~~Page 30~~

The Supplemental Benefits Agreements provide that if the executive’s employment is terminated by the Company without “cause” or the executive terminates his employment for “good reason” (each as defined in such agreements), at any time outside of a change in control period (generally defined as the twenty-four months after a change in control), the executive is entitled to a severance payment equal to a multiple of the sum of one year of base salary and his annual target bonus. The multiple for Mr. Clark is one and one-half times (1.5x); the multiple for each of Mr. Galeese and Mr. Caneris is one time (1.0x). The agreements provide that if the executive’s employment is terminated by the Company without “cause,” the executive terminates his employment for “good reason” or in the event of the executive’s retirement when the executive satisfies applicable retirement criteria, or in the event of executive’s death or disability: (A) all unvested stock options (other than stock options that may vest upon the achievement of performance conditions) shall immediately and without further action become fully vested; and (B) all unvested stock options that may vest upon the achievement of performance conditions, all unvested restricted stock unit awards, all unvested restricted stock awards and all unvested performance stock unit awards shall continue to vest pursuant to their original vesting schedules. The agreements also provide for continuation of coverage under group health plans maintained by the Company, additional cash COBRA payments for six months (in the case of Mr. Clark only) and non-competition covenants.
The description above of the change in control agreements is qualified in its entirety by the Form of Change in Control Agreement filed with this report as Exhibit 10.1 which is incorporated herein by reference. The description above of the supplemental benefits agreements is qualified in its entirety by the Form of Supplemental Benefits Agreement filed with this report as Exhibit 10.2 which is incorporated herein by reference.
~~This information included in this Item 5 is provided pursuant to Form 8-K Item 1.01 and Item 5.02.~~
~~Page 31~~

ITEM 6.EXHIBITS

Exhibits:

10.1 Fifth Amendment to Loan Documents dated as of March 30, 2021 between LSI and PNC Bank, National Association (incorporated by reference to LSI’s Form of Change in Control Agreement*
~~10.2~~ Form of Supplemental Benefits Agreement*8-K filed on April 1, 2021).

31.1 Certification of Principal Executive Officer required by Rule 13a-14(a)

31.2 Certification of Principal Financial Officer required by Rule ~~13a-14(a~~13a-14(a)

32.1 Section 1350 Certification of Principal Executive Officer

32.2 Section 1350 Certification of Principal Financial Officer

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~104~~
104        Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
*Management compensatory agreement

Page 32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LSI Industries Inc.

By:
/s/ James A. Clark
James A. Clark
Chief Executive Officer and President
(Principal Executive Officer)

By:
/s/ James E. Galeese
James E. Galeese
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
~~January 29,~~April 28, 2021

Page 33

	December 31, 2020		June 30, 2020		March 31, 2021		June 30, 2020
Identifiable Assets:
Lighting Segment	$	115,265	$	118,819	$	121,245	$	118,819
Graphics Segment		37,085		35,021		36,738		35,021
Corporate and Eliminations		28,931		18,423		39,111		18,423
	$	181,281	$	172,263	$	197,094	$	172,263

Goodwill
(In thousands)	Lighting			Graphics
	Segment			Segment			Total
Balance as of December 31, 2020
Goodwill	$	70,971		$	28,690		$	99,661
Accumulated impairment losses		(61,763	)		(27,525	)		(89,288	)
Goodwill, net as of December 31, 2020	$	9,208		$	1,165		$	10,373

Balance as of June 30, 2020
Goodwill	$	86,711		$	28,690		$	115,401
Accumulated impairment losses		(77,503	)		(27,525	)		(105,028	)
Goodwill, net as of June 30, 2020	$	9,208		$	1,165		$	10,373

Other Intangible Assets	December 31, 2020						March 31, 2021
(In thousands)	Gross						Gross
	Carrying		Accumulated		Net		Carrying		Accumulated		Net
	Amount		Amortization		Amount		Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	30,163	$	9,758	$	20,405	$	30,163	$	10,273	$	19,890
Patents		268		222		46		268		230		38
LED technology firmware, software		16,066		13,094		2,972		16,066		13,215		2,851
Trade name		2,658		884		1,774		2,658		911		1,747
Total Amortized Intangible Assets		49,155		23,958		25,197		49,155		24,629		24,526

Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		-		3,422		3,422		-		3,422
Total indefinite-lived Intangible Assets		3,422		-		3,422		3,422		-		3,422

Total Other Intangible Assets	$	52,577	$	23,958	$	28,619	$	52,577	$	24,629	$	27,948

Other Intangible Assets	June 30, 2020
(In thousands)	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	35,563	$	14,129	$	21,434
Patents		338		277		61
LED technology firmware, software		16,066		12,852		3,214
Trade name		2,658		829		1,829
Total Amortized Intangible Assets		54,625		28,087		26,538

Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		-		3,422
Total indefinite-lived Intangible Assets		3,422		-		3,422

Total Other Intangible Assets	$	58,047	$	28,087	$	29,960

(In thousands)

2021	$	2,682
2022	$	2,461
2023	$	2,412
2024	$	2,412
2025	$	2,412
After 2025	$	14,159

	Six Months			Six Months			Fiscal Year
	Ended			Ended			Ended
	December 31,			December 31,			June 30,
(In thousands)	2020			2019			2020

Balance at beginning of period	$	639		$	1,134		$	1,134
Accrual of expense		21			46			344
Payments		(392	)		(319	)		(839	)
Balance at end of period	$	268		$	861		$	639

	Nine Months			Nine Months			Fiscal Year
	Ended			Ended			Ended
	March 31,			March 31,			June 30,
(In thousands)	2021			2020			2020

Balance at beginning of period	$	639		$	1,134		$	1,134
Accrual of expense		21			73			344
Payments		(555	)		(481	)		(839	)
Balance at end of period	$	105		$	726		$	639

	Balance as of									Balance as of		Balance as of									Balance as of
	June 30,		Restructuring							December 31,		June 30,		Restructuring							March 31,
(In thousands)	2020		Expense		Payments			Adjustments		2020		2020		Expense		Payments			Adjustments		2021

Severance and termination benefits	$	27	$	0	$	0		$	0	$	27	$	27	$	0	$	0		$	0	$	27
Other restructuring costs		0		3		(3	)		0	$	0		0		3		(3	)		0	$	0
Total	$	27	$	3	$	(3	)	$	0	$	27	$	27	$	3	$	(3	)	$	0	$	27

Supplemental Cash Flow Information:

	December 31
(In thousands)	2020		2019

Cash flows from operating leases
Fixed payments - operating cash flows	$	1,141	$	1,139
Liability reduction - operating cash flows	$	929	$	885

Cash flows from finance leases
Interest - operating cash flows	$	47	$	0
Repayments of principal portion - financing cash flows	$	118	$	0

Operating Leases:	December 31,			June 30,
	2020			2020

Total operating right-of-use assets	$	7,684		$	8,663

Accrued expenses (Current liabilities)	$	298		$	376
Long-term operating lease liability		8,118			9,021
Total operating lease liabilities	$	8,416		$	9,397

Weighted Average remaining Lease Term (in years)		4.13			4.59

Weighted Average Discount Rate		4.85	%		4.85	%

Finance Leases:	December 31,			June 30,
	2020			2020

Buildings under finance leases	$	2,033		$	2,033
Accumulated depreciation		(194	)		(48	)
Total finance lease assets, net	$	1,839		$	1,985

Accrued expenses (Current liabilities)	$	245		$	239
Long-term finance lease liability		1,631			1,755
Total finance lease liabilities	$	1,876		$	1,994

Weighted Average remaining Lease Term (in years)		6.33			6.83

Weighted Average Discount Rate		4.86	%		4.86	%

Maturities of Lease Liability:	Operating Lease Liabilities			Finance Lease Liabilities
2021	$	1,387		$	210
2022		2,278			329
2023		2,227			329
2024		1,913			335
2025		1,345			362
Thereafter		357			664
Total lease payments		9,507			2,229
Less: Interest		(1,091	)		(353	)
Present Value of Lease Liabilities	$	8,416		$	1,876

	Operating Lease Liabilities			Finance Lease Liabilities
2021	$	914		$	149
2022		2,362			329
2023		2,351			329
2024		2,037			335
2025		1,469			362
Thereafter		435			665
Total lease payments		9,568			2,169
Less: Interest		(1,159	)		(353	)
Present Value of Lease Liabilities	$	8,409		$	1,816

Net Sales by Business Segment
	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2020		2019		2020		2019

Lighting Segment	$	45,126	$	53,436	$	90,531	$	116,627
Graphics Segment		31,261		28,941		55,862		54,451
	$	76,387	$	82,377	$	146,393	$	171,078

Operating Income (Loss) by Business Segment
Net Sales by Business Segment
	Three Months Ended						Six Months Ended						Three Months Ended				Nine Months Ended
	December 31						December 31						March 31				March 31
(In thousands)	2020			2019			2020			2019			2021		2020		2021		2020

Lighting Segment	$	2,134		$	3,150		$	5,722		$	12,309		$	45,740	$	49,013	$	136,271	$	165,640
Graphics Segment		3,143			1,362			4,966			2,379			26,464		21,997		82,326		76,448
Corporate and Eliminations		(2,591	)		(2,752	)		(5,800	)		(6,089	)
	$	2,686		$	1,760		$	4,888		$	8,599		$	72,204	$	71,010	$	218,597	$	242,088

Reconciliation of operating income to adjusted operating income:
	Three Months Ended
	December 31
(In thousands)	2020		2019

Operating Income as reported	$	2,686	$	1,760

Stock compensation expense		397		199

Severance costs		21		54

Restructuring and plant closure costs		-		276

Adjusted Operating Income	$	3,104	$	2,289

Reconciliation of net income to adjusted net income
	Three Months Ended
	December 31
(In thousands, except per share data)	2020					2019
				Diluted EPS						Diluted EPS

Net Income as reported	$	2,208		$	0.08	$	1,743			$	0.07

Stock compensation expense		318	(1)		0.01		161		(3)		0.01

Severance costs		17	(2)		-		44		(4)		-

Restructuring and plant closure costs		-			-		223		(5)		0.01

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes		-			-		(436	)			(0.02	)

Net Income adjusted	$	2,543		$	0.09	$	1,735			$	0.07

Reconciliation of operating income to EBITDA and Adjusted EBITDA
	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2020		2019		2020		2019

Operating Income as reported	$	2,686	$	1,760	$	4,888	$	8,599

Depreciation and Amortization		1,990		2,152		4,023		4,551

EBITDA	$	4,676	$	3,912	$	8,911	$	13,150

Stock compensation expense		397		199		902		597

Severance costs		21		54		21		54

Restructuring, plant closure costs (gains) and related inventory write-downs		-		276		3		(4,312	)

Adjusted EBITDA	$	5,094	$	4,441	$	9,837	$	9,489

Reconciliation of cash flow from operations to free cash flow
	Three Months Ended						Six Months Ended
	December 31						December 31
(In thousands)	2020			2019			2020			2019

Cash Flow from Operations	$	5,778		$	14,544		$	13,417		$	20,903

Proceeds from sale of fixed assets		-			-			-			12,332

Capital expenditures		(475	)		(764	)		(880	)		(1,119	)

Free Cash Flow	$	5,303		$	13,780		$	12,537		$	32,116

Reconciliation of Net Debt
	December 31,			June 30,
(In thousands)	2020			2020

Long-Term Debt as reported	$	-		$	-

Less:
Cash and cash equivalents as reported		13,584			3,517

Net Debt	$	(13,584	)	$	(3,517	)

Reconciliation of Graphics Segment operating income to adjusted operating income:
	Three Months Ended
	March 31
(In thousands)	2021		2020

Operating Income	$	1,230	$	4,015
Stock compensation expense		8		(28	)
Severance		-		27
Restructuring and plant closure costs (gains)		-		(3,044	)
Adjusted operating income	$	1,238	$	970

Reconciliation of Lighting Segment operating income to adjusted operating income:
	Six Months Ended					Nine Months Ended
	December 31					March 31
(In thousands)	2020		2019			2021		2020

Operating Income	$	5,722	$	12,309		$	9,519	$	13,411
Stock compensation expense		175		75			199		91
Severance		2		18			2		18
Restructuring and plant closure costs (gains)		-		(4,651	)		-		(4,674	)
Adjusted operating income	$	5,899	$	7,751		$	9,720	$	8,846

10.1	Fifth Amendment to Loan Documents dated as of March 30, 2021 between LSI and PNC Bank, National Association (incorporated by reference to LSI’s Form of Change in Control Agreement*

~~10.2~~	Form of Supplemental Benefits Agreement*8-K filed on April 1, 2021).

31.1	Certification of Principal Executive Officer required by Rule 13a-14(a)

31.2	Certification of Principal Financial Officer required by Rule ~~13a-14(a~~13a-14(a)

32.1	Section 1350 Certification of Principal Executive Officer

32.2	Section 1350 Certification of Principal Financial Officer

	LSI Industries Inc.



	By:	/s/ James A. Clark
		James A. Clark
		Chief Executive Officer and President
		(Principal Executive Officer)



	By:	/s/ James E. Galeese
		James E. Galeese
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)
~~January 29,~~April 28, 2021