LSI INDUSTRIES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES   Disclosure Controls and Procedures   The Company maintains 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 the 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.   - 14 -     We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, our disclosure controls and procedures were effective. Management believes that the consolidated financial statements included in this Annual Report on Form 10-K are fairly presented in all material respects in accordance with U.S GAAP, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations, statement of shareholders’ equity, and cash flows for each of the periods presented in this report.   The Company acquired JSI on May 21, 2021. Management excluded JSI from its evaluation of the effectiveness of the internal control over financial reporting as of June 30, 2021. Including goodwill and acquired intangible assets, JSI represented 39% of the Company’s total consolidated assets as of June 30, 2021, and 3% of the Company’s total consolidated sales for the fiscal year ended June 30, 2021.   Management's Report on Internal Control over Financial Reporting appearing on page 29 of this report is incorporated by reference in this Item 9A.   Changes in Internal Control   There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. See Management’s Report On Internal Control Over Financial Reporting on page 29.   ITEM 9B. OTHER INFORMATION   Not applicable.   PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   Information about our directors and officers may be found under the captions “Nominees for Board of Directors” and “Executive Officers” in our Proxy Statement for the Annual Meeting of Shareholders to be held November 2, 2021 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Committees of the Board” in the Proxy Statement. That information is incorporated herein by reference.   We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The code of ethics is publicly available on our website at lsicorp.com. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.   ITEM 11. EXECUTIVE COMPENSATION   The information in the Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   The information in the Proxy Statement set forth under the captions “Security Ownership,” and “Equity Compensation Plan Information” is incorporated herein by reference.   - 15 -     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Related Person Transactions” is incorporated herein by reference.   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Ratification of Appointment of Independent Registered Public Accounting Firm” and “Committees of the Board” and is incorporated herein by reference.     PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   (a)         The following documents are filed as part of this report:     (1) Consolidated Financial Statements appear as part of Item 8 of this Form 10-K.     (2) Exhibits – Exhibits set forth below are either on file with the Securities and Exchange Commission and are incorporated by reference as exhibits hereto, or are filed with this Form 10-K.     - 16 -     Exhibit No.   Exhibit Description       2.1   Stock Purchase Agreement dated as of May 21, 2021 among LSI Fresh Subsidiary Inc., JSI Holding Corp., Fresh Seller Rep, LLC and the Sellers identified therein ++ (incorporated by reference to Exhibit 2.1 to LSI’s Form 8-K filed on May 24, 2021)       3.1   Certificate of Amended Articles of Incorporation of LSI (incorporated by reference to Exhibit 3.1 to LSI’s Form 10-K filed on September 11, 2020).       3.2   Amended and Restated Code of Regulations of LSI (incorporated by reference to Exhibit 3.2 to LSI’s Form 10-K filed on September 11, 2020).       4.1   Description of Securities (incorporated by reference to Exhibit 4.1 to LSI’s Annual Report on Form 10-K filed on September 6, 2019).       4.2   Warrant Agreement issued by LSI Industries Inc. (incorporated by reference to Exhibit 4.1 to LSI’s Form 8-K filed on February 21, 2017).       10.1   Third Amendment to Loan Documents dated February 21, 2017 between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 4.2 to LSI’s Form 8-K filed on February 21, 2017).       10.2   Fourth Amendment to Loan Documents dated February 28, 2019 between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on May 8, 2019).       10.3   Amended and Restated Loan Agreement dated as of June 19, 2014 between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 of LSI’s Form 10-K filed on September 10, 2014)       10.4*   Amended and Restated 2012 Stock Incentive Plan amended as of November 17, 2016 (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on February 3, 2017).       10.5*   Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 23, 2016)       10.6*   LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of December 30, 2019) (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on February 6, 2020).       10.7*   Employment Agreement between LSI and James A. Clark (incorporated by reference to Exhibit 10.1 to LSI’s 8-K filed on October 17, 2018).       10.8*   Employment Offer Letter between LSI and James E. Galeese (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 13, 2017).       10.9*   Employment Offer Letter between LSI and Thomas A. Caneris (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on August 5, 2019).       10.10*   Employment Offer Letter between LSI and Michael C. Beck (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on January 16, 2019).       10.11*   Form of Change in Control Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on January 29, 2021).       10.12*   Form of Restricted Stock Unit Award Agreement – Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to LSI’s Form 8-K filed on July 6, 2015).       10.13*   Form of Non-qualified Stock Option Agreement / Inducement Awards – Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on November 7, 2018).   - 17 -     10.14*   Form of Nonqualified Stock Option Award Agreement - Service-Based – Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to LSI’s Form 8-K filed on July 6, 2015).       10.15*   Form of Nonqualified Stock Option Award Agreement – Performance-Based – Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to LSI’s Form 8-K filed on July 6, 2015).       10.16*   Form of Incentive Stock Option Award Agreement – Amended and Restated 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to LSI’s Form 8-K filed on July 6, 2015).       10.17*   FY20 Long Term Incentive Plan*++ (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on November 7, 2019).       10.18*   FY20 Short Term Incentive Plan*++ (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on November 7, 2019).       10.19*   Form of Performance Share Unit Award Agreement – Amended and Restated 2012 Stock Incentive Plan*++ (incorporated by reference to Exhibit 10.3 to LSI’s Form 10-Q filed on November 7, 2019).       10.20*   2019 Omnibus Award Plan (incorporated by reference to Exhibit 10.1 to LSI’s Form S-8 Registration Statement File No. 333-234556 filed on November 7, 2019).       10.2*1   Fifth Amendment to Loan Documents dated as of March 30, 2021 between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on April 1, 2021).       10.22*   Form of Supplemental Benefits Agreement (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on January 29, 2021)       10.23*   Fiscal Year 2021 Long-Term Incentive Plan (LTIP)++ (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on November 5, 2020)       10.24*   Fiscal Year 2021 Short-Term Incentive Plan (STIP)++ (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on November 5, 2020)       10.25*   Form of 2019 Omnibus Award Plan Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to LSI’s Form 10-Q filed on November 5, 2020)       10.26*   Form of 2019 Omnibus Award Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to LSI’s Form 10-Q filed on November 5, 2020)       10.27*   Form of 2019 Omnibus Award Plan Performance Stock Unit Award Agreement++ (incorporated by reference to Exhibit 10.5 to LSI’s Form 10-Q filed on November 5, 2020)       14   Code of Conduct       21   Subsidiaries of the Registrant       23.1   Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP)       24   Power of Attorney (included as part of signature page)       31.1   Certification of Principal Executive Officer required by Rule 13a-14(a)       31.2   Certification of Principal Financial Officer required by Rule 13a-14(a)       32.1   18 U.S.C. Section 1350 Certification of Principal Executive Officer       32.2   18 U.S.C. Section 1350 Certification of Principal Financial Officer   - 18 -     101.INS   Inline XBRL Instance Document     101.SCH   Inline XBRL Taxonomy Extension Schema     101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase     101.LAB   Inline XBRL Taxonomy Extension Label Linkbase     101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase     101.DEF   Inline XBRL Taxonomy Extension Definition 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.   LSI will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to LSI’s reasonable expenses in furnishing such exhibit. The exhibits identified herein as being filed with the SEC have been so filed with the SEC but may not be included in this version of the Annual Report to Shareholders.   ITEM 16. FORM 10-K SUMMARY   Not included.   - 19 -     SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) 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.                   September 10, 2021   BY:   /s/ James A. Clark     Date       James A. Clark             Chief Executive Officer and President       We, the undersigned directors and officers of LSI Industries Inc. hereby severally constitute James A. Clark and James E. Galeese, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Signature   Title             /s/ James A. Clark   Chief Executive Officer and President James A. Clark   (Principal Executive Officer) Date: September 10, 2021           /s/ James E. Galeese   Executive Vice President, and Chief Financial Officer James E. Galeese   (Principal Financial Officer) Date: September 10, 2021           /s/ Jeffery S. Bastian   Vice President and Chief Accounting Officer Jeffery S. Bastian   (Principal Accounting Officer) Date: September 10, 2021           /s/ Robert P. Beech   Director  Robert P. Beech     Date: September 10, 2021           /s/ Ronald D. Brown   Director   Ronald D. Brown     Date: September 10, 2021           /s/ Amy L. Hanson   Director   Amy L. Hanson     Date: September 10, 2021           /s/ Chantel E. Lenard   Director Chantel E. Lenard     Date: September 10, 2021           /s/ Wilfred T. O’Gara   Chairman of the Board of Directors Wilfred T. O’Gara     Date: September 10, 2021       - 20 -     MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The Company’s “forward looking statements” and disclosures as presented earlier in this Form 10-K in the “Safe Harbor” Statement, as well as the Company’s consolidated financial statements and accompanying notes presented later in this Form 10-K should be referred to when reading Management’s Discussion and Analysis of Financial Condition and Results of Operations.   Overview   LSI is a leading producer of non-residential lighting and retail display solutions. Non-residential lighting consists of high-performance, American-made lighting products. The Company’s strength in outdoor lighting applications creates opportunities for it to introduce additional solutions to its customers. Retail display solutions consist of graphics solutions, digital signage, and technically advanced food display equipment for strategic vertical markets. LSI’s team of internal specialists also provide comprehensive project management services in support of large-scale rollouts.   COVID-19 Pandemic   The COVID-19 pandemic continues to impact business activity across industries in the U.S. and worldwide, including, but not limited to, workforce and supply chain disruptions. We remain committed to taking actions to address the health, safety and welfare of our employees, customers, agents and suppliers. Future developments, such as the actions taken by governmental authorities in response to future outbreaks that are highly uncertain and unpredictable, will determine the extent to which COVID-19 continues to impact our results of operations and financial conditions. See the risk factor captioned “Our financial condition and results of operations for future periods may be adversely affected by the COVID-19 outbreak or other outbreaks of infectious disease or similar public health threats and the resulting economic impact” in Item 1A, Risk Factors, included in Part I of this Annual Report on Form 10-K for an additional discussion of risks related to COVID-19.   Summary of Consolidated Results   Net Sales by Business Segment                                   (In thousands)   2021     2020                     Lighting Segment   $ 189,000     $ 206,199   Display Solutions Segment     126,612       99,359   Total Net Sales   $ 315,612     $ 305,558     Operating Income (Loss) by Business Segment                                   (In thousands)   2021     2020                     Lighting Segment   $ 13,328     $ 16,123   Display Solutions Segment     9,864       8,218   Corporate and Eliminations     (15,162 )     (11,265 ) Total Operating Income   $ 8,030     $ 13,076     Fiscal 2021 net sales of $315.6 million increased $10.0 million or 3% as compared to fiscal 2020 net sales of $305.6 million. Net sales were favorably influenced by increased net sales in the Display Solutions Segment (up $27.3 million or 27%) and were unfavorably influenced by decreased net sales in the Lighting Segment (down $17.2 million or 8%).   Fiscal 2021 operating income of $8.0 million represents a $5.1 million decrease from fiscal 2020 operating income of $13.1 million. Current year results include $2.9 million of transaction costs related to the acquisition of JSI. Prior year results were favorably impacted by the $4.8 million pre-tax gain on the sale of the New Windsor, New York facility and the $3.7 million pre-tax gain on the sale of the North Canton, Ohio facility. Non-GAAP adjusted operating income in fiscal 2021 of $13.0 million increased $6.0 million or 86% from adjusted fiscal 2020 operating income of $7.0 million. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The increase in adjusted operating income was the net result of an increase in net sales, higher-value sales mix and lower selling and administrative expenses.   - 21 -     Non-GAAP Financial Measures   We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income and earnings per share, which exclude the impact of acquisition costs, stock compensation expense, severance costs and restructuring and plant closure (gains) costs are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow, Net Debt and Organic Sales Growth. 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. We exclude these items because they are not representative of the ongoing results of operations of our business. These Non-GAAP measures may be different from Non-GAAP measures used by other companies. In addition, the Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our results in conjunction with corresponding GAAP measures. Below is a reconciliation of these non-GAAP measures to operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, Net Debt and Organic Sales Growth.    Reconciliation of operating income to adjusted operating income:   (In thousands)   2021     2020                     Operating Income as reported   $ 8,030     $ 13,076                     Acquisition costs     2,938       -                     Stock compensation expense     1,977       599                     Severance costs     41       346                     Restructuring, plant closure (gain) costs and related inventory write-downs     (14 )     (7,038 )                   Adjusted Operating Income   $ 12,972     $ 6,983       Reconciliation of net income to adjusted net income   (In thousands, except per share data)   2021     2020                                             Diluted EPS             Diluted EPS                                     Net Income as reported   $ 5,868     $ 0.21     $ 9,592     $ 0.36                                     Acquisition costs     2,161    (1)   0.08       -       -                                     Stock compensation expense     1,497    (2)   0.05       447    (5)   0.02                                     Severance costs     32    (3)    -       252    (6)   0.01                                     Restructuring, plant closure (gain) costs and related inventory write-downs     (11 )  (4)   -       (5,557 )  (7)   (0.21 )                                   Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes     216       0.01       (645 )     (0.02 )                                   Net Income adjusted   $ 9,763     $ 0.36     $ 4,089     $ 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 for the periods indicated:   (1) $777 (2) $480 (3) $9 (4) ($3) (5) $152 (6) $94 (7) ($1,481)   - 22 -     The reconciliation of reported earnings per share to adjusted earnings per share may not produce identical amounts due to rounding differences.   Reconciliation of operating income to EBITDA and Adjusted EBITDA   (In thousands)   2021     2020                     Operating Income as reported   $ 8,030     $ 13,076                     Depreciation and Amortization     8,114       8,654                     EBITDA   $ 16,144     $ 21,730                     Acquisition costs     2,938       -                     Stock compensation expense     1,977       599                     Severance costs     41       346                     Restructuring, plant closure (gain) costs and related inventory write-downs     (14 )     (7,038 )                   Adjusted EBITDA   $ 21,086     $ 15,637     Reconciliation of cash flow from operations to free cash flow   (In thousands)   2021     2020                     Cash Flow from Operations   $ 28,009     $ 29,710                     Proceeds from sale of assets     -       20,150                     Capital expenditures     (2,233 )     (2,739 )                   Free Cash Flow   $ 25,776     $ 47,121     Reconciliation of net debt       June 30,     June 30,   (In thousands)   2021     2020                     Long-term debt as reported   $ 68,178     $ -                     Less:                 Cash and cash equivalents as reported     2,282       3,517                     Net Debt   $ 65,896     $ (3,517 )   - 23 -     Reconciliation of net sales to organic net sales   (In thousands)   2021     2020                     Lighting Segment   $ 189,000     $ 206,199   Display Solutions Segment     126,612       99,359   Total net sales     315,612       305,558   Less:                 JSI     9,084       -   Total organic net sales   $ 306,528     $ 305,558     - 24 -     Results of Operations   2021 Compared to 2020             Lighting Segment   (In thousands)   2021     2020                     Net Sales   $ 189,000     $ 206,199   Gross Profit   $ 57,002     $ 56,855   Operating Income   $ 13,328     $ 16,123     Lighting Segment net sales of $189.0 million in fiscal 2021 decreased 8% from fiscal 2020 net sales of $206.2 million. The 8% decrease is due to the impact of COVID-19 disruptions in construction markets. However, in the fiscal fourth quarter, the Lighting Segment generated sales growth of 30% compared to the prior year fourth quarter, with recovery in the construction market and significant increases in both project business and sales through distributor stock.   Gross profit of $57.0 million in fiscal 2021 remained relatively consistent with the same period of fiscal 2020. Gross profit as a percentage of net sales was 30.2% in fiscal 2021 compared to 27.6% in fiscal 2020. The growth in gross profit as a percentage of net sales reflects our continued focus on the entire lighting model, including higher value applications, price management, new and cost reduced products and supply chain and operations productivity.   Operating expenses of $43.7 million in fiscal 2021 increased $3.0 million or 7% from fiscal 2020 operating expenses of $40.7 million, primarily due to the $4.8 million pre-tax gain on the sale of the New Windsor facility in fiscal 2020 with no comparable event in fiscal 2021. When the $4.8 million gain is removed from the fiscal 2020 results, operating expenses in fiscal 2021 decreased from the prior year, driven by programs to reduce spending resulting from the pandemic.   The Lighting Segment fiscal 2021 operating income of $13.3 decreased $2.8 million from an operating income of $16.1 million in the same period of fiscal 2020 primarily due to the $4.8 million pre-tax gain on the sale of the New Windsor facility in fiscal 2020. Fiscal 2021 Non-GAAP adjusted operating income of $13.6 million increased $1.9 million from fiscal 2020 Non-GAAP adjusted operating income of $11.7 million (refer to the Non-GAAP table below for a reconciliation of Lighting Segment operating income to adjusted operating income). The increase in Non-GAAP adjusted operating income is primarily due to a favorable mix of sales on lower sales volume, improved productivity from manufacturing facility consolidation, and lower operating expenses.   Reconciliation of Lighting Segment operating income to adjusted operating income:   (In thousands)   2021     2020                     Operating Income   $ 13,328     $ 16,123   Stock compensation expense     272       131   Severance     12       167   Restructuring and plant closure (gain) costs     -       (4,674 ) Adjusted operating income   $ 13,612     $ 11,747       Display Solutions Segment   (In thousands)   2021     2020                     Net Sales   $ 126,612     $ 99,359   Gross Profit   $ 21,989     $ 16,649   Operating Income   $ 9,864     $ 8,218     - 25 -       Display Solutions Segment net sales of $126.6 million increased $27.2 million or 27% from fiscal 2020 net sales of $99.4 million. Of the $27.2 million increase, $9.1 million is a result of the acquisition of JSI. The remaining increase in sales is due to growth in our Quick-Service Restaurants and Grocery verticals partially offset by a reduction in our Petroleum vertical.    Gross profit of $22.0 million in fiscal 2021 increased $5.3 million or 32% from fiscal 2020. Gross profit as a percentage of net sales increased to 17.4% in fiscal 2021 compared to 16.8% in fiscal 2020, primarily within our Petroleum and Grocery verticals.   Operating expenses of $12.1 million in fiscal 2021 increased $3.7 million or 43% from fiscal 2020. Operating expenses in fiscal 2020 were impacted by the $3.7 million pre-tax gain on the sale of the North Canton, Ohio facility with no comparable event in fiscal 2021.   Display Solutions Segment fiscal 2021 operating income of $9.9 million increased $1.7 million from operating income of $8.2 million in fiscal 2020. Non-GAAP adjusted operating income was $10.0 million in fiscal 2021 compared to adjusted operating income of $5.9 million in fiscal 2020 (refer to the Non-GAAP table below for a reconciliation of Display Solutions Segment operating income to adjusted operating income). The increase is primarily due to improved gross profit margin.   Reconciliation of Display Solutions Segment operating income to adjusted operating income:   (In thousands)   2021     2020                     Operating Income   $ 9,864     $ 8,218   Stock compensation expense     158       27   Severance     23       63   Restructuring and plant closure (gain) costs     (14 )     (2,387 ) Adjusted operating income   $ 10,031     $ 5,921     Corporate and Eliminations   (In thousands)   2021     2020                     Gross (Loss) Profit   $ (17 )   $ 26   Operating (Loss)   $ (15,162 )   $ (11,265 )   The gross (loss) profit relates to the intercompany profit in inventory elimination.   Operating expenses of $15.2 million in fiscal 2021 increased $3.9 million or 35% from fiscal 2020. The increase is primarily due to $2.9 million of transaction costs related to the acquisition of JSI, an increase in stock compensation expense due to prior fiscal year forfeitures and an increase in the employer match related to the deferred compensation plan.   Consolidated Results   We reported $0.3 million net interest expense in fiscal 2021 compared to $0.9 million net interest expense in fiscal 2020. The decrease in interest expense from fiscal 2020 to fiscal 2021 is the result of reduced average borrowings against our line of credit. We also recorded other income of $0.1 million in fiscal 2021 and other expense of $0.5 million in fiscal 2020, both of which relate to net foreign currency transaction gains/losses through our Mexican and Canadian subsidiaries.   The $2.0 million of income tax expense represents a consolidated effective tax rate of 25.9%. The effective tax rate is impacted by non-deductible transaction costs related to the acquisition of JSI. The $2.1 million income tax expense in fiscal 2020 represents a consolidated effective tax rate of 18.0%. The effective tax rate was impacted by the following: 1) a tax rate benefit resulting from carryback of a net operating loss (NOL) allowed due to the enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act, and; 2) the utilization of a capital loss carryforward related to the capital gain on the sale of the North Canton facility.   We reported net income of $5.9 million in fiscal 2021 compared to net income of $9.6 million in fiscal 2020. Non-GAAP adjusted net income was $9.8 million in fiscal 2021 compared to adjusted net income of $4.1 million in fiscal 2020 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an increase in net sales, improved gross profit margin and decreased interest expense and other expense. Diluted earnings per share of $0.21 was reported in fiscal 2021 compared to $0.36 diluted earnings per share in fiscal 2020. The weighted average common shares outstanding for purposes of computing diluted earnings per share in fiscal 2021 were 27,440,000 shares compared to 26,473,000 shares in fiscal 2020.   - 26 -     Liquidity and Capital Resources   We consider our level of cash on hand, borrowing capacity, current ratio and working capital levels to be our most important measures of short-term liquidity. For long-term liquidity indicators, we believe our ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.   At June 30, 2021 we had working capital of $54.1 million, compared to $51.2 million at June 30, 2020. The ratio of current assets to current liabilities was 1.76 to 1 as of June 30, 2021 compared to a ratio of 2.48 to 1 as of June 30, 2020. The $2.9 million increase in working capital from June 30, 2020 to June 30, 2021 is primarily driven by a $20.1 million increase in inventory, a $19.8 million increase in accounts receivable, partially offset by a $18.8 million increase in accounts payable and a $17.5 million increase in accrued expenses.   Net accounts receivable were $57.7 million and $37.8 million at June 30, 2021 and June 30, 2020, respectively. Some of the increase in accounts receivable is due to the acquisition of JSI. DSO was 56 days at both June 30, 2021 and June 30, 2020. We believe that our receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.   Net inventories of $58.9 million at June 30, 2021 increased $20.1 million from $38.8 million at June 30, 2020. The increase of $20.1 million is the result of an increase in gross inventory of $21.4 million and an increase in obsolescence reserves of $1.2 million. Lighting Segment net inventory increased $9.0 million, in anticipation of an increase in market demand and ongoing supply chain challenges. Net inventory in the Display Solutions Segment increased $11.2 million, primarily due to the acquisition of JSI.   Cash generated from operations and borrowing capacity under our line of credit is our primary source of liquidity. In March 2021, the Company amended its secured line of credit to a $100 million facility from a $75 million facility, with $24 million of the credit line available as of August 26, 2021. This $100 million five-year credit line expires in the third quarter of fiscal 2026. We are in compliance with all of our loan covenants. We believe that our $100 million line of credit plus cash flows from operating activities are adequate for fiscal 2021 operational and capital expenditure needs. However, as the impact of COVID-19 on the economy and our operations continues to evolve, we will continue to assess our liquidity needs. We have on file with the SEC a shelf registration statement which allows us to sell any combination of common stock, preferred stock warrants, senior or subordinated debt securities or other securities in one or more offerings if we choose to do so in the future. We expect to maintain the effectiveness of this shelf registration statement for the foreseeable future.   We generated $28.0 million of cash from operating activities in fiscal 2021 compared to $29.7 million in fiscal 2020. The $1.7 million decrease in net cash flows from operating activity is the net result of increases in accounts receivable and inventory, partially offset by our improved earnings as well as increases in accounts payable, customer project prepayments and accrued FICA from deferred payroll taxes allowed under the CARES Act.   We used $93.0 million of cash in investing activities in fiscal 2021 compared to a source of cash of $17.4 million in fiscal 2020, resulting in a decrease of $110.4 million. Capital expenditures decreased from $2.7 million in fiscal 2020 to $2.3 million in fiscal 2021. We acquired JSI in May 2021 for $90.7 million, net of cash acquired. In addition, we sold our New Windsor manufacturing facility for $12.3 million and our North Canton facility for $7.7 million in fiscal 2020, which contributed to the source of cash. The acquisition of JSI and the sale of our two facilities were the primary contributing factors for the change in investing activities from fiscal 2020 to fiscal 2021.   We had a source of $63.6 million of cash related to financing activities in fiscal 2021 compared to use of cash of $44.4 million in fiscal 2020. The $108.0 million change in cash flow was primarily the net result of borrowings of long-term debt in excess of payments which was primarily driven by the acquisition of JSI.   We have on our balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.   Off-Balance Sheet Arrangements   We have no financial instruments with off-balance sheet risk.   - 27 -     Cash Dividends   In August 2021, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable September 7, 2021 to shareholders of record as of August 30, 2021. The indicated annual cash dividend rate for fiscal 2021 was $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 at its discretion based upon its evaluation of earnings, cash flow requirements, financial conditions, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.   Critical Accounting Policies and Use of Estimates   The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates.   Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and financial position. Management believes that the critical accounting policies and estimates involve the most difficult management judgments due to the sensitivity of the methods and assumptions used. We believe the following accounting topics represent our critical accounting estimates: warranty reserve, impairment of goodwill, stock-based compensation, income tax valuation allowance, revenue recognition and valuation of acquired intangible assets.   Our significant accounting policies are described in Note 2 in the accompanying consolidated financial statements of this Annual Report on Form 10-K.   - 28 -     MANAGEMENT ’ S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING   The Management of LSI Industries Inc. and subsidiaries (the “Company” or “LSI”) is responsible for the preparation and accuracy of the financial statements and other information included in this report. LSI’s Management is also responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f). Under the supervision and with the participation of Management, including LSI’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of June 30, 2021, based on the criteria set forth in “the 2013 Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.   A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the reality that judgments in decision making can be faulty, the possibility of human error, and the circumvention or overriding of the controls and procedures.   In meeting its responsibility for the reliability of the financial statements, the Company depends upon its system of internal accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded. The system is supported by policies and guidelines, and by careful selection and training of financial management personnel. The Company also has a Disclosure Controls Committee, whose responsibility is to help ensure appropriate disclosures and presentation of the financial statements and notes thereto. Additionally, the Company has an Internal Audit Department to assist in monitoring compliance with financial policies and procedures.   The Board of Directors meets its responsibility for overview of the Company’s financial statements through its Audit Committee which is composed entirely of independent Directors who are not employees of the Company. The Audit Committee meets periodically with Management and Internal Audit to review and assess the activities of each in meeting their respective responsibilities. Grant Thornton LLP has full access to the Audit Committee to discuss the results of their audit work, the adequacy of internal accounting controls, and the quality of financial reporting.   The Company acquired JSI Store Fixtures (JSI) on May 21, 2021. Management excluded JSI from its evaluation of the effectiveness of the internal control over financial reporting as of June 30, 2021. Including goodwill and acquired intangible assets, JSI represented 39% of the Company’s total consolidated assets as of June 30, 2021, and 3% of the Company’s total consolidated sales for the fiscal year ended June 30, 2021.   Based upon LSI’s evaluation, the Company’s principal executive officer and principal financial officer concluded that internal control over financial reporting was effective as of June 30, 2021. We reviewed the results of Management’s assessment with the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm audited and independently assessed the effectiveness of the Company’s internal control over financial reporting. Grant Thornton LLP, an independent registered public accounting firm, has issued an opinion on the effectiveness of the Company’s internal control over financial reporting, which is presented in the financial statements.   James A. Clark President and Chief Executive Officer (Principal Executive Officer)   James E. Galeese Executive Vice President and Chief Financial Officer (Principal Financial Officer)   - 29 -     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Board of Directors and Shareholders LSI Industries Inc.   Opinion on internal control over financial reporting We have audited the internal control over financial reporting of LSI Industries Inc. (an Ohio Corporation) and subsidiaries (the “Company”) as of June 30, 2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended June 30, 2021, and our report dated September 10, 2021 expressed an unqualified opinion on those financial statements.   Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of JSI Holding Corp. (“JSI”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 39 percent and 3 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2021. As indicated in Management’s Report on Internal Control Over Financial Reporting, JSI was acquired during the fiscal year 2021. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of JSI.   Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   /s/ GRANT THORNTON LLP   Cincinnati, Ohio September 10, 2021   - 30 -     REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM   Board of Directors and Shareholders LSI Industries Inc.   Opinion on the financial statements We have audited the accompanying consolidated balance sheets of LSI Industries Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended June 30, 2021, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated September 10, 2021 expressed an unqualified opinion.   Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.   Estimation of product warranty reserves   As discussed in Note 1 to the consolidated financial statements, the Company provides warranty terms based upon the type of product sold.  The Company estimates the amount of warranty costs associated with future product warranty claims, which are accrued at the time revenue is recognized. The estimate of the likelihood and cost of future claims considers various factors, including historical warranty costs, warranty terms, current trends, product mix and sales. The Company’s product warranty accrual as of June 30, 2021 was $5.3 million.   The principal considerations for our determination that the estimation of product warranty reserves is a critical audit matter is due to a higher risk of estimation uncertainty related to the determination of the likelihood and cost of future claims. The evaluation of the warranty accrual required a high degree of auditor judgement and an increased effort in assessing the reasonableness of management’s estimates of the likelihood and cost of future claims   The primary procedures we performed to address this critical audit matter included the following:   ● Tested management’s internal controls over the Company’s product warranty accrual process including controls over the inputs to the estimate as well as controls over the process of capturing warranty claims   ● Tested the completeness and accuracy of the underlying claims used to develop the estimate   ● Evaluated the relevance, reliability, and sufficiency of the sources of claims used by the Company in developing the estimate   - 31 -     Evaluated the methods and assumptions used by management by:   ● Developing an estimation for the warranty accrual and comparing the results to the Company’s product warranty accrual estimate   ● Performing a retrospective review comparing management’s prior period assumptions of likelihood of claims and related costs to actual claim rate activity to evaluate management’s ability to estimate the warranty accrual   Business Combination   As discussed in Note 2 to the consolidated financial statements, the Company completed an acquisition agreement wherein the Company acquired 100% ownership of JSI Holdings Corp. in May 2021 for total consideration of approximately $93.7M resulting in the addition of $45.8M of intangible assets. The acquisition was accounted for as a business combination.   The principal considerations for our determination that the valuation of acquired intangible assets is a critical audit matter is that the valuation of the acquired intangible assets was considered especially challenging and required significant auditor judgment due to the complex determination by management of the appropriate assumptions, such as discount rates, revenue projections, and projected profit margins, for the valuation of the acquired intangible assets. The Company, utilizing third-party specialists, used income valuation models including Relief from Royalty Method and the Multi-Period Excess Earning Method (MPEEM) to measure the identified intangible assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals having expertise in the valuation of acquired intangible assets, when performing audit procedures to evaluate management’s judgments and conclusions related to the valuation of the intangible assets.   The primary procedures we performed to address this critical audit matter included the following:   ● Tested management’s process and related internal controls for developing fair value estimates including the development of key assumptions such as discount rates, revenue projections, and projected profit margins     ● Tested the completeness and accuracy of the underlying data used to develop the fair value estimates     ● Evaluated the appropriateness of the valuation models and methodologies used by management     ● Assessed the reasonableness of management’s forecast by comparing the projections to historical results and external sources including industry trends and peer companies’ historical data     ● Involved professionals with specialized skills and knowledge to assist in the evaluation of the significant assumptions used by management including the discount rates, revenue projections, and projected profit margins   /s/ GRANT THORNTON LLP      We have served as the Company’s auditor since fiscal 2010. Cincinnati, Ohio September 10, 2021   - 32 -       LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June   30, 2021 and 2020 (In thousands, except per share data)       2021     2020                     Net Sales   $ 315,612     $ 305,558                     Cost of products and services sold     236,637       230,944                     Severance costs     15       104                     Restructuring (gains) costs     ( 14 )     980                     Gross profit     78,974       73,530                     Selling and administrative expenses     70,918       68,783                     Severance costs     26       242                     Restructuring gains     -       ( 8,571 )                   Operating income     8,030       13,076                     Interest (income)     ( 19 )     ( 3 )                   Interest expense     287       873                     Other (income) expense     ( 154 )     513                     Income before income taxes     7,916       11,693                     Income tax expense     2,048       2,101                     Net income   $ 5,868     $ 9,592                                       Earnings per common share (see Note 4)                 Basic   $ 0.22     $ 0.37   Diluted   $ 0.21     $ 0.36                                       Weighted average common shares outstanding                 Basic     26,692       26,274   Diluted     27,440       26,473     The accompanying notes are an integral part of these financial statements.   - 33 -       LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended June   30, 2021 and 2020 (In thousands)       2021     2020                     Net Income   $ 5,868     $ 9,592                     Foreign currency translation adjustment     142       ( 109 )                   Comprehensive Income   $ 6,010     $ 9,483     The accompanying notes are an integral part of these financial statements.   - 34 -       LSI INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS June   30, 2021 and 2020 (In thousands, except shares)       June 30,     June 30,       2021     2020                     ASSETS                                   Current assets                                   Cash and cash equivalents   $ 2,282     $ 3,517                     Accounts receivable, less allowance for doubtful accounts of $256 and $273 , respectively     57,685       37,836                     Inventories     58,941       38,752                     Refundable income tax     1,275       2,776                     Other current assets     4,825       2,977                     Total current assets     125,008       85,858                     Property, Plant and Equipment, at cost                 Land     3,984       3,933   Buildings     24,393       20,638   Machinery and equipment     65,928       67,796   Buildings under finance leases     2,033       2,033   Construction in progress     933       440         97,271       94,840   Less accumulated depreciation     ( 66,719 )     ( 68,305 ) Net property, plant and equipment     30,552       26,535                     Goodwill     43,788       10,373                     Other Intangible Assets, net     72,773       29,960                     Operating Lease Right-of-Use Assets     11,579       8,663                     Other Long-Term Assets, net     3,121       10,874                     Total assets   $ 286,821     $ 172,263     The accompanying notes are an integral part of these financial statements.   - 35 -         June 30,     June 30,       2021     2020                     LIABILITIES & SHAREHOLDERS' EQUITY                                   Current liabilities                 Accounts payable   $ 32,977     $ 14,216   Accrued expenses     37,918       20,433                     Total current liabilities     70,895       34,649                     Long-Term Debt     68,178       -                     Finance Lease Liabilities     1,521       1,755                     Operating Lease Liabilities     10,890       9,021                     Other Long-Term Liabilities     4,167       1,138                     Commitments and Contingencies (Note 14)     -       -                     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 26,517,836 and 26,286,009 shares, respectively     132,526       127,713   Treasury shares, without par value     ( 2,450 )     ( 1,121 ) Deferred compensation plan     2,450       1,121   Retained (loss)     ( 1,405 )     ( 1,920 ) Accumulated other comprehensive income (loss)     49       ( 93 )                   Total shareholders' equity     131,170       125,700                     Total liabilities & shareholders' equity   $ 286,821     $ 172,263     The accompanying notes are an integral part of these financial statements.   - 36 -       LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY For the years ended June   30, 2021 and 2020 (In thousands, except shares)       Common Shares     Treasury Shares     Key Executive     Accumulated Other     Retained     Total       Number Of             Number Of             Compensation     Comprehensive     Earnings     Shareholders'       Shares     Amount     Shares     Amount     Amount     Income (Loss)     (Loss)     Equity                                                                     Balance at June 30, 2019     26,176     $ 125,729       ( 209 )   $ ( 1,468 )   $ 1,468       16     $ ( 5,808 )   $ 119,937                                                                     Net Income     -       -       -       -       -       -       9,592       9,592   Other comprehensive loss     -       -       -       -       -       ( 109 )     -       ( 109 ) Stock compensation awards     72       300       -       -       -       -       -       300   Restricted stock units issued     21       -       -       -       -       -       -       -   Shares issued for deferred compensation     85       473       -       -       -       -       -       473   Activity of treasury shares, net     -       -       29       347       -       -       -       347   Deferred stock compensation     -       -       -       -       ( 347 )     -       -       ( 347 ) Stock-based compensation expense     -       599       -       -       -       -       -       599   Stock options exercised, net     112       612       -       -       -       -             612   Dividends — $0.20 per share     -       -       -       -       -       -       ( 5,276 )     ( 5,276 ) Cumulative effect of adoption of accounting guidance     -       -       -       -       -       -       ( 428 )     ( 428 )                                                                   Balance at June 30, 2020     26,466     $ 127,713       ( 180 )   $ ( 1,121 )   $ 1,121     $ ( 93 )   $ ( 1,920 )   $ 125,700                                                                     Net Income     -       -       -       -       -       -       5,868       5,868   Other comprehensive income     -       -       -       -       -       142       -       142   Stock compensation awards     43       315       -       -       -       -       -       315   Restricted stock units issued     28       -       -       -       -       -       -       -   Shares issued for deferred compensation     193       1,534       -       -       -       -       -       1,534   Activity of treasury shares, net     -       -       ( 166 )     ( 1,329 )     -       -       -       ( 1,329 ) Deferred stock compensation     -       -       -       -       1,329       -       -       1,329   Stock-based compensation expense     -       1,977       -       -       -       -       -       1,977   Stock options exercised, net     133       987       -       -       -       -       -       987   Dividends — $0.20 per share     -       -       -       -       -       -       ( 5,353 )     ( 5,353 )                                                                   Balance at June 30, 2021     26,863     $ 132,526       ( 346 )   $ ( 2,450 )   $ 2,450     $ 49     $ ( 1,405 )   $ 131,170     The accompanying notes are an integral part of these financial statements.   - 37 -       LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June   30, 2021 and 2020 (In thousands)       2021     2020                     Cash Flows from Operating Activities                 Net income   $ 5,868     $ 9,592   Non-cash items included in net income                 Depreciation and amortization     8,114       8,654   Deferred income taxes     ( 1,058 )     3,925   Deferred compensation plan     1,534       473   Stock compensation expense     1,977       599   Issuance of common shares as compensation     315       300   Loss (gain) on disposition of fixed assets     154       ( 8,521 ) Allowance for doubtful accounts     19       19   Inventory obsolescence reserve     1,754       2,454                     Changes in certain assets and liabilities, net of acquisition                 Accounts receivable     ( 10,570 )     16,340   Inventories     ( 11,983 )     2,246   Refundable income taxes     1,517       ( 1,893 ) Accounts payable     14,442       ( 3,883 ) Accrued expenses and other     6,285       ( 546 ) Customer prepayments     9,641       ( 47 ) Net cash flows provided by operating activities     28,009       29,712                     Cash Flows from Investing Activities                 Acquisition of JSI, excluding cash aquired     ( 90,725 )     -   Purchases of property, plant and equipment     ( 2,233 )     ( 2,739 ) Proceeds from the sale of fixed assets     -       20,150   Net cash flows (used in) provided by investing activities     ( 92,958 )     17,411                     Cash Flows from Financing Activities                 Payments of long-term debt     ( 18,579 )     ( 204,676 ) Borrowings of long-term debt     86,757       165,135   Cash dividends paid     ( 5,288 )     ( 5,276 ) Shares withheld for employees' taxes     ( 60 )     ( 152 ) Payments on financing lease obligations     ( 239 )     ( 39 ) Proceeds from stock option exercises     987       612   Net cash flows provided by (used in) financing activities     63,578       ( 44,396 )                   Change related to foreign currency     136       ( 176 )                   (Decrease) increase in cash and cash equivalents     ( 1,235 )     2,551                     Cash and cash equivalents at beginning of period     3,517       966                     Cash and cash equivalents at end of period   $ 2,282     $ 3,517     The accompanying notes are an integral part of these financial statements.   - 38 -     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     NOTE 1 — 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.   COVID- 19 Pandemic:   The COVID- 19 pandemic continues to impact business activity across industries in the U.S. and worldwide, including, but not limited to, workforce and supply chain disruptions. The Company remains committed to taking actions to address the health, safety and welfare of its employees, customers, agents and suppliers. Future developments, such as the actions taken by governmental authorities in response to future outbreaks that are highly uncertain and unpredictable, will determine the extent to which COVID- 19 continues to impact the Company’s results of operations and financial conditions. See the risk factor captioned “Our financial condition and results of operations for future periods may be adversely affected by the COVID- 19 outbreak or other outbreaks of infectious disease or similar public health threats and the resulting economic impact” in Item 1A, Risk Factors, included in Part I of this Annual Report on Form 10 -K for an additional discussion of risks related to COVID- 19.   Revenue Recognition:   The Company recognizes revenue when it satisfies the performance obligations 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 our terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.   Installation is a separate performance obligation, except for our digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.   A number of the Company's graphics elements and select lighting products are highly customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company generally 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   ● Electrical components based on customer specifications   ● Digital signage and related media content   The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as our customer simultaneously receives and consumes the benefits provided through the installation process.   For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the contract.   - 39 -     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 our revenue and cash flows. The table presents a reconciliation of the disaggregation by reportable segments.       Twelve Months Ended   (In thousands)   June 30, 2021       Lighting Segment     Display Solutions Segment   Timing of revenue recognition                 Products and services transferred at a point in time   $ 165,062     $ 66,123   Products and services transferred over time     23,938       60,489       $ 189,000     $ 126,612                     Type of Product and Services                 LED lighting, digital signage solutions, electronic circuit boards   $ 164,778     $ 35,976   Poles and other display solutions elements     22,492       61,919   Project management, installation services, shipping and handling     1,730       28,717       $ 189,000     $ 126,612     Practical Expedients and Exemptions     ● The Company’s contracts with customers have an expected duration of one year or less, as such the Company applies the practical expedient to expense sales commissions as incurred, and have omitted disclosures on the amount of remaining performance obligations.   ● Shipping costs that are not material in context of the delivery of products are expensed as incurred.   ● The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing, therefore, payments do not contain significant financing components.   ● The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations.   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, the current economic climate 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)   June 30, 2021     June 30, 2020                     Accounts receivable   $ 57,941     $ 38,109   Less: Allowance for doubtful accounts     ( 256 )     ( 273 ) Accounts receivable, net   $ 57,685     $ 37,836     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, Canada and Mexico. In the United States, the FDIC limit for insurance coverage on non-interest-bearing accounts is $250,000. As of June 30, 2021 and June 30, 2020, the Company had bank balances of $ 2.3 million and $ 3.7 million, respectively, without insurance coverage.   - 40 -     Inventories, Net and Inventory Reserves:   Inventories are stated at the lower of cost or net realizable value. Cost of inventories includes the cost of purchased raw materials and purchased components, direct labor, as well as manufacturing overhead which is generally applied to inventory based on direct labor and on material content, 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. Judgment is 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.     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 $ 5.2 million and $ 6.0 million of depreciation expense in the years ended June 30, 2021 and, 2020 respectively.   Goodwill and Intangible Assets:   Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology and software are recorded on the Company's balance sheet. The definite-lived intangible assets are being amortized to expense over periods ranging between five 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 intangible assets 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 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 valuation of acquired assets and assumed liabilities. 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 10 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 amount as necessary.   - 41 -     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:   (In thousands)   June 30, 2021     June 30, 2020                     Balance at beginning of the period   $ 6,956     $ 7,687   Additions from company acquired     248       -   Additions charged to expense     859       2,482   Deductions for repairs and replacements     ( 2,768 )     ( 3,213 ) Balance at end of the period   $ 5,295     $ 6,956     Employee Benefit Plans:   The Company has a 401 (k) retirement plan whereby employee’s contributions to the 401 (k) are matched by the Company. The 401 (k) match program covers substantially all of its employees. The Company also has a nonqualified deferred compensation plan covering certain employees. The costs of employee benefit plans are charged to expense and funded annually. Total costs were $ 1.4 million and $ 1.3 million in June 30, 2021 and 2020, respectively.   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 expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled $ 3.7 million and $ 3.6 million for the fiscal years ended June 30, 2021 and 2020, 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 installation and 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, stock warrants, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 1,029,000 shares and 368,000 shares in fiscal 2021 and 2020, respectively. See further discussion 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.   - 42 -     Foreign Exchange:   The functional currency of the Company’s Mexican subsidiary is the Mexican Peso and the functional currency of the Company’s Canadian subsidiary is the Canadian Dollar. Assets and liabilities of foreign operations are translated using period end exchange rates. Revenue and expenses are translated using average exchange rates during each period reported. Translation losses (gains) are reported in accumulated other comprehensive loss (gain) as a component of shareholders equity and were ($ 0.1 ) million and $ 0.1 million as of June 30, 2021 and 2020, respectively. The Company recognizes foreign currency transaction (gains) and losses on certain assets and liabilities that are denominated in the Mexican Peso and Canadian Dollar. These transaction (gains) and losses are reported in other expense in the consolidated statements of operations and were $ 0.2 million and $ 0.5 million for the twelve months ended June 30, 2021 and 2020, respectively.   New Accounting Pronouncements:   In June 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update (“ASU”) 2016 - 13 (“ASU 2016 - 13 ), "Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016 - 13 is effective for public companies for annual periods beginning after December 13, 2019, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2021. The adoption of ASU 2016 - 13 did not have a material impact on the consolidated financial statements and disclosures.   On July 1, 2019, the Company adopted ASU 2016 - 02, “Leases,” using a modified-retrospective transition method, under which it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new guidance. In addition, the Company adopted an accounting policy to not record short-term leases on the balance sheet and elected the practical expedient to not separate lease and non-lease components.   The Company’s most significant leases are those related to certain manufacturing facilities along with a small office space. Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts and various office equipment. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU assets) of $ 10.4 million, lease liabilities of $ 10.8 million which includes the impact of existing deferred rents and tenant improvement allowances and a $ 0.4 million adjustment to retained earnings on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow. Refer to Note 11.   In March 2020, the FASB issued ASU No. 2020 - 04,  “Reference Rate Reform” (Topic 848 ) (“ASU 2020 - 04” ), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 and expire on December 31, 2022. The provisions of ASU 2020 - 04 did not have a material effect on the Company’s financial condition, results of operations or cash flows as of  June 30, 2021. The Company will continue to monitor any impacts of the standard and reference rate reform on its financial instruments.   Use of Estimates:   The preparation 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.   Reclassifications:   Certain amounts reported in the prior year in Note 6 have been reclassified to conform to the current year’s presentation.   Subsequent Events:   The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.   - 43 -       NOTE 2 — ACQUISITION OF JSI STORE FIXTURES   On May 21, 2021, the Company acquired 100 % of the issued and outstanding shares of capital stock of JSI Store Fixtures (JSI), a Maine-based provider of retail commercial display solutions, for $ 93.7 million. The acquisition of JSI will significantly increase the Company’s total addressable markets within the grocery and convenience store verticals. The Company funded the acquisition with a combination of cash on hand and $ 71.6 million from the $ 100 million revolving line of credit.   The Company accounted for this transaction as a business combination. The Company has preliminarily allocated the purchase price of approximately $ 93.7 million which includes an estimate of customary post-closing purchase price adjustments to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill. This preliminary allocation is subject to the final determination of the purchase price which will be finalized in fiscal 2022, as well as potential revision resulting from the finalization of pre-acquisition tax filings. The Company is in the process of finalizing third party valuations of certain assets. The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of May 21, 2021, is as follows:   (In thousands)         Cash and cash equivalents   $ 4,067   Accounts receivable     9,252   Inventories     9,898   Property, plant and equipment     7,076   Other assets     7,440   Intangible assets     45,760   Accounts payable     ( 4,199 ) Accrued liabilities     ( 8,434 ) Deferred tax liability     ( 10,583 ) Identifiable assets     60,277   Goodwill     33,415   Net purchase consideration   $ 93,692     The gross amount of accounts receivable is $ 9.3 million.   Goodwill recorded from the acquisition of JSI is attributable to the impact of the positive cash flow from JSI in addition to expected synergies from the business combination. The goodwill resulting from the acquisition is deductible for tax purposes. The intangible assets include amounts recognized for the fair value of the trade name, technology assets, non-compete agreements and customer relationships. The fair value of the intangible assets was determined based upon the income (discounted cash flow) approach. The following table presents the details of the intangible assets acquired at the date of acquisition:       Estimated     Estimated Useful   (In thousands)   Fair Value     Life (Years)   Tradename   $ 8,680     Indefinite life   Technology asset     4,900       7   Non-compete     260       5   Customer relationship     31,920       20       $ 45,760             The fair market value write-up of the property, plant, and equipment totaled $ 1.8 million. Transaction costs related to the acquisition totaled $ 2.9 million in fiscal 2021 and are recorded in selling and administrative expenses on the consolidated statements of operations.   JSI’s post-acquisition results of operations for the period from May 21, 2021 through June 30, 2021 are included in the Company’s Consolidated Statements of Operations. Since the acquisition date, net sales of JSI for the period from May 21, 2021 through June 30, 2021 were $ 9.1 million and operating income was $ 0.7 million. The operating results of JSI are included in the Display Solutions Segment.   - 44 -     Pro Forma Impact of the Acquisition of JSI   (unaudited)   The following table represents unaudited pro forma results of operations and gives effect to the acquisition of JSI as if the transaction had occurred on July 1, 2019. The unaudited pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or the results that may occur in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies or operating efficiencies resulting from the acquisition of JSI .   The unaudited pro forma financial information for the twelve months ended June 30, 2021 and June 30, 2020 is prepared using the acquisition method of accounting and has been adjusted to effect to the pro forma events that are: ( 1 ) directly attributable to the acquisition; ( 2 ) factually supportable; and ( 3 ) expected to have a continuing impact on the combined results. The unaudited pro forma operating income of $ 19.3 million excludes acquisition-related expenses of $ 2.9 million.       Twelve Months Ended       June 30   (In thousands, unaudited)   2021     2020   Net sales   $ 391,000     $ 362,541                     Gross profit   $ 97,947     $ 86,399                     Operating income   $ 19,312     $ 13,878       NOTE 3 — BUSINESS SEGMENT 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 utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the petroleum/convenience markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports complex market. The Company also offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Company also services lighting product customers through the commercial industrial, stock and flow, and renovation channels. The Lighting Segment also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.   The Company acquired JSI in the fourth quarter of fiscal 2021, and consolidated it into the former Graphics Segment, which has been rebranded as the Display Solutions Segment, to more closely align the Company’s comprehensive product offering with the markets it serves. 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 petroleum/convenience markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports complex market. The Display Solutions Segment implements, installs and provides program management services related to products sold by the Display Solutions 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, 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.   - 45 -     One customer program in the Display Solutions Segment represents $ 32.4 million or 10.3 % of the Company’s net sales in the fiscal year ended June  30, 2021. There were no customers or customer programs representing a concentration of 10% or more of the Company’s net sales in the fiscal year ended June 30, 2020. There was no concentration of accounts receivable at June  30, 2021 or 2020. Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of June  30, 2021 and June 30, 2020:   (In thousands)                     2021     2020   Net Sales:                 Lighting Segment   $ 189,000     $ 206,199   Display Solutions Segment     126,612       99,359       $ 315,612     $ 305,558                     Operating Income (Loss):                 Lighting Segment   $ 13,328     $ 16,123   Display Solutions Segment     9,864       8,218   Corporate and Eliminations     ( 15,162 )     ( 11,265 )     $ 8,030     $ 13,076                     Capital Expenditures:                 Lighting Segment   $ 1,596     $ 1,386   Display Solutions Segment     177       1,093   Corporate and Eliminations     460       260       $ 2,233     $ 2,739                     Depreciation and Amortization:                 Lighting Segment   $ 6,306     $ 6,714   Display Solutions Segment     1,525       1,436   Corporate and Eliminations     283       504       $ 8,114     $ 8,654         June 30, 2021     June 30, 2020   Identifiable Assets:                 Lighting Segment   $ 132,169     $ 118,819   Display Solutions Segment     147,354       35,021   Corporate and Eliminations     7,298       18,423       $ 286,821     $ 172,263     The segment net sales reported above represent sales to external customers. Segment operating income (loss), 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 most intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:   (In thousands)     2021     2020   Lighting Segment inter-segment net sales   $ 28,449     $ 3,718   Display Solutions Segment inter-segment net sales   $ 219     $ 552       - 46 -       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)                     2021     2020                     BASIC EARNINGS PER SHARE                                   Net income   $ 5,868     $ 9,592                     Weighted average shares outstanding during the period, net of treasury shares     26,411       26,105                     Weighted average vested restricted stock units outstanding     17       7                     Weighted average shares outstanding in the Deferred Compensation Plan during the period     264       162   Weighted average shares outstanding     26,692       26,274                     Basic income per share   $ 0.22     $ 0.37                                       DILUTED EARNINGS PER SHARE                                   Net income   $ 5,868     $ 9,592                     Weighted average shares outstanding                                   Basic     26,692       26,274                     Effect of dilutive securities (a):                 Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any     748       199   Weighted average shares outstanding     27,440       26,473                     Diluted income per share   $ 0.21     $ 0.36                                       Anti-dilutive securities (b)     976       1,957       (a) Calculative using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.     (b) Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30, 2021 and June 30, 2020 because the exercise price was greater than the fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.   - 47 -       NOTE 5 — INVENTORIES, NET   The following information is provided as of the dates indicated:   (In thousands)   June 30, 2021     June 30, 2020                     Inventories:                 Raw materials   $ 40,567     $ 27,331   Work-in-progress     4,757       1,566   Finished goods     13,617       9,855   Total Inventories   $ 58,941     $ 38,752       NOTE 6  — ACCRUED EXPENSES   The following information is provided as of the dates indicated:   (In thousands)   June 30, 2021     June 30, 2020                     Accrued Expenses:                 Customer prepayments   $ 11,352     $ 1,698   Compensation and benefits     10,051       5,271   Accrued warranty     5,295       6,956   Accrued sales commissions     2,568       1,289   Accrued FICA     1,190       730   Operating lease liabilities     1,424       376   Accrued income tax     434       -   Finance lease liabilities     263       239   Other accrued expenses     5,341       3,874   Total Accrued Expenses   $ 37,918     $ 20,433       NOTE 7  —  GOODWILL AND OTHER INTANGIBLE ASSETS   The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The 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. Prior to the acquisition of JSI, the Company had two reporting units that contain goodwill. One reporting unit is within the Lighting Segment and one reporting unit is within the Display Solutions Segment. The tradename intangible asset has an indefinite life and is 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.   - 48 -     Fiscal 2021:   As of March 1, 2021, the Company performed its annual goodwill impairment test on the two reporting units that contain goodwill. The goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $ 28.2 million or 26 % above the carrying value of this reporting unit including goodwill. The goodwill impairment test of the reporting unit in the Display Solutions Segment passed with a business enterprise value of $ 11.4 million or 2,065 % above the carrying value of the reporting unit including goodwill.   The Company also performed its annual review of its indefinite-lived intangible asset as of March 1, 2021 and determined there was no impairment. The indefinite-lived intangible impairment test passed with a fair market value that was $ 15.7 million or 358 % above its carrying value.   The Company has performed an assessment of its goodwill and intangible assets from the date of the interim test as of March 1, 2021 through the balance sheet date for possible triggering events and has concluded that there were no triggering events that would indicate the assets are impaired.   The Company acquired JSI on May 21, 2021 ( see Note 2 ). The total purchase price exceeded the estimated fair value of net assets by approximately $ 33.4 million, which was allocated to goodwill. Goodwill and intangible assets related to JSI are included in the assets of the Display Solutions Segment. Refer to Note 2 for additional information on the intangible assets of JSI. Beginning in fiscal 2022, JSI goodwill will be subject to annual impairment testing as a separate reporting unit.   Fiscal 2020:   As of March 1, 2020, the Company performed its annual goodwill impairment test on the two reporting units that contain goodwill. The goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $ 31.6 million or 33 % above the carrying value of this reporting unit including goodwill. The goodwill impairment test of the reporting unit in the Display Solutions Segment passed with a business enterprise value of $ 4.7 million or 619 % above the carrying value of the reporting unit including goodwill.   The Company also performed its annual review of its indefinite-lived intangible asset as of March 1, 2020 and determined there was no impairment. The indefinite-lived intangible impairment test passed with a fair market value that was $ 16.8 million or 392 % above its carrying value.   A significant decline in the Company’s stock price during March 2020 related to the COVID- 19 pandemic led management to conclude that a triggering event occurred. As a result, an interim goodwill impairment test subsequent to the March 1 testing date was required for both reporting units as of March 31, 2020 .  The result of the impairment test on both reporting units indicated that goodwill was not impaired .   The following table presents information about the Company's goodwill on the dates or for the periods indicated:               Display           (In thousands)   Lighting     Solutions               Segment     Segment     Total   Balance as of June 30, 2020                         Goodwill   $ 86,711     $ 28,690     $ 115,401   Accumulated impairment losses     ( 77,503 )     ( 27,525 )     ( 105,028 ) Goodwill, net as of June 30, 2020   $ 9,208     $ 1,165     $ 10,373                             Balance as of June 30, 2021                         Goodwill   $ 70,971     $ 28,690     $ 99,661   Goodwill acquired     -       33,415       33,415   Accumulated impairment losses     ( 61,763 )     ( 27,525 )     ( 89,288 ) Goodwill, net as of June 30, 2021   $ 9,208     $ 34,580     $ 43,788     In fiscal 2021 ,  the Company wrote-off the goodwill and impairment loss for a dissolved entity. The net impact to the consolidated financial statements, including the goodwill, net balance, was zero.   - 49 -     The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:       June 30, 2021   (In thousands)   Gross                       Carrying     Accumulated     Net       Amount     Amortization     Amount   Amortized Intangible Assets                         Customer relationships   $ 62,083     $ 10,967     $ 51,116   Patents     268       237       31   LED technology firmware, software     20,966       13,415       7,551   Trade name     2,658       939       1,719   Non-compete     260       6       254   Total Amortized Intangible Assets     86,235       25,564       60,671                             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     $ 25,564     $ 72,773         June 30, 2020   (In thousands)   Gross                       Carrying     Accumulated     Net       Amount     Amortization     Amount   Amortized Intangible Assets                         Customer relationships   $ 35,563     $ 14,129     $ 21,434   Patents     338       277       61   LED technology firmware, software     16,066       12,852       3,214   Trade name     2,658       829       1,829   Total Amortized Intangible Assets     54,625       28,087       26,538                             Indefinite-lived Intangible Assets                         Trademarks and trade names     3,422       -       3,422   Total indefinite-lived Intangible Assets     3,422       -       3,422                             Total Other Intangible Assets   $ 58,047     $ 28,087     $ 29,960     In the fiscal  2021 ,  the Company wrote-off intangible assets’ gross carrying amount and accumulated amortization for a dissolved entity. The net impact to the consolidated financial statements, including the total other intangible assets, was zero.   (In thousands)   2021     2020                     Amortization expense of other intangible assets   $ 2,948     $ 2,687     The Company expects to record annual amortization expense as follows:   (In thousands)                   2022   $ 4,808   2023   $ 4,760   2024   $ 4,760   2025   $ 4,760   2026   $ 4,754   After 2026   $ 36,829     - 50 -       NOTE 8 — REVOLVING LINE OF CREDIT AND LONG-TERM DEBT   In  March 2021 ,  the Company amended its secured line of credit to a $ 100  million facility from a $ 75  million facility that expires in the  third  quarter of fiscal  2026 .  Interest on the revolving line of credit 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  200  basis points, and the increment over the Base Rate fluctuates between  0  and  100  basis points, both of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing for the first quarter of fiscal 2022 has not been determined pending the outcome of a further amendment to the line of credit (See below). The fee on the unused balance of the $ 100  million committed line of credit fluctuates between  15  and  22.5  basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum interest coverage ratio. As of  June 30, 2021 ,  there were $ 68.2  borrowings against the line of credit, and $ 31.8  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 the process of amending its secured line of credit as a result of the acquisition of JSI. One of the changes to the line of credit will allow for the historical EBITDA results of JSI in the computation of the debt covenants. The Company expects to be in compliance with its debt covenants once the amendments are in place. For the period ending June 30, 2021, the Company has obtained a waiver from its bank in relation to its loan covenants until the amended line of credit has been finalized.     NOTE 9 — CASH DIVIDENDS   The Company paid cash dividends of $ 5.3 million in both fiscal years 2021 and 2020. Dividends on restricted stock units in the amount of $ 0.1 million were accrued as of both June 30, 2021 and 2020. These dividends are paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In August 2021, the Board of Directors declared a regular quarterly cash dividend of $ 0.05 per share payable September 7, 2021 to shareholders of record August 30, 2021 .     NOTE 10 — EQUITY COMPENSATION   In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan ( “2019 Omnibus Plan”). The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The 2019 Omnibus Plan replaced the 2012 Stock Incentive Plan ( “2012 Stock Plan”). The number of shares of common stock authorized for issuance under the 2019 Omnibus Plan is 2,650,000 which were combined with the remaining shares available under the 2012 Stock Plan. The number of shares reserved for issuance under the 2019 Omnibus Plan is 2,573,450 shares all of which are available for future grant or award as of June 30, 2021. The Plan contains a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units and other stock-based awards.   Inducement awards are granted by the Company to attract and retain key executives. Inducement awards are separately registered securities and are not part of the 2019 Omnibus Plan. In fiscal 2021, 75,000 inducement options, 30,626 RSUs and 122,509 PSUs were granted. In fiscal 2020, 280,000 inducement options were granted.   - 51 -     Stock Warrants   The Company has outstanding 200,000 fully exercisable stock warrants with an exercise price of $ 9.95 as of June 30, 2021. As of June 30, 2021, the warrants had a remaining contractual life of 0.6 years. The fair value of the warrants on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option price model to value the warrants in the period indicated:       February 21, 2017   Dividend yield     2.01 % Expected volatility     39 % Risk-free interest rate     1.80 % Expected life (in years)     4.5   Fair value per share   $ 2.87     Stock Options   The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to value the stock options granted in the periods indicated:                         2021     2020   Dividend yield     2.9 %     4.7 % Expected volatility     50 %     43 % Risk-free interest rate     0.3 %     1.4 % Expected life (in years)     6.0       6.0   Fair value per share   $ 2.40     $ 1.22     Stock option expense is recorded on a straight-line basis, or sooner if the grantee is retirement eligible as defined in the 2019 Omnibus Plan, net of forfeitures. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. 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.       Service-based options have a three -year ratable vesting period beginning one year after the date of grant. Inducement stock options have a term of ten years only if the employee is employed for three years from the date of grant. The maximum exercise period of service-based and performance-based stock options granted under the 2019 Omnibus Plan is ten years.    The Company recorded $ 0.8 million and $ 0.4 million of expense related to stock options in fiscal years 2021 and 2020, respectively.   A summary of stock option activity as of June 30, 2021 and changes during the period from July 1, 2020 through June 30, 2021 are as follows:       Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (in years)     Aggregate Intrinsic Value   Outstanding at June 30, 2020     2,282,938     $ 6.20       7.1     $ 2,731,949   Granted     318,406     $ 6.86                   Exercised     ( 139,367 )   $ 7.38                   Forfeited     ( 132,329 )   $ 8.84                   Expired     ( 2,500 )   $ 7.29                   Outstanding at June 30, 2021     2,327,148     $ 6.07       6.7     $ 5,320,456   Exercisable at June 30, 2021     1,013,157     $ 7.58       5.0     $ 1,239,663   Vested and expected to vest at June 30, 2021     2,256,565     $ 6.08       6.6     $ 5,165,389     - 52 -     The aggregate intrinsic value of options exercised during the years ended June 30, 2021 and June 30, 2020 was $ 0.2 million and $ 0.1 million, respectively. The Company received $ 1.0 million and $ 0.6 million of proceeds from stock options exercises in fiscal 2021 and 2020, respectively.   As of June 30, 2021, there was $ 0.9 million of unrecognized compensation cost, net of forfeitures, related to stock options, which is expected to be recognized over a weighted-average remaining period of 1.8 years.   For fiscal year 2021, the Company recognized a current income tax benefit of $ 0.1 million for tax deductions related to equity compensation. A discrete tax expense of $ 0.1 million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.   For fiscal year 2020, the Company recognized a current income tax benefit of $ 43,000 for tax deductions related to equity compensation. A discrete tax expense of $ 0.4 million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.   Restricted Stock Units   A total of 163,752 RSUs with a weighted average fair value of $ 7.08 per share were awarded to employees during fiscal 2021. Inducement RSUs awarded during fiscal 2021 vest after three years of service. All other RSUs awarded during fiscal 2021 have a three -year vesting period, with 50 % vesting on the first anniversary date of the award and 25 % vesting on the second and third anniversary of the award. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSUs were awarded. The unvested 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 $ 42,085 and $ 16,931 were accrued as of June 30, 2021 and 2020, respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.   The Company recorded $ 0.6 million and $ 0.1 million of expense related to RSUs during fiscal year 2021 and 2020, respectively.   A summary of outstanding and unvested RSU activity as of June 30, 2021 and changes during the period from July 1, 2020 through June 30, 2021 are as follows:       Shares     Weighted- Average Grant Date Fair Value   Unvested at June 30, 2020     72,820     $ 4.03   Granted     163,752     $ 7.08   Vested     ( 28,051 )   $ 4.34   Forfeited     ( 7,800 )   $ 5.49   Unvested at June 30, 2021     200,721     $ 6.42     As of June 30, 2021, there was $ 0.6 million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is expected to be recognized over a weighted-average remaining period of 2.2 years. The total fair value of RSUs that became fully vested during fiscal 2021 was $ 0.2 million.   Performance Stock Units   A total of 256,526 PSUs with a weighted average fair value of $ 7.50 per share were awarded to employees during fiscal 2021. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs were awarded. PSUs vest if the Company meets certain financial metrics over a three -year period. The PSUs 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. This applies to PSUs granted under the 2012 Stock Plan only. Dividends on PSUs in the amount of $ 86,196 and $ 46,865 were accrued as of June 30, 2021 and 2020, respectively. Accrued dividends are paid to the holder upon vesting of the PSUs and issuance of shares.   The Company recorded $ 0.6 million and $ 0.1 million of expense related to PSUs during fiscal years 2021 and 2020, respectively.   - 53 -     A summary of outstanding and unvested PSU activity as of June 30, 2021 and changes during the period from July 1, 2020 through June 30, 2021 are as follows:       Shares     Weighted- Average Grant Date Fair Value   Unvested at June 30, 2020     206,974     $ 3.98   Granted     256,526     $ 7.50   Vested     -     $ -   Forfeited     ( 6,613 )   $ 4.48   Unvested at June 30, 2021     456,887     $ 5.95     As of June 30, 2021, there was $ 1.6 million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is expected to be recognized over a weighted-average remaining period of 2.1 years.   Director and Employee Stock Compensation Awards   The Company awarded a total of 43,049 and 71,581 common shares as stock compensation awards in fiscal years 2021 and 2020, respectively. These common shares were valued at their approximate $ 0.3 million fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, 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.   Deferred Compensation Plan   The Company has a non-qualified deferred compensation plan providing for both Company matching contributions and participant funded deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of June 30, 2021, there were 31 participants, all with fully vested account balances. A total of 345,875 common shares with a cost of $ 2.5 million, and 180,264 common shares with a cost of $ 1.1 million, both of which included the Company contributions and the participant deferrals, were held in the plan as of June  30, 2021 and 2020, 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 newly issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued 193,510 and 85,560 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2021 and during fiscal 2020, respectively.     NOTE 11 — LEASES AND PURCHASE COMMITMENTS   Purchase commitments of the Company totaled $ 29.0 million and $ 14.3 million as of June 30, 2021 and June  30, 2020, respectively.   The Company leases certain manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items and various items of office equipment. 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 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. The rent expense for these leases was immaterial for fiscal 2021.   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.   - 54 -     Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of right-of-use (ROU) assets of $ 10.4 million and lease liabilities of $ 10.8 million which includes the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the new standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.   (In thousands)   2021     2020                     Operating lease cost   $ 2,428     $ 2,308   Financing lease cost:                 Amortization of right of use assets     291       48   Interest on lease liabilities     91       16   Variable lease cost     10       6   Sublease income     ( 43 )     -   Total lease cost   $ 2,777     $ 2,378     Supplemental Cash Flow Information:                           (In thousands)   2021     2020                     Cash flows from operating leases                 Fixed payments - operating cash flows   $ 2,412     $ 2,296   Liability reduction - operating cash flows   $ 1,983     $ 1,810                     Cash flows from finance leases                 Interest - operating cash flows   $ 91     $ 16   Repayments of principal portion - financing cash flows   $ 239     $ 39     Operating Leases:   June 30, 2021     June 30, 2020                     Total operating right-of-use assets   $ 11,579     $ 8,663                     Accrued expenses (Current liabilities)   $ 1,424     $ 376   Long-term operating lease liability     10,890       9,021   Total operating lease liabilities   $ 12,314     $ 9,397                     Weighted Average remaining Lease Term (in years)     3.93       4.59                     Weighted Average Discount Rate     4.81 %     4.85 %   - 55 -     Finance Leases:   June 30, 2021     June 30, 2020                     Buildings under finance leases   $ 2,033     $ 2,033   Equipment under finance leases     30       -   Accumulated depreciation     ( 339 )     ( 48 ) Total finance lease assets, net   $ 1,724     $ 1,985                     Accrued expenses (Current liabilities)   $ 263     $ 239   Long-term finance lease liability     1,521       1,755   Total finance lease liabilities   $ 1,784     $ 1,994                     Weighted Average remaining Lease Term (in years)     5.78       6.83                     Weighted Average Discount Rate     4.86 %     4.86 %   Maturities of Lease Liability:   Operating Lease     Finance Lease     Operating     Net Lease       Liabilities     Liabilities     Subleases     Commitments   2022   $ 3,558     $ 342     $ ( 377 )   $ 3,523   2023     3,558       342       ( 377 )     3,523   2024     3,255       337       ( 377 )     3,215   2025     2,104       362       ( 31 )     2,435   2026     803       362       -       1,165   Thereafter     232       304       -       536   Total lease payments   $ 13,510     $ 2,049     $ ( 1,162 )   $ 14,397   Less: Interest     ( 1,196 )     ( 265 )             ( 1,461 ) Present Value of Lease Liabilities   $ 12,314     $ 1,784             $ 12,936       NOTE 12 — INCOME TAXES   The following information is provided for the years ended June  30:   (In thousands)   2021     2020                     Components of income before income taxes:                 United States   $ 7,117     $ 11,494   Foreign     799       199   Income before income taxes   $ 7,916     $ 11,693                     Provision for income taxes                 U.S. Federal   $ 2,425     $ ( 2,082 ) Foreign     247       83   State and local     434       175   Total current     3,106       ( 1,824 )                   Deferred     ( 1,058 )     3,925   Total provision for income taxes   $ 2,048     $ 2,101     - 56 -     (In thousands)   2021     2020   Reconciliation to federal statutory rate:                 Federal statutory rate     21.0 %     21.0 % State and local taxes, net of federal benefit     1.5       2.0   Foreign operations     1.0       0.4   Federal tax credits     ( 1.5 )     ( 0.7 ) Valuation allowance     ( 25.9 )     ( 13.4 ) New York state tax credits     25.9       -   Expiration of capital loss carryforward     -       8.9   Transaction costs     3.5       -   Uncertain tax position activity     ( 0.1 )     ( 0.5 ) Stock-based compensation     1.0       3.6   Tax rate changes     ( 0.3 )     ( 5.4 ) Other     ( 0.2 )     2.1   Effective tax rate     25.9 %     18.0 %   The favorable tax rate change for the year ended June 30, 2020 is due to the enactment of the CARES Act. The CARES Act allows the Company to carryback a federal net operating loss to prior tax years, offset taxable income in those earlier tax years, and obtain a refund of income taxes that were paid at a higher statutory tax rate.    The components of deferred income tax assets and (liabilities) at June  30, 2021 and 2020 are as follows:   (In thousands)   2021     2020                     Uncertain tax positions   $ 138     $ 125   Reserves against current assets     936       798   Accrued expenses     3,348       2,196   Interest     927       -   Deferred compensation     514       235   Stock-based compensation     841       597   State net operating loss carryover and credits     624       2,194   Lease liability     4,408       1,992   Goodwill, acquisition costs and intangible assets     -       8,040   U.S. Federal net operating loss carryover and credits     1,587       217   Deferred income tax asset before valuation allowance     13,323       16,394                     Valuation allowance     ( 108 )     ( 2,194 ) Deferred income tax asset     13,215       14,200                     Depreciation     ( 2,677 )     ( 1,837 ) Right of use assets     ( 4,299 )     ( 1,992 ) Goodwill, acquisition costs and intangible assets     ( 3,683 )     -   Deferred income tax liability     ( 10,659 )     ( 3,829 )                   Net deferred income tax asset   $ 2,556     $ 10,371     The Company has U.S. federal net operating loss carry forward deferred tax assets of $ 1.5 million and $ 0.1 million at June 30, 2021 and June 30, 2020, respectively. The increase of $ 1.4 million for the year is from the acquisition of JSI and has an unlimited carryforward period.  The remaining $ 0.1 million will expire over a three -year period beginning June 30, 2029. The Company has deferred tax assets for research and development credits of $ 0.1 million at both June 30, 2021 and June 30, 2020.   Utilization of the federal net operating losses and research and development credits are limited by Internal Revenue Code Section 382, but are expected to be realized before expiration.   - 57 -     The Company has state net operating loss carryovers and tax credit deferred tax assets of $ 0.6 million and $ 2.2 million at June 30, 2021 and June 30, 2020, respectively. At June 30, 2021, there was $ 0.3 million of state net operating losses from the acquisition of JSI and $ 0.3 million other state net operating losses and tax credits. A valuation allowance of $ 0.1 million exists at June 30, 2021 against Oregon tax credits not expected to be used.  The Oregon credits are otherwise expected to expire over a 4 -year period beginning June 30, 2027.   At June 30, 2020, there was $ 2.1 million of New York tax credits and $ 0.1 million of Oregon tax credits. A full valuation allowance existed for both credits not expected to be used of $ 2.2 million. During fiscal year 2021, the Company eliminated the deferred tax asset and related valuation allowance for the New York tax credits of $ 2.1 million when the entity holding the New York credits was dissolved. There was no impact to the consolidated financial statements.   The Company had a capital loss carry forward of $ 10.7 million at June 30, 2019 that was generated from the sale of a Canadian subsidiary during fiscal 2015.  During fiscal 2020, the Company sold its North Canton, Ohio and New Windsor, New York facilities, resulting in taxable capital gain; $ 6.4 million of the capital loss carry forward was used to offset the gain. The remaining capital loss carryforward of $ 4.3 million expired unused in fiscal 2020.  The Company recognized the tax benefit of utilizing the capital loss of $ 0.6 million in the fiscal year 2020 by releasing the related valuation allowance.   At June  30, 2021, tax, interest, and penalties, net of potential federal tax benefits, were $ 0.7 million, $ 0.3 million and $ 0.2 million, respectively, of the total reserve for uncertain tax positions of $ 1.2 million. The entire uncertain tax position of $ 0.7 million net of federal tax benefit, would impact the effective tax rate if recognized.   At June  30, 2020, tax, interest, and penalties, net of potential federal tax benefits, were $ 0.5 million, $ 0.3 million, and $ 0.1 million, respectively, of the total reserve for uncertain tax positions of $ 0.9 million. The entire uncertain tax position of $ 0.5 million, net of federal tax benefit, would impact the effective tax rate if recognized. The liability for uncertain tax position is included in Other Long-Term Liabilities.   The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The Company recognized a $ 0.1 million net tax benefit in both fiscal 2021 and fiscal 2020, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of $ 32,000 and $ 19,000 , respectively, in fiscal 2021 and $ 0 and $ 13,000 , respectively, in fiscal 2020. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.   The tax activity in the liability for uncertain tax positions was as follows:   (In thousands)   2021     2020                     Balance at the beginning of the fiscal year   $ 607     $ 675   Decreases - tax positions in prior period     ( 52 )     ( 70 ) Increase - tax positions in current period     49       15   Increases - tax positions in prior period     78       -   Settlements and payments     -       ( 13 ) Balance at end of the fiscal year   $ 682     $ 607     The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions, and also in Canada and Mexico. With limited exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June  30, 2018.   - 58 -       NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION   (In thousands)                     2021     2020   Cash Payments:                 Interest   $ 127     $ 990   Income taxes   $ 356     $ 6                     Non-cash investing and financing activities                 Issuance of common shares as compensation   $ 315     $ 300   Issuance of common shares to fund deferred compensation plan   $ 1,534     $ 473       NOTE 14 — 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 June 30, 2021, there were no such standby letters of credit issued. In August 2020, the Company experienced a cybersecurity incident. For details regarding this incident, see risk factor on page 8 of this Form 10 -K.     NOTE 15 – SEVERANCE COSTS   The Company recorded severance charges of less than $ 0.1 million and $ 0.3 million in fiscal 2021 and 2020, respectively. This severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring expenses in Note 16.   The activity in the Company’s accrued severance liability was as follows for the twelve months ended June 30, 2021 and 2020:       June 30,     June 30,   (In thousands)   2021     2020                     Balance at beginning of period   $ 639     $ 1,134   Accrual of expense     41       344   Payments     ( 667 )     ( 839 ) Balance at end of period   $ 13     $ 639     The severance reserve reported as of June 30, 2021 has been classified as a current liability and will be paid out over the next twelve months.     NOTE 16 – RESTRUCTURING COSTS   In fiscal 2019, the Company announced plans to close its lighting manufacturing facility in New Windsor, New York. The closure was part of ongoing actions to align the Company’s supply chain to more cost effectively serve the changing requirements of the lighting market. The sale of the New Windsor facility occurred during the first quarter of fiscal 2020. The net proceeds were $ 12.3 million resulting in a gain of $ 4.8 million. In addition, in the third quarter of fiscal 2020, the Company sold its North Canton, Ohio facility. The net proceeds were $ 7.7 million resulting in a net gain of $ 3.7 million. The Company relocated the production at the North Canton facility to smaller, leased facility in Akron, Ohio during the fourth quarter of fiscal 2020. The Company also incurred $ 0.6 million of expense to write-down inventory which is not included in the tables below. Other restructuring costs incurred in fiscal 2020 related to the realignment of the Company’s manufacturing footprint at its Houston, Texas facility. The realignment occurred as the result of the movement of equipment related to the closure of the New Windsor facility along with preparations to receive additional equipment resulting from the relocation of the North Canton facility.   - 59 -     The following table presents information about restructuring (gains) costs recorded in fiscal years 2021 and 2020:   (In thousands)   2021     2020                     Exit costs   $ ( 14 )   $ 636   Impairment of fixed assets and accelerated depreciation     -       59   Gain on sale of facility     -       ( 8,562 ) Manufacturing realignment costs     -       276   Total   $ ( 14 )   $ ( 7,591 )   The following table presents restructuring (gains) costs incurred by line item in the consolidated statement of operations in which the costs are included:   (In thousands)   2021     2020                     Cost of goods sold   $ ( 14 )   $ 980   Operating expenses     -       ( 8,571 ) Total   $ ( 14 )   $ ( 7,591 )   The following table presents information about restructuring (gains) costs by segment for the periods indicated:   (In thousands)   2021     2020                     Lighting Segment   $ -     $ ( 4,674 ) Display Solutions Segment     ( 14 )     ( 2,940 ) Corporate and Eliminations     -       23   Total   $ ( 14 )   $ ( 7,591 )   The following table presents a roll forward of the beginning and ending liability balances related to the restructuring costs:       Balance as of                             Balance as of       June 30,     Restructuring                     June 30,   (In thousands)   2020     Expense     Payments     Adjustments     2021                                             Severance and termination benefits   $ 27     $ -     $ -     $ -     $ 27   Other restructuring costs     -       ( 14 )     14       -       -   Total   $ 27     $ ( 14 )   $ 14     $ -     $ 27     Refer to Note 15 for information regarding additional severance expenses that are not included in the restructuring costs identified in this footnote.     NOTE 17 — RELATED PARTY TRANSACTIONS   One of the Company’s former independent outside directors is a director of Wesco International (Wesco). Wesco purchases lighting fixtures from the Company. Wesco will no longer be considered a related party after fiscal 2021.   The Company has recognized revenue related to the following related party transactions in the fiscal years indicated:   (In thousands)   2021     2020                     Wesco International   $ 2,013     $ 1,575     - 60 -     As of the balance sheet date indicated, the Company had the following accounts receivable recorded with respect to related party transactions:   (In thousands)   2021     2020                     Wesco International   $ 264     $ 108       NOTE 18 — SUMMARY OF QUARTERLY RESULTS (UNAUDITED)       Quarter Ended           (In thousands except per share data)   Sep. 30     Dec. 31     Mar. 31     Jun. 30     Fiscal Year                                             2021                                         Net Sales   $ 70,006     $ 76,387     $ 72,204     $ 97,015     $ 315,612   Gross profit     18,272       19,706       18,092       22,904       78,974   Net Income     1,990       2,208       1,472       198       5,868                                             Earnings per share                                         Basic   $ 0.08     $ 0.08     $ 0.05     $ 0.01     $ 0.22  (a) Diluted   $ 0.07     $ 0.08     $ 0.05     $ 0.01     $ 0.21  (a)                                           Range of share prices                                         High   $ 7.34     $ 9.01     $ 10.78     $ 9.54     $ 10.78   Low   $ 5.52     $ 6.75     $ 8.09     $ 7.55     $ 5.52                                             2020                                         Net Sales   $ 88,701     $ 82,377     $ 71,010     $ 63,470     $ 305,558   Gross profit     21,855       19,964       15,942       15,769       73,530   Net Income     4,475       1,743       1,861       1,513       9,592                                             Earnings per share                                         Basic   $ 0.17     $ 0.07     $ 0.07     $ 0.06     $ 0.37  (a) Diluted   $ 0.17     $ 0.07     $ 0.07     $ 0.06     $ 0.36  (a)                                           Range of share prices                                         High   $ 5.22     $ 6.30     $ 7.28     $ 6.81     $ 7.28   Low   $ 3.63     $ 4.90     $ 2.59     $ 3.51     $ 2.59       (a) The total of the earnings per share for each of the four quarters does not equal the total earnings per share for the full year because the calculations are based on the average shares outstanding during each of the individual periods. There is no difference between basic and diluted shares due to losses.   - 61 -       LSI INDUSTRIES INC. AND SUBSIDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 2021 and 2020 (In thousands)   COLUMN A   COLUMN B     COLUMN C     COLUMN D     COLUMN E     COLUMN F   Description   Balance Beginning of Period     Additions Charged to Costs and Expenses     Additions from Company Acquired     Deductions (a)     Balance End of Period                                             Allowance for Doubtful Accounts:                                         Year Ended June 30, 2021   $ 273     $ 19     $ 24     $ ( 60 )   $ 256   Year Ended June 30, 2020   $ 879     $ 19     $ -     $ ( 625 )   $ 273                                             Inventory Obsolescence Reserve:                                         Year Ended June 30, 2021   $ 3,821     $ 1,754     $ 380     $ ( 905 )   $ 5,050   Year Ended June 30, 2020   $ 4,605     $ 2,454     $ 10     $ ( 3,248 )   $ 3,821                                             Deferred Tax Asset Valuation Reserve:                                         Year Ended June 30, 2021   $ 2,194     $ -     $ -     $ ( 2,086 )   $ 108   Year Ended June 30, 2020   $ 3,820     $ -     $ -     $ ( 1,626 )   $ 2,194       (a) For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less recoveries.