~~UNITED STATES~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC20549

~~WASHINGTON, D.C.~~ ~~20549~~

FORM 10-Q

X☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE ~~QUARTERL~~YQUARTERLY PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2017.~~2023, 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)

~~State of Incorporation -~~ Ohio ~~IRS Employer I.D. No. 31-0888951~~

31-0888951

(State or other jurisdiction

of incorporation or organization)

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

~~10000 Alliance Road~~

10000 Alliance Road, Cincinnati, Ohio ~~45242~~		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:~~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~~registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ X ~~NO ____~~Yes ☒ No ☐

Indicate by checkmark whether the ~~Registrant~~registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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~~registrant was required to submit ~~and post~~ such files).

~~YES~~ X ~~NO ____~~Yes ☒ No ☐

Indicate by checkmark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 ~~[ X ]~~☒	Emerging growth company ~~[ ]~~☐
	Non-accelerated filer [ ]	☐	Smaller reporting company [ ]☒

If an emerging growth company, indicate by check mark if the ~~Registrant~~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~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~____ NO~~ X ☐ No ☒

As of ~~January 27, 2018~~April 28, 2023, there were ~~25,574,457~~28,367,653 shares of the ~~Registrant's~~registrant's common stock, no par value per share, outstanding.

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~DECEMBER~~March 31, ~~2017~~2023

INDEX

			~~Begins on Page~~
PART I. ~~Financial Information~~

	~~ITEM 1.~~	~~Financial Statements (Unaudited)~~

		~~Condensed Consolidated Statements of Operations~~	FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS			~~Condensed Consolidated Balance Sheets~~		43
		~~Condensed Consolidated Statements of Cash Flows~~		6

		~~Notes to Condensed Consolidated Financial Statements~~		7

	~~ITEM 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		24

	~~ITEM 3.~~	~~Quantitative and Qualitative Disclosures About~~ ~~Market Risk~~		36

	~~ITEM 4.~~	~~Controls and Procedures~~		36

~~PART II.~~ ~~Other Information~~

	~~ITEM 2.~~	~~Unregistered Sales of Equity Securities and Use~~ ~~of Proceeds~~		36

	~~ITEM 6.~~	~~Exhibits~~		37

~~Signatures~~				38

~~“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995~~

This Form 10-Q contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “may,” “will,” “should” or the negative versions of those words and similar expressions, and by the context in which they are used. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such forward-looking statements as a result of a variety of risks and uncertainties over which the Company may have no control. These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, potential costs associated with litigation and regulatory compliance, reliance on key customers, financial difficulties experienced by customers, the cyclical and seasonal nature of our business, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs whether as a result of uncertainties inherent in tax and accounting matters or otherwise, unexpected difficulties in integrating acquired businesses, the ability to retain key employees of acquired businesses, unfavorable economic and market conditions, the results of asset impairment assessments and the other risk factors that are identified herein. You are cautioned to not place undue reliance on these forward-looking statements. In addition to the factors described in this paragraph, the risk factors identified in our Form 10-K and other filings the Company may make with the SEC constitute risks and uncertainties that may affect the financial performance of the Company and are incorporated herein by reference. The Company does not undertake and hereby disclaims any duty to update any forward-looking statements to reflect subsequent events or circumstances.

~~Page 2~~

~~PART I.~~ ~~FINANCIAL INFORMATION~~

~~ITEM 1.~~ ~~FINANCIAL STATEMENTS~~

~~LSI INDUSTRIES INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~(Unaudited)~~3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Six Months Ended

December 31

December 31

(In thousands, except per share data)

2017

2016

2017

2016

Net sales
$ 92,305 $ 85,658 $ 179,771 $ 169,817

Cost of products and services sold
66,998 63,611 130,761 126,432

Restructuring costs
-- 640 -- 1,143

Gross profit
25,307 21,407 49,010 42,242

Restructuring costs
-- 57 -- 210

Impairment of goodwill
-- -- 28,000 --

Selling and administrative expenses
20,760 18,532 41,277 38,148

Operating income (loss)
4,547 2,818 (20,267
)
3,884

Interest (income)
(8
)
(28
)
(16
)
(55
)

Interest expense
425 8 836 21

Income (loss) before income taxes
4,130 2,838 (21,087
)
3,918

Income tax expense (benefit)
5,598 832 (3,990
)
1,083

Net (loss) income
$ (1,468
)
$ 2,006 $ (17,097
)
$ 2,835

(Loss) Earnings per common share (see Note 4)

Basic
$ (0.06
)
$ 0.08 $ (0.66
)
$ 0.11
Diluted
$ (0.06
)
$ 0.08 $ (0.66
)
$ 0.11

Weighted average common shares outstanding

Basic
25,858 25,314 25,824 25,294
Diluted
25,858 25,803 25,824 25,859

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

~~Page 3~~

~~LSI INDUSTRIES INC.~~

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(Unaudited)~~5

(In thousands, except shares)

December 31,

June 30,

2017

2017

ASSETS

Current Assets

Cash and cash equivalents
$ 3,177 $ 3,039

Accounts receivable, less allowance for doubtful accounts of $475 and $506, respectively
59,740 48,880

Inventories
48,662 50,008

Refundable income tax
-- 775

Assets held for sale
-- 1,463

Other current assets
3,712 2,964

Total current assets
115,291 107,129

Property, Plant and Equipment, at cost

Land
6,469 6,429
Buildings
35,855 35,463
Machinery and equipment
82,152 78,804
Construction in progress
796 3,805
125,272 124,501
Less accumulated depreciation
(80,409
)
(77,147
)
Net property, plant and equipment
44,863 47,354

Goodwill
30,538 58,538

Other Intangible Assets, net
36,789 38,169

Other Long-Term Assets, net
10,893 5,490

Total assets
$ 238,374 $ 256,680

~~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)~~6

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

December 31,

June 30,

(In thousands, except shares)

2017

2017

LIABILITIES & SHAREHOLDERS’ EQUITY

Current Liabilities

Accounts payable
$ 16,828 $ 19,356
Accrued expenses
25,713 26,069

Total current liabilities
42,541 45,425

Long-Term Debt
52,149 49,698

Other Long-Term Liabilities
1,356 1,479

Commitments and Contingencies (Note 12)
-- --

Shareholders’ Equity

Preferred shares, without par value; Authorized 1,000,000 shares, none issued
-- --
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 25,562,003 and 24,429,223 shares, respectively
122,170 120,259
Retained earnings
20,158 39,819

Total shareholders’ equity
142,328 160,078

Total liabilities & shareholders’ equity
$ 238,374 $ 256,680

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

~~Page 5~~

~~LSI INDUSTRIES INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~8

(In thousands)

Six Months Ended

December 31

2017

2016

Cash Flows from Operating Activities

Net (loss) income
$ (17,097
)
$ 2,835
Non-cash items included in net income

Depreciation and amortization
5,124 3,605
Deferred income taxes
(5,667
)
(962
)
Impairment of goodwill
28,000 --
Deferred compensation plan
(413
)
237
Stock compensation expense
1,463 1,688
Issuance of common shares as compensation
156 228
Loss (gain) on disposition of fixed assets
(29
)
53
Fixed asset impairment and accelerated depreciation
-- 354
Allowance for doubtful accounts
115 205
Inventory obsolescence reserve
1,033 758

Changes in certain assets and liabilities:

Accounts receivable
(10,975
)
(2,771
)
Inventories
313 979
Refundable income taxes
775 --
Accounts payable
(2,626
)
(176
)
Accrued expenses and other
(742
)
(2,630
)
Customer prepayments
(221
)
216
Net cash flows (used in) provided by operating activities
(791
)
4,619

Cash Flows from Investing Activities

Purchases of property, plant and equipment
(1,190
)
(2,744
)
Proceeds from sale of fixed assets
1,527 1
Net cash flows provided by (used in) investing activities
337 (2,743
)

Cash Flows from Financing Activities

Payments of long-term debt
(48,553
)
--
Borrowings of long-term debt
51,004 --
Cash dividends paid
(2,564
)
(2,513
)
Exercise of stock options
175 171
Purchase of treasury shares
(107
)
(390
)
Acquisition of common stock for tax withholding related to share based compensation
183 --
Issuance of treasury shares
454 44
Net cash flows provided by (used in) financing activities
592 (2,688
)

Increase (decrease) in cash and cash equivalents
138 (812
)

Cash and cash equivalents at beginning of period
3,039 33,835

Cash and cash equivalents at end of period
$ 3,177 $ 33,023

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

~~Page 6~~

~~LSI INDUSTRIES INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

SIGNATURES

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	March 31						March 31
(In thousands, except per share data)	2023			2022			2023		2022

Net Sales	$	117,470		$	110,111		$	373,343	$	327,651

Cost of products and services sold		85,266			83,318			272,230		250,900

Severence Costs		-			-			31		-

Gross profit		32,204			26,793			101,082		76,751

Selling and administrative expenses		24,472			21,632			74,291		62,724

Operating income		7,732			5,161			26,791		14,027

Interest expense		877			524			2,924		1,287

Other (income) expense		(71	)		(55	)		86		33

Income before income taxes		6,926			4,692			23,781		12,707

Income tax expense		2,257			1,074			6,434		2,851

Net income	$	4,669		$	3,618		$	17,347	$	9,856


Earnings per common share (see Note 4)
Basic	$	0.16		$	0.13		$	0.62	$	0.36
Diluted	$	0.16		$	0.13		$	0.60	$	0.35


Weighted average common shares outstanding
Basic		28,306			27,378			28,012		27,220
Diluted		29,611			28,083			29,055		27,945

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	March 31				March 31
(In thousands)	2023		2022		2023		2022

Net Income	$	4,669	$	3,618	$	17,347	$	9,856

Foreign currency translation adjustment		117		46		192		11

Comprehensive Income	$	4,786	$	3,664	$	17,539	$	9,867

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			June 30,
(In thousands, except shares)	2023			2022

ASSETS

Current assets

Cash and cash equivalents	$	1,350		$	2,462

Accounts receivable, less allowance for credit losses of $386 and $499, respectively		69,288			77,750

Inventories		67,661			74,421

Refundable income taxes		2,906			1,041

Other current assets		4,617			3,243

Total current assets		145,822			158,917

Property, Plant and Equipment, at cost
Land		4,010			4,010
Buildings		24,624			24,495
Machinery and equipment		68,075			66,762
Buildings under finance leases		2,033			2,033
Construction in progress		720			618
		99,462			97,918
Less accumulated depreciation		(74,198	)		(70,760	)
Net property, plant and equipment		25,264			27,158

Goodwill		45,030			45,030

Other intangible assets, net		64,394			67,964

Operating lease right-of-use assets		6,770			8,664

Other long-term assets, net		3,739			3,347

Total assets	$	291,019		$	311,080

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			June 30,
(In thousands, except shares)	2023			2022

LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities
Current maturities of long-term debt	$	3,571		$	3,571
Accounts payable		24,749			34,783
Accrued expenses		37,717			36,264

Total current liabilities		66,037			74,618

Long-term debt		46,002			76,025

Finance lease liabilities		1,036			1,246

Operating lease liabilities		6,115			8,240

Other long-term liabilities		4,086			3,182

Commitments and contingencies (Note 12)		-			-

Shareholders' Equity
Preferred shares, without par value;
Authorized 1,000,000 shares, none issued		-			-
Common shares, without par value;
Authorized 50,000,000 shares;
Outstanding 28,349,720 and 27,484,514 shares, respectively		146,000			139,500
Treasury shares, without par value		(6,736	)		(5,927	)
Deferred compensation plan		6,736			5,927
Retained earnings		21,506			8,224
Accumulated other comprehensive income		237			45

Total shareholders' equity		167,743			147,769

Total liabilities & shareholders' equity	$	291,019		$	311,080

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

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

Balance at June 30, 2021		26,863	$	132,526			(346	)	$	(2,450	)	$	2,450	$	49	$	(1,405	)	$	131,170

Net Income		-		-			-			-			-		-		9,856			9,856
Other comprehensive income		-		-			-			-			-		11		-			11
Stock compensation awards		30		225			-			-			-		-		-			225
Restricted stock units issued, net of shares withheld for tax withholdings		80		(250	)		-			-			-		-		-			(250	)
Shares issued for deferred compensation		412		3,089			-			-			-		-		-			3,089
Activity of treasury shares, net		-		-			(401	)		(3,007	)		-		-		-			(3,007	)
Deferred stock compensation		-		-			-			-			3,007		-		-			3,007
Stock compensation expense		-		2,466			-			-			-		-		-			2,466
Stock options exercised, net		5		26			-			-			-		-		-			26
Dividends — $0.20 per share		-		-			-			-			-		-		(4,048	)		(4,048	)

Balance at March 31, 2022		27,390	$	138,082			(747	)	$	(5,457	)	$	5,457	$	60	$	4,403		$	142,545

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

Balance at June 30, 2022		27,484	$	139,500			(822	)	$	(5,927	)	$	5,927	$	45	$	8,224		$	147,769

Net Income		-		-			-			-			-		-		17,347			17,347
Other comprehensive loss		-		-			-			-			-		192		-			192
Stock compensation awards		37		270			-			-			-		-		-			270
ESPP Stock Awards		10		97			-			-			-		-		-			97
Restricted stock units issued, net of shares withheld for tax withholdings		301		(844	)		-			-			-		-		-			(844	)
Shares issued for deferred compensation		168		1,530			-			-			-		-		-			1,530
Activity of treasury shares, net		-		-			(69	)		(809	)		-		-		-			(809	)
Deferred stock compensation		-		-			-			-			809		-		-			809
Stock compensation expense				2,308			-			-			-		-		-			2,308
Stock options exercised, net		349		3,139			-			-			-		-		-			3,139
Dividends — $0.20 per share		-		-			-			-			-		-		(4,065	)		(4,065	)

Balance at March 31, 2023		28,349	$	146,000			(891	)	$	(6,736	)	$	6,736	$	237	$	21,506		$	167,743

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	March 31
(In thousands)	2023			2022

Cash Flows from Operating Activities
Net income	$	17,347		$	9,856
Non-cash items included in net income
Depreciation and amortization		7,295			7,632
Deferred income taxes		59			26
Deferred compensation plan		1,530			3,089
Stock compensation expense		2,308			2,466
Employee Stock Purchase Plan Discount		97			-
Issuance of common shares as compensation		270			225
Loss on disposition of fixed assets		37			57
Allowance for doubtful accounts		(80	)		205
Inventory obsolescence reserve		740			752

Changes in certain assets and liabilities
Accounts receivable		8,542			(16,104	)
Inventories		6,020			(20,175	)
Refundable income taxes		(1,865	)		247
Accounts payable		(10,034	)		5,695
Accrued expenses and other		2,830			(3,708	)
Customer prepayments		(2,548	)		(2,931	)
Net cash flows provided by (used in) operating activities		32,548			(12,668	)

Cash Flows from Investing Activities
Purchases of property, plant and equipment		(1,754	)		(1,276	)
Adjustment to JSI acquisition purchase price		-			500
Proceeds from the sale of fixed assets		1			-
Net cash flows (used in) investing activities		(1,753	)		(776	)

Cash Flows from Financing Activities
Payments of long-term debt		(150,547	)		(113,195	)
Borrowings of long-term debt		120,524			130,006
Cash dividends paid		(4,065	)		(3,989	)
Shares withheld for employees' taxes		(844	)		(250	)
Payments on financing lease obligations		(192	)		(196	)
Proceeds from stock option exercises		3,139			26
Net cash flows (used in) provided by financing activities		(31,985	)		12,402

Change related to foreign currency		78			8

(Decrease) in cash and cash equivalents		(1,112	)		(1,034	)

Cash and cash equivalents at beginning of period		2,462			2,282

Cash and cash equivalents at end of period	$	1,350		$	1,248

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

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 March 31, 2023, the results of its operations for the three and nine-month periods ended March 31, 2023, and 2022, and its cash flows for the nine-month periods ended March 31, 2023, and 2022. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2022 Annual Report on Form 10-K. Financial information as of June 30, 2022, 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 2022 Annual Report on Form 10-K.

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 display solutions and select lighting products are 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 branded print graphics

~~NOTE~~ 1 - ~~INTERIM~~ ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~●

Electrical components based on customer specifications

~~The interim condensed consolidated financial statements are unaudited~~●

Digital signage 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 31, 2017,~~ ~~the results of its operations for the~~ ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~and its cash flows for the~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016.~~ ~~These statements should be read in conjunction with the financial statements and footnotes included in the fiscal~~ ~~2017~~ ~~Annual Report on Form~~ 10~~-K. Financial information as of~~ ~~June 30, 2017~~ ~~has been derived from the Company’s audited consolidated financial statements.~~

~~NOTE~~ 2 ~~- SUMMARY~~ ~~OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Consolidation:~~

~~The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries (collectively, the “Company”), all of which are wholly owned.~~ ~~All intercompany transactions and balances have been eliminated in consolidation.~~

~~Revenue Recognition:~~

~~Revenue~~ is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services have been rendered, and collectability is reasonably assured. Sales are recorded net of estimated returns, rebates and discounts. Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

~~The Company has multiple~~ sources of revenue: revenue from product sales; revenue from installation of products; service revenue generated from providing integrated design, project and construction management, site engineering and site permitting, and commissioning of lighting controls; revenue from the management ofrelated media content ~~and digital hardware related to active digital signage; and revenue from shipping and handling.~~

~~Product revenue is recognized on product-only orders upon passing of title and risk of loss,~~ generally at time of shipment. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed. The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.

~~Installation revenue is recognized when the products have been fully installed.~~ ~~The Company is~~ ~~not~~ ~~always responsible for installation of products it sells and has~~ no ~~post-installation responsibilities, other than normal warranties.~~

~~Service revenue from integrated design, project and construction management, and site permitting is recognized when all products at a customer site have been installed.~~

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from ~~one~~ ~~month to~~ ~~one~~ ~~year.~~

~~Shipping and handling revenue coincides with the recognition of revenue from sale of the product~~.

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company~~’s complete performance at the location, which~~ ~~may~~ include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the 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 performance obligation.

On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.

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
(In thousands)	March 31, 2023				March 31, 2022
			Display				Display
	Lighting		Solutions		Lighting		Solutions
	Segment		Segment		Segment		Segment
Timing of revenue recognition
Products and services transferred at a point in time	$	57,249	$	42,378	$	49,283	$	41,231
Products and services transferred over time		9,458		8,385		7,843		11,754
	$	66,707	$	50,763	$	57,126	$	52,985

	Nine Months Ended
	March 31, 2023				March 31, 2022
			Display				Display
	Lighting		Solutions		Lighting		Solutions
	Segment		Segment		Segment		Segment
Timing of revenue recognition
Products and services transferred at a point in time	$	173,917	$	136,894	$	144,006	$	114,099
Products and services transferred over time		27,157		35,375		21,656		47,890
	$	201,074	$	172,269	$	165,662	$	161,989

	Three Months Ended
	March 31, 2023				March 31, 2022
			Display				Display
	Lighting		Solutions		Lighting		Solutions
	Segment		Segment		Segment		Segment
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards	$	55,894	$	4,907	$	47,196	$	6,906
Poles, printed graphics, display fixtures		9,920		37,019		9,358		35,536
Project management, installation services, shipping and handling		893		8,837		572		10,543
	$	66,707	$	50,763	$	57,126	$	52,985

	Nine Months Ended
	March 31, 2023				March 31, 2022
			Display				Display
	Lighting		Solutions		Lighting		Solutions
	Segment		Segment		Segment		Segment
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards	$	165,839	$	17,883	$	136,701	$	31,885
Poles, printed graphics, display fixtures		32,681		120,173		27,403		99,965
Project management, installation services, shipping and handling		2,554		34,213		1,558		30,139
	$	201,074	$	172,269	$	165,662	$	161,989

Practical Expedients and Exemptions

~~Page 7~~

●

The ~~Company also evaluates the appropriateness~~Company’s contracts with customers have an expected duration of ~~revenue recognition in accordance with the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which~~one year or less, as such, the Company ~~has determined are incidental.~~

~~Credit and Collections:~~

T~~he Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or~~applies the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company ~~may~~ ~~be required to record additional allowances or charges against income. The Company determines its allowance for doubtful accounts by~~ ~~first~~ considering all known collectability problems of customers’ accounts, and then applying certain percentages against the various aging categories based on the due date of the remaining receivables. The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical trends. Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions. These allowances are based upon historical trends.

~~The following table presents the Company’s net accounts receivable at the dates indicated.~~

(In thousands)

December 31,

June 30,

2017

2017

Accounts receivable
$ 60,215 $ 49,386
Less: Allowance for doubtful accounts
(475
)
(506
)
Accounts receivable, net
$ 59,740 $ 48,880

~~Cash and Cash Equivalents:~~

~~The cash balance includes cash and cash equivalents which have original maturities of less than~~ ~~three~~ months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States. ~~In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is~~ ~~$250,000.~~~~As of~~ ~~December 31, 2017~~ ~~and~~ ~~June 30, 2017,~~ ~~the Company had bank balances of~~ ~~$4,827,512~~ ~~and~~ ~~$4,488,000,~~ ~~respectively, without insurance coverage.~~

~~Inventories and Inventory Reserves:~~

~~Inventories are stated at the lower of cost or market.~~ Cost of inventories includes the cost of purchased raw materials and components, direct labor, as well as manufacturing overhead which is generally applied to inventory based on direct labor and on material content. Cost is determined on the ~~first~~~~-in,~~ ~~first~~~~-out basis.~~

~~The Company maintains an inventory reserve~~ ~~for obsolete and excess inventory. The Company~~ ~~first~~ determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. A combination of financial modeling and qualitative input factors are used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.

~~Page 8~~

~~Property, Plant and Equipment and Related Depreciation:~~

~~Property, plant and equipment are stated at cost.~~ Major additions and betterments are capitalized while maintenance and repairs are expensed. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

~~Buildings (in years)~~	28	-	40
~~Machinery and equipment (in years)~~	3	-	10
~~Computer software (in years)~~	3	-	8

~~Costs related to the purchase, internal development, and implementation of the Company’s fully integrated enterprise resource planning/business operating software system are either capitalized or expensed. Leasehold improvements are depreciated over the shorter of~~ ~~fifteen~~ ~~years or the remaining term of the lease.~~

~~The~~ ~~Company recorded~~ ~~$1,862,000~~ ~~and~~ ~~$1,669,000~~ ~~of depreciation expense in the~~ ~~second~~ ~~quarter of fiscal~~ ~~2018~~ ~~and~~ ~~2017,~~ ~~respectively, and~~ ~~$3,744,000~~ ~~and~~ ~~$3,397,000~~ ~~of depreciation expense in the~~ ~~first~~ ~~half of fiscal~~ ~~2018~~ ~~and~~ ~~2017,~~ ~~respectively.~~

~~Goodwill and Intangible Assets:~~

~~Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology and software, and non-compete agreements are recorded on the Company's balance sheet.~~ ~~The definite-lived intangible assets are being amortized~~practical expedient to expense ~~over periods ranging between~~ ~~seven~~ ~~and~~ ~~twenty~~ years. The Company evaluates definite-lived intangible assets for possible impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however they are subject to review for impairment. See additional information about goodwill and intangibles in Note 7.

~~Fair Value:~~

~~The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and on occasion, 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. The Company has~~ no ~~financial instruments with off-balance sheet risk.~~

~~Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses~~, long-lived asset impairment analyses, and in the purchase price of acquired companies (if any). The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities.

~~Product Warranties:~~

~~The Company offers a limited warranty that its products are free from defects in workmanship and materials.~~ ~~The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within~~ ~~one~~ to ~~five~~ ~~years, with some exceptions where the terms extend to~~ ~~ten~~ years, from the date of shipment. The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation. The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~Page 9~~

~~Changes in the Company’s warranty liabilities, which are included in accrued expenses in the accompanying consolidated balance sheets, during the periods indicated below were as follows:~~

Six

Six

Fiscal

Months Ended

Months Ended

Year Ended

(In thousands)

December 31,

December 31,

June 30,

2017

2016

2017

Balance at beginning of the period
$ 7,560 $ 5,069 $ 5,069
Additions charged to expense
2,394 2,243 4,956
Addition from acquired company
-- -- 907
Deductions for repairs and replacements
(3,266
)
(1,351
)
(3,372
)
Balance at end of the period
$ 6,688 $ 5,961 $ 7,560

~~Research and Development Costs:~~

~~Research and development~~ costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs. The Company expenses as research and development all costs associated with development of software used in solid-state LED products. All costs are expensedcommissions as incurred and ~~are included in selling and administrative expenses. Research and development costs related to both product and software development totaled~~ ~~$1,379,000~~ ~~and~~ ~~$1,269,00~~ ~~for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, and~~ ~~$2,941,000~~ ~~and~~ ~~$2,670,000~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively.~~

~~Cost of Products and Services Sold:~~

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. ~~Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.~~

~~Earnings Per Common Share:~~

~~The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period net of treasury shares held in the Company~~’s nonqualified deferred compensation plan. The computation of diluted earnings per share is based on the weighted average common shares outstanding for the period and includes common share equivalents. Common share equivalents include the dilutive effect of stock options, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled ~~756,000~~ ~~and~~ ~~787,000~~ ~~shares for the~~ ~~three~~ ~~month ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, and~~ ~~686,000~~ ~~shares and~~ ~~852,000~~ ~~shares for the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. See further discussion of earnings per share in Note~~ 4.

~~Income Taxes:~~

~~The Company accounts for income taxes in accordance with the accounting~~ guidance for income taxes. Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes. Deferred income tax assets are reported on the Company’s balance sheet. Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.

~~The Tax Cuts and Jobs Act was signed into law on~~ ~~December~~ ~~22nd,~~~~2017~~ ~~and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to~~ ~~21%~~ ~~effective~~ ~~January 1, 2018.~~ ~~Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of~~ ~~27.7%~~ ~~for the fiscal~~ ~~2018,~~ ~~and will have a~~ ~~21%~~ ~~US statutory income tax rate for fiscal years thereafter. During the quarter ended~~ ~~December 31, 2017,~~ ~~the Company re-valued the deferred tax balances because of the change in US tax rate resulting in a~~ ~~one~~~~-time deferred tax expense of~~ ~~$4,676,578.~~

~~Page 10~~

~~New Accounting Pronouncements:~~

In ~~June 2014,~~ ~~the Financial Accounting Standards Board issued ASU~~ ~~2014~~-~~09,~~ “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improveshas omitted disclosures ~~about revenue. In~~ ~~April 2016,~~ ~~the FASB issued ASU~~ ~~2016~~-~~10,~~ ~~“Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In~~ ~~May 2016,~~ ~~the FASB issued ASU~~ ~~2016~~-~~12,~~ ~~“Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In~~ ~~December 2016,~~ ~~the FASB issued ASU~~ ~~2016~~-~~20,~~ ~~“Technical Corrections and Improvements to Topic~~ ~~606,~~ ~~Revenue from Contracts with Customers.” These~~ ~~three~~ ~~standards clarify or improve guidance from ASU~~ ~~2014~~-09 ~~and are effective for fiscal and interim periods within those years, beginning after~~ ~~December 15, 2017,~~ ~~or the Company’s fiscal~~ ~~2019.~~ ~~The Company currently plans to adopt the new revenue guidance for the fiscal year beginning~~ ~~July 1, 2018~~ using the modified retrospective approach. The Company is reviewing accounting policies and evaluating disclosures in the financial statements related to the new standard. The Company is also assessing potential changes to the business processes, internal controls, and information systems related to the adoption of the new standard. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. The recognition of revenue from most product sales is largely unaffected by the new standard. However, with respect to certain product sales requiring installation, revenue is currently ~~not~~ ~~recognized until the installation is complete. While the Company does~~ ~~not~~ ~~expect this new guidance to have a material impact~~ on the amount of ~~overall sales recognized, the timing of recognition of revenues from sales on certain projects~~ ~~may~~ ~~be affected. Our initial conclusions~~ ~~may~~ ~~change as we finalize our assessment and select a transition method during the next~~ ~~six~~ ~~months.~~remaining performance obligations.

●

In ~~February 2016,~~ ~~the Financial Accounting Standards Board issued ASU~~ ~~2016~~-~~02,~~ ~~“Leases.” The amended guidance requires an entity to recognize assets and liabilities~~Shipping costs that ~~arise from leases. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after~~ ~~December 15, 2018,~~ ~~or the Company’s fiscal~~ ~~2020,~~ ~~with early adoption permitted. The Company has~~ are not ~~yet determined the impact the amended guidance will have on its financial statements.~~

In ~~March 2016,~~ ~~the Financial Accounting Standards Board issued ASU~~ ~~2016~~-~~09,~~ “~~Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects~~ material in context of the ~~accounting for share-based payment award transactions.~~ delivery of products are expensed as incurred.

●

The ~~amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after~~ ~~December 15, 2016,~~ orCompany’s accounts receivable balance represents the Company’s ~~fiscal~~ ~~2018.~~ ~~We adopted this standard on~~ ~~July 1, 2017~~ ~~and recognized excess tax benefits~~unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of $~~87,354~~ ~~in income tax expense during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~~~. The amount~~ ~~may~~ ~~not~~ ~~necessarily be indicative of future amounts that~~ ~~may~~ ~~be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to~~ ~~July 1, 2017,~~ ~~excess tax benefits were recognized in additional paid-in capital.~~ Additionally, excess tax benefits are now included in net cash flows provided by operating activities rather than net cash flows provided by financing activities in the Company’s Consolidated Statement of Cash Flows. The treatment of forfeitures has ~~not~~ ~~changed, as the Company is electing to continue the current process of estimating forfeiture at the time of grant. The Company had~~ no ~~unrecognized excess tax benefits from prior periods to record upon the adoption of this ASU.~~

In ~~January 2017,~~ ~~the Financial Accounting Standards Board issued ASU~~ ~~2017~~-~~04,~~ “Simplifying the Test for Goodwill Impairment”, which simplifies the testing for goodwill impairment by eliminating a previously required step. The standard is effective for financial statements issued for fiscal years beginning after ~~December 15, 2019,~~ ~~or the Company’s fiscal~~ ~~2021.~~ ~~Early adoption~~completion of the ~~accounting standard is permitted,~~performance obligation and ~~the Company elected to adopt this standard early. (See Footnote~~ 7)invoicing; therefore, payments do not contain significant financing components.

●

~~Comprehensive Income:~~

The Company ~~does~~ ~~not~~ ~~have any comprehensive income items~~collects sales tax and other ~~than net income.~~

~~Subsequent Events:~~

~~The Company has evaluated subsequent events for potential recognition~~taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping 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.~~

~~Page 11~~

~~Use of Estimates:~~

~~The pr~~eparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

~~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~~handling costs are ~~identified~~treated 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. In the ~~first~~ ~~quarter of fiscal~~ ~~2018,~~ the Company merged its Technology Segment with the Lighting Segment to be in alignment with the financial information received by the Chief Executive Officer and how the business is managed. The Company’s ~~two~~ ~~operating segments are Lighting and Graphics, each of which has a president who is responsible for that business and reports to the CODM.~~ ~~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 commercial~~/industrial market, the petroleum / convenience store market, the automotive dealership market, the quick service restaurant market, along with other markets the Company serves. The Lighting Segment also includes the design, engineering, and manufacturing of electronic circuit boards, assemblies and sub-assemblies used to manufacture certain LED light fixtures and 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, LED video screens, and menu board systems that are either digital or traditional by design. These products are used in visual image programs in several markets including, but ~~not~~ limited to the petroleum / convenience store market, multi-site retail operations, banking, and restaurants. 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 staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relationsfulfillment activities and ~~a portion~~included in cost of products and services sold on the ~~Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist~~Consolidated Statements of ~~cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.~~Operations.

~~There was~~ no ~~concentration of consolidated net sales in the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ or ~~2016.~~ ~~There was~~ no ~~concentration of accounts receivable at~~ ~~December 31, 2017~~ or ~~June 30, 2017.~~

~~Page 12~~

~~Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of~~ ~~December 31, 2017~~ ~~and~~ ~~December 31, 2016:~~

Three Months Ended

Six Months Ended

(In thousands)

December 31

December 31

2017

2016

2017

2016

Net Sales:

Lighting Segment
$ 69,174 $ 65,076 $ 137,602 $ 130,341
Graphics Segment
23,131 20,582 42,169 39,476
$ 92,305 $ 85,658 $ 179,771 $ 169,817

Operating Income (Loss):

Lighting Segment
$ 5,275 $ 3,761 $ (17,655
)
$ 6,852
Graphics Segment
2,255 1,174 3,731 2,191
Corporate and Eliminations
(2,983
)
(2,117
)
(6,343
)
(5,159
)
$ 4,547 $ 2,818 $ (20,267
)
$ 3,884

Capital Expenditures:

Lighting Segment
$ 499 $ 205 $ 760 $ 1,301
Graphics Segment
157 459 339 825
Corporate and Eliminations
36 120 91 618
$ 692 $ 784 $ 1,190 $ 2,744

Depreciation and Amortization:

Lighting Segment
$ 1,885 $ 1,115 $ 3,786 $ 2,307
Graphics Segment
384 376 763 736
Corporate and Eliminations
283 279 575 562
$ 2,552 $ 1,770 $ 5,124 $ 3,605

December 31,
2017

June 30,
2017

Identifiable Assets:

Lighting Segment
$ 182,680 $ 214,070
Graphics Segment
39,394 33,144
Corporate and Eliminations
16,300 9,466
$ 238,374 $ 256,680

~~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

December 31

December 31

(In thousands)

2017

2016

2017

2016

Lighting Segment inter-segment net sales
$ 992 $ 700 $ 1,707 $ 1,453

Graphics Segment inter-segment net sales
$ 1,040 $ 680 $ 1,071 $ 812

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

~~Page 13~~

~~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

2017

2016

2017

2016

BASIC EARNINGS PER SHARE

Net (loss) income
$ (1,468
)
$ 2,006 $ (17,097
)
$ 2,835

Weighted average shares outstanding during the period, net of treasury shares (a)
25,551 25,016 25,528 25,007
Weighted average vested restricted stock units outstanding
63 37 52 37
Weighted average shares outstanding in the Deferred Compensation Plan during the period
244 261 244 250
Weighted average shares outstanding
25,858 25,314 25,824 25,294

Basic (loss) earnings per share
$ (0.06
)
$ 0.08 $ (0.66
)
$ 0.11

DILUTED EARNINGS PER SHARE

Net (loss) income
$ (1,468
)
$ 2,006 $ (17,097
)
$ 2,835

Weighted average shares outstanding

Basic
25,858 25,314 25,824 25,294

Effect of dilutive securities (b):

Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any
-- 489 -- 565

Weighted average shares outstanding (c)
25,858 25,803 25,824 25,859

Diluted (loss) earnings per share
$ (0.06
)
$ 0.08 $ (0.66
)
$ 0.11

New Accounting Pronouncements:

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. The Company is evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)." This guidance removes certain exceptions to the general principles in ASC 740 such as recognizing deferred taxes for equity investments, the incremental approach to performing intra-period tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under U.S. GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted ASC 2019-12 effective July 1, 2021, which did not have a material impact on its consolidated financial statements or disclosures.

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 Display Solutions (formerly known as the Graphics Segment), 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 non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. In addition to the manufacture and sale of lighting fixtures, the Company offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. 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 Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage.

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 staff, 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 were no customers or customer programs representing a concentration of 10% or more of the Company’s consolidated net sales in the three and nine months ended March 31, 2023, or March 31, 2022. There was no concentration of accounts receivable at March 31, 2023. One customer in the Display Solutions Segment represents $8.5 million or 10.9% of the Company’s accounts receivable at June 30, 2022.

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of March 31, 2023, and March 31, 2022:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31				March 31
	2023		2022		2023		2022
Net Sales:
Lighting Segment	$	66,707	$	57,126	$	201,074	$	165,662
Display Solutions Segment		50,763		52,985		172,269		161,989
	$	117,470	$	110,111	$	373,343	$	327,651

Operating Income (Loss):
Lighting Segment	$	6,529		$	4,959		$	22,441		$	13,921
Display Solutions Segment		5,501			4,556			19,759			12,142
Corporate and Eliminations		(4,298	)		(4,354	)		(15,409	)		(12,036	)
	$	7,732		$	5,161		$	26,791		$	14,027

Capital Expenditures:
Lighting Segment	$	402	$	272	$	725		$	624
Display Solutions Segment		338		185		1,038			660
Corporate and Eliminations		19		74		(9	)		(8	)
	$	759	$	531	$	1,754		$	1,276

Depreciation and Amortization:
Lighting Segment	$	1,344	$	1,450	$	4,113	$	4,361
Display Solutions Segment		1,044		1,021		2,993		3,068
Corporate and Eliminations		67		60		189		203
	$	2,455	$	2,531	$	7,295	$	7,632

	March 31, 2023		June 30, 2022
Identifiable Assets:
Lighting Segment	$	142,656	$	152,431
Display Solutions Segment		140,666		152,302
Corporate and Eliminations		7,697		6,347
	$	291,019	$	311,080

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:

Inter-segment sales
	Three Months Ended				Nine Months Ended
(In thousands)	March 31				March 31
	2023		2022		2023		2022
Lighting Segment inter-segment net sales	$	5,101	$	5,683	$	16,312	$	27,406

Display Solutions Segment inter-segment net sales	$	175	$	54	$	139	$	289

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.

NOTE 4 -EARNINGS PER COMMON SHARE

	Three Months Ended				Nine Months Ended
	March 31				March 31
	2023		2022		2023		2022

BASIC EARNINGS PER SHARE

Net income	$	4,669	$	3,618	$	17,347	$	9,856

Weighted average shares outstanding during the period, net of treasury shares		27,376		26,642		27,050		26,606
Weighted average vested restricted stock units outstanding		52		31		70		26
Weighted average shares outstanding in the Deferred Compensation Plan during the period		878		705		892		588
Weighted average shares outstanding		28,306		27,378		28,012		27,220

Basic income per share	$	0.16	$	0.13	$	0.62	$	0.36


DILUTED EARNINGS PER SHARE

Net income	$	4,669	$	3,618	$	17,347	$	9,856

Weighted average shares outstanding:

Basic		28,306		27,378		28,012		27,220

Effect of dilutive securities (a):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any		1,305		705		1,043		725
Weighted average shares outstanding		29,611		28,083		29,055		27,945

Diluted income per share	$	0.16	$	0.13	$	0.60	$	0.35


Anti-dilutive securities (b)		-		1,427		181		1,043

(a)

~~Includes shares accounted for like treasury stock.~~

~~(b)~~

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)

~~(c)~~

~~Options to purchase~~ ~~3,569,762~~ ~~common shares and~~ ~~1,682,270~~ ~~common shares for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, and options to purchase~~ ~~3,549,705~~ ~~common shares and~~ ~~1,626,770~~ ~~common shares for the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively were~~ ~~not~~ ~~included in the computation of the~~ ~~three~~ ~~month and~~ ~~six~~ ~~month period for diluted earnings~~

Anti-dilutive securities were excluded from the computation of diluted net income per share ~~respectively, because the exercise price was greater than the average fair market value of the common shares.~~ ~~For the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~December 31, 2017,~~ ~~the effect of dilutive securities was~~ ~~not~~ ~~included in the calculation of diluted earnings (loss) per share because there was a net operating loss for the period.~~

~~Page 14~~

~~NOTE~~ 5 ~~- INVENTORIES~~

~~The following information is provided as of the dates indicated:~~

December 31,

June 30,

(In thousands)

2017

2017

Inventories:

Raw materials
$ 31,156 $ 32,421
Work-in-process
2,772 3,527
Finished goods
14,734 14,060
Total Inventories
$ 48,662 $ 50,008

~~NOTE~~ 6 ~~- ACCRUED EXPENSES~~

~~The following information is provided as of the dates indicated:~~

December 31,

June 30,

(In thousands)

2017

2017

Accrued Expenses:

Compensation and benefits
$ 8,667 $ 9,759
Customer prepayments
840 1,061
Accrued sales commissions
2,214 2,314
Accrued warranty
6,688 7,560
Other accrued expenses
7,304 5,375
Total Accrued Expenses
$ 25,713 $ 26,069

~~NOTE~~ 7 ~~- GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~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 goodwill and indefinite-lived intangible assets 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 goodwill and intangible assets 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 fair value of reporting units are based on the best information available as of the date of the assessment. 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~~ ~~three~~ ~~reporting units that contain goodwill. There are~~ ~~two~~ ~~reporting units within the Lighting Segment and~~ ~~one~~ reporting unit within the Graphics Segment. One reporting unit previously reported in the Technology Segment has been transferred to the Lighting Segment as a result of the merge of the Technology Segment with the Lighting Segment (See Note 3~~). 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.

~~A sustained and significant~~ ~~decline in the Company’s stock price in the~~ ~~first~~ ~~quarter of fiscal~~ ~~2018~~ ~~led management to believe that a triggering event occurred and that an interim goodwill impairment test was required for~~ ~~one~~ ~~of the reporting units in the Lighting Segment that contains goodwill, as of~~ ~~September 30, 2017.~~ ~~Because the Company elected to early adopt~~ ~~ASU~~ ~~2017~~-~~04,~~ ~~“Simplifying the Test for Goodwill Impairment”, the requirement to perform step~~ 2 ~~in the impairment test was~~ ~~not~~ ~~required. The result of the impairment test on the reporting unit in the Lighting Segment indicated that goodwill was impaired by~~ ~~$28,000,000.~~

~~Page 15~~

~~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 June 30, 2017

Goodwill
$ 94,564 $ 28,690 $ 123,254
Accumulated impairment losses
(37,191
)
(27,525
)
(64,716
)
Goodwill, net as of June 30, 2017
$ 57,373 $ 1,165 $ 58,538

Goodwill Impairment
(28,000
)
-- (28,000
)

Balance as of December 31, 2017

Goodwill
$ 94,564 28,690 123,254
Accumulated impairment losses
(65,191
)
(27,525
)
(92,716
)
Goodwill, net as of December 31, 2017
$ 29,373 $ 1,165 $ 30,538

~~The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:~~

December 31, 2017

Other Intangible Assets

Gross

(In thousands)

Carrying

Accumulated

Net

Amount

Amortization

Amount

Amortized Intangible Assets

Customer relationships
$ 35,563 $ 8,982 $ 26,581
Patents
338 201 137
LED technology firmware, software
16,066 11,521 4,545
Trade name
2,658 554 2,104
Non-compete agreements
710 710 --
Total Amortized Intangible Assets
55,335 21,968 33,367

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
$ 58,757 $ 21,968 $ 36,789

June 30, 2017

Other Intangible Assets

Gross

Carrying

Accumulated

Net

(In thousands)

Amount

Amortization

Amount

Amortized Intangible Assets

Customer relationships
$ 35,563 $ 7,956 $ 27,607
Patents
338 186 152
LED technology firmware, software
16,066 11,237 4,829
Trade name
2,658 499 2,159
Non-compete agreements
710 710 -
Total Amortized Intangible Assets
55,335 20,588 34,747

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
$ 58,757 $ 20,588 $ 38,169

~~Page 16~~

(In thousands)

Amortization Expense of
Other Intangible Assets

December 31, 2017

December 31, 2016

Three Months Ended
$ 690 $ 101
Six Months Ended
$ 1,380 $ 208

~~The Company expects to record annual amortization expense as follows:~~

(In thousands)

2018
$ 2,760
2019
$ 2,760
2020
$ 2,687
2021
$ 2,682
2022
$ 2,461
After 2022
$ 21,397

~~NOTE~~ 8 ~~- REVOLVING~~ ~~LINE OF CREDIT~~

In ~~February~~~~2017~~ ~~the Company amended its secured line of credit to a~~ ~~$100~~ ~~million facility. The line of credit expires in the~~ ~~third~~ ~~quarter of fiscal~~ ~~2022.~~ 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 base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between ~~125~~ ~~and~~ ~~250~~ basis points depending 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 remain at ~~175~~ ~~basis points for the next~~ ~~twelve~~ ~~months. The fee on the unused balance of the~~ ~~$100~~ ~~million committed line of credit is~~ 15 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 coverage ratio. As of ~~December 31, 2017,~~ ~~there was~~ ~~$52.1~~ ~~million borrowed against the line of credit, and~~ ~~$47.9~~ ~~million was available as of that date. Based on the terms of the line of credit and the maturity date, the debt has been classified as long term.~~

~~The Company is in compliance with all of its loan covenants as of~~ ~~December 31, 2017~~.

~~NOTE~~ 9 - ~~CASH~~ ~~DIVIDENDS~~

~~The Company paid~~ ~~cash dividends of~~ ~~$2,564,000~~ ~~and~~ ~~$2,513,000~~ ~~in the~~ ~~six~~three months ended ~~December~~March 31, ~~2017~~ 2023, and ~~2016,~~ ~~respectively. Dividends on restricted stock units in~~March 31, 2022, because the ~~amount of~~ ~~$38,463~~ ~~and~~ ~~$19,826~~ ~~were accrued as of~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. These dividends will be paid upon~~exercise price was greater than the ~~vesting of the restricted stock units when shares are issued to the award recipients. In~~ ~~January 2018,~~ ~~the Board of Directors declared a regular quarterly cash dividend of~~ ~~$0.05~~ ~~per share payable~~ ~~February 13, 2018~~ ~~to shareholders of record as of~~ ~~February 5, 2018.~~ ~~The indicated annual cash dividend rate is~~ ~~$0.20~~ ~~per share.~~

~~NOTE~~ 10- ~~EQUITY COMPENSATION~~

~~Stock Based Compensation~~

~~The Company’s equity compensation plan, the~~ ~~2012~~ ~~Stock Incentive Plan (“the~~ ~~2012~~ ~~Plan”), was approved by shareholders in~~ ~~November 2012.~~ ~~The~~ ~~2012~~ ~~Plan covers all of its full-time employees, outside directors and certain advisors and replaced all previous equity compensation plans. In~~ ~~November 2016,~~ ~~the Company’s shareholders approved an amendment to the~~ ~~2012~~ ~~Plan that added~~ ~~1,600,000~~ ~~shares to the plan and implemented the use of a fungible share ratio that consumes~~ ~~2.5~~ ~~available shares for every~~ 1 ~~full value share awarded by the Company as stock compensation. The~~ ~~2012~~ Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and other stock awards. Stock option grants or stock awards made pursuant to the ~~2012~~ ~~Plan are granted at~~average fair market ~~value at the date of option grant or stock award.~~

~~Page 17~~

~~Stock option grants~~ ~~may~~ ~~be service-based or performance-based.~~ ~~Service-based options granted during fiscal~~ ~~2017~~ ~~and prior fiscal years generally have a~~ ~~four~~ ~~year ratable vesting period beginning~~ ~~one~~ ~~year after the date of grant. Service-based options granted during fiscal~~ ~~2018~~ ~~have a~~ ~~three~~ ~~year ratable vesting period beginning~~ ~~one~~ ~~year after the date of grant. Performance-based options have a~~ ~~three~~ ~~year ratable vesting period beginning~~ ~~one~~ ~~year after the date of grant. The maximum exercise period of stock options granted under the~~ ~~2012~~ ~~Plan is~~ ~~ten~~ years. If a stock option holder’s employment with the Company terminates by reason of death, disability or retirement, as defined in the Plan, the Plan generally provides for acceleration of vesting.

~~The number of shares reserved for issuance~~ ~~under the~~ ~~2012~~ ~~Plan is~~ ~~1,453,356~~ ~~shares, all of which were available for future grant or award as of~~ ~~December 31, 2017.~~ ~~Service-based and performance-based stock options were granted and restricted stock units (“RSUs”) were awarded during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017.~~ ~~As of~~ ~~December 31, 2017,~~ ~~a total of~~ ~~3,448,677~~ ~~stock options were outstanding under the~~ ~~2012~~ ~~Plan (as well as~~ ~~one~~ ~~previous stock option plan which was also approved by shareholders), of which, a total of~~ ~~1,527,651~~ ~~stock options were vested and exercisable. As of~~ ~~December 31, 2017,~~ ~~the approximate unvested stock option expense that will be recorded as expense in future periods is~~ ~~$2,563,987.~~ ~~The weighted average time over which this expense will be recorded is approximately~~ 24 ~~months. Additionally, as of~~ ~~December 31, 2017,~~ ~~a total of~~ ~~187,150~~ ~~RSUs were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSUs is~~ ~~$775,144.~~ ~~The weighted average time over which this expense will be recorded is approximately~~ 30 ~~months.~~

~~Stock Options~~

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for grants in the periods indicated.

Three Months Ended

Six Months Ended

December 31

December 31

2017

2016

2017

2016

Dividend yield
3.06 % 2.07 % 3.35 % 1.81 %
Expected volatility
41 % 41 % 41 % 43 %
Risk-free interest rate
1.94 % 2.06 % 1.77 % 1.00 %
Expected life (in years)

6.0

6.0

6.0

6.0

At ~~December 31, 2017~~~~, the~~ ~~794,537~~ ~~options granted during the~~ ~~first~~~~six~~ ~~months of fiscal~~ ~~2018~~ ~~to employees had exercise prices ranging from~~ ~~$5.92~~ to ~~$6.54~~ ~~per share, fair values ranging from of~~ ~~$1.71~~ to ~~$1.96~~ ~~per share, and remaining contractual lives of between~~ ~~9.5~~ ~~and~~ 10 ~~years.~~

At ~~December 31, 2016,~~ ~~the~~ ~~834,320~~ ~~options granted during the~~ ~~first~~~~six~~ ~~months of fiscal~~ ~~2017~~ ~~to employees had exercise prices ranging from~~ ~~$9.65~~ to ~~$11.06~~ ~~per share, fair values ranging from of~~ ~~$3.29~~ to ~~$3.83~~ ~~per share, and remaining contractual lives of between~~ ~~9.5~~ ~~and~~ 10 ~~years.~~

~~The Company calculates stock option expense using the Black-Scholes model.~~ ~~Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the~~ ~~2012~~ ~~Stock Incentive Plan, with an estimated~~ ~~8.54%~~ ~~forfeiture rate effective~~ ~~October 1, 2017.~~ ~~Previous estimated forfeiture rates were between~~ ~~2.0%~~ ~~and~~ ~~8.3%~~ ~~between the periods~~ ~~January 1, 2013~~ ~~through~~ ~~September 30, 2017.~~ The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a ~~five~~ year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued.

~~The Company~~ ~~recorded~~ ~~$367,920~~ ~~of expense in the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017~~ ~~and recorded a reduction of expense of~~ ~~$142,434~~ ~~in the~~ ~~three~~ ~~months ended~~ ~~December 31, 2016,~~ ~~related to stock options. The reduction of stock option expense in the~~ ~~three~~ ~~months ended~~ ~~December 31, 2016~~ ~~was the result of expectations that the performance criteria related to incentive based options will~~ ~~not~~ ~~be met. The Company recorded~~ ~~$1,125,728~~ ~~and~~ ~~$1,296,009~~ ~~of expense related to stock options in the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. As of~~ ~~December 31, 2017,~~ ~~the Company had~~ ~~3,344,138~~ ~~stock options that were vested and that were expected to vest, with a weighted average exercise~~ price of~~$8.13~~ ~~per share, an aggregate intrinsic value of~~ ~~$905,309~~ ~~and weighted average remaining contractual terms of~~ ~~7.4~~ ~~years.~~

~~Page 18~~

~~Information related to all stock options for the si~~x ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~is shown in the following tables:~~

Six Months Ended December 31, 2017

Weighted

Weighted

Average

Average

Aggregate

Exercise

Remaining

Intrinsic

Shares

Price

Contractual Term (in years)

Value

Outstanding at 6/30/17
3,119,688 $ 9.12 7.4 $ 2,332,224

Granted
794,537 $ 5.98
Forfeitures
(438,609
)
$ 11.62
Exercised
(26,939
)
$ 6.49

Outstanding at 12/31/17
3,448,677 $ 8.10 7.4 $ 971,344

Exercisable at 12/31/17
1,527,651 $ 8.14 5.7 $ 218,246

Six Months Ended December 31, 2016

Weighted

Weighted

Average

Average

Aggregate

Exercise

Remaining

Intrinsic

Shares

Price

Contractual Term (in years)

Value

Outstanding at 6/30/16
2,976,490 $ 8.97 6.6 $ 8,338,974

Granted
834,320 $ 11.05
Forfeitures
(147,375
)
$ 16.03
Exercised
(38,063
)
$ 7.75

Outstanding at 12/31/16
3,625,372 $ 9.18 7.1 $ 4,648,729

Exercisable at 12/31/16
1,700,025 $ 8.73 5.1 $ 3,216,899

~~The following table presents information related to unvested stock options:~~

Shares
Weighted-Average
Grant Date
Fair Value

Unvested at June 30, 2017
1,842,127 $ 3.52
Granted
794,537 $ 1.73
Vested
(513,504 ) $ 3.49
Forfeited
(202,134 ) $ 3.46
Unvested at December 31, 2017
1,921,026 $ 2.79

~~The weighted average grant date fair value of options granted during the~~ ~~six~~ ~~month~~ ~~periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$1.73~~ ~~and~~ ~~$3.83,~~ ~~respectively. The aggregate intrinsic value of options exercised during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$22,079~~ ~~and~~ ~~$99,883,~~ ~~respectively. The aggregate grant date fair value of options that vested during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$1,793,086~~ ~~and~~ ~~$1,779,490,~~ ~~respectively. The Company received~~ ~~$174,965~~ ~~and~~ ~~$295,030~~ ~~of cash from employees who exercised options in the~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. In the~~ ~~first~~~~six~~ ~~months of fiscal~~ ~~2018~~ ~~the Company recorded a~~ ~~$83,608~~ ~~reduction of the federal income tax payable,~~ ~~$559,474~~ ~~as an increase in common stock,~~ ~~$87,354~~ ~~as a reduction of income tax expense, and~~ ~~$170,462~~ ~~as a reduction of the deferred tax assets. In the~~ ~~first~~~~six~~ ~~months of fiscal~~ ~~2017~~ ~~the Company recorded~~ ~~$95,443~~ ~~as a reduction of federal income taxes payable,~~ ~~$124,056~~ ~~as a decrease in common stock,~~ ~~$22,073~~ ~~as a reduction of income tax expense, and~~ ~~$197,427~~ ~~as a reduction of the deferred tax asset related to the issuance of RSUs and the exercises of stock options in which the employees sold~~ the common shares ~~prior to~~or because the ~~passage of~~ ~~twelve~~ ~~months~~assumed proceeds from the ~~date of exercise.~~

~~Page 19~~

~~Restricted Stock Units~~

~~A total of~~ ~~91,490~~ ~~RSUs with a~~award’s exercise or vesting was greater than the average fair ~~value of~~ ~~$5.92~~ ~~per share were awarded to employees during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017.~~ ~~The service-based RSUs awarded during fiscal~~ ~~2018~~ ~~have a~~ ~~three~~ ~~year ratable vesting period beginning~~ ~~one~~ ~~year after the date of award. A total of~~ ~~71,700~~ ~~RSUs with a fair value of~~ ~~$11.06~~ ~~per share were awarded to employees during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2016.~~ ~~The service-based RSUs awarded during fiscal~~ ~~2017~~ ~~and in prior fiscal years have a~~ ~~four~~ ~~year ratable vesting period beginning~~ ~~one~~ ~~year after the date of award. The Company determined the fair value of the awards based on the closing~~market price of the ~~Company stock on the date the RSUs were awarded. The RSUs have a~~ ~~four~~ ~~year ratable vesting period. The RSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s~~ common ~~stock. Dividends on RSUs in the amount of~~ ~~$38,463~~ ~~and~~ ~~$19,826~~ ~~were accrued as of~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of~~ shares.

NOTE 5 – INVENTORIES, NET

The following information is provided as of the dates indicated:

	March 31,		June 30,
(In thousands)	2023		2022

Inventories:
Raw materials	$	49,946	$	51,637
Work-in-progress		7,800		3,029
Finished goods		9,915		19,755
Total Inventories	$	67,661	$	74,421

NOTE 6- ACCRUED EXPENSES

The following information is provided as of the dates indicated:

	March 31,		June 30,
(In thousands)	2023		2022

Accrued Expenses:
Customer prepayments	$	3,847	$	6,416
Compensation and benefits		12,683		9,611
Accrued warranty		5,127		4,491
Operating lease liabilities		1,290		1,274
Accrued sales commissions		5,629		4,783
Accrued freight		3,625		3,680
Accrued FICA		546		1,122
Finance lease liabilities		325		275
Accrued income tax		-		109
Other accrued expenses		4,645		4,503
Total Accrued Expenses	$	37,717	$	36,264

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 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 three reporting units that contain goodwill. One reporting unit is within the Lighting Segment and two reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. 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, 2023, the Company performed its annual preliminary goodwill impairment test on the three 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 $34.4 million or 21% above the carrying value of the reporting unit including goodwill. The preliminary goodwill impairment test of one reporting unit with goodwill in the Display Solutions Segment passed with an estimated business enterprise value of $13.6 million or 5,426% above the carrying value of the reporting unit including goodwill. The preliminary goodwill impairment test of the second reporting unit with goodwill in the Display Solutions Segment passed with an estimated business enterprise value of $99.4 million or 15% 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 2023. It is anticipated that the results of the definitive test will not change when the test is complete

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

Goodwill
(In thousands)				Display
	Lighting			Solutions
	Segment			Segment			Total
Balance as of March 31, 2023
Goodwill	$	70,971		$	63,347		$	134,318
Accumulated impairment losses		(61,763	)		(27,525	)		(89,288	)
Goodwill, net as of March 31, 2023	$	9,208		$	35,822		$	45,030

Balance as of June 30, 2022
Goodwill	$	70,971		$	63,347		$	134,318
Accumulated impairment losses		(61,763	)		(27,525	)		(89,288	)
Goodwill, net as of June 30, 2022	$	9,208		$	35,822		$	45,030

The Company has two indefinite-lived intangible assets. The Company performed its annual review of indefinite-lived intangible assets as of March 1, 2023, and determined there was no impairment. The preliminary impairment test of the first indefinite-lived intangible asset passed with a fair market value of $17.0 million or 399% above its carrying value. The preliminary impairment test of the second indefinite-lived intangible asset passed with a fair market value of and $10.5 million or 21% above its carrying value. The definitive indefinite-lived impairment test is expected to be completed in the fourth quarter of fiscal 2023. It is anticipated that the results of the definitive test will not change when the test is complete.

The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:

Other Intangible Assets
	March 31, 2023
(In thousands)	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	62,083	$	16,962	$	45,121
Patents		268		268		-
LED technology firmware, software		20,966		15,486		5,480
Trade name		2,658		1,129		1,529
Non-compete		260		98		162
Total Amortized Intangible Assets		86,235		33,943		52,292

Indefinite-lived Intangible Assets
Trademarks and trade names		12,102		-		12,102
Total indefinite-lived Intangible Assets		12,102		-		12,102

Total Other Intangible Assets	$	98,337	$	33,943	$	64,394

Other Intangible Assets
	June 30, 2022
(In thousands)	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	62,083	$	14,400	$	47,683
Patents		268		268		-
LED technology firmware, software		20,966		14,598		6,368
Trade name		2,658		1,049		1,609
Non-compete		260		58		202
Total Amortized Intangible Assets		86,235		30,373		55,862

Indefinite-lived Intangible Assets
Trademarks and trade names		12,102		-		12,102
Total indefinite-lived Intangible Assets		12,102		-		12,102

Total Other Intangible Assets	$	98,337	$	30,373	$	67,964

	Three Months Ended				Nine Months Ended
	March 31				March 31
(In thousands)	2023		2022		2023		2022

Amortization Expense of Other Intangible Assets	$	1,190	$	1,198	$	3,570	$	3,611

The Company expects to record annual amortization expense as follows:

(In thousands)

2023	$	4,808
2024		4,760
2025		4,760
2026		4,760
2027		4,754
After 2027		32,020

NOTE 8-DEBT

The Company’s long-term debt as of March 31, 2023, and June 30, 2022, consisted of the following:

	March 31,		June 30,
(In thousands)	2023		2022

Secured line of credit	$	29,930	$	57,275
Term loan, net of debt issuance costs of $22 and $30, respectively		19,643		22,321
Total debt		49,573		79,596
Less: amounts due within one year		3,571		3,571
Total amounts due after one year, net	$	46,002	$	76,025

In September 2021, the Company amended its existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid annually in the amount of $3.6 million over a five-year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the LIBOR rate or a base 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 fluctuates between 100 and 225 basis points, and the increment over the Base Rate fluctuates between 0 and 125 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. As of March 31, 2023, the Company’s borrowing rate against its revolving line of credit was 6.3%. The increment over LIBOR borrowing rate will be 125 basis points for the fourth quarter of fiscal 2023. The fee on the unused balance of the $75 million committed line of credit fluctuates between 15 and 25 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 ratio. As of March 31, 2023, there was $45.1 million available for borrowing under the $75 million line of credit.

The Company is in compliance with all of its loan covenants as of March 31, 2023.

NOTE 9-CASH DIVIDENDS

The Company paid cash dividends of $4.1 million and $4.0 million for the nine months ended March 31, 2023, and March 31, 2022, respectively. In April 2023, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable May 16, 2023, to shareholders of record as of May 8, 2023. The indicated annual cash dividend rate is $0.20 per share.

NOTE 10 – EQUITY COMPENSATION

In November 2022, the Company’s shareholders approved the amendment and restatement of the 2019 Omnibus Award Plan (“2019 Omnibus Plan”) which increased the number of shares authorized for issuance under the plan by 2,350,000 and removed the Plan’s fungible share counting feature. The purpose of the 2019 Omnibus Plan is to provide a means to attract and retain key personnel and to align the interests of the directors, officers, and employees with the Company’s shareholders. The plan also provides a vehicle whereby directors and officers may acquire shares in order to meet the ownership requirements under the Company’s Stock Ownership Policy. 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 awards. Except for Restricted Stock Unit (“RSU”) grants which are time-based, participants in the Company’s Long-Term Equity Compensation Plans are awarded the opportunity to acquire shares over a three-year performance measurement period tied to specific company performance metrics. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan equates to 2,463,673 as of March 31, 2023.

In the first quarter of fiscal 2023, the Company granted 164,348 PSU’s and 197,915 RSU’s, both with a weighted average market value of $6.90. Stock compensation expense was $0.9 million and $0.8 million for the three months ended March 31, 2023, and 2022, respectively, and $2.3 million and $2.5 million in the nine months ended March 31, 2023, and 2022, respectively.

NOTE 11-SUPPLEMENTAL CASH FLOW INFORMATION

	Nine Months Ended
(In thousands)	March 31
	2023		2022
Cash Payments:
Interest	$	2,325	$	1,067
Income taxes	$	7,808	$	3,581

Non-cash investing and financing activities
Issuance of common shares as compensation	$	270	$	225
Issuance of common shares to fund deferred compensation plan	$	1,530	$	3,089
Issuance of common shares to fund ESPP plan	$	97	$	-

NOTE 12 - 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. Because it is not possible to predict with certainty the outcome or costs of these matters, the Company does not disclose a range of potential losses. 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 March 31, 2023, there were no such standby letters of credit issued.

NOTE 13 - LEASES

The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items, and various items of office equipment. The Company also acquired buildings, machinery, and forklift leases with the acquisition of JSI, as well as one sublease. All but two 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.

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 nine months ended March 31, 2023, and 2022, 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.

	Three Months Ended						Nine Months Ended
	March 31						March 31
(In thousands)	2023			2022			2023			2022

Operating lease cost	$	884		$	868		$	2,661		$	2,617
Financing lease cost:
Amortization of right of use assets		74			74			221			221
Interest on lease liabilities		16			19			51			61
Variable lease cost		22			22			65			65
Sublease income		(116	)		(94	)		(348	)		(283	)
Total lease cost	$	880		$	889		$	2,650		$	2,681

Supplemental Cash Flow Information:
	Nine Months Ended
	March 31
(In thousands)	2023		2022

Cash flows from operating leases
Fixed payments - operating cash flows	$	2,754	$	2,669
Liability reduction - operating cash flows	$	2,451	$	2,271

Cash flows from finance leases
Interest - operating cash flows	$	51	$	61
Repayments of principal portion - financing cash flows	$	192	$	196

Operating Leases:	March 31,			June 30,
	2023			2022

Total operating right-of-use assets	$	6,770		$	8,664

Accrued expenses (Current liabilities)	$	1,290		$	1,274
Long-term operating lease liability		6,115			8,240
Total operating lease liabilities	$	7,405		$	9,514

Weighted Average remaining Lease Term (in years)		2.52			3.05

Weighted Average Discount Rate		4.82	%		4.81	%

Finance Leases:	March 31,			June 30,
	2023			2022

Buildings under finance leases	$	2,033		$	2,033
Equipment under finance leases		30			11
Accumulated depreciation		(867	)		(634	)
Total finance lease assets, net	$	1,196		$	1,410

Accrued expenses (Current liabilities)	$	325		$	275
Long-term finance lease liability		1,036			1,246
Total finance lease liabilities	$	1,361		$	1,521

Weighted Average remaining Lease Term (in years)		4.06			4.80

Weighted Average Discount Rate		4.86	%		4.86	%

	Operating
	Lease			Finance Lease			Operating			Net Lease
Maturities of Lease Liability:	Liabilities			Liabilities			Subleases			Commitments
2023	$	1,235		$	182		$	(94	)	$	1,323
2024		3,399			337			(377	)		3,359
2025		2,253			362			(31	)		2,584
2026		952			362						1,314
2027		323			303						626
Thereafter		4									4
Total lease payments	$	8,166		$	1,546		$	(502	)	$	9,210
Less: Interest		(761	)		(185	)					(946	)
Present Value of Lease Liabilities	$	7,405		$	1,361					$	8,264

NOTE 14 – 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. The Company operated in the United States of America, Canada, Mexico and Puerto Rico for the nine months ended March 31, 2023, and the Company operated in the United States of America, Canada, and Mexico for the nine months ended March 31, 2022. 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.

	Three Months Ended						Nine Months Ended
	March 31						March 31
	2023			2022			2023			2022
Reconciliation of effective tax rate:

Provision for income taxes at the anticipated annual tax rate		30.5	%		22.4	%		25.9	%		23.4	%
Uncertain tax positions		1.2			0.5			0.3			(0.8	)
Other		0.7			-			0.2			-
Share-based compensation		0.2			-			0.6			(0.2	)
Effective tax rate		32.6	%		22.9	%		27.0	%		22.4	%

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

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,” “focus,” “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, 2022, 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.

Summary of Consolidated Results

Net Sales by Business Segment
	Three Months Ended				Nine Months Ended
	March 31				March 31
(In thousands)	2023		2022		2023		2022

Lighting Segment	$	66,707	$	57,126	$	201,074	$	165,662
Display Solutions Segment		50,763		52,985		172,269		161,989
	$	117,470	$	110,111	$	373,343	$	327,651

Operating Income (Loss) by Business Segment
	Three Months Ended						Nine Months Ended
	March 31						March 31
(In thousands)	2023			2022			2023			2022

Lighting Segment	$	6,529		$	4,959		$	22,441		$	13,921
Display Solutions Segment		5,501			4,556			19,759			12,142
Corporate and Eliminations		(4,298	)		(4,354	)		(15,409	)		(12,036	)
	$	7,732		$	5,161		$	26,791		$	14,027

Net sales of $117.5 million for the three months ended March 31, 2023, increased $7.4 million or 7% as compared to net sales of $110.1 million for the three months ended March 31, 2022. Net sales were driven by increased net sales of the Lighting Segment (an increase of $9.6 million or 17%) partially offset by decreased net sales of the Display Solutions Segment (a decrease of $2.2 million or 4%). The 17% growth in the Lighting Segment was driven by continued growth in both indoor and outdoor applications, across multiple verticals. The 4% decline in the Display Solutions Segment was due to changes in the timing of shipments and completion of several large digital signage programs, while transitioning to new programs.

Net sales of $373.3 million for the nine months ended March 31, 2023, increased $45.7 million or 14% as compared to net sales of $327.7 million for the nine months ended March 31, 2022. Net sales were driven by increased net sales in both Lighting Segment (an increase of $35.4 million or 21%) and the Display Solutions Segment (an increase of $10.3 million or 6%). The Company continues to make progress on its key growth initiatives, including cross selling products to grow existing customers as well as programs to attain new customers.

Operating income of $7.7 million for the three months ended March 31, 2023, represents a $2.6 million increase from operating income of $5.1 million in the three months ended March 31, 2022. Adjusted operating income, a Non-GAAP measure, was $8.8 million in the three months ended March 31, 2023, compared to $6.0 million in the three months ended March 31, 2022. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The increase in operating income was the result of increased volume leveraged by a higher value sales mix, continued price discipline coupled with improved program pricing, and continued effective cost management.

Operating income of $26.8 million for the nine months ended March 31, 2023, represents a $12.8 million increase from operating income of $14.0 million in the nine months ended March 31, 2022. Adjusted operating income, a Non-GAAP financial measure, was $30.2 million in the nine months ended March 31, 2023, compared to $16.9 million in the nine months ended March 31, 2022. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The Company continues to focus on actions such as the introduction of new products and the cross selling of existing products, which increase its value and importance to customers in verticals where the Company sees profitable growth.

~~The following table presents information related to RSUs:~~

Shares
Weighted-Average
Grant Date
Fair Value

Unvested at June 30, 2017
133,335 $ 10.38
Awarded
91,490 $ 5.92
Shares Issued
(30,675 ) $ 10.30
Shares Forfeited
(7,000 ) $ 10.46
Unvested at December 31, 2017
187,150 $ 8.21

~~As of~~ ~~December 31, 2017~~~~, the~~ ~~187,150~~ ~~RSUs had a remaining contractual life of between~~ ~~2.5~~ ~~and~~ ~~3.5~~ ~~years. Of the~~ ~~187,150~~ ~~RSUs outstanding as of~~ ~~December 31, 2017,~~ ~~176,073~~ ~~RSUs are vested or expected to vest in the future. An estimated forfeiture rate of~~ ~~8.5%~~ ~~was used in the calculation of expense related to the RSUs. The Company recorded~~ ~~$81,895~~ ~~and~~ ~~$337,310~~ ~~of expense related to RSUs in the~~ ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2017,~~ ~~respectively.~~

~~As of~~ ~~December 31, 2016,~~ the ~~118,575~~ ~~RSUs had a remaining contractual life of between~~ ~~2.5~~ ~~and~~ ~~3.5~~ ~~years. Of the~~ ~~118,575~~ ~~RSUs outstanding as of~~ ~~December 31, 2016,~~ ~~114,531~~ ~~RSUs are vested or expected to vest in the future. An estimated forfeiture rate of~~ ~~3.4%~~ ~~was used in the calculation of expense related to the RSUs. The Company recorded~~ ~~$89,896~~ ~~and~~ ~~$392,197~~ ~~of expense related to RSUs in the~~ ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~ ~~December 31, 2016,~~ ~~respectively.~~

~~Director and Employee Stock Compensation Awards~~

~~The Company awarded a total of~~ ~~19,920~~ ~~and~~ ~~21,199~~ ~~common shares in the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, as stock compensation awards. These common shares were valued at their approximate~~ ~~$155,974~~ ~~and~~ ~~$228,000~~ fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

~~Page 20~~

~~Deferred Compensation Plan~~

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. ~~As of~~ ~~December 31, 2017~~ ~~there were~~ 38 ~~participants, all with fully vested account balances. A total of~~ ~~245,732~~ ~~common shares with a cost of~~ ~~$2,187,811,~~ ~~and~~ ~~257,898~~ ~~common shares with a cost of~~ ~~$2,456,875~~ ~~were held in the plan as of~~ ~~December 31, 2017~~ ~~and~~ ~~June~~ ~~30,~~~~2017,~~ respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this plan is the net result of share purchases and sales on the open stock market for compensation deferred into the plan; shares newly issued for compensation deferred into the plan, and for distributions to terminated employees. The Company issued ~~42,280~~ ~~new common shares for purposes of the non-qualified deferred compensation plan as of~~ ~~December 31, 2017~~ ~~and the company did~~ ~~not~~ ~~issue new common shares for plan in fiscal~~ ~~2017.~~ ~~The Company used approximately~~ ~~$106,537~~ ~~and~~ ~~$390,288~~ ~~to purchase~~ ~~15,225~~ ~~and~~ ~~39,487~~ ~~common shares of the Company in the open stock market during the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan.~~

~~The Company’s non-qualified deferred compensation is~~ no ~~longer funded by purchases in the open market of LSI stock as of~~ ~~September 30, 2017.~~ ~~This plan is now solely funded by newly issued shares that are authorized from the Company’s~~ ~~2012~~ ~~Stock Incentive Plan.~~

~~NOTE~~ 11 - ~~SUPPLEMENTAL~~ ~~CASH FLOW INFORMATION~~

(In thousands)

Six Months Ended
December 31

2017

2016

Cash payments:

Interest
$ 767 $ 21
Income taxes
$ 1,232 $ 2,381

Non-cash investing and finance activities:

Issuance of common shares as compensation
$ 156 $ 228
Issuance of common shares to fund deferred compensation plan
$ 261 $ --

~~NOTE~~ 12- ~~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 31, 2017,~~ ~~there were~~ no ~~standby letter of credit agreements.~~

~~NOTE~~ 13 ~~– SEVERANCE COSTS~~

~~The Company recorded severance expense of $~~~~83,000~~ ~~and~~ ~~$173,000~~ ~~in the~~ ~~six~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. This severance expense was related to reductions in staffing~~ ~~not~~ ~~related to plant restructuring. See further discussion of restructuring expenses in Note~~ ~~14.~~

~~The activity in the Company’s accrued severance liability is as follows for the periods indicated:~~

Six

Six

Fiscal

Months Ended

Months Ended

Year Ended

(In thousands)

December 31,

December 31,

June 30,

2017

2016

2017

Balance at beginning of the period
$ 235 $ 39 $ 39
Accrual of expense
83 173 523
Payments
(218
)
(205
)
(313
)
Adjustments
(14
)
-- (14
)
Balance at end of the period
$ 86 $ 7 $ 235

~~NOTE~~ 14 ~~– RESTRUCTURING COSTS~~

On ~~September 22, 2016,~~ ~~the Company announced plans to close its~~ lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. The Company expects to continue to meet the demand for products containing fluorescent light sources as long as these products are commercially viable. All operations at the Kansas City facility ceased prior to ~~December 31, 2016.~~ ~~Fiscal~~ ~~2017~~ ~~restructuring costs related to the closure of the Kansas City facility were~~ ~~$944,000.~~ ~~There have been~~ no ~~restructuring costs in fiscal~~ ~~2018.~~ These costs primarily included employee-related costs (primarily severance), the impairment of manufacturing equipment, plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. In addition, there was also an inventory write-down of ~~$485,000~~ ~~recorded in fiscal~~ ~~2017.~~ ~~The write-down was related to inventory that was previously realizable until the decision in the~~ ~~first~~ ~~quarter of fiscal~~ ~~2017~~ ~~to close the Kanas City plant due to the planned curtailment of the manufacturing of fluorescent light fixtures. The Company owned the facility in Kansas City and realized a~~ ~~$1,361,000~~ ~~gain when the facility was sold.~~

~~Page 21~~

The Company also announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed ~~September 30, 2016.~~ ~~As a result of this consolidation, restructuring charges of~~ ~~$377,000~~ ~~were recorded in fiscal~~ ~~2017,~~ ~~with the majority of this representing the costs related to the remaining period of the facility’s lease and severance costs for employees who formerly worked in the Beaverton facility. There were~~ no ~~restructuring charges in fiscal~~ ~~2018.~~

In ~~November 2016,~~ ~~the Company announced the consolidation~~ ~~of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to~~ ~~December 31, 2016.~~ ~~The Company owned the facility in Woonsocket and realized a small gain when the facility was sold in~~ ~~September 2017.~~ ~~Total restructuring costs related to the consolidation of the Woonsocket facility were~~ ~~$452,000~~ ~~in fiscal~~ ~~2017.~~ These costs primarily include employee-related costs (severance), plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. There have been no ~~restructuring charges in fiscal~~ ~~2018.~~

~~Management does~~ ~~not~~ ~~expect any significant restructuring charges for fiscal~~ ~~2018.~~ ~~All previously announced~~ ~~restructuring projects were completed in fiscal~~ ~~2017~~ ~~and all restructuring charges were recorded in fiscal~~ ~~2017.~~

~~The following table presents information about restructuring~~ ~~costs for the periods indicated:~~

Three

Six Months

Three

Six Months

Months Ended

Ended

Months Ended

Ended

(In thousands)

December 31,

December 31,

December 31,

December 31,

2017

2017

2016

2016

Severance and other termination benefits
$ -- $ -- $ 526 $ 691
Lease obligation
-- -- -- 213
Impairment of fixed assets and accelerated depreciation
-- -- 80 353
Other
-- -- 91 96
Total
$ -- $ -- $ 697 $ 1,353

~~The following table presents restructuring costs incurred by line item in the consolidated statement of operations in which the costs are included:~~

Three Months Ended

Six Months Ended

(In thousands)

December 31

December 31

2016

2016

Cost of Goods Sold
$ 640 $ 1,143
Operating Expenses
57 210
Total
$ 697 $ 1,353

~~Page 22~~

~~The following~~ ~~table presents information about restructuring costs by segment for the periods indicated:~~

Three

Six Months

Three

Six Months

Months Ended

Ended

Months Ended

Ended

(In thousands)

December 31,

December 31,

December 31,

December 31,

2017

2017

2016

2016

Lighting Segment
$ -- $ -- $ 476 $ 1,021
Graphics Segment
-- -- 221 221
Corporate and Eliminations
-- -- -- 111
Total
$ -- $ -- $ 697 $ 1,353

~~The above tables exclude the gain on the sale of the Kansas City and Woonsocket facilities. Additionally, the~~ ~~above tables do~~ ~~not~~ ~~include expense of~~ ~~$400,000~~ ~~recorded during the~~ ~~first~~ ~~quarter of fiscal~~ ~~2017~~ ~~related to the write-down of inventory included as cost of sales as part of the Kansas City facility closure.~~

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

(In thousands)

Balance as of
June 30,
2017

Restructuring
Expense

Payments

Adjustments

Balance as of
December 31,
2017

Severance and termination benefits
$ -- $ -- $ -- $ -- $ --
Lease obligation
85 -- (85
)
-- --
Other
-- -- -- -- --
Total
$ 85 $ -- $ (85
)
$ -- $ --

~~Refer to Note~~ 13 ~~for information regarding additional severance expenses that are~~ ~~not~~ ~~included in the restructuring costs identified in this footnote.~~

~~NOTE~~ 15~~– 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 on a periodic basis 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.

~~Page 23~~

Three Months Ended

Six Months Ended

December 31

December 31

2017

2016

2017

2016

Reconciliation to effective tax rate:

Provision for income taxes at the anticipated annual tax rate
28.9
%
30.4
%
28.9
%
30.8
%
Enactment of tax law changes
111.2 -- (22.2
)
--
Uncertain tax positions
(4.8
)
(0.6
)
0.5 (0.8
)
Difference between deferred and current tax rate related to the impairment of goodwill
-- -- 12.1 --
Other
-- -- -- (1.8
)
Tax impact related to share based compensation
0.3 (0.5
)
(0.4
)
(0.6
)
Effective tax rate
135.6
%
29.3
%
18.9
%
27.6
%

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

The Company’s 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.

Net Sales by Business Segment

(In thousands)

Three Months Ended

Six Months Ended

December 31

December 31

2017

2016

2017

2016

Lighting Segment
$ 69,174 $ 65,076 $ 137,602 $ 130,341
Graphics Segment
23,131 20,582 42,169 39,476
$ 92,305 $ 85,658 $ 179,771 $ 169,817

Operating Income (Loss) by Business Segment

(In thousands)

Three Months Ended

Six Months Ended

December 31

December 31

2017

2016

2017

2016

Lighting Segment
$ 5,275 $ 3,761 $ (17,655
)
$ 6,852
Graphics Segment
2,255 1,174 3,731 2,191
Corporate and Eliminations
(2,983
)
(2,117
)
(6,343
)
(5,159
)
$ 4,547 $ 2,818 $ (20,267
)
$ 3,884

~~Summary Comments~~

~~Fis~~cal 2018 second quarter net sales of $92,305,000 increased $6.6 million or 7.8% as compared to second quarter fiscal 2017 net sales of $85,658,000. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $4.1 million or 6.3%) and increased net sales of the Graphics Segment (up $2.5 million or 12.4%). Comparable fiscal 2018 net sales excluding net sales from Atlas Lighting Products, Inc. (“Atlas”) decreased by $7.3 million or 8.5% compared to fiscal 2017 net sales. The Company acquired Atlas on February 21, 2017.

~~Fis~~cal 2018 first half net sales of $179,771,000 increased $10 million or 5.9% as compared to first half fiscal 2017 net sales of $169,817,000. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $7.3 million or 5.5%) and increased net sales of the Graphics Segment (up $2.7 million or 6.8%). Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $15.0 million or 8.8% compared to fiscal 2017 net sales.

~~Page 24~~

~~Fiscal 2018 second~~ quarter operating income of $4,547,000 increased $1.7 million or 61.4% from operating income of $2,818,000 in the second quarter of fiscal 2017. The increase in adjusted operating income was the net result of increased net sales, increased gross profit and increased gross profit as a percentage of sales, and an increase in selling and administrative expenses. The Company also recorded restructuring costs of $697,000 in the second quarter of fiscal 2017 with no corresponding cost in fiscal 2018.

~~Fiscal 2018 first half~~ operating loss of $(20,267,000) represents a $24.2 million change from operating income of $3,884,000 in the first half of fiscal 2017. The change from operating income in fiscal 2017 to an operating loss in fiscal 2018 is primarily the result of a $28 million goodwill impairment in the first quarter of fiscal 2018. Also contributing to the year-over-year change in operating income is the net result of increased net sales, increased gross profit and increased gross profit as a percentage of sales, and an increase in selling and administrative expenses. The Company also recorded restructuring costs of $1,753,000 in the first half of fiscal 2017 with no corresponding cost in fiscal 2018.

Non-GAAP Financial Measures

~~The Company believes~~We believe it is appropriate to evaluate ~~its~~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 ~~a goodwill impairment, a tax charge~~long-term performance based compensation expense, severance costs, acquisition costs, and consulting expense related to ~~the revaluation of deferred tax assets, restructuring~~commercial growth initiatives, are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and ~~plant closure costs,~~Amortization (EBITDA and ~~other severance costs, are non-GAAP financial measures.~~Adjusted EBITDA), Free Cash Flow, Net Debt to Adjusted EBITDA, and free cash flow. 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. WeAlthough 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. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, the non-GAAP measures are not ~~representative~~based on any comprehensive set of ~~the ongoing~~accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results ~~of operations of~~as determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our ~~business.~~results in conjunction with corresponding GAAP measures. Below is a reconciliation of these ~~non-GAAP~~Non-GAAP measures to operating income, net income, and earnings per share for the periods ~~indicated.~~indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA.

(in thousands, unaudited)

Second Quarter

FY 2018

FY 2017

Reconciliation of operating income to adjusted operating income:

Operating income as reported
$ 4,547 $ 2,818

Adjustment for restructuring and plant closure costs
-- 697

Adjustment for other severance costs
83 28

Adjusted operating income
$ 4,630 $ 3,543

Reconciliation of operating income to adjusted operating income:

	Three Months Ended
	March 31
(In thousands)	2023		2022

Operating Income as reported	$	7,732	$	5,161

Long-Term Performance Based Compensation		968		780

Consulting expense: Commercial Growth Initiatives		75		-

Acquisition Costs		-		21

Severance costs		-		5

Adjusted Operating Income	$	8,775	$	5,967

Reconciliation of operating income to adjusted net income:

(in thousands, except per share data; unaudited)

Second Quarter

Diluted

Diluted

FY 2018

EPS

FY 2017

EPS

Reconciliation of net income (loss) to adjusted net income:

Net income (loss) and earnings (loss) per share as reported
$ (1,468 ) $ (0.06 ) $ 2,006 $ 0.08

Tax impact from the reduction of the deferred tax assets
4,676 0.18 -- --

Adjustment for restructuring and plant closure costs, inclusive of the income tax effect
-- -- 448 ⁽¹⁾ 0.02

Adjustment for severance costs, inclusive of the income tax effect
59 ⁽³⁾ -- 23 ⁽²⁾ --

Adjusted net income and earnings per share
$ 3,267 $ 0.12 $ 2,477 $ 0.10

	Three Months Ended
	March 31
(In thousands, except per share data)	2023					2022
		Diluted EPS					Diluted EPS

Net Income as reported	$	4,669		$	0.16	$	3,618		$	0.13

Long-Term Performance Based Compensation		769	(1)		0.03		576	(3)		0.02

Consulting expense: Commercial Growth Initiatives		59	(2)		-		-			-

Acquisition Costs		-			-		16	(4)		-

Severance costs		-			-		4	(5)		-
Net Income adjusted	$	5,497		$	0.19	$	4,214		$	0.15

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates ~~re-computed after considering non-GAAP adjustments~~ for the periods ~~indicated. The income tax effects were as follows~~indicated (in thousands):

⁽¹⁾~~249~~$199

⁽²⁾5$16

⁽³⁾24$204

(4) $5

(5) $1

Reconciliation of operating income to adjusted operating income:

	Nine Months Ended
	March 31
(In thousands)	2023		2022

Operating Income as reported	$	26,791	$	14,027

Long-Term Performance Based Compensation		2,521		2,466

Consulting expense: Commercial Growth Initiatives		864		-

Acquisition costs		-		361

Severance costs		46		5

Adjusted Operating Income	$	30,222	$	16,859

~~Page 25~~

(in thousands, unaudited)

First Half

FY 2018

FY 2017

Reconciliation of operating income (loss) to adjusted operating income:

Operating income (loss) as reported
$ (20,267 ) $ 3,884

Adjustment for goodwill impairment
28,000 --

Adjustment for restructuring, plant closure costs, and related inventory write-downs
-- 1,753

Adjustment for other severance costs
83 173

Adjusted operating income
$ 7,816 $ 5,810

Reconciliation of operating income to adjusted net income:

(in thousands, except per share data; unaudited)

First Half

Diluted

Diluted

FY 2018

EPS

FY 2017

EPS

Reconciliation of net income (loss) to adjusted net income:

Net income (loss) and earnings (loss) per share as reported
$ (17,097 ) $ (0.66 ) $ 2,835 $ 0.11

Adjustment for goodwill impairment, inclusive of the income tax effect
17,361 ⁽⁴⁾ 0.67

Tax impact from the reduction of the deferred tax assets
4,676 0.18 -- --

Adjustment for restructuring and plant closure costs, inclusive of the income tax effect
-- -- 1,143 ⁽¹⁾ 0.04

Adjustment for other severance costs, inclusive of the income tax effect
59 ⁽³⁾ -- 120 ⁽²⁾ --

Adjusted net income and earnings per share
$ 5,001 $ 0.19 $ 4,098 $ 0.16

	Nine Months Ended
	March 31
(In thousands, except per share data)	2023					2022
		Diluted EPS					Diluted EPS

Net Income as reported	$	17,347		$	0.60	$	9,856		$	0.35

Long-Term Performance Based Compensation		2,107	(1)		0.08		1,850	(4)		0.07

Consulting expense: Commercial Growth Initiatives		708	(2)		0.02		-			-

Acquisition costs		-			-		285	(5)		0.01

Severance costs		38	(3)		-		4	(6)		-
Net Income adjusted	$	20,200		$	0.70	$	11,995		$	0.43

⁽¹⁾~~610~~$414

⁽²⁾53$156

⁽³⁾24$8

⁽⁴⁾~~10,639~~$616

(5) $76

(6) $1

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						Nine Months Ended
	March 31						March 31
(In thousands)	2023			2022			2023		2022


Net Income as reported	$	4,669		$	3,618		$	17,347	$	9,856

Income Tax		2,257			1,074			6,434		2,851

Interest Expense, net		877			524			2,924		1,287

Other expense (income)		(71	)		(55	)		86		33

Operating Income as reported	$	7,732		$	5,161		$	26,791	$	14,027

Depreciation and Amortization		2,455			2,531			7,295		7,632

EBITDA	$	10,187		$	7,692		$	34,086	$	21,659

Long-term performance based compensation		968			780			2,521		2,466

Consulting Expense - Commercial Growth Initiatives		75			-			864		-

Acquisition Costs		-			21			-		361

Severance costs		-			5			46		5

Adjusted EBITDA	$	11,230		$	8,498		$	37,517	$	24,491

~~Page 26~~

Reconciliation of cash flow from operations to free cash flow
	Three Months Ended						Nine Months Ended
	March 31						March 31
(In thousands)	2023			2022			2023			2022

Cash Flow from Operations	$	12,486		$	3,875		$	32,548		$	(12,668	)

Capital expenditures		(759	)		(531	)		(1,754	)		(1,276	)

Free Cash Flow	$	11,727		$	3,344		$	30,794		$	(13,944	)

Net Debt to Adjusted EBITDA
	March 31,			March 31,
(In thousands)	2023			2022

Current portion and long-term debt as reported	$	3,571		$	3,571

Long-Term Debt		46,002			81,387
Total Debt		49,573			84,958

Less: Cash and cash equivalents		(1,350	)		(1,248	)

Net Debt	$	48,223		$	83,710

Adjusted EBITDA - Trailing 12 Months	$	48,117		$	31,309

Net Debt to Adjusted EBITDA		1.0			2.7

Results of Operations

THREE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017~~2023, COMPARED TO THREE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2016~~2022

~~Lighting Segment~~

(In thousands)	Three Months Ended
Lighting Segment
	December 31				Three Months Ended
	2017		2016		March 31
(In thousands)					2023		2022

Net Sales	$	69,174	$	65,076	$	66,707	$	57,126
Gross Profit	$	19,259	$	16,493	$	20,278	$	16,654
Operating Income	$	5,275	$	3,761	$	6,529	$	4,959

Lighting Segment net sales of ~~$69,174,000~~$66.7 million in the ~~second quarter of fiscal 2018~~three months ended March 31, 2023, increased ~~6.3%~~17% from ~~fiscal 2017 same period~~ net sales of ~~$65,076,000. Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $9.8 million or 15.1% from fiscal 2017 second quarter sales. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $57.7~~$57.1 million in the ~~second quarter of~~same period in fiscal 2018, representing an $11.6 million or 25.1% increase from fiscal 2017 second quarter net sales of solid-state LED light fixtures of $46.1 million. Light fixtures having solid-state LED technology represent 91.7% of total lighting product net2022. The 17% growth in the Lighting Segment was driven by continued growth in both indoor and outdoor applications, across multiple verticals. The Company continues to make progress in the market by increasing sales in all major verticals it serves with the ~~second quarter~~introduction of ~~fiscal 2018 compared~~new products, providing customers to ~~78.2% of total lighting product net sales in the second quarter of fiscal 2017. Total lighting product net sales excludes sales related to installation~~select from multiple features and shipping and handling. There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from fiscal 2017 to fiscal 2018 as customers continue to convert from traditional lighting to light fixtures having solid-state LED technology.

L~~ighting Segment total net sales of solid-state LED technology in light fixtures have been recorded as indicated in the table below.~~

LED Net Sales

(In thousands)

FY 2018

FY 2017

% Change

First Quarter
$ 52,956 $ 43,146 22.7 %
Second Quarter
57,726 46,137 25.1 %
First Half
110,682 89,283 24.0 %
Third Quarter
44,946
Nine Months
134,229
Fourth Quarter
52,303
Full Year
$ 186,532

price-points, based on their unique requirements.

Gross profit of ~~$19,259,000~~$20.3 million in the ~~second quarter of fiscal 2018~~three months ended March 31, 2023, increased ~~$2.8~~$3.6 million or ~~16.8%~~22% from the same period of fiscal ~~2017, and increased from 25.1% to 27.4%~~2022. Gross profit as a percentage of ~~Lighting Segment~~ net sales ~~(customer plus inter-segment net sales).~~was 30.4% in the three months ended March 31, 2023, compared to 29.2% in the same period of fiscal 2022. The ~~Company incurred restructuring and plant closure costs that were recorded~~improvement in ~~cost~~gross profit as a percentage of sales ~~related to~~was driven by the ~~closure of the Kansas City, Kansas manufacturing facility of $429,000 with no comparable costs in fiscal 2018. The remaining~~ increase in ~~amount of gross profit is due to the net effect of improved product mix,~~ net sales resulting from ~~Atlas for which there were no comparable sales in fiscal 2017, manufacturing efficiencies as a result of~~ the Company’s ~~lean initiatives,~~ continued ~~inflationary pressures~~focus on verticals where it competes coupled with new product offerings, and continued price discipline, all of which in ~~certain commodities, competitive pricing pressures, continued softness~~turn result in ~~the lighting industry, and cost savings related to the closure of the Kansas City manufacturing facility.~~improved margins.

~~Selling and administrative~~Operating expenses of ~~$13,984,000~~$13.7 million in the ~~second quarter of fiscal 2018~~three months ended March 31, 2023, increased ~~$1.3~~$2.0 million ~~or 9.9%~~ from the same period of fiscal ~~2017,~~2022, primarily driven by higher commission expense to its agent network as ~~the net~~a result of ~~acquiring Atlas. Our comparable selling and administrative expenses excluding Atlas decreased 16.2%~~higher net sales.

Lighting Segment operating income of $6.5 million for the three months ended March 31, 2023, increased $1.5 million from operating income of $5.0 million in the ~~second quarter~~same period of fiscal ~~2018~~2022 primarily driven by sales volume and by an improvement in gross profit as a percentage of sales.

Display Solutions Segment
	Three Months Ended
	March 31
(In thousands)	2023		2022

Net Sales	$	50,763	$	52,985
Gross Profit	$	11,927	$	10,171
Operating Income	$	5,501	$	4,556

Display Solutions Segment net sales of $50.8 million in the three months ended March 31, 2023, decreased $2.2 million or 4% from net sales of $53.0 million in the same period in fiscal 2022. The 4% decline in the Display Solutions Segment was driven by changes in the timing of shipments and completion of several large digital signage programs, while transitioning to new programs.

Gross profit of $11.9 million in the three months ended March 31, 2022, increased $1.8 million or 17% from the same period of fiscal ~~2017. The more notable quarter-over-quarter changes impacting~~2022. Gross profit as a percentage of net sales in the $1.3 million increase in selling and administrative expenses are increased employee compensation and benefits expense ($0.8 million), decreased commission expense ($1.1 million), and increased amortization expense ($0.6 million).

~~The Lighting Segment~~ ~~second quarter fiscal 2018 operating income of $5,275,000 increased $1.5 million or 40.3% from operating income of $3,761,000~~three months ended March 31, 2023, was 23.5% compared to 19.2% in the same period of fiscal ~~2017. The $1.5 million increase~~2022. While sales were lower compared to the same period in ~~operating income was~~ the ~~net result of increased net sales, an increase in~~prior fiscal year, gross profit and gross profit as a percentage of sales ~~increased selling and administrative expenses, and plant closure costs~~improved. The improvement in ~~fiscal 2017 with no comparable expenses in fiscal 2018.~~

~~Page 27~~

~~Graphics Segment~~

(In thousands)

Three Months Ended

December 31

2017

2016

Net Sales
$ 23,131 $ 20,582
Gross Profit
$ 6,046 $ 4,918
Operating Income
$ 2,255 $ 1,174

~~Graphics Segment net sales of $~~23,131,000 in the second quarter of fiscal 2018 increased $2.5 million or 12.4% from fiscal 2017 same period net sales of $20,582,000. Sales to the Retail and QSR markets increased in the second quarter of fiscal 2018 compared the second quarter of fiscal 2017, followed by a modest increase in sales to the Petroleum market.

~~Gross profit of $6,046,000 in the second quarter of fiscal 2018 increased $1.1 million or 23.0% from the same period of fiscal 2017. Gross~~gross profit as a percentage of ~~segment net~~ sales ~~(customer plus inter-segment net sales) increased from 23.1%~~was driven by improved program pricing and a favorable project mix.

Operating expenses of $6.4 million in the ~~second quarter of fiscal 2017 to 25.0% in the second quarter of fiscal 2018. The change in amount of gross profit is due to the net effect of~~three months ended March 31, 2023, increased net sales (customer plus inter-segment net sales), improved gross profit margin on shipping and handling sales, and decreased employee compensation and benefit expense ($0.1 million). The Company incurred $211,000 in the second quarter of fiscal 2017 related to the closure of its Woonsocket, Rhode Island facility with no comparable expense in fiscal 2018.

~~Selling and administrative expenses of $3,791,000 in the second quarter of fiscal 2018 increased slightly~~$0.8 million from ~~fiscal 2017 selling and administrative expenses of $3,744,000. There were only modest increases and offsetting decreases in several cost categories.~~

~~The Graphics Segment~~ ~~second quarter fiscal 2018 operating income of $2,255,000 increased $1.1~~$5.6 million ~~or 92.1% from operating income of $1,174,000~~ in the same period of fiscal ~~2017.~~2022. The increase of ~~$1.1~~$0.8 million was driven by several factors including compensation, benefits, and commercial sales and marketing programs costs to support sales growth initiatives.

Display Solutions Segment operating income of $5.5 million in the three months ended March 31, 2023, increased $0.9 million from operating income of $4.6 million in the same period of fiscal 2022. The increase of $0.9 million was primarily ~~the net result of increased net sales, increased~~driven by an improvement in gross profit ~~and increased gross profit margin~~ as a percentage of ~~sales, and a small increase in selling and administrative costs.~~sales.

~~Corporate and Eliminations~~

Corporate and Eliminations
							Three Months Ended
							March 31
(In thousands)	Three Months Ended						2023			2022
	December 31
	2017			2016
Gross Profit (Loss)	$	2		$	(4	)	$	(1	)	$	(32	)
Operating (Loss)	$	(2,983	)	$	(2,117	)	$	(4,298	)	$	(4,354	)

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

~~Administrative expenses~~Operating expenses of ~~$2,985,000~~$4.3 million in the ~~second quarter of fiscal 2018 increased $0.9 million or 41.0%~~three months ended March 31, 2023, remained flat from the same period of ~~the prior year. The $0.9 million increase is the~~fiscal 2022 as a result of increased employee compensation and benefit expense ($1.1 million increase) partially offset by a reduction in the cost of outside services expense such as legal expenses ($0.2 million decrease). Most of the increase in employee compensation and benefit expense is the result of the reduction of incentive-based compensation in the second quarter of fiscal 2017 which was driven by the operating results of the Company. There was no similar reduction in incentive-based compensation in fiscal 2018.efforts to contain costs.

Consolidated Results

The Company reported ~~$417,000~~$0.9 million and $0.5 million of net interest expense in the ~~second quarter of fiscal 2018 compared to net~~three months ended March 31, 2023, and March 31, 2022, respectively. The increase in interest ~~income of $20,000 in the second quarter of fiscal 2017. The change from interest income in fiscal 2017 to interest~~ expense ~~in fiscal 2018~~ is the result of increased borrowing ~~against~~costs. The Company also recorded other (income) of ($0.1) million in the ~~Company’s line~~three months ended March 31, 2023, and March 31, 2022, respectively, both of ~~credit. Commitment fees~~which are related to ~~the unused portion of the Company’s line of credit~~net foreign exchange currency transaction gains through our Mexican and ~~interest income on invested cash are included in both fiscal years.~~Canadian subsidiaries.

The ~~$5,598,000~~$2.3 million of income tax expense in the second quarter of fiscal 2018 was most notably impacted by a $4.7 million tax adjustment related to the revaluation of the Company’s deferred tax assets partially offset by a favorable tax impact related to the re-alignment of the Company’s tax expense to a lower effective tax rate, both related to the recently enacted “Tax Cut and Jobs Act” (“TCJA”) legislation. The $832,000 income tax expense in the second quarter of fiscal 2017three months ended March 31, 2023, represents a consolidated effective tax rate of ~~29.3%~~32.6%. ~~This is~~The $1.1 million of income tax expense in the ~~net result of an income~~three months ended March 31, 2022, represents a consolidated effective tax rate of ~~30.8% influenced~~22.9%. The increase in the effective tax rate is primarily driven by ~~certain permanent book-tax differences~~an increase in pre-tax profits in the higher taxing jurisdictions of Puerto Rico and ~~by a benefit related to uncertain income~~Canada along with unfavorable discrete tax ~~positions.~~adjustments.

~~Page 28~~

The Company reported a net ~~loss~~income of ~~$(1,468,000)~~$4.7 million in the ~~second quarter of fiscal 2018 as~~three months ended March 31, 2023, compared to net income of ~~$2,006,000~~$3.6 million in the ~~same period of the prior year.~~ ~~The change between~~three months ended March 31, 2022. Non-GAAP adjusted net income ~~in fiscal 2017~~was $5.5 million for the three months ended March 31, 2023, compared to aadjusted net ~~loss in fiscal 2018 is mostly driven by~~income of $4.2 million for the ~~$4.7 million charge in fiscal 2018 related~~three months ended March 31, 2022 (Refer to the ~~re-valuation of the Company’s deferred tax assets. Also contributing to the quarter-over-quarter net change~~Non-GAAP tables above). The increase in Non-GAAP adjusted net income ~~are increased net~~is primarily the result of an increase in sales ~~increased gross profit~~ and an ~~improvement of~~increase in the gross profit as a percentage of ~~sales, increased selling and administrative expenses, and restructuring and plant closure costs in fiscal 2017 with no comparable costs in fiscal 2018.~~sales. Diluted ~~loss~~earnings per share of ~~$(0.06)~~$0.16 was reported in the ~~second quarter of fiscal 2018~~three months ended March 31, 2023, as compared to ~~$0.08~~$0.13 diluted earnings per share in the same period of fiscal ~~2017.~~2022. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the ~~second quarter of fiscal 2018~~three months ended March 31, 2023, were ~~25,858,000~~29,611,000 shares as compared to ~~25,803,000~~28,083,000 shares in the same period last year.

~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2017~~2023, COMPARED TO ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2016~~2022

Lighting Segment
	Nine Months Ended
	March 31
(In thousands)	2023		2022

Net Sales	$	201,074	$	165,662
Gross Profit	$	63,015	$	49,009
Operating Income	$	22,441	$	13,921

Lighting Segment
(In thousands)

Six Months Ended

December 31

2017

2016

Net Sales
$ 137,602 $ 130,341
Gross Profit
$ 37,932 $ 32,383
Operating (Loss) Income
$ (17,655
)
$ 6,852

Lighting Segment net sales of ~~$137,602,000~~$201.1 million in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, increased ~~5.5%~~21% from ~~fiscal 2017 same period~~ net sales of $130,341,000. Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $17.7 million or 13.6% from fiscal 2017 second quarter sales. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $110.7$165.7 million in the ~~first half of~~same period in fiscal 2018, representing a $21.4 million or 24.0% increase from fiscal 2017 first half net sales of solid-state LED light fixtures of $89.3 million. Light fixtures having solid-state LED technology represent 88.3% of total lighting product net sales2022. The 21% growth in the ~~first half of fiscal 2018 compared~~Lighting Segment was driven by continued growth in both indoor and outdoor applications, across multiple verticals. Sales growth was broad-based, with significant increases in all vertical market applications. The Company’s continued efforts over the last two years to ~~75.2% of total~~strengthen its lighting ~~product net sales in the first half of fiscal 2017. Total lighting product net sales excludes sales related~~offering for select vertical market applications continues to ~~installation and shipping and handling. There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from fiscal 2017~~position LSI to ~~fiscal 2018 as customers continue to convert from traditional lighting to light fixtures having solid-state LED technology~~.win additional business.

Gross profit of ~~$37,932,000~~$63.0 million in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, increased ~~$5.5~~$14.0 million or ~~17.1%~~29% from the same period of fiscal ~~2017, and increased from 24.6% to 27.2%~~2022. Gross profit as a percentage of ~~Lighting Segment~~ net sales (customer plus inter-segment net sales). The Company incurred restructuring and plant closure costs that were recorded in cost of sales related to the closure of the Kansas City, Kansas manufacturing facility and the Beaverton, Oregon facility of $932,000 and plant closure costs related to an inventory write-down of $400,000 as the Company exited the manufacturing of fluorescent lighting fixtures with no comparable costs in fiscal 2018. The remaining increase in amount of gross profit is due to the net effect of improved product mix, net sales from Atlas for which there were no comparable sales in fiscal 2017, manufacturing efficiencies as a result of the Company’s lean initiatives, continued inflationary pressures in certain commodities, competitive pricing pressures, continued softnesswas 31.3% in the ~~lighting industry, and cost savings related~~nine months ended March 31, 2023, compared to ~~the closure of the Kansas City and Beaverton facilities.~~

~~Selling and administrative expenses of $27,587,000~~in the first half of fiscal 2018 excluding the $28 million goodwill impairment charge, increased $2.1 million or 8.1% from the same period of fiscal 2017 primarily as the net result of acquiring Atlas. Our comparable selling and administrative expenses excluding Atlas decreased 17.5% in the first half of fiscal 2018 from the same period of fiscal 2017. The more notable year-over-year changes impacting the $2.1 million increase in selling and administrative expenses are increased employee compensation and benefits expense ($1.3 million), increased research and development expense ($0.2 million), decreased commission expense ($1.6 million), and increased amortization expense ($1.2 million). The Company recorded a $28 million goodwill impairment charge in fiscal 2018 with no comparable expense in fiscal 2017. The Company will perform an impairment analysis in the third quarter of fiscal 2018 in conjunction with its annual impairment test.

~~The Lighting Segment~~ ~~first half fiscal 2018 operating loss of $(17,655,000) represents a $24,507,000 change from operating income of $6,852,000~~29.6% in the same period of fiscal ~~2017 primarily due to a $28 million pre-tax goodwill impairment charge.~~2022. The ~~year-over-year change was also the net result of increased net sales, an increase~~improvement in ~~gross profit and~~ gross profit as a percentage of sales ~~increased selling and administrative expenses, and plant closure costs~~was driven by the increase in ~~fiscal 2017 with no comparable expenses in fiscal 2018.~~

~~Page 29~~

Graphics Segment
(In thousands)

Six Months Ended

December 31

2017

2016

Net Sales
$ 42,169 $ 39,476
Gross Profit
$ 11,109 $ 9,358
Operating Income
$ 3,731 $ 2,191

~~Graphics Segment~~ net sales resulting from the Company’s continued focus on verticals where it competes coupled with new product offerings, and continued price discipline, all of $~~42,169,000~~which in ~~the first half of fiscal 2018 increased $2.7 million or 6.8% from fiscal 2017 same period net sales of $39,476,000. Sales to the Retail and QSR markets increased~~turn result in ~~the first half of fiscal 2018 compared to fiscal 2017 which more than offset a decline in sales to the Petroleum market over the same period.~~improved margins.

~~Gross profit~~Operating expenses of ~~$11,109,000~~ $40.6 millionin the ~~first half of fiscal 2018~~nine months ended March 31, 2023, increased ~~$1.8~~$5.5 million or ~~18.7%~~16% from the same period of fiscal ~~2017.~~2022, primarily driven by higher commission expense paid to its agent network as a result of higher net sales.

Lighting Segment operating income of $22.4 million for the nine months ended March 31, 2023, increased $8.5 million from operating income of $13.9 million in the same period of fiscal 2022 primarily driven by sales volume and by an improvement in gross profit as a percentage of sales.

Display Solutions Segment
	Nine Months Ended
	March 31
(In thousands)	2023		2022

Net Sales	$	172,269	$	161,989
Gross Profit	$	38,061	$	27,766
Operating Income	$	19,759	$	12,142

Display Solutions Segment net sales of $172.3 million in the nine months ended March 31, 2023, increased $10.3 million or 6% from net sales of $162.0 million in the same period in fiscal 2022. The sales increase is primarily the result of growth in both the grocery and refueling/convenience-store verticals.

Gross profit of $38.1 million in the nine months ended March 31, 2023, increased $10.3 million or 37% from the same period of fiscal 2022. Gross profit as a percentage of ~~segment~~ net sales ~~(customer plus inter-segment net sales) increased from 23.2%~~ in the ~~first half of fiscal 2017~~nine months ended March 31, 2023, was 22.1% compared to 25.7% in the first half of fiscal 2018. The change in amount of gross profit is due to the net effect of increased net sales (customer plus inter-segment net sales), an improvement in the gross profit margin of installation and shipping and handling sales, and decreased employee compensation and benefit expense ($0.5 million). The Company incurred $211,000 in the first half of fiscal 2017 related to the closure of its Woonsocket, Rhode Island facility with no comparable expense in fiscal 2018.

Selling and administrative expenses of $7,378,000 in the first half of fiscal 2018 increased 2.9% or $0.2 million from fiscal 2017 selling and administrative expenses of $7,167,000. There were only modest increases and offsetting decreases in several cost categories.

~~The Graphics Segment~~ ~~first half fiscal 2018 operating income of $3,731,000 increased $1.5 million or 70.3% from operating income of $2,191,000~~17.1% in the same period of fiscal ~~2017.~~2022. The ~~increase of $1.5 million was primarily the net result of increased net sales, increased~~improvement in gross profit ~~and increased gross profit margin~~ as a percentage of sales ~~and a small~~was driven by the increase in ~~selling~~net sales, improved program pricing, and ~~administrative costs.~~favorable sales mix.

Operating expenses of $18.3 million in the nine months ended March 31, 2023, increased $2.7 million from $15.6 million in the same period of fiscal 2022. The increase of $2.7 million was driven by several factors including compensation, benefits, and commercial sales and marketing programs costs to support sales growth, along with an increase in short-term performance-based incentive plan expense driven by improved business performance.

Corporate and Eliminations
(In thousands)

Six Months Ended

December 31

2017

2016

Gross Profit (Loss)
$ (31
)
$ 501
Operating (Loss)
$ (6,343
)
$ (5,159
)

Display Solutions Segment operating income of $19.8 million in the nine months ended March 31, 2023, increased $7.7 million or 63% from operating income of $12.1 million in the same period of fiscal 2022. The increase was primarily driven by an increase in sales and an improvement of gross profit as a percentage of sales.

Corporate and Eliminations
	Nine Months Ended
	March 31
(In thousands)	2023			2022

Gross Profit (Loss)	$	6		$	(24	)
Operating (Loss)	$	(15,409	)	$	(12,036	)

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

~~Administrative expenses~~Operating expenses of ~~$6,312,000~~$15.4 million in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, increased ~~$0.7~~$3.4 million ~~or 11.5%~~ from the same period of ~~the prior year.~~fiscal 2022. The ~~$0.7 million~~ increase iswas primarily the result of ~~increased employee compensation~~an increase in short-term and ~~benefit~~long-term performance-based incentive plan expense ~~($0.5 million increase)~~driven by improved business performance and by ~~a net increase in other cost categories. Most~~commercial growth initiative consulting expense of ~~the increase in employee compensation and benefit~~$0.9 million for which there was no comparable expense ~~is the result of the reduction of incentive-based compensation~~ in the ~~second quarter~~first nine months of fiscal 2017 which is driven by the operating results of the Company. There was no similar reduction in incentive-based compensation in fiscal 2018. Also contributing to the net change in administrative expenses are restructuring costs of $0.1 million recorded in fiscal 2017 related to the consolidation of its Beaverton, Oregon facility into other LSI facilities, with no comparable costs in fiscal 2018.2022.

Consolidated Results

The Company reported ~~$820,000~~$2.9 million and $1.3 million of net interest expense in the ~~first half~~nine months ended March 31, 2023, and March 31, 2022, respectively. The increase in interest expense is primarily the results of ~~fiscal 2018 compared~~increased borrowing costs. The Company also recorded other expense of $0.1 million and a negligible amount in the nine months ended March 31, 2023, and March 31, 2022, respectively, related to net interest income of $34,000 in the first half of fiscal 2017. The change from interest income in fiscal 2017 to interest expense in fiscal 2018 is the result of borrowing against the Company’s line of credit. Commitment fees related to the unused portion of the Company’s line of creditforeign exchange currency transaction net losses through our Mexican and ~~interest income on invested cash are included in both fiscal years.~~Canadian subsidiaries.

~~Page 30~~

The ~~$3,990,000 tax benefit in the first half~~$6.4 million of ~~fiscal 2018 represents a consolidated overall tax rate of~~ 135.6%. This is a result of an effective tax rate of 58.2% influenced most notably by the first quarter goodwill impairment, and by a $4.7 million tax adjustment related to the revaluation of the Company’s deferred tax assets partially offset by a favorable tax impact related to the re-alignment of the Company’s tax expense to a lower effective tax rate, both related to the recently enacted TCJA legislation. The $1,083,000 income tax expense in the ~~first half of fiscal 2017~~nine months ended March 31, 2023, represents a consolidated effective tax rate of ~~18.9%~~27.0%. ~~This is~~The $2.9 million income tax expense in the ~~net result of an income~~nine months ended March 31, 2022, represents a consolidated effective tax rate of ~~28.9% influenced~~22.4%. The increase in the effective tax rate is primarily driven by ~~certain permanent book-tax differences, by a benefit related to uncertain income~~an increase in pre-tax profits in the higher taxing jurisdictions of Puerto Rico and Canada along with unfavorable discreate tax ~~positions, and by a favorable adjustment to a deferred tax asset.~~adjustments.

The Company reported a net ~~loss~~income of ~~$(17,097,000)~~$17.3 million in the ~~first half of fiscal 2018 as~~nine months ended March 31, 2023, compared to net income of ~~$2,835,000~~$9.9 million in the ~~same period of the prior year.~~ ~~The change between~~nine months ended March 31, 2022. Non-GAAP adjusted net income ~~in fiscal 2017~~was $20.2 million for the nine months ended March 31, 2023, compared to aadjusted net ~~loss in fiscal 2018 is mostly driven by~~income of $12.0 million for the ~~$4.7 million charge in fiscal 2018 related~~nine months ended March 31, 2022 (Refer to the ~~re-valuation of the Company’s deferred tax assets and by the first quarter goodwill impairment. Also contributing to the quarter-over-quarter net change~~Non-GAAP tables above). The increase in Non-GAAP adjusted net income ~~are increased net~~is primarily the result of an increase in sales ~~increased gross profit~~ and an ~~improvement of~~increase in the gross profit as a percentage of ~~sales, increased selling and administrative expenses, and restructuring and plant closure costs in fiscal 2017 with no comparable costs in fiscal 2018.~~sales. Diluted ~~loss~~earnings per share of ~~$(0.66)~~$0.60 was reported in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, as compared to ~~$0.11~~$0.35 diluted earnings per share in the same period of fiscal ~~2017.~~2022. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, were ~~25,824,000~~29,055,000 shares as compared to ~~25,859,000~~27,945,000 shares in the same period last year.

Liquidity and Capital Resources

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and ~~its~~our historical levels of net cash flows from operating activities to be the most important measures.

At ~~December~~March 31, ~~2017,~~2023, the Company had working capital of ~~$72.8~~$79.8 million compared to ~~$61.7~~$84.3 million at June 30, ~~2017.~~2022. The ratio of current assets to current liabilities was ~~2.71~~2.2 to ~~1 as compared to a ratio of 2.36 to 1~~1.0 at March 31, 2023, and 2.1 at June 30, ~~2017.~~2022. The ~~$11.1 million increase~~decrease in working capital from June 30, ~~2017~~2022, to ~~December~~March 31, ~~2017 was~~2023, is primarily driven by ~~an increase~~a $8.5 million decrease in net accounts receivable ~~($10.9 million). The other offsetting changes to working capital are as follow: decreased~~and a $6.7 million decrease in net ~~inventories ($1.3 million); a reduction in the asset held for sale ($1.5 million); a~~inventory partially offset by $10.0 million decrease in accounts ~~payable ($2.6 million);~~payable. Also contributing to the change in working capital was an increase in refundable income taxes and other current assets of $3.2 million, an increase in accrued expenses ~~($0.4 million). The Company has~~of $1.4 million, and a strategy of aggressively managing working capital, including reduction of the accounts receivable days sales outstanding (“DSO”) and reduction of inventory levels, without reducing service to its customers.

~~The Company used $0.8 million of cash from operating activities in the first half of fiscal 2018 as compared to a source of cash of $4.6 million in the same period of the prior year. This $5.4~~$1.1 million decrease in cash and cash equivalents, resulting in a net ~~cash flows from operating activities is primarily the net result of a larger~~ increase in accounts receivable (unfavorable change of $8.2 million), a larger decrease in accounts payable (unfavorable change of $2.4 million), a decrease rather than an increase in customer prepayments (unfavorable change of $0.4 million), a smaller decrease in net inventory (unfavorable changeto working capital, of $0.7 million), a smaller decrease in accrued expenses and other (favorable change of $1.9 million), a decrease in refundable income taxes (favorable change of $0.8 million), and a change from net income in fiscal 2017 to a net loss in fiscal 2018 more than offset by an increase in non-cash items (favorable change of $3.7 million).million.

Net accounts receivable ~~were $59.7~~was $69.3 million and ~~$48.9~~$77.8 million at ~~December~~March 31, ~~2017~~2023, and June 30, ~~2017,~~2022, respectively. DSO ~~increased to 56~~remained the same at 54 days at ~~December~~March 31, ~~2017 from 52 days~~2023, and at June 30, ~~2017. The Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.~~2022.

Net inventories of ~~$48.7~~$67.7 million at ~~December~~March 31, ~~2017~~2023, decreased ~~$1.4~~$6.7 million from ~~$50.0~~$74.4 million at June 30, ~~2017.~~2022, is due to ongoing improvement in the supply chain. The decrease of ~~$1.4~~$6.7 million is the result of a decrease in ~~gross~~net inventory of ~~$1.0~~$3.8 million ~~and an increase in obsolescence reserves of $0.4 million. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net inventory increases occurred~~ in the ~~first half of fiscal 2018 in the Graphics~~Lighting Segment ~~of approximately $0.9~~and a $2.9 million ~~which was more than offset by a~~ decrease in net inventory in the ~~Lighting Segment of $2.2 million.~~Display Solutions Segment.

Cash generated from operations and borrowing capacity under the Company’s line of credit is ~~the Company’s~~its primary source of liquidity. ~~The~~In September 2021, the Company ~~has~~amended its existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured ~~$100 million~~ revolving line of ~~credit with its bank, with $56.8 million of the credit line available as of January 25, 2018. This line of credit is a $100 million five year credit line expiring~~credit. Both facilities expire in the third quarter of fiscal ~~2022. The Company believes that its $100~~2026. As of March 31, 2023, $45.1 million of the credit line ~~of credit plus cash flows from operating activities are adequate for the Company’s fiscal 2018 operational and capital expenditure needs.~~was available. The Company is in compliance with all of its loan covenants.

~~Page 31~~

The ~~Company generated~~$100 million credit facility plus cash ~~of $0.3 million related to investing~~flows from operating activities inare adequate for operational and capital expenditure needs for the ~~half~~remainder of fiscal 2018 as compared to a use of $2.7 million in the same period from the prior year, resulting in a favorable change of $3.1 million. Capital expenditures for the first half of fiscal 2018 decreased $1.6 million to $1.2 million from the same period in fiscal 2017. The Company sold its Woonsocket manufacturing facility for $1.5 million which contributed to the change in cash flow from investing activities from fiscal 2017 to fiscal 2018.2023.

The Company ~~generated $0.6~~had a source of $32.5 million of cash ~~related to financing~~from operating activities in the ~~first half of fiscal 2018~~nine months ended March 31, 2023, compared to a use of cash of ~~$2.7~~$12.7 million in the ~~first half~~nine months ended March 31, 2022. The increase in net cash flows from operating activities is primarily the result of ~~fiscal 2017.~~ effective management of the Company’s working capital and from improved earnings.

The ~~$3.3~~Company used $1.8 million ~~favorable~~and $0.8 million of cash related to investing activities to support the Company’s various capital initiatives, in the nine months ended March 31, 2023, and March 31, 2022, respectively. Capital expenditures increased from $1.3 million in the nine months ended March 31, 2022, to $1.8 million in the nine months ended March 31, 2023. We received $0.5 million of cash related to the settlement of working capital adjustments from the acquisition of JSI in the nine months ended March 31, 2022.

The Company had a use of cash of $32.0 million related to financing activities in the nine months ended March 31, 2023, compared to a source of cash of $12.4 million in the nine months ended March 31, 2022. The $44.4 million change in cash flow was primarily the ~~net~~ result of ~~borrowings in excess~~cash generated from improved working capital management and from improved earnings, which was used to pay down the Company’s line of ~~payments of long term debt of $2.5 million, and a decrease~~credit in the ~~purchase~~first nine months of ~~treasury shares coupled with an increase~~fiscal 2023. Also contributing to the reduction of debt was $3.1 million of cash received from the exercise of stock options in the ~~distribution~~second and third quarters of ~~treasury shares (favorable change of $0.7 million).~~fiscal 2023.

The Company has ~~or could have,~~ on its 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

The Company has no financial instruments with off-balance sheet risk and ~~has~~have no off-balance sheet ~~arrangements, except for various operating leases.~~arrangements.

Cash Dividends

In ~~January 2018,~~April 2023, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable ~~February 13, 2018~~May 16, 2023, to shareholders of record as of ~~February 5, 2018.~~May 8, 2023. The indicated annual cash dividend rate for fiscal ~~2018~~2023 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

~~The Company is required to make estimates and judgments in the preparation~~A summary of ~~its financial statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures.~~ The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company continually reviews these estimates and their underlying assumptions to ensure they remain appropriate. The Company believes the items discussed below are among its mostour significant accounting policies ~~because they utilize estimates about~~is included in Note 1 to the ~~effect of matters that are inherently uncertain and therefore are based on management’s judgment. Significant changes in the estimates or assumptions related to any~~audited consolidated financial statements of the ~~following critical accounting policies could possibly have a material impact~~Company’s fiscal 2022 Annual Report on ~~the financial statements.~~Form 10-K.

~~Revenue Recognition~~

Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services have been rendered, and collectability is reasonably assured. Sales are recorded net of estimated returns, rebates and discounts. Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

The Company has multiple sources of revenue: revenue from product sales; revenue from installation of products; service revenue generated from providing integrated design, project and construction management, site engineering and site permitting, and commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; and revenue from shipping and handling.

Product revenue is recognized on product-only orders upon passing of title and risk of loss, generally at time of shipment. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed. The company provides product warranties and certain post-shipment service, support and maintenance of certain solid-state LED video screens and billboards.

~~Page 32~~

~~Installation revenue is recognized when the products have been fully installed.~~ ~~The Company is not always responsible for installation of products it sells and has no post-installation responsibilities, other than normal warranties.~~

~~Service revenue from integrated design, project and construction management, and site permitting is recognized when all products at a customer site have been installed.~~

~~Shipping and handling revenue coincides with the recognition of revenue from the sale of the product.~~

~~In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separa~~te unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

~~The Company also evaluates~~ the appropriateness of revenue recognition in accordance with the accounting standard on software revenue recognition. Our solid-state LED video screens, billboards and active digital signage contain software elements which the Company has determined are incidental.

~~Income Taxes~~

The Company accounts for income taxes in accordance with the accounting guidance for income taxes. Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes. Deferred income tax assets and liabilities are reported on the Company’s balance sheet. Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets. The Company has adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” As a result of early adoption of this accounting guidance, prior periods have been re-classified, which only affected the financial statement presentation and not the measurement of deferred tax liabilities and assets.

~~The Company operates in multiple taxing jurisdictions and is subject to audit in these jurisdictions.~~ The Internal Revenue Service and other tax authorities routinely review the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. In management’s opinion, adequate provision has been made for potential adjustments arising from these audits.

~~The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Condensed Consolidated Statements of Operations.~~ ~~The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.~~

The Tax Cuts and Jobs Act was signed into law on December 22nd, 2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018. Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of 27.7% for the fiscal 2018, and will have a 21% US statutory income tax rate for fiscal years thereafter. During the quarter ended December 31, 2017, the Company re-valued the deferred tax balances because of the change in US tax rate resulting in a one-time deferred tax expense of $4,676,578.

~~Asset~~ ~~Impairment~~

Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with the accounting guidance on goodwill and intangible assets. The Company may first assess qualitative factors in order to determine if goodwill is impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill is not impaired, no further testing is required. If it is determined that it is more likely than not that goodwill is impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues at the reporting unit level with the estimation of the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach. The estimation of the fair value of goodwill and indefinite-lived intangible assets 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 fair value of reporting units are based on the best information available as of the date of the assessment. 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, a sustained drop in the Company’s stock price, economic factors and technological change or competitive activities may signal that an asset has become impaired.

~~Page 33~~

Carrying values for long-lived tangible assets and definite-lived intangible assets, excluding goodwill and indefinite-lived intangible assets, are reviewed for possible impairment as circumstances warrant. Impairment reviews are conducted at the judgment of Company management when it believes that a change in circumstances in the business or external factors warrants a review. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product, changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review. The Company’s initial impairment review to determine if a potential impairment charge is required is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. The analysis requires judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates, and discount rates.

~~Credit and Collections~~

~~The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or the inability of its customers~~ to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income. The Company determines its allowance for doubtful accounts by first considering all known collectability problems of customers’ accounts, and then applying certain percentages against the various aging categories based on the due date of the remaining receivables. The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical trends. The amount ultimately not collected may differ from the reserve established, particularly in the case where percentages are applied against aging categories. In all cases, it is management’s goal to carry a reserve against the Company’s accounts receivable which is adequate based upon the information available at that time so that net accounts receivable is properly stated. The Company also establishes allowances, at the time revenue is recognized, for returns and allowances, discounts, pricing and other possible customer deductions. These allowances are based upon contractual terms and historical trends.

~~Warranty Reserves~~

The Company offers a limited warranty that its products are free from defects in workmanship and materials. The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to ten years, from the date of shipment. The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation. The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~Inventory Reserves~~

The Company maintains an inventory reserve for probable obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. A combination of financial modeling and qualitative input factors are used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item. Management values inventory at lower of cost or market.

The Company is required to make estimates and judgments in the preparation of its financial statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company continually reviews these estimates and their underlying assumptions to ensure they remain appropriate. The Company believes the items discussed below are among its most significant accounting policies because they utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management’s judgment. Significant changes in the estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the financial statements.

~~Page 34~~

~~New Accounting Pronouncements~~

~~In June 2014, the Financial Accounting~~ Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal 2019. The Company will adopt these standards no later than July 1, 2018, using the modified retrospective transition method. The Company is reviewing accounting policies and evaluating disclosures in the financial statements related to the new standard. The Company is also assessing potential changes to the business processes, internal controls, and information systems related to the adoption of the new standard. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. The recognition of revenue from most product sales is largely unaffected by the new standard. However, with respect to certain product sales requiring installation, revenue is currently not recognized until the installation is complete. While the Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, the timing of recognition of revenues from sales on certain projects may be affected. Our initial conclusions may change as we finalize our assessment and select a transition method during the next six months.

In July 2015, the Financial Accounting Standards Board issued ASU 2015-11, “Simplifying the Measurement of Inventory.” The amended guidance requires an entity to measure in scope inventory at lower of cost and net realizable value. The amended guidance is effective for fiscal years beginning after December 15, 2016, or the Company’s fiscal 2018. We adopted the new accounting standard in the first quarter of fiscal 2018 and there was no material impact on the Company’s consolidated financial statements.

~~In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “~~Leases.” The amended guidance requires an entity to recognize assets and liabilities that arise from leases. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal 2020, with early adoption permitted. The Company has not yet determined the impact the amended guidance will have on its financial statements.

In March 2016, the Financial Accounting Standards Board issued ASU 2016-08, “Principal versus Agent Considerations.” The amendment is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal 2019, with early adoption permitted in fiscal years beginning after December 15, 2016. The Company has determined the amended guidance will have an immaterial impact on its financial statements.

In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects of the accounting for share-based payment award transactions. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2016, or the Company’s fiscal 2018. We adopted this standard on July 1, 2017 and recognized excess tax benefits of $81,010 in income tax expense during the three months ended September 30, 2017. The amount may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to July 1, 2017, excess tax benefits were recognized in additional paid-in capital. Additionally, excess tax benefits are now included in net cash flows provided by operating activities rather than net cash flows provided by financing activities in the Company’s Consolidated Statement of Cash Flows. The treatment of forfeitures has not changed, as the Company is electing to continue the current process of estimating forfeiture at the time of grant. The Company had no unrecognized excess tax benefits from prior periods to record upon the adoption of this ASU.

~~Page 35~~

~~In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, “~~Measurement of Credit Losses on Financial Instruments.” This amendment provides additional guidance on the measurement of expected credit losses for financial assets based on historical experience, current conditions, and supportable forecasts. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2019, or the Company’s fiscal 2021. The Company is evaluating the impact of the amended guidance and the anticipated impact to the financial statements is not material.

In August 2016, the Financial Accounting Standards Board issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” which provides cash flow classification guidance for certain cash receipts and cash payments. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, or the Company~~’s fiscal 2019. The Company is evaluating the impact the amended guidance will have on its financial statements.~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in ~~the~~ ~~Company’s~~our exposure to market risk since June 30, ~~2017.~~2022. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 1318 of the Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017.~~2022.

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

~~The~~ ~~Company maintains~~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 ~~Securities~~ Exchange ~~Act of 1934.~~Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~December~~March 31, ~~2017,~~2023, 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.

~~The Company acquired Atlas Lighting Products, Inc. (“Atlas”) on February 21, 2017. Management excluded Atlas from its evaluation of the effectiveness of the~~ internal control over financial reporting as of December 31, 2017. Atlas represented 31% of the Company’s total consolidated assets as of December 31, 2017, and 14% of the Company’s total consolidated sales for the fiscal year ended December 31, 2017.

Changes in Internal Control

There have been no changes in ~~the Company~~’sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~fiscal~~second quarter ended ~~December~~March 31, ~~2017,~~2023, that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

PART II.OTHER INFORMATION

ITEM 2. ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~5. OTHER INFORMATION

~~(c)~~

None.

~~The Company does not purchase into treasury its own common shares for general purposes.~~ However, the Company does purchase its own common shares, through a Rabbi Trust, in connection with investments of employee/participants of the LSI Industries Inc. Non-Qualified Deferred Compensation Plan. Purchases of Company common shares for this Plan in the second quarter of fiscal 2018 were as follows:

~~Page 36~~

~~ISSUER PURCHASES OF EQUITY SECURITIES~~

~~Period~~	~~(a) Total~~ ~~Number of~~ ~~Shares~~ ~~Purchased~~	~~(b) Average~~ ~~Price Paid~~ ~~per Share~~	~~(c) Total Number of~~ ~~Shares Purchased as Part of~~ ~~Publicly Announced Plans~~ ~~or Programs~~	~~(d) Maximum Number (or~~ ~~Approximate Dollar Value) of~~ ~~Shares that May Yet Be~~ ~~Purchased Under the Plans or~~ ~~Programs~~
~~10/1/17 to 10/31/17~~	--	--	--	~~(1)~~
~~11/1/17 to 11/30/17~~	--	--	--	~~(1)~~
~~12/1/17 to 12/31/17~~	--	--	--	~~(1)~~
~~Total~~	--	--	--	~~(1)~~

~~(1)~~

~~In the first half of fiscal~~ 2018, all 575,000 shares authorized for the Company’s Non-Qualified Deferred Compensation Plan have been extinguished by purchase in the open market. Newly issued shares from the Company’s 2012 Stock Incentive Plan will replace shares purchased in the open market to fulfill the obligation the plan has to its participants.

ITEM 6.EXHIBITS

Exhibits:

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

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

~~31.2~~32.1

Section 1350 Certification of Principal ~~Financial~~Executive Officer ~~required by Rule 13a-14(a)~~

~~32.1~~32.2

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	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

* Management compensatory agreement.

++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request.

~~Page 37~~

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/ ~~Dennis W. Wells~~ James A. Clark
		James A. Clark	~~Dennis W. Wells~~
		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)
May 5, 2023		~~(Principal Financial Officer)~~
~~February~~ ~~7, 2018~~

~~Page 38~~

(In thousands, except shares)	December 31,			June 30,
	2017			2017

ASSETS

Current Assets

Cash and cash equivalents	$	3,177		$	3,039

Accounts receivable, less allowance for doubtful accounts of $475 and $506, respectively		59,740			48,880

Inventories		48,662			50,008

Refundable income tax		--			775

Assets held for sale		--			1,463

Other current assets		3,712			2,964

Total current assets		115,291			107,129

Property, Plant and Equipment, at cost
Land		6,469			6,429
Buildings		35,855			35,463
Machinery and equipment		82,152			78,804
Construction in progress		796			3,805
		125,272			124,501
Less accumulated depreciation		(80,409	)		(77,147	)
Net property, plant and equipment		44,863			47,354

Goodwill		30,538			58,538

Other Intangible Assets, net		36,789			38,169

Other Long-Term Assets, net		10,893			5,490

Total assets	$	238,374		$	256,680

	December 31,		June 30,
(In thousands, except shares)	2017		2017

LIABILITIES & SHAREHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	16,828	$	19,356
Accrued expenses		25,713		26,069

Total current liabilities		42,541		45,425

Long-Term Debt		52,149		49,698

Other Long-Term Liabilities		1,356		1,479

Commitments and Contingencies (Note 12)		--		--

Shareholders’ Equity
Preferred shares, without par value; Authorized 1,000,000 shares, none issued		--		--
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 25,562,003 and 24,429,223 shares, respectively		122,170		120,259
Retained earnings		20,158		39,819

Total shareholders’ equity		142,328		160,078

Total liabilities & shareholders’ equity	$	238,374	$	256,680

(In thousands)	Six Months Ended
	December 31
	2017			2016
Cash Flows from Operating Activities
Net (loss) income	$	(17,097	)	$	2,835
Non-cash items included in net income
Depreciation and amortization		5,124			3,605
Deferred income taxes		(5,667	)		(962	)
Impairment of goodwill		28,000			--
Deferred compensation plan		(413	)		237
Stock compensation expense		1,463			1,688
Issuance of common shares as compensation		156			228
Loss (gain) on disposition of fixed assets		(29	)		53
Fixed asset impairment and accelerated depreciation		--			354
Allowance for doubtful accounts		115			205
Inventory obsolescence reserve		1,033			758

Changes in certain assets and liabilities:
Accounts receivable		(10,975	)		(2,771	)
Inventories		313			979
Refundable income taxes		775			--
Accounts payable		(2,626	)		(176	)
Accrued expenses and other		(742	)		(2,630	)
Customer prepayments		(221	)		216
Net cash flows (used in) provided by operating activities		(791	)		4,619

Cash Flows from Investing Activities
Purchases of property, plant and equipment		(1,190	)		(2,744	)
Proceeds from sale of fixed assets		1,527			1
Net cash flows provided by (used in) investing activities		337			(2,743	)

Cash Flows from Financing Activities
Payments of long-term debt		(48,553	)		--
Borrowings of long-term debt		51,004			--
Cash dividends paid		(2,564	)		(2,513	)
Exercise of stock options		175			171
Purchase of treasury shares		(107	)		(390	)
Acquisition of common stock for tax withholding related to share based compensation		183			--
Issuance of treasury shares		454			44
Net cash flows provided by (used in) financing activities		592			(2,688	)

Increase (decrease) in cash and cash equivalents		138			(812	)

Cash and cash equivalents at beginning of period		3,039			33,835

Cash and cash equivalents at end of period	$	3,177		$	33,023

	Shares			Weighted-Average Grant Date Fair Value

Unvested at June 30, 2017		133,335		$	10.38
Awarded		91,490		$	5.92
Shares Issued		(30,675	)	$	10.30
Shares Forfeited		(7,000	)	$	10.46
Unvested at December 31, 2017		187,150		$	8.21

(In thousands)	Six Months Ended December 31
	2017		2016
Cash payments:
Interest	$	767	$	21
Income taxes	$	1,232	$	2,381

Non-cash investing and finance activities:
Issuance of common shares as compensation	$	156	$	228
Issuance of common shares to fund deferred compensation plan	$	261	$	--

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2017			2016			2017

Balance at beginning of the period	$	235		$	39		$	39
Accrual of expense		83			173			523
Payments		(218	)		(205	)		(313	)
Adjustments		(14	)		--			(14	)
Balance at end of the period	$	86		$	7		$	235

	Three		Six Months		Three		Six Months
	Months Ended		Ended		Months Ended		Ended
(In thousands)	December 31,		December 31,		December 31,		December 31,
	2017		2017		2016		2016

Severance and other termination benefits	$	--	$	--	$	526	$	691
Lease obligation		--		--		--		213
Impairment of fixed assets and accelerated depreciation		--		--		80		353
Other		--		--		91		96
Total	$	--	$	--	$	697	$	1,353

(In thousands)
	Balance as of June 30, 2017		Restructuring Expense		Payments			Adjustments		Balance as of December 31, 2017

Severance and termination benefits	$	--	$	--	$	--		$	--	$	--
Lease obligation		85		--		(85	)		--		--
Other		--		--		--			--		--
Total	$	85	$	--	$	(85	)	$	--	$	--

(in thousands, unaudited)	Second Quarter
	FY 2018		FY 2017
Reconciliation of operating income to adjusted operating income:

Operating income as reported	$	4,547	$	2,818

Adjustment for restructuring and plant closure costs		--		697

Adjustment for other severance costs		83		28

Adjusted operating income	$	4,630	$	3,543

(in thousands, unaudited)	First Half
	FY 2018			FY 2017
Reconciliation of operating income (loss) to adjusted operating income:

Operating income (loss) as reported	$	(20,267	)	$	3,884

Adjustment for goodwill impairment		28,000			--

Adjustment for restructuring, plant closure costs, and related inventory write-downs		--			1,753

Adjustment for other severance costs		83			173

Adjusted operating income	$	7,816		$	5,810

	LED Net Sales
(In thousands)	FY 2018		FY 2017		% Change

First Quarter	$	52,956	$	43,146		22.7	%
Second Quarter		57,726		46,137		25.1	%
First Half		110,682		89,283		24.0	%
Third Quarter				44,946
Nine Months				134,229
Fourth Quarter				52,303
Full Year			$	186,532

Graphics Segment
(In thousands)	Six Months Ended
	December 31
	2017		2016

Net Sales	$	42,169	$	39,476
Gross Profit	$	11,109	$	9,358
Operating Income	$	3,731	$	2,191