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.   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, 2022, 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.   Management's Report on Internal Control over Financial Reporting appearing on page 32 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, 2022, 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 32.   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 1, 2022 (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.   -20-     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.   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 fees and services provided by our principal accountant Grant Thorton LLP (PCAOB ID No. 248 ) 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.   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).       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)   -21-     10.6*   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).       10.7*   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).       10.8*   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).       10.9*   Form of Change in Control Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on January 29, 2021).       10.10*   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). 10.11   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). 10.12*   Form of Supplemental Benefits Agreement (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on January 29, 2021). 10.13*   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). 10.14*   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). 10.15*   Form of 2019 Omnibus Award Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to LSI’s Form 10-Q filed on February 4, 2022). 10.16*   Form of 2019 Omnibus Award Plan Performance Stock Unit Award Agreement++ (incorporated by reference to Exhibit 10.4 to LSI’s Form 10-Q filed on February 4, 2022). 10.17*   LSI Industries Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to LSI’s Proxy Statement on Schedule 14A filed on September 15, 2021). 10.18   Sixth Amendment to Loan Documents dated as of September 30, 2021, between LSI and PNC Bank National Association (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on November 4, 2021). 10.19*   Fiscal Year 2022 Long-Term Incentive Plan (LTIP)++ (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on February 4, 2022). 10.20*   LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of December 30, 2019) (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on February 6, 2020).       14   Code of Conduct (incorporated by reference to Exhibit 14 to LSI’s Form 10-K filed on September 10, 2021)       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   -22-     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.   -23-     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 9, 2022   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 9, 2022           /s/ James E. Galeese   Executive Vice President, and Chief Financial Officer James E. Galeese   (Principal Financial Officer) Date: September 9, 2022           /s/ Jeffery S. Bastian   Vice President and Chief Accounting Officer Jeffery S. Bastian   (Principal Accounting Officer) Date: September 9, 2022           /s/ Robert P. Beech   Director Robert P. Beech     Date: September 9, 2022           /s/ Ronald D. Brown   Director Ronald D. Brown     Date: September 9, 2022           /s/ Amy L. Hanson   Director Amy L. Hanson     Date: September 9, 2022               Director Ernest W. Marshall, Jr.     Date: September 9, 2022           /s/ Chantel E. Lenard   Director Chantel E. Lenard     Date: September 9, 2022           /s/ Wilfred T. O’Gara   Chairman of the Board of Directors Wilfred T. O’Gara     Date: September 9, 2022        -24-     MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended June 30, 2022, compared to the year ended June 30, 2021. For a discussion of the year ended June 30, 2021, compared to the year ended June 30, 2020, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2021.   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.   Summary of Consolidated Results     Net Sales by Business Segment                                   (In thousands)   2022     2021                     Lighting Segment   $ 233,449     $ 189,000   Display Solutions Segment     221,671       126,612   Total Net Sales   $ 455,120     $ 315,612     Operating Income (Loss) by Business Segment                                   (In thousands)   2022     2021                     Lighting Segment   $ 20,942     $ 13,328   Display Solutions Segment     17,589       9,864   Corporate and Eliminations     (17,330 )     (15,162 ) Total Operating Income   $ 21,201     $ 8,030     Fiscal 2022 net sales of $455.1 million increased $139.5 million or 44.2% as compared to fiscal 2021 net sales of $315.6 million. Net sales were favorably influenced by increased net sales in the Lighting Segment (up $44.4 million or 23.5%) and favorably influenced by increased net sales in the Display Solutions Segment (up $95.1 million or 75.1%). The growth can be attributed to continued strengthening demand in the Company’s core markets and from the acquisition of JSI.   Fiscal 2022 operating income of $21.2 million represents a $13.2 million increase from fiscal 2021 operating income of $8.0 million. Current year results include $0.5 million of transaction costs related to the acquisition of JSI. Prior year results were also unfavorably impacted by $2.9 million transaction costs related to the acquisition of JSI. Non-GAAP adjusted operating income in fiscal 2022 of $25.0 million increased $12.0 million or 93% from adjusted fiscal 2021 operating income of $13.0 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 resulting from targeted pricing actions, and lower selling and administrative expenses.   -25-     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 and Net Debt. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. 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, and Net Debt.    Reconciliation of operating income to adjusted operating income:                                   (In thousands)   2022     2021                     Operating Income as reported   $ 21,201     $ 8,030                     Acquisition costs     473       1,977                     Stock compensation expense     3,288       2,938                     Severance costs     11       41                     Restructuring, plant closure (gain) costs and related inventory write-downs     -       (14 )                   Adjusted Operating Income   $ 24,973     $ 12,972       Reconciliation of net income to adjusted net income                                                                   (In thousands, except per share data)   2022     2021               Diluted EPS             Diluted EPS                                     Net Income as reported   $ 15,032     $ 0.54     $ 5,868     $ 0.21                                     Acquisition costs     373   (1)   0.01       1,497   (4)   0.05                                     Stock compensation expense     2,594   (2)   0.09       2,161   (5)   0.08                                     Severance costs     4   (3)   -       32   (6)   -                                     Restructuring, plant closure (gain) costs and related inventory write-downs     -       -       (11 ) (7)   -                                     Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes     -       -       216       0.01                                     Net Income adjusted     18,003     $ 0.64     $ 9,763     $ 0.35     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) $100 (2) $694 (3) $7 (4) $480 (5) $777 (6) $9 (7) ( $2)   -26-     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)   2022     2021                     Operating Income as reported   $ 21,201     $ 8,030                     Depreciation and Amortization     10,118       8,114                     EBITDA   $ 31,319     $ 16,144                     Acquisition costs     473       2,938                     Stock compensation expense     3,288       1,977                     Severance costs     11       41                     Restructuring, plant closure (gain) costs and related inventory write-downs     -       (14 )                   Adjusted EBITDA   $ 35,091     $ 21,086       Reconciliation of cash flow from operations to free cash flow                 (In thousands)   2022     2021                     Cash Flow from Operations   $ (3,863 )   $ 28,009                     Capital expenditures     (2,122 )     (2,233 )                   Free Cash Flow   $ (5,985 )   $ 25,776       Reconciliation of net debt                 (In thousands)   2022     2021                     Long-term debt as reported   $ 79,596     $ 68,178                     Less:                 Cash and cash equivalents as reported     2,462       2,282                     Net Debt   $ 77,134     $ 65,896     -27-     Results of Operations   2022 Compared to 2021             Lighting Segment                                   (In thousands)   2022     2021                     Net Sales   $ 233,449     $ 189,000   Gross Profit   $ 70,120     $ 57,002   Operating Income   $ 20,942     $ 13,328     Lighting Segment net sales of $233.4 million in fiscal 2022 increased 23.5% from fiscal 2021 net sales of $189.0 million. The sales growth was across all key vertical markets, with significant contributions from new and enhanced products.   Gross profit of $70.1 million in fiscal 2022 increased $13.1 million or 23.0% from fiscal 2021. Gross profit as a percentage of net sales was 30.0% in fiscal 2022 compared to 30.2% in fiscal 2021. Gross profit as a percentage of sales was relatively flat as selling price increase realization offset the majority of rapid cost increases to material input costs and transportation costs.   Operating expenses of $49.2 million in fiscal 2022 increased $5.5 million or 12.6% from fiscal 2021 operating expenses of $43.7 million, primarily driven by higher commission expense as a result of higher sales.   Fiscal 2022 Lighting Segment operating income of $20.9 million increased $7.6 million or 57.1% from operating income of $13.3 million in fiscal 2021 and operating income as a percentage of sales also increased from 7.1 to 9.0%. Both increases were primarily driven by sales volume and price realization..   Display Solutions Segment                                   (In thousands)   2022     2021                     Net Sales   $ 221,671     $ 126,612   Gross Profit   $ 39,076     $ 21,989   Operating Income   $ 17,589     $ 9,864     Display Solutions Segment net sales of $221.7 million in fiscal 2022 increased $95.1 million or 75.1% from fiscal 2021 net sales of $126.6 million. The increase reflects the acquisition of JSI and continued growth in the grocery and quick-service-restaurant markets.   Gross profit of $39.1 million in fiscal 2022 increased $17.1 million or 77.7% from fiscal 2021. Gross profit as a percentage of net sales increased to 17.6% in fiscal 2022 compared from 17.4% in fiscal 2021. Gross profit as a percentage of net sales reflects both the accretive effect of the JSI acquisition and improvements to core business margins, partially offset by the impact of input costs.   Operating expenses of $21.5 million in fiscal 2022 increased $9.4 million or 77.2% from fiscal 2021, primarily driven by the inclusion of 12 months of results for JSI.   Fiscal 2022 Display Solutions Segment operating income of $17.6 million increased $7.7 or 78.3% million from operating income of $9.9 million in fiscal 2021. The increase of $7.7 million was primarily driven by an increase in sales.   Corporate and Eliminations                                   (In thousands)   2022     2021                     Gross (Loss) Profit   $ 12     $ (17 ) Operating (Loss)   $ (17,330 )   $ (15,162 )   -28-     The gross profit (loss) relates to the intercompany profit in inventory elimination.   Operating expenses of $17.3 million in fiscal 2022 increased $2.2 million or 14.3% from fiscal 2021. The increase is primarily due an increase in stock compensation expense and incentive plan expenses as the result of improved business performance.   Consolidated Results   We reported $2.0 million net interest expense in fiscal 2022 compared to $0.3 million net interest expense in fiscal 2021. The increase in interest expense from fiscal 2021 to fiscal 2022 is the result of higher levels of debt outstanding on our credit facility which is the result of partially funding of the JSI acquisition. We also recorded other expense/(income) $0.1 and ($0.2) in fiscal 2022 and fiscal 2021, respectively, related to net foreign exchange currency transaction losses and gains through our Mexican and Canadian subsidiaries.   The $4.1 million of tax expense in fiscal 2022 reflects a consolidated effective tax rate of 21.2%. The $2.0 million of income tax expense in fiscal 2021 represents a consolidated effective tax rate of 25.9%. The effective tax rate in fiscal 2021 was higher as a result of non-deductible transaction costs related to the acquisition of JSI.   We reported net income of $15.0 million in fiscal 2022 compared to net income of $5.9 million in fiscal 2021. Non-GAAP adjusted net income was $18.0 million in fiscal 2022 compared to adjusted net income of $9.8 million in fiscal 2021 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of an increase in net sales. Diluted earnings per share of $0.54 was reported in fiscal 2022 compared to $0.21 diluted earnings per share in fiscal 2021. The weighted average common shares outstanding for purposes of computing diluted earnings per share in fiscal 2022 were 27,993,000 shares compared to 27,440,000 shares in fiscal 2021.   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, 2022, we had working capital of $84.3 million, compared to $54.1 million at June 30, 2021. The ratio of current assets to current liabilities was 2.13 to 1 as of June 30, 2022, compared to a ratio of 1.76 to 1 as of June 30, 2021. The $30.2 million increase in working capital from June 30, 2021, to June 30, 2022, is primarily driven by a $15.5 million increase in inventory, a $20.1 million increase in accounts receivable offset by a $1.8 million increase in accounts payable and the $3.8 million current portion of the $25.0 million term loan.   Net accounts receivable were $77.8 million and $57.7 million at June 30, 2022, and June 30, 2021, respectively. The increase in accounts receivable is due primarily to an increase in sales. DSO was 54 days and 56 days as of June 30, 2022, and June 30, 2021, respectively. We believe that our receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for credit losses are adequate.   Net inventories of $74.4 million at June 30, 2022, increased $15.5 million from $58.9 million at June 30, 2021. The increase of $15.5 million is the primarily the result of an increase in gross inventory of $15.5 million and a negligible increase in obsolescence reserves. Lighting Segment net inventory increased $12.0 million, in anticipation of an increase in market demand and to mitigate escalating supply chain challenges in the first half of fiscal 2022. Net inventory in the Display Solutions Segment increased $3.5 million to support several on-going programs.   Cash generated from operations and borrowing capacity under our credit facility is our primary source of liquidity. In September 2021, we amended our previous $100 million secured line of credit, to a $25 million term loan and the remaining $75 million as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. As of June 30, 2022, $17.7 million of the line of credit was available. As of June 30, 2022, we are in compliance with all of our loan covenants. We believe that our $100 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the next 12 months. 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 used $3.8 million of cash from operating activities in fiscal 2022 compared to a source of cash of $28.0 million in fiscal 2021. The $31.8 million decrease in net cash flows from operating activity is the result of increases in inventory and accounts receivable and decreases in accrued expense and customer prepayments, partially offset by improved earnings and an increase in accounts payable.   -29-     We used $1.6 million of cash from investing activities in fiscal 2022 compared to a use of cash of $93.0 million in fiscal 2021. Capital expenditures were approximately $2.0 million in both fiscal years. The primary difference between cash flow from investing activities is the acquisition of JSI.    We had a source of cash of $5.6 million related to financing activities in fiscal 2022 compared to a source of cash of $63.6 million in fiscal 2021. The $58.0 million change in cash flow was the net result of an increase in the borrowings on the line of credit to support the growth in working capital and due to the acquisition of JSI. Most of the growth in working capital can be attributed to the increase in inventory to ensure product availability for critical sales growth initiatives and to mitigate supply chain challenges.   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.   Cash Dividends   In August 2022, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable September 6, 2022, to shareholders of record as of August 29, 2022. The indicated annual cash dividend rate for fiscal 2022 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   We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1. "Summary if Significant accounting Policies" of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur may have a material impact on our financial condition or results of operations. The significant accounting policies that management believes are critical to the understanding and evaluating our reported financial results include the following: income taxes, warranty, goodwill and intangible assets, stock-based compensation, and revenue recognition. For further information see Note 1. “Summary of Significant accounting Policies " of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K   Warranty Reserves:   The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to 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. If actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which could adversely affect our gross profit and results of operations.   Revenue Recognition:   The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations. Provisions for discounts, rebates, sales incentives, returns, and other adjustments are generally provided for in the period the related sales are recorded, based on management’s assessment of historical trends and projection of future results.   -30-     Goodwill and Intangible Assets:   Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. 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 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.   Income Tax Valuation Allowances:   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. Changes in the expectations regarding the realization of deferred tax assets and any related valuation allowances, the development of the Company’s income tax provision, and the estimation of the liability for uncertain tax positions, could materially impact income tax expense in future periods.   Stock-Based Compensation:   The Company accounts for stock-based compensation to certain employees and its directors in accordance with accounting guidance for stock-based compensation. The accounting guidance requires companies to measure the cost of employee and director services received in exchange for an award of equity instruments, including stock options, restricted stock units, and performance stock units, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Equity award forfeitures are recognized at the date of employee termination. If any of the assumptions used in the Black-Scholes pricing model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period     -31-     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, 2022, 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.   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, 2022. 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)   -32-     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, 2022, 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, 2022, 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, 2022, and our report dated September 9, 2022 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.   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 9, 2022   -33-     REPORT OF INDEPENDENT REGISTERED PUBLIC 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, 2022 and 2021, 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, 2022, and the related notes and financial statement schedule 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, 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, 2022, 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 9, 2022 expressed 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 regarding 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.   -34-     Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Estimation of product warranty reserves   As described further in note 1 to the 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, 2022 was $4.5 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.   Our audit procedures related to the estimation of product warranty reserves included the following, among others:   ●     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 ●     Evaluated the methods and assumptions used by management by: o     Developing an estimation for the warranty accrual and comparing the results to the Company’s product warranty accrual estimate o     Utilized retrospective warranty claim and lag data to evaluate the warranty reserve estimated by management   /s/ GRANT THORNTON LLP   We have served as the Company’s auditor since 2009. Cincinnati, Ohio September 9, 2022   -35-     LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June   30, 2022, and 2021 (In thousands, except per share data)         Twelve Months Ended                                 2022     2021                     Net Sales   $ 455,120     $ 315,612                     Cost of products and services sold     345,912       236,637                     Severance costs     -       15                     Restructuring costs     -       ( 14 )                   Gross profit     109,208       78,974                     Selling and administrative expenses     87,995       70,918                     Severance costs     12       26                     Operating income     21,201       8,030                     Interest (income)     -       ( 19 )                   Interest expense     1,968       287                     Other expense (income)     148       ( 154 )                   Income before income taxes     19,085       7,916                     Income tax expense     4,053       2,048                     Net income   $ 15,032     $ 5,868                                       Earnings per common share (see Note 4)                 Basic   $ 0.55     $ 0.22   Diluted   $ 0.54     $ 0.21                                       Weighted average common shares outstanding                 Basic     27,286       26,692   Diluted     27,993       27,440       The accompanying notes are an integral part of these financial statements.   -36-     LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended June   30, 2022, and 2021 (In thousands)         2022     2021                     Net Income   $ 15,032     $ 5,868                     Foreign currency translation adjustment     ( 4 )     142                     Comprehensive Income   $ 15,028     $ 6,010       The accompanying notes are an integral part of these financial statements.   -37-     LSI INDUSTRIES INC.   CONSOLIDATED BALANCE SHEETS June   30, 2022, and 2021 (In thousands, except shares)       June 30,     June 30,       2022     2021                     ASSETS                                   Current assets                                       $ 2,462     $ 2,282   Cash and cash equivalents                                   Accounts receivable, less allowance for credit losses of $ 499 and $ 256 , respectively     77,750       57,685                     Inventories     74,421       58,941                     Refundable income tax     1,041       1,275                     Other current assets     3,243       4,825                     Total current assets     158,917       125,008                     Property, Plant and Equipment, at cost                 Land     4,010       3,984   Buildings     24,495       24,393   Machinery and equipment     66,762       65,928   Buildings under finance leases     2,033       2,033   Construction in progress     618       933         97,918       97,271   Less accumulated depreciation     ( 70,760 )     ( 66,719 ) Net property, plant and equipment     27,158       30,552                     Goodwill     45,030       43,788                     Other Intangible Assets, net     67,964       72,773                     Operating Lease Right-Of-Use Assets     8,664       11,579                     Other Long-Term Assets, net     3,347       3,121                     Total assets   $ 311,080     $ 286,821       The accompanying notes are an integral part of these financial statements.   -38-     LSI INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (continued) June   30, 2022, and 2021 (In thousands, except shares)         June 30,     June 30,       2022     2021                     LIABILITIES & SHAREHOLDERS' EQUITY                                   Current liabilities                 Current maturities of long-term debt   $ 3,571     $ -   Accounts payable     34,783       32,977   Accrued expenses     36,264       37,918                     Total current liabilities     74,618       70,895                     Long-Term Debt     76,025       68,178                     Finance Lease Liabilities     1,246       1,521                     Operating Lease Liabilities     8,240       10,890                     Other Long-Term Liabilities     3,182       4,167                     Commitments and Contingencies (Note 13)     -       -                     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 26,662,638 and 26,517,836 shares, respectively     139,500       132,526   Treasury shares, without par value     ( 5,927 )     ( 2,450 ) Deferred compensation plan     5,927       2,450   Retained Earnings (Loss)     8,224       ( 1,405 ) Accumulated other comprehensive income     45       49                     Total shareholders' equity     147,769       131,170                     Total liabilities & shareholders' equity   $ 311,080     $ 286,821       The accompanying notes are an integral part of these financial statements.   -39-     LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY For the years ended June   30, 2022, and 2021 (amounts in thousands)         Common Shares     Treasury Shares     Key Executive     Accumulated Other             Total       Number Of             Number Of             Compensation     Comprehensive     Retained     Shareholders'       Shares     Amount     Shares     Amount     Amount     Income (Loss)     Earnings     Equity                                                                     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                                                                                                                                       Net Income     -       -       -       -       -       -       15,032       15,032   Other comprehensive loss     -       -       -       -       -       ( 4 )     -       ( 4 ) Stock compensation awards     42       300       -       -       -       -       -       300   Restricted stock units issued     80       ( 250 )     -       -       -       -       -       ( 250 ) Shares issued for deferred compensation     494       3,610       -       -       -       -       -       3,610   Activity of treasury shares, net     -       -       ( 476 )     ( 3,477 )     -       -       -       ( 3,477 ) Deferred stock compensation     -       -       -       -       3,477       -       -       3,477   Stock-based compensation expense     -       3,288       -       -       -       -       -       3,288   Stock options exercised, net     5       26       -       -       -       -       -       26   Dividends — $0.20 per share     -       -       -       -       -       -       ( 5,403 )     ( 5,403 )                                                                   Balance at June 30, 2022     27,484     $ 139,500       ( 822 )   $ ( 5,927 )   $ 5,927     $ 45     $ 8,224     $ 147,769       The accompanying notes are an integral part of these financial statements.   -40-     LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June   30, 2022, and 2021 (In thousands)         2022     2021   Cash Flows from Operating Activities                 Net income   $ 15,032     $ 5,868   Non-cash items included in net income                 Depreciation and amortization     10,118       8,114   Deferred income taxes     ( 342 )     ( 1,058 ) Deferred compensation plan     3,610       1,534   Stock compensation expense     3,288       1,977   Issuance of common shares as compensation     300       315   Loss on disposition of fixed assets     65       154   Allowance for doubtful accounts     246       19   Inventory obsolescence reserve     2,111       1,754                     Changes in certain assets and liabilities:                 Accounts receivable     ( 20,311 )     ( 10,570 ) Inventories     ( 17,586 )     ( 11,983 ) Refundable income taxes     235       1,517   Accounts payable     1,784       14,442   Accrued expenses and other     ( 2,413 )     15,926   Net cash (used in) from operating activities   $ ( 3,863 )   $ 28,009                     Cash Flows from Investing Activities                 Acquisition of JSI     500       ( 90,725 ) Purchases of property, plant, and equipment     ( 2,122 )     ( 2,233 ) Proceeds from the sale of fixed assets     49       -   Net cash flows (used in) investing activities     ( 1,573 )     ( 92,958 )                   Cash Flows from Financing Activities                 Payments on long-term debt     ( 161,627 )     ( 18,579 ) Borrowings on long-term debt     173,074       86,757   Cash dividends paid     ( 5,322 )     ( 5,288 ) Shares withheld on employees' taxes     ( 250 )     ( 60 ) Payments on financing lease obligations     ( 268 )     ( 239 ) Proceeds from stock option exercises     26       987   Net cash flows provided by financing activities     5,633       63,578                     Change related to Foreign Currency     ( 17 )     136                     Increase (decrease) in cash and cash equivalents     180       ( 1,235 )                   Cash and cash equivalents at beginning of period     2,282       3,517                     Cash and cash equivalents at end of period   $ 2,462     $ 2,282     The accompanying notes are an integral part of these financial statements.   -41-     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.   Revenue Recognition:   The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.   Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.   A number of the Company's display solutions and select lighting products are customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows:     ● Customer specific branded print graphics   ● 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 the customer simultaneously receives and consumes the benefits provided through the installation process.   For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the performance obligation.   On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: ( 1 ) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.   - 42 -     Disaggregation of Revenue   The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:       Twelve Months Ended   (In thousands)   June 30, 2022       Lighting Segment     Display Solutions Segment   Timing of revenue recognition                 Products and services transferred at a point in time   $ 204,241     $ 156,241   Products and services transferred over time     29,208       65,430       $ 233,449     $ 221,671                     Type of Product and Services                 LED lighting, digital signage solutions, electronic circuit boards   $ 191,791     $ 44,771   Poles and other display solutions elements     39,339       136,573   Project management, installation services, shipping and handling     2,319       40,327       $ 233,449     $ 221,671           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 has omitted disclosures on the amount of remaining performance obligations.   ● Shipping costs that are not material in context of the delivery of products are expensed as incurred.   ● The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing; therefore, payments do not contain significant financing components.   ● The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations.   Credit and Collections:   The Company maintains allowances for credit losses 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 credit losses 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 credit losses 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 credit losses 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, 2022     June 30, 2021                     Accounts receivable   $ 78,249     $ 57,941   Less: Allowance for credit losses     ( 499 )     ( 256 ) Accounts receivable, net   $ 77,750     $ 57,685     - 43 -     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 per institution. As of June 30, 2022, and June 30, 2021, the Company had bank balances of $ 2.7 million and $ 2.3 million, respectively, without insurance coverage.   Inventories, Net:   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 $ 5.3 million and $ 5.2 million of depreciation expense in the years ended June 30, 2022, and 2021 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.   - 44 -     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.   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:   Product Warranties                                   (In thousands)   June 30, 2022     June 30, 2021                     Balance at beginning of the period   $ 5,295     $ 6,956   Additions from company acquired     -       248   Additions charged to expense     2,960       859   Deductions for repairs and replacements     ( 3,764 )     ( 2,768 ) Balance at end of the period   $ 4,491     $ 5,295     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 $ 2.9 million and $ 1.4 million in June 30, 2022, and 2021, 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 $ 3.6 million and $ 3.7 million for the fiscal years ended June 30, 2022, and 2021, 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.   Stock-Based Compensation:   The Company accounts for stock-based compensation to certain employees and its directors in accordance with accounting guidance for stock-based compensation. The accounting guidance requires companies to measure the cost of employee and director services received in exchange for an award of equity instruments, including stock options, restricted stock units, and performance stock unites, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Equity award forfeitures are recognized at the date of employee termination.   - 45 -     Earnings Per Common Share:   The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period net of treasury shares held in the Company’s nonqualified deferred compensation plan. The computation of diluted earnings per share is based on the weighted average common shares outstanding for the period and includes common share equivalents. Common share equivalents include the dilutive effect of stock options, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 1,375,000 shares and 1,029,000 shares in fiscal 2022 and 2021, 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.   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 was nominal as of June 30, 2022, and ($ 0.1 ) million as of June 30, 2021. 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 $ 0.1 million and ($ 0.2 ) million for the fiscal year ended June 30, 2022, and 2021, respectively.   New Accounting Pronouncements:   In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021 - 08, “Business Combinations (Topic 805 ): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. The Company is evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.   On July 1, 2020, the Company adopted ASU 2016 - 13, "Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amended the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of ASU 2016 - 13 did not have a material impact on the consolidated financial statements and related disclosures.   In March 2020 and January 2021, the FASB issued ASU 2020 - 04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021 - 01, “Reference Rate Reform: Scope,” respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The adoption of this guidance did not have a material impact on the consolidated financial statements and related disclosures.   In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU  2019 - 12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740 )." This guidance removes certain exceptions to the general principles in ASC 740 such as recognizing deferred taxes for equity investments, the incremental approach to performing intra-period tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under U.S. GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted ASC  2019 - 12  effective July  1, 2021, which did not have a material impact on its consolidated financial statements or disclosures.   - 46 -     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.   Subsequent Events:   The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.     NOTE 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 $ 94.3  million. The acquisition of JSI expands the Company’s total addressable markets within the grocery and refueling and convenience store verticals. The Company funded the acquisition with a combination of cash on hand and $ 71.6  million from the credit facility   The Company accounted for this transaction as a business combination. The Company preliminarily allocated the purchase price of approximately $ 93.7  million, which included 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 was recorded as goodwill. During the second quarter of fiscal 2022, goodwill increased by $ 0.6 million. The increase is the net difference between the original estimate of recovery from the pre-funded working capital and the final cash received of $ 0.5 million. During the fourth quarter of fiscal 2022, goodwill, deferred income taxes, and current tax liabilities were adjusted related to the finalization of pre-acquisition tax filings. The final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of  May 21, 2021,  is as follows:       May 21, 2021 as initially reported     Adjustments       May 21, 2021 as adjusted     Cash and Cash Equivalents   $ 4,067             $ 4,067   Account Receivable     9,252       ( 280 )     8,972   Inventories     9,898               9,898   Property, Plant and Equipment     7,076               7,076   Other Assets     7,440       ( 2,062 )     5,378   Intangible Assets     45,760               45,760   Accounts Payable     ( 4,199 )             ( 4,199 ) Accrued Liabilities     ( 8,434 )     ( 225 )     ( 8,659 ) Deferred Tax Liability     ( 10,583 )     1,925       ( 8,658 ) Identifiable Net Assets     60,277       ( 642 )     59,635   Goodwill     33,415       1,242       34,657   Net Purchase Consideration   $ 93,692     $ 600     $ 94,292     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 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   - 47 -         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 the fourth quarter of fiscal 2021.   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.   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 give 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 for fiscal 2021 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 fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also 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 and industrial project, 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.   - 48 -     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 refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage.   The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing, and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.   There were no customers or customer programs representing a concentration of 10% or more of the Company’s net sales in the fiscal year ended June 30, 2022. There was no concentration of accounts receivable at June  30, 2022, or 2021.One customer program in the Display Solutions Segment represents $ 35.2 million or 11.2 % of the Company’s net sales in the fiscal year ended June  30, 2021. Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of June  30, 2022, and June 30, 2021:   - 49 -     (In thousands)   Twelve Months Ended       June 30   Net Sales:                 Lighting Segment   $ 233,449     $ 189,000   Display Solutions Segment     221,671       126,612       $ 455,120     $ 315,612                     Operating Income (Loss):                 Lighting Segment   $ 20,942     $ 13,328   Display Solutions Segment     17,589       9,864   Corporate and Eliminations     ( 17,330 )     ( 15,162 )     $ 21,201     $ 8,030                     Capital Expenditures:                 Lighting Segment   $ 1,017     $ 1,596   Display Solutions Segment     1,162       177   Corporate and Eliminations     ( 57 )     460       $ 2,122     $ 2,233                     Depreciation and Amortization:                 Lighting Segment   $ 5,782     $ 6,306   Display Solutions Segment     4,073       1,525   Corporate and Eliminations     263       283       $ 10,118     $ 8,114           June 30, 2022     June 30, 2021   Identifiable Assets:                 Lighting Segment   $ 152,431     $ 132,169   Display Solutions Segment     152,302       147,354   Corporate and Eliminations     6,347       7,298       $ 311,080     $ 286,821     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:       Twelve Months Ended   (In thousands)   June 30       2022     2021   Lighting Segment inter-segment net sales   $ 38,310     $ 28,449   Display Solutions Segment inter-segment net sales   $ 352     $ 219     - 50 -       NOTE 4 — EARNINGS PER 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)                                   BASIC EARNINGS PER SHARE   2022     2021                     Net Income   $ 15,032     $ 5,868                     Weighted average shares outstanding during the period, net of treasury shares     26,618       26,411                     Weighted average vested restricted stock units outstanding     30       17                     Weighted average shares outstanding in the Deferred Compensation Plan  during the period     638       264   Weighted average shares outstanding     27,286       26,692                     Basic income per share   $ 0.55     $ 0.22                     DILUTED EARNINGS PER SHARE                                   Net Income   $ 15,032     $ 5,868                     Weighted average shares outstanding                                   Basic     27,286       26,692                     Effect of dilutive securities (a):                 Impact of common shares to be issued under stock option plans, and Contingently issuable shares, if any     707       748   Weighted average shares outstanding     27,993       27,440                     Diluted income per share   $ 0.54     $ 0.21                     Anti-dilutive securities (b)     1,100       976       (a) Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.     (b) Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30, 2022, and June 30, 2021, 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.   - 51 -       NOTE 5 — INVENTORIES, NET   The following information is provided as of the dates indicated:   (In thousands)   June 30, 2022     June 30, 2021                     Inventories:                 Raw materials   $ 51,637     $ 40,567   Work-in-progress     3,029       4,757   Finished goods     19,755       13,617   Total Inventories   $ 74,421     $ 58,941       NOTE 6  — ACCRUED EXPENSES   The following information is provided as of the dates indicated:   (In thousands)   June 30, 2022     June 30, 2021                     Accrued Expenses:                 Customer prepayments   $ 6,416     $ 11,352   Compensation and benefits     9,611       10,051   Accrued warranty     4,491       5,295   Accrued sales commissions     4,783       2,568   Accrued Freight     3,680       1,629   Accrued FICA     1,122       1,190   Operating lease liabilities     1,274       1,424   Accrued income tax     109       434   Finance lease liabilities     275       263   Other accrued expenses     4,503       3,712   Total Accrued Expenses   $ 36,264     $ 37,918         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. Following the acquisition of JSI, the Company has a total of  three  reporting units that contain goodwill. One reporting unit is within the Lighting Segment and  two  reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but  not  limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.   - 52 -     Fiscal 2022:   As of  March 1, 2022 ,  the Company performed its annual goodwill impairment test on the three  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  18 % above the carrying value of the reporting unit including goodwill. The goodwill impairment test of one reporting unit with goodwill in the Display Solutions Segment passed with an estimated business enterprise value of $ 12.2  million or  1,316 % above the carrying value of the reporting unit including goodwill. The goodwill impairment test of the second reporting unit with goodwill in the Display Solutions Segment passed with an estimated business enterprise value of $ 100.4 million or 12 % above the carrying value of the reporting unit including goodwill.   The Company has two indefinite-lived intangible assets. The Company also performed its annual review of indefinite-lived intangible assets as of  March 1, 2022 and determined there was  no  impairment. The impairment test of the first indefinite-lived intangible asset passed with a fair market value of $ 17.0  million or  396 % above its carrying value. The impairment test of the second indefinite-lived intangible asset passed with a fair market value of and $ 10.6 million or 22 % above its carrying value.   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, 2022, 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 following table presents information about the Company's goodwill on the dates or for the periods indicated:   (In thousands)   Lighting Segment     Display Solutions Segment     Total   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                             Balance as of June 30, 2022                         Goodwill   $ 70,971     $ 62,105     $ 133,076   Measurement period adjustment     -       1,242       1,242   Accumulated impairment losses     ( 61,763 )     ( 27,525 )     ( 89,288 ) Goodwill, net as of June 30, 2022   $ 9,208     $ 35,822     $ 45,030     - 53 -     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.   The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:   (In thousands)   June 30, 2022       Gross Carrying Amount     Accumulated Amortization     Net Amount                             Amortized Intangible Assets                         Customer relationships   $ 62,083     $ 14,400     $ 47,683   Patents     268       268       -   LED technology, software     20,966       14,598       6,368   Trade name     2,658       1,049       1,609   Non-compete     260       58       202   Total Amortized Intangible Assets   $ 86,235     $ 30,373     $ 55,862                             Indefinite-lived Intangible Assets                         Trademarks and trade names     12,102       -       12,102   Total indefinite-lived Intangible Assets     12,102       -       12,102                             Total Other Intangible Assets   $ 98,337     $ 30,373     $ 67,964     (In thousands)   June 30, 2021       Gross Carrying Amount     Accumulated Amortization     Net Amount                             Amortized Intangible Assets                         Customer relationships   $ 62,083     $ 10,967     $ 51,116   Patents     268       237       31   LED technology, 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     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)   2022     2021                     Amortization expense of other intangible assets   $ 4,809     $ 2,948     - 54 -     The Company expects to record annual amortization expense as follows:   (In thousands)                   2023   $ 4,808   2024   $ 4,760   2025   $ 4,760   2026   $ 4,760   2027   $ 4,754   After 2027   $ 32,020       NOTE 8 — REVOLVING LINE OF CREDIT AND LONG-TERM DEBT   The Company’s long-term debt as of June 30, 2022, and June 30, 2021, consisted of the following:   (In thousands)   June 30, 2022     June 30, 2021                     Secured line of credit   $ 57,275     $ 68,178   Term loan, net of debt issuance costs of $30 and $0 , respectively     22,321       -   Total debt     79,596       68,178   Less: amounts due within one year     3,571       -   Total amounts due after one year, net   $ 76,025     $ 68,178     In September 2021, the Company amended its existing $ 100 million secured line of credit, to a $ 25 million term loan and $ 75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid annually in the amount of $ 3.6 million over a five -year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the LIBOR rate or a base rate, at the Company’s option. The base rate is calculated as the highest of (a) the Prime rate, (b) the sum of the Overnight Funding Rate plus 50 basis points and (c) the sum of the Daily LIBOR Rate plus 100 basis points as long as a Daily LIBOR rate is offered, ascertainable and not unlawful. The increment over the LIBOR borrowing rate fluctuates between 100 and 225 basis points, and the increment over the Base Rate fluctuates between 0 and 125 basis points, both of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the line of credit agreement. As of June 30, 2022, the Company’s borrowing rate against its revolving line of credit was 3.7 %. The increment over LIBOR borrowing rate will be 175 basis points for the second quarter of fiscal 2023.  The fee on the unused balance of the $ 75 million committed line of credit fluctuates between 15 and 25 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge ratio. As of June 30, 2022, there was $ 17.7 million available for borrowing under the $ 75 million line of credit.     NOTE 9 — CASH DIVIDENDS   The Company paid cash dividends of $ 5.3 million in fiscal years 2022 and 2021. Dividends on restricted stock units in the amount of $ 0.2 million and $ 0.1 million were accrued as of June 30, 2022, and 2021, respectively. These dividends are paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In August 2022, the Board of Directors declared a regular quarterly cash dividend of $ 0.05 per share payable September 6, 2022 , to shareholders of record August 29, 2022 .   - 55 -       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 1,411,321 shares, all of which are available for future grant or award as of June 30, 2022. 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 (RSU’s), performance stock units (PSU’s), and other stock-based awards. The Company also 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 2022, 146,281 RSUs and 190,980 PSUs were granted. In fiscal 2021, 75,000 inducement options, 30,626 RSUs and 122,509 PSUs were granted.   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. There were no options granted in fiscal 2022.   Stock Options                                       2022     2021   Dividend yield     -       2.9 % Expected volatility     -       50 % Risk-free interest rate     -       0.3 % Expected life (in years)     -       6.0   Fair value per share     -     $ 2.40     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.       Servi ce-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. There were no service - based or inducement stock options awarded in fiscal 2022.   The Company recorded $ 0.7 million and $ 0.8 million of expense related to stock options in fiscal years 2022 and 2021, respectively.   A summary of stock option activity as of June 30, 2022, and changes during the period from July 1, 2021 through June 30, 2022 are as follows:       Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (in years)     Aggregate Intrinsic Value   Outstanding at June 30, 2021     2,327,148     $ 6.07       6.7     $ 5,320,456   Granted     -     $ -                   Exercised     ( 4,833 )   $ 5.48                   Forfeited     ( 7,024 )   $ 6.80                   Expired     ( 14,500 )   $ 9.27                   Outstanding at June 30, 2022     2,300,791     $ 6.05       5.7     $ 2,287,764   Exercisable at June 30, 2022     1,730,964     $ 6.31       5.2     $ 1,608,413   Vested and expected to vest at June 30, 2022     2,286,311     $ 6.05       5.7     $ 2,282,521     - 56 -     The aggregate intrinsic value of options exercised during the years ended June 30, 2022, and June 30, 2021, was nominal as of June 30, 2022, and $ 0.2 million as of June 30, 2021. The Company received a nominal amount of proceeds from the exercise of stock options in fiscal 2022 and $ 1.0 million of proceeds from stock options exercises in fiscal 2021.   As of June 30, 2022, there was $ 0.7 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 1.2 years.   For fiscal year 2022, the Company recognized a current income tax benefit of $ 0.2 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 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.   Restricted Stock Units   A total of 146,281 RSUs with a weighted average fair value of $ 8.13 per share were awarded to employees during fiscal 2021. The RSUs awarded during fiscal 2022 have a three -year vesting period, with one - third vesting on each of the anniversary dates. 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 $ 65,743 were accrued as of June 30, 2022. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.   The Company recorded $ 0.9 million and $ 0.6 million of expense related to RSUs during fiscal years 2022, and 2021, respectively.   A summary of outstanding and unvested RSU activity as of June 30, 2022, and changes during the period from July 1, 2021, through June 30, 2022, are as follows:       Shares     Weighted- Average Grant Date Fair Value   Unvested at June 30, 2021     200,721     $ 6.42   Granted     146,281     $ 8.13   Vested     ( 96,671 )   $ 6.26   Forfeited     ( 3,059 )   $ 6.96   Unvested at June 30, 2022     247,272     $ 7.48     As of June 30, 2022, there was $ 0.9 million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is expected to be recognized over a weighted-average remaining period of 1.9 years. The total fair value of RSUs that became fully vested during fiscal 2022 was $ 0.7 million.   Performance Stock Units   A total of 190,980 PSUs with a weighted average fair value of $ 8.12 per share were awarded to employees during fiscal 2022. 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 $ 104,978 and $ 86,196 were accrued as of June 30, 2022, and 2021, respectively. Accrued dividends are paid to the holder upon vesting of the PSUs and issuance of shares.   The Company recorded $ 1.6 million and $ 0.6 million of expense related to PSUs during fiscal years 2022, and 2021, respectively.   - 57 -     A summary of outstanding and unvested PSU activity as of June 30, 2022, and changes during the period from July 1, 2021 through June 30, 2022 are as follows:       Shares     Weighted- Average Grant Date Fair Value   Unvested at June 30, 2021     456,887     $ 5.96   Granted     190,980     $ 8.12   Vested     ( 27,350 )   $ 4.94   Forfeited     ( 23,950 )   $ 7.50   Unvested at June 30, 2022     596,567     $ 6.63     As of June 30, 2022, there was $ 2.4 million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is expected to be recognized over a weighted-average remaining period of 1.91 years.   Director and Employee Stock Compensation Awards   The Company awarded a total of 42,420 and 43,049 common shares as stock compensation awards in fiscal years 2022, and 2021, 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, 2022, there were 32 participants, all with fully vested account balances. A total of 821,876 common shares with a cost of $ 5.9 million, and 345,875 common shares with a cost of $ 2.5 million, both of which included the Company contributions and the participant deferrals, were held in the plan as of June  30, 2022, and 2021, 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 494,047 and 193,510 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2022, and during fiscal 2021, respectively.     NOTE 11 — LEASES AND PURCHASE COMMITMENTS   Purchase commitments of the Company totaled $65.6 million as of June 30, 2022.    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 years 2022 and 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.   - 58 -     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.   (In thousands)   2022     2021                     Operating lease cost   $ 3,483     $ 2,428   Financing lease cost:                 Amortization of right of use assets     295       291   Interest on lease liabilities     80       91   Variable lease cost     87       10   Sublease income     -       ( 43 ) Total lease cost   $ 3,945     $ 2,777     Supplemental Cash Flow Information                                   (in thousands)   2022     2021                     Cash flows from operating leases                 Fixed payments - operating lease cash flows   $ 3,576     $ 2,412   Liability reduction - operating cash flows   $ 3,064     $ 1,983                     Cash flows from finance leases                 Interest - operating cash flows   $ 80     $ 91   Repayments of principal portion - financing cash flows   $ 268     $ 239     Operating Leases:   June 30, 2022     June 30, 2021                     Total operating right-of-use assets   $ 8,664     $ 11,579                     Accrued expenses (Current liabilities)   $ 1,274     $ 1,424   Long-term operating lease liability     8,240       10,890   Total operating lease liabilities   $ 9,514     $ 12,314                     Weighted Average remaining Lease Term (in years)     3.05       3.93                     Weighted Average Discount Rate     4.81 %     4.81 %   - 59 -     Finance Leases:   June 30, 2022     June 30, 2021                     Buldings under finance leases   $ 2,033     $ 2,033   Equipment under finance leases     11       30   Accumulated depreciation     ( 634 )     ( 339 ) Total finance lease assets, net   $ 1,410     $ 1,724                     Accured expenses (Current liabilities)     275     $ 263   Long-term finance lease liability     1,246       1,521   Total finance lease liabilities   $ 1,521     $ 1,784                     Weighted Average remaining Lease Term (in years)     4.80       5.78                     Weighted Average Discount Rate     4.86 %     4.86 %   Maturities of Lease Liability:                                     Operating Lease Liabilities     Finance Lease Liabilities     Operating Subleases     Net Lease Commitments                                     2023   $ 3,738     $ 343     $ ( 377 )   $ 3,704   2024     3,285       337       ( 377 )     3,245   2025     2,136       362       ( 31 )     2,467   2026     835       362       -       1,197   2027     215       302       -       517   Thereafter     4       -       -       4   Total lease payments   $ 10,213     $ 1,706     $ ( 785 )   $ 11,134   Less: Interest     ( 699 )     ( 185 )             ( 884 ) Present Value of Lease Liabilities   $ 9,514     $ 1,521             $ 10,250         NOTE 12 — INCOME TAXES   The following information is provided for the years ended June  30:   (In thousands)   2022     2021                     Components of income (loss) before income taxes:                 United States   $ 20,124     $ 7,117   Foreign     ( 1,039 )     799   Income before income taxes   $ 19,085     $ 7,916                     Provision for income taxes                 U.S. Federal   $ 3,586     $ 2,425   Foreign     165       247   State and local     644       434   Total current     4,395       3,106                     Deferred     ( 342 )     ( 1,058 ) Total provision for income taxes   $ 4,053     $ 2,048     - 60 -     (In thousands)   2022     2021   Reconciliation to federal statutory rate:                 Federal statutory rate     21.0 %     21.0 % State and local taxes, net of federal benefit     3.0       1.5   Foreign operations     -       1.0   Federal tax credits     ( 1.0 )     ( 1.5 ) Valuation allowance     -       ( 25.9 ) NY State Tax Credits     -       25.9   Transaction cost     -       3.5   Uncertain tax position activity     ( 0.3 )     ( 0.1 ) Stock-based compensation     ( 0.3 )     1.0   Tax rate changes     ( 1.4 )     ( 0.3 ) Other     0.2       ( 0.2 ) Effective tax rate     21.2 %     25.9 %   The components of deferred income tax assets and (liabilities) at June  30, 2022, and 2021 are as follows:   Components of deferred income tax assets and liabilities                                   (In thousands)   2022     2021                     Uncertain tax positions   $ 169     $ 138   Reserves against current assets     1,110       936   Accrued expenses     2,596       3,348   Interest     -       927   Deferred compensation     1,195       514   Stock-based compensation     1,421       841   State net operating loss carryover and credits     310       624   Lease Liability     2,667       4,408   Canadian NOL     538         Goodwill, acquisition costs and intangible assets     -       -   U.S. Federal net operating loss carryover and credits     1,235       1,587   Deferred income tax asset before valuation allowance     11,241       13,323                     Valuation allowance     ( 108 )     ( 108 ) Deferred income tax asset     11,133       13,215                     Goodwill, acquisition costs and intangible assets     ( 3,519 )     ( 3,683 ) Depreciation     ( 2,205 )     ( 2,677 ) Right of Use Asset     ( 2,513 )     ( 4,299 ) Deferred income tax liability     ( 8,237 )     ( 10,659 )                   Net deferred income tax asset   $ 2,896     $ 2,556     The Company has U.S. federal net operating loss carry forward deferred tax assets of $ 1.1 million and $ 1.5 million at June 30, 2022, and June 30, 2021, respectively. The increase of $ 1.4 million in fiscal 2021 was from the acquisition of JSI which 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, 2022, and June 30, 2021.   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.   The Company has Canadian net operating loss carry forward deferred tax assets of $ 0.5 million at June 30, 2022. The $ 0.5 million deferred tax asset was from the acquisition of JSI and has a 20 year carryforward period.   - 61 -     The Company has state net operating loss carryovers and tax credit deferred tax assets of $ 0.3 million and $ 0.6 million at June 30, 2022, and June 30, 2021, 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, 2022 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.   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.   At June  30, 2022, tax, interest, and penalties, net of potential federal tax benefits, were $ 0.6 million, $ 0.3 million, and $ 0.2 million, respectively, of the total reserve for uncertain tax positions of $ 1.1 million. The entire uncertain tax position of $ 0.6 million, net of federal tax benefit, would impact the effective tax rate if recognized.   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. 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)/expense in both fiscal 2022 and fiscal 2021, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of ($ 8,000 ) and ($ 10,000 ), respectively, in fiscal 2022 and $ 32,000 and $ 19,000 , respectively, in fiscal 2021. 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)   2022     2021                     Balance at the beginning of the fiscal year   $ 682     $ 607   Decreases - tax positions in prior period     ( 117 )     ( 52 ) Increase - tax positions in current period     82       49   Increases - tax positions in prior period     -       78   Settlements and payments     -       -   Lapse of statute of limitations     -       -   Balance at end of the fiscal year     647       682     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. In general, 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, 2019. Except that US tax years prior to June 30, 2019, are subject to exam to the extent of the US tax refunds generated from the carry back of the June 30, 2019, federal net operating loss.  The Company received notice that the IRS intends to examine the US tax year ended June 30, 2020, but the exam has not started.      NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION   (in thousands)                                   Cash Payments:   2022     2021   Interest   $ 1,668     $ 127   Income taxes   $ 4,965     $ 356                                       Non-cash investing and financing activities                 Issuance of common shares as compensation   $ 300     $ 315   Issuance of common shares to fund deferred compensation plan   $ 3,610     $ 1,534     - 62 -       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, 2022, there were no such standby letters of credit issued.     NOTE 15 – SEVERANCE COSTS   The Company recorded severance charges of less than $ 0.1 million in fiscal 2022 and 2021, respectively. This severance expense was related to reductions in staffing not related to plant restructuring.   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)   2022     2021                     Balance at beginning of period   $ 13     $ 639   Accrual of expense     13       41   Payments     ( 26 )     ( 667 ) Balance at end of period   $ -     $ 13         NOTE 16 — 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 was no longer be considered a related party after fiscal 2021 because the outside director no longer serves on the Company’s Board of Directors.   The Company has recognized revenue related to the following related party transactions in the fiscal years indicated:   (In thousands)   2022     2021                     Wesco International   $ -     $ 2,013     As of the balance sheet date indicated, the Company had the following accounts receivable recorded with respect to related party transactions:   (In thousands)   2022     2021                     Wesco International   $ -     $ 264     - 63 -       NOTE 17 — SUMMARY OF QUARTERLY RESULTS (UNAUDITED)       Quarter Ended           (In thousands except per share data)   Sep. 30     Dec. 31     Mar. 31     Jun. 30     Fiscal Year                                                                                       2022                                         Net Sales   $ 106,397     $ 111,143     $ 110,111     $ 127,469     $ 455,120   Gross Profit     24,510       25,448       26,793       32,457       109,208   Net Income     3,133       3,105       3,618       5,176       15,032                                             Earnings per share                                         Basic   $ 0.12     $ 0.11     $ 0.13     $ 0.19     $ 0.55 (a)  Diluted   $ 0.11     $ 0.11     $ 0.13     $ 0.18     $ 0.54 (a)                                            Range of share prices                                         High   $ 8.43     $ 8.42     $ 7.49     $ 7.66     $ 8.43   Low   $ 7.12     $ 6.41     $ 6.00     $ 5.53     $ 5.53                                             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     - 64 -       LSI INDUSTRIES INC. AND SUBSIDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 2022, and 2021 (In thousands)     Description   Balance Beginning of Period     Additions Charged to Costs and Expenses     Additions from Company Acquired     Deductions (a)     Balance End of Period                                             Allowance for Credit Losses:                                         Year Ended June 30, 2022   $ 256     $ 249     $ -     $ ( 6 )   $ 499   Year Ended June 30, 2021   $ 273     $ 19     $ 24     $ ( 60 )   $ 256                                             Inventory Obsolescence Reserve:                                         Year Ended June 30, 2022   $ 5,050     $ 2,111     $ -     $ ( 1,714 )   $ 5,447   Year Ended June 30, 2021   $ 3,821     $ 1,754     $ 380     $ ( 905 )   $ 5,050                                             Deferred Tax Asset Valuation Reserve:                                   Year Ended June 30, 2022   $ 108     $ -     $ -     $ -     $ 108   Year Ended June 30, 2021   $ 2,194     $ -     $ -     $ ( 2,086 )   $ 108     (a) For Allowance for credit losses, deductions are uncollectible accounts charged off, less recoveries.     -65-