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Item 9A. Controls and Procedures

2024-09-11 compared with 2023-09-08 · 402 added, 369 removed, 848 unchanged (48% of the section changed)

1 unchanged sentence

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.

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, 2024, 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 believes that the consolidated financial statements included in this Annual Report on Form 10-K are fairly presented in all material respects in accordance with U.S GAAP, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations, statement of shareholders’ equity, and cash flows for each of the periods presented in this report.

The Company acquired EMI Industries, LLC (“EMI”) on April 18, 2024.

Management excluded EMI from its evaluation of the effectiveness of the internal control over financial reporting as of June 30, 2024.

Including goodwill and acquired intangible assets, EMI represented 21% of the Company’s total consolidated assets as of June 30, 2024, and 4% of the Company’s total consolidated sales for the fiscal year ended June 30, 2024.

Management's Report on Internal Control over Financial Reporting appearing on page 31 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, 2023, 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 30.

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, 2024, 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 31.

OTHER INFORMATION

During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement”

or “non-Rule 10b5-1 trading arrangement,”

as defined in Item 408 of Regulation S-K.

During the three months ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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, 2023 (the “Proxy Statement”).

Information about our Audit Committee may be found under the caption “Committees of the Board”

in the Proxy Statement.

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 5, 2024 (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.

We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial, 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.

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 and Chief Financial Officer, we will disclose the nature of the amendment or waiver on our website or in a report on Form 8-K.

EXECUTIVE COMPENSATION

The information in the Proxy Statement set forth under the captions “Director Compensation,”

“Compensation Discussion and Analysis”

“Compensation Committee Interlocks and Insider Participation,”

and “Compensation Committee Report”

is incorporated herein by reference.

ITEM 12.

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.

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.

The information in the Proxy Statement set forth under the captions “Security Ownership,” and “Equity Compensation Plan Information” is incorporated herein by reference.

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.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning fees and services provided by our principal accountant, Grant Thornton 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.

[ 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.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)         The following documents are filed as part of this report:

The following documents are filed as part of this report:

Consolidated Financial Statements appear as part of Item 8 of this Form 10-K.

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.

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 Description

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)

Amended and Restated (Consolidated) Articles of Incorporation of LSI (incorporated by reference to Exhibit 3.1 to LSI’s Form 8-K filed on November 7, 2022).

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).

Description of Securities (incorporated by reference to Exhibit 4.1 to LSI’s Annual Report on Form 10-K filed on September 6, 2019).

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).

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).

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)

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).

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 23, 2016)

LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of August 17, 2022) (incorporated by reference to Exhibit 10.3 of LSI’s Form 10-Q filed on November 4, 2022).

Asset Purchase Agreement dated as of April 18, 2024, among EMI Acquisition Company, Inc., EMI Industries, LLC, LSI (with respect to Section 7.11’s Parent Guaranty provisions) and the Sellers identified therein (incorporated by reference to Exhibit 2.1 to LSI’s Form 8-K filed on April 19, 2024)++

Amended and Restated (Consolidated) Articles of Incorporation of LSI (incorporated by reference to Exhibit 3.1 to LSI’s Form 8-K filed on November 7, 2022).

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).

Description of Securities (incorporated by reference to Exhibit 4.1 to LSI’s Annual Report on Form 10-K filed on September 6, 2019).

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).

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).

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).

Amended and Restated 2019 Omnibus Award Plan (incorporated by reference to LSI’s Schedule 14A filed on September 14, 2022).

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 23, 2016)

LSI Industries Inc.

Nonqualified Deferred Compensation Plan (Amended and Restated as of January 24, 2024) (incorporated by reference to Exhibit 10.1 of LSI’s Form 10-Q filed on May 6, 2024).

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).

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).

Galeese (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 13, 2017).

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).

Form of Change in Control Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on January 29, 2021).

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).

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).

Form of Supplemental Benefits Agreement (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on January 29, 2021).

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).

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).

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).

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).

Caneris (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on August 5, 2019).

Form of Change in Control Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on January 29, 2021).

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).

Form of Supplemental Benefits Agreement (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on January 29, 2021).

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).

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).

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).

LSI Industries Inc.

2021 Employee Stock Purchase Plan (incorporated by reference to LSI’s Proxy Statement on Schedule 14A filed on September 15, 2021).

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 February 4, 2022).

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).

Fiscal Year 2023 Long-Term Incentive Plan (LTIP) ++ (Incorporated by reference to Exhibit 10.1 of LSI’s Form 10-Q filed on November 4, 2022)

Fiscal Year 2023 Short-Term Incentive Plan (STIP) ++ (Incorporated by reference to Exhibit 10.2 of LSI’s Form 10-Q filed on November 4, 2022)

Code of Conduct (incorporated by reference to Exhibit 14 to LSI’s Form 10-K filed on September 10, 2021)

Insider Trading Policy and Anti-Hedging and Pledging Policy

2021 Employee Stock Purchase Plan (incorporated by reference to LSI’s Proxy Statement on Schedule 14A filed on September 15, 2021).

Fiscal Year 2024 Long-Term Incentive Plan (LTIP)++ (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on November 6, 2023).

Fiscal Year 2023 Long-Term Incentive Plan (LTIP) ++ (Incorporated by reference to Exhibit 10.1 of LSI’s Form 10-Q filed on November 4, 2022)

Code of Conduct (incorporated by reference to Exhibit 14 to LSI’s Form 10-K filed on September 10, 2021)

Insider Trading Policy and Anti-Hedging and Pledging Policy (incorporated by reference to Exhibit 19 to LSI’s Form 10-K filed on September 8, 2023).

Subsidiaries of the Registrant

1 unchanged sentence

Power of Attorney (included as part of signature page)

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

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

Section 1350 Certification of Principal Executive Officer

Section 1350 Certification of Principal Financial Officer

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

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

Section 1350 Certification of Principal Executive Officer

Section 1350 Certification of Principal Financial Officer

Executive Compensation Recoupment Policy

Inline XBRL Instance Document

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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.

1 unchanged sentence

Not included.

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.

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.

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Executive Vice President, and Chief Financial Officer

(Principal Financial Officer)

September 8, 2023

/s/ Jeffery S.

Vice President and Chief Accounting Officer

(Principal Accounting Officer)

(Principal Financial Officer and Principal Accounting Officer)

September 11, 2024

/s/ Robert P.

Director 

September 11, 2024

/s/ Ronald D.

Director  

September 11, 2024

Director  

September 11, 2024

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/s/ Wilfred T.

O’Gara

September 11, 2024

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 the Company’s operations and financial condition.

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).

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section generally discusses the results of our operations for the year ended June 30, 2024, compared to the year ended June 30, 2023.

For a discussion of the year ended June 30, 2022, compared to the year ended June 30, 2021, 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, 2022. 

For a discussion of the year ended June 30, 2023, compared to the year ended June 30, 2022, 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, 2023.

LSI Industries Inc.

(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 and indoor 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.

Non-residential lighting consists of American-made fixtures and services for both indoor and outdoor applications satisfying the specific performance requirements of our customers.

Retail display solutions consist of multiple custom products and services which enhance our customer’s brand image and improve the customer shopping experience.

We offer customers in target vertical markets a package solution set of both lighting and display solutions, providing value for the customer by working with one partner to manage their regional and national location programs, versus multiple suppliers.

Summary of Consolidated Results

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Total Operating Income

Fiscal 2023 net sales of $497.0 million increased $41.9 million or 9.2% as compared to fiscal 2022 net sales of $455.1 million.

Net sales were favorably influenced by increased net sales in the Lighting Segment (an increase of $39.0 million or 16.7%) and primarily driven by increased net sales in the Display Solutions Segment (an increase of $2.9 million or 1.3%).

The increase in sales is attributed to continued strength and focus in the key market verticals the Company serves.

Fiscal 2023 operating income of $37.0 million represents a $15.8 million increase from fiscal 2022 operating income of $21.2 million.

Non-GAAP adjusted operating income in fiscal 2023 of $42.0 million increased $17.0 million or 68% from adjusted fiscal 2022 operating income of $25.0 million.

Refer to “Non-GAAP Financial Measures”

below for a reconciliation of Non-GAAP financial measures to U.S.

Fiscal 2024 net sales of $469.6 million decreased 6% as compared to fiscal 2023 net sales of $497.0 million.

The change in net sales were driven by a 4% decrease in net sales in the Lighting Segment and by an 8% decrease in net sales in the Display Solutions Segment.

Within the Lighting Segment, the Company maintained a relatively stable demand for its lighting products while outperforming the broader market.

Within the Display Solutions segment, the decline in sales is due largely to lower demand in the grocery vertical primarily driven by the lengthy regulatory review of the proposed merger of two large grocery store chains.

Fiscal 2024 operating income of $35.5 million represents a 4% decrease from fiscal 2023 operating income of $37.0 million.

Non-GAAP adjusted operating income in fiscal 2024 of $41.4 million was comparable to adjusted fiscal 2023 operating income of $42.0 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, sustained price disciplines, a higher-value sales mix, and strong operational execution.

Despite a decline in sales, the Company was able to improve its operating margin with strong operational disciplines and effective cost controls.

Non-GAAP Financial Measures

1 unchanged sentence

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, long-term performance based compensation expense, severance costs, and commercial growth opportunity expense, are Non-GAAP financial measures.

Adjusted operating income, net income, and earnings per share, which exclude the impact of acquisition costs, long-term performance based compensation expense, severance and restructuring costs, and commercial growth opportunity expense, 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 to adjusted EBITDA.

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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 to adjusted EBITDA. 

Reconciliation of net income to adjusted net income:

1 unchanged sentence

Net income as reported

Acquisition costs

Long-term performance based compensation

Severance costs

Restructuring/severance costs

Acquisition costs

Consulting expense:

commercial growth opportunities

Net Tax impact due to the Distribution of Shares from the Company's Long-Term Performance Based Compensation Plan

Tax rate difference between reported and adjusted net income

Net income adjusted

6 unchanged sentences

Long-term performance based compensation

Severance costs

Restructuring/severance costs

Consulting expense:

1 unchanged sentence

Adjusted operating income

Reconciliation of net income to EBITDA and Adjusted EBITDA

Reconciliation of net income to EBITDA to adjusted EBITDA:

(In thousands)

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Long-term performance based compensation

Severance costs

Restructuring/severance costs

Consulting expense:

Commercial Growth Initiatives

commercial growth opportunities

Adjusted EBITDA

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Results of Operations

2023 Compared to 2022          

2024 Compared to 2023

Lighting Segment

1 unchanged sentence

Operating Income

Lighting Segment net sales of $272.5 million in fiscal 2023 increased 16.7% from fiscal 2022 net sales of $233.4 million.

The sales growth was across all key vertical markets, with significant contributions from new and enhanced products.

Gross profit of $86.8 million in fiscal 2023 increased $16.6 million or 23.7% from fiscal 2022.

Gross profit as a percentage of net sales was 31.8% in fiscal 2023 compared to 30.0% in fiscal 2022.

Contributors to the improvement of gross profit as a percentage of sales include an accelerated adoption of recently introduced products, sustained price disciplines, a higher value sales mix, and improved operational execution.

Operating expenses of $55.1 million in fiscal 2023 increased $5.9 million or 12.1% from fiscal 2022 operating expenses of $49.2 million, primarily driven by higher commission expense as a result of higher sales.

Fiscal 2023 Lighting Segment operating income of $31.6 million increased $10.7 million or 51.1% from operating income of $20.9 million in fiscal 2022 and operating income as a percentage of sales also increased from 9.1% to 11.6%.

Both increases were primarily driven by sales volume and an improvement in gross profit as a percentage of sales.

Lighting Segment net sales of $262.4 million in fiscal 2024 decreased 4% from fiscal 2023 net sales of $272.5 million.

Despite a decline in net sales, the Company maintained a relatively stable demand for its lighting products while outperforming the broader market.

Gross profit of $89.0 million in fiscal 2024 increased 3% from fiscal 2023 gross profit.

Gross profit as a percentage of net sales increased 210 bps from 31.8% in fiscal 2023 to 33.9% in fiscal 2024.

The improved gross profit margins were driven by sustained price disciplines, a higher value sales mix, and strong operational disciplines.

Operating expenses of $55.7 million in fiscal 2024 was comparable to fiscal 2023 operating expenses.

Cost control measures were in place in fiscal 2024 and is the primary reason operating expenses remained comparable to last year operating expenses.

Fiscal 2024 Lighting Segment operating income of $33.3 million increased 5% from operating income of $31.6 million in fiscal 2023 primarily due to an improvement in gross profit on lower sales and effective operating expense cost controls.

Display Solutions Segment

1 unchanged sentence

Operating Income

Display Solutions Segment net sales of $224.5 million in fiscal 2023 increased $2.9 million or 1.3% from fiscal 2022 net sales of $221.7 million.

The net increase in sales in the grocery and refueling/c-store market verticals was partially offset by the near completion of a $100 million QSR digital menu board program.

Gross profit of $50.2 million in fiscal 2023 increased $11.1 million or 28.4% from fiscal 2022.

Gross profit as a percentage of net sales increased to 22.3% in fiscal 2023 compared from 17.6% in fiscal 2022.

The increase in gross profit as a percentage of net sales was driven by improved program pricing and favorable customer mix.

Operating expenses of $25.3 million in fiscal 2023 increased $3.8 million or 17.6% from fiscal 2022.

The increase of $3.8 million was driven by several factors including compensation, benefits, and commercial sales and marketing program costs to support sales growth, along with an increase in short-term performance based incentive plan expenses driven by improved business performance.

Fiscal 2023 Display Solutions Segment operating income of $24.9 million increased $7.3 million or 41.7% million from operating income of $17.6 million in fiscal 2022.

The increase of $7.3 million was primarily driven by an increase in sales and an improvement in gross profit as a percentage of sales.

Display Solutions Segment net sales of $207.2 million in fiscal 2024 decreased 8% from fiscal 2023 net sales of $224.5 million.

The decline in sales is due largely to lower demand in the grocery vertical primarily driven by the lengthy regulatory review of the proposed merger of two large grocery store chains.

Gross profit of $44.2 million in fiscal 2024 decreased 12% from fiscal 2023.

Gross profit as a percentage of net sales decreased to 21.3% in fiscal 2024 compared from 22.3% in fiscal 2023.

The decrease in gross profit and corresponding decline in gross profit as a percentage of sales was driven mostly by lower volume and by a shift in product mix.

Operating expenses of 24.2 million in fiscal 2024 decreased 4% from fiscal 2023.

The decrease in operating expenses was primarily driven by efforts to manage costs in line with the decline in net sales.

Fiscal 2024 Display Solutions Segment operating income of $20.0 million decreased 20% from operating income of $24.9 million in fiscal 2023.

The decrease in operating income was primarily driven by the decrease in net sales.

Corporate and Eliminations

(In thousands)

Gross (Loss)/Profit

Operating (Loss)

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

Operating expenses of $19.5 million in fiscal 2023 increased $2.2 million or 12.7% from fiscal 2022.

The increase was primarily the result of an increase in short-term and long-term performance-based incentive plan expense driven by improved business performance and by commercial growth initiative consulting expense of $0.9 million for which there was no comparable expense in fiscal 2022.

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

Operating expenses of $17.8 million in fiscal 2024 decreased 9% from fiscal 2023.

The decrease was primarily the result of cost containment initiatives across several of the Company’s cost categories to align with a decline in sales.

Consolidated Results

Net interest expense of $2.2 million in fiscal 2024 compared to $3.7 million net interest expense in fiscal 2023.

The increase in interest expense is primarily the results of increased borrowing costs.

The Company also recorded a negligible amount of other expense in fiscal 2023 and $0.1 million of other expense in fiscal 2022, respectively, related to net foreign exchange currency transaction net losses through our Mexican and Canadian subsidiaries.

The $7.6 million of tax expense in fiscal 2023 reflects a consolidated effective tax rate of 22.7%.

The $4.1 million of income tax expense in fiscal 2022 represents a consolidated effective tax rate of 21.2%.

The increase in the effective tax rate is primarily driven by an increase in pre-tax profits in the higher taxing jurisdiction of Puerto Rico.

The decrease in interest expense was the net result of the Company’s repayment of debt from cash generated by operations through the third quarter of fiscal 2024 partially offset by the debt incurred related to the acquisition of EMI Industries, LLC in the fourth quarter.

The Company also recorded $0.3 million of other expense in fiscal 2024 compared to a negligible amount of other expense in fiscal 2023, related to net foreign exchange currency transaction net losses through our Mexican and Canadian subsidiaries.

The $8.1million of tax expense in fiscal 2024 reflects a consolidated effective tax rate of 24.5% compared to the $7.6 million of income tax expense in fiscal 2023 which represents a consolidated effective tax rate of 22.7%.

The increase in the effective tax rate is primarily driven by an increase in state, local and foreign income taxes across the multiple tax jurisdictions where LSI has a physical presence.

Reported net income of $25.0 million in fiscal 2024 compared to net income of $25.8 million in fiscal 2023.

Non-GAAP adjusted net income was $28.6 million in fiscal 2024 compared to adjusted net income of $29.0 million in fiscal 2023 (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 and an improvement of gross profit as a percentage of sales.

Fiscal 2024 Non-GAAP adjusted net income was approximately equal to the same period last year on a 6% decline in net sales.

Diluted earnings per share of $0.83 was reported in fiscal 2024 compared to $0.88 diluted earnings per share in fiscal 2023.

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The ratio of current assets to current liabilities was 2.05 to 1 as of June 30, 2024, compared to a ratio of 1.96 to 1 as of June 30, 2023.

The $8.5 million decrease in working capital from June 30, 2022, to June 30, 2023, is primarily driven by a $10.7 million decrease in inventory, partially offset by a $2.1 million increase in refundable income taxes.

Net accounts receivable were $77.7 million and $77.8 million at June 30, 2023, and June 30, 2022, respectively.

Net accounts receivable remained relatively flat from prior year.

The acquisition of EMI Industries, LLC (EMI) in the fourth quarter of fiscal 2024 accounted for $12.7 million of the increase in net working capital.

When the impact of the acquisition of EMI is removed from the year-over-year comparison, net working capital decreased $2.7 million.

The net decrease in net working capital excluding EMI was mostly due to a $12.4 million decrease in net accounts receivable, a decrease of $4.0 million in net inventory, partially offset by a $12.4 million decrease in accounts payable and accrued expenses.

Net accounts receivable were $78.6 million and $77.7 million at June 30, 2024, and June 30, 2023, respectively with EMI accounting for $13.3 million of net accounts receivable as of June 30, 2024.

Net accounts receivable decreased $12.4 million excluding EMI’s net accounts receivable.

Days Sales Outstanding (DSO) was 58 days and 57 days as of June 30, 2024, and June 30, 2023, 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 $63.7 million at June 30, 2023, decreased $10.7 million from $74.4 million at June 30, 2022.

The decrease of $10.7 million is the primarily the result of a combination of decrease in gross inventory of $9.9 million and an increase of $0.8 million in obsolescence reserves.

Lighting Segment net inventory decreased $7.8 million, and net inventory in the Display Solutions Segment decreased $2.9 million.

Net inventories were $70.9 million and $63.7 million at June 30, 2024, and June 30, 2023, respectively, with EMI accounting for $11.2 million of the $70.9 million total net inventory at June 30, 2024.

Net inventory decreased $4.0 million excluding EMI’s net inventory.

The decrease of $4.0 million is the net result of a $5.9 million decrease in Lighting Segment inventory partially offset by a $1.8 million increase in Display Solutions Segment inventory.

Display Solutions inventory increased to support program initiatives.

Cash generated from operations and borrowing capacity under our credit facility is our primary source of liquidity.

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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.

The Company generated $49.6 million of cash from operating activities in fiscal 2023 compared to a use of cash of $3.8 million in fiscal 2022.

The $53.4 million increase in net cash flows from operating activity is primarily the result of strong improvement of cash flow generated from effective working capital management and from cash flow from earnings.

The Company generated $43.4 million of cash from operating activities in fiscal 2024 compared to a generation of cash of $49.6 million in fiscal 2023.

The Company continues to effectively manage its working capital while generating cash flow from earnings, resulting in strong cash flow from operations.

The Company used $55.3 million of cash from investing activities in fiscal 2024 compared to a use of cash of $3.2 million in fiscal 2023.

Capital expenditures were $3.2 million in fiscal 2023 compared to $2.1 million in fiscal 2022.

The Company received $0.5 million of cash related to the settlement of working capital adjustments from the acquisition of JSI in fiscal 2022 with no comparable event in fiscal 2023.

The Company had a use of cash of $47.1 million related to financing activities in fiscal 2023 compared to a source of cash of $5.6 million in fiscal 2022.

The $52.7 million change in cash flow was primarily the result of cash generated from improved working capital management and from improved earnings, which was used to pay down the Company’s line of credit in fiscal 2023.

Also contributing to the reduction of debt was $3.9 million of cash received from the exercise of stock options in the second and third quarters of fiscal 2023

The Company acquired EMI Industries, LLC in the fourth quarter of fiscal 2024 for $49.9 million which contributed significantly to the $55.3 million investing activities in fiscal 2024.

Capital expenditures accounted for the remainder of the fiscal 2024 use of cash for investing purposes totaling $5.4 million compared to $3.2 million in fiscal 2023.

The Company has increased its investment in equipment and tooling year-over-year to support sales growth and new products.

The Company generated cash of $14.3 million related to financing activities in fiscal 2024 compared to a net use of cash of $47.1 million in fiscal 2023.

The acquisition of EMI in the fourth quarter of fiscal 2024 resulted in the need to borrow from the Company’s revolving line of credit which contributed to the net increase in borrowings in fiscal 2024 and resulted in the generation of cash related to financing activities.

With the exception of the acquisition of EMI and the need to borrow against the Company’s credit facility, the Company continues to generate positive cash flow and effectively manages working capital to pay down its line of credit.

The Company also received $1.8 million and $3.9 million of cash payments in fiscal 2024 and fiscal 2023, respectively, related to the exercise of employee stock options.

The Company has on its balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt.

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The significant accounting policy that management believes is critical to the understanding and evaluating our reported financial results is the warranty reserve.

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

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.

Warranty reserves are subject to large reserve adjustments when actual warranty costs differ significantly from cost estimates.

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.

Warranty reserves are subject to large reserve adjustments when actual warranty costs differ significantly from cost estimates.

The Company also periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amount as necessary which can also cause large reserve adjustments.

These adjustments may be required in the future, which could adversely affect our gross profit and results of operations.

The same methodology was used for calculating warranty reserves in fiscal 2022 and fiscal 2023.

MANAGEMENT ’

S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The same methodology was used for calculating warranty reserves in fiscal 2023 and fiscal 2024 which resulted in a modest increase in the reserve in fiscal 2024.

Business Combination:

From time to time, the Company enters into business combinations.

Business acquisitions are accounted for using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

In the fair value evaluation of intangible assets acquired, there are significant estimates and assumptions, including forecasts of future cash flows, revenues;

and earnings before interest, taxes, depreciation and amortization;

as well as the selection of the royalty rates and discount rates.

The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.

Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date.

We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period.

If outside of the measurement period, any subsequent adjustments are recorded to the consolidated statement of operations.

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, 2023, based on the criteria set forth in “the 2013 Internal Control –

Integrated Framework”

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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, 2024, 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.

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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, 2023.

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.

The Company acquired EMI Industries, LLC (EMI) on April 18, 2024.

Management excluded EMI from its evaluation of the effectiveness of the internal control over financial reporting as of June 30, 2024.

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, 2024.

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.

President and Chief Executive Officer

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Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

(Principal Financial Officer, Principal Accounting Officer)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of LSI Industries Inc.

(an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’

equity, and cash flows for each of the three years in the period ended June 30, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated September 8, 2023 expressed unqualified opinion.

(an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 2024 and 2023, 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, 2024, and the related notes and financial statement schedule included under Item 8 (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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, 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, 2024, 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 11, 2024 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.

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.

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Critical audit matters

The critical audit matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

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 critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of EMI Industries, LLC

As discussed in Note 2 to the consolidated financial statements, the Company completed an acquisition agreement wherein the Company acquired 100% ownership of EMI Industries, LLC in April 2024 for total consideration of $49.9M resulting in the addition of $15.7M of intangible assets.

The acquisition was accounted for as a business combination.

We identified the valuation of the acquired trade name and customer relationships as a critical audit matter.

The principal considerations for our determination that the valuation of the acquired trade name and customer relationships is a critical audit matter is that the valuation of the acquired trade name and customer relationships was considered especially challenging and required significant auditor judgment due to the complex determination by management of the appropriate assumptions, which includes prospective financial information and discount rate for the valuation of the acquired trade name and customer relationships.

The Company, utilizing third-party specialists, used income valuation models including Relief from Royalty Method and the Multi-Period Excess Earning Method (MPEEM) to measure the identified trade name and customer relationships, respectively.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals having expertise in the valuation of acquired intangible assets, when performing audit procedures to evaluate management’s judgments and conclusions related to the valuation of the acquired trade name and customer relationships.

Our audit procedures related to the valuation of the acquired trade name and customer relationships included the following, among others:

Tested management’s process and related internal controls for developing fair value estimates including the development of key assumptions, including prospective financial information and discount rate for the valuation of the acquired trade name and customer relationships

Tested the completeness and accuracy of the underlying data used to develop the fair value estimates

Evaluated the appropriateness of the valuation models and methodologies used by management with the assistance of professionals with specialized skills and knowledge

Assessed the reasonableness of management’s forecast by comparing the projections to historical results and external sources, including industry trends

Involved professionals with specialized skills and knowledge to assist in the evaluation of the significant assumptions used by management including prospective financial information and discount rate for the valuation of the acquired trade name and customer relationships

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2009.

Chicago, Illinois

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We have audited the internal control over financial reporting of LSI Industries Inc.

(an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 2023, 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, 2023, 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, 2023, and our report dated September 8, 2023 expressed an unqualified opinion on those financial statements.

(an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 2024, 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, 2024, 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, 2024, and our report dated September 11, 2024 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.

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We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of EMI Industries, LLC (“EMI”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 21 percent and 4 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2024.

As indicated in Management’s Report on Internal Control Over Financial Reporting, EMI was acquired during fiscal year 2024.

Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of EMI.

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.

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CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended June  

30, 2023, and 2022

For the years ended June 30, 2024, and 2023

(In thousands, except per share data)

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Cost of products and services sold

Severance costs

Restructuring/Severance costs

Selling and administrative expenses

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Income tax expense

Earnings per common share (see Note 4)

Weighted average common shares outstanding

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended June  

30, 2023, and 2022

For the years ended June 30, 2024, and 2023

(In thousands)

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CONSOLIDATED BALANCE SHEETS

30, 2023, and 2022

June 30, 2024, and 2023

(In thousands, except shares)

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Net property, plant and equipment

Other Intangible Assets, net

Intangible assets, net

Operating lease right-of-use assets

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CONSOLIDATED BALANCE SHEETS (continued)

30, 2023, and 2022

June 30, 2024, and 2023

(In thousands, except shares)

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Treasury shares, without par value

Deferred compensation plan

Key Executive Compensation

Retained earnings

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LSI INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

For the years ended June  

30, 2023, and 2022

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY

For the years ended June 30, 2024, and 2023

(amounts in thousands)

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Balance at June 30, 2022

Other comprehensive loss

Other comprehensive gain

Board stock compensation

ESPP stock awards

Restricted stock units issued, net of shares withheld for tax withholdings

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Stock options exercised, net

Dividends —

$ 0.20 per share

Dividends — $ 0.20 per share

Balance at June 30, 2023

Other comprehensive income

Other comprehensive (loss)

Board stock compensation

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Stock options exercised, net

Dividends —

$ 0.20 per share

Dividends — $ 0.20 per share

Balance at June 30, 2024

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June  

30, 2023, and 2022

For the years ended June 30, 2024, and 2023

(In thousands)

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Loss on disposition of fixed assets

Allowance for doubtful accounts

Allowance for credit losses

Inventory obsolescence reserve

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Accrued expenses and other

Net cash flows provided by (used in) operating activities

Net cash flows provided by operating activities

Cash Flows from Investing Activities

Acquisition of JSI

Acquisition of EMI

Purchases of property, plant, and equipment

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Proceeds from stock option exercises

Net cash flows (used in) provided by financing activities

Net cash flows provided by (used in) financing activities

Change related to Foreign Currency

(Decrease) increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 —

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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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.

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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.

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(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;

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June 30, 2023

SolutionsSegment

Timing of revenue recognition

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June 30, 2024

SolutionsSegment

Timing of revenue recognition

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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;

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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.

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.

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These allowances are based upon historical trends.

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

Net Accounts Receivable

(In thousands)

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Accounts receivable, net

The net accounts receivable balance as of June 30, 2022 was $ 77.8 million.

Cash and Cash Equivalents:

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Computer software (in years)

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.

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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

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Balance at beginning of the period

Addition from acquired company

Additions charged to expense

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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.

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Cost of products sold also includes the cost to distribute products to customers, inbound freight 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 project management and installation costs to support its service revenue along with the management of media content.

Stock-Based Compensation:

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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 2,156,000 shares and 1,375,000 shares in fiscal 2023 and 2022, respectively.

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 2,087,000 shares and 2,156,000 shares in fiscal 2024 and 2023, 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.

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 ($ 0.3 ) million as of June 30, 2023, and a nominal amount as of June 30, 2022.

Translation losses (gains) are reported in accumulated other comprehensive loss (gain) as a component of shareholders equity and was $ 0.1 million as of June 30, 2024, and ($ 0.3 ) million as of June 30, 2023.

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 was a nominal amount for the fiscal year ended June30, 2023 and $ 0.1 million for the fiscal year ended June 30, 2022.

These transaction (gains) and losses are reported in other expense in the consolidated statements of operations and was $ 0.3 million for the fiscal year ended June 30, 2024, and was a nominal amount for the fiscal year ended June 30, 2023.

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.

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.

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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.

There has not been a material impact on the Company’s consolidated financial statements and related disclosures as a result of its adoption of the guidance on July 1, 2023.

In October 2023, the FASB issued ASU 2023 - 06, Disclosure Improvements:

Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative.

This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification.

The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S- X or Regulation S-K becomes effective, with early adoption prohibited.

The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but it does not anticipate that the adoption of the new guidance will have a material impact on the Company’s consolidated financial statements and related disclosures.

The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.

In November 2023 , the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures.

This ASU expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker ("CODM") and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect of this new guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023 - 09 , Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

This ASU requires additional disclosures of various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components.

The standard also requires information pertaining to taxes paid to be disaggregated for federal, state and foreign taxes, and contains other disclosure requirements.

This ASU is effective for fiscal years beginning after December 15, 2024 , and interim periods within fiscal years beginning after December 15, 2025 , with early adoption permitted.

The Company is currently evaluating the effect of this new guidance on its consolidated financial statements and related disclosures.

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.

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 —

BUSINESS SEGMENT INFORMATION

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 EMI INDUSTRIES, LLC

On April 18, 2024, the Company entered into and consummated the transactions contemplated by an asset purchase agreement with EMI Industries, LLC.

(EMI), a Florida-based metal and millwork manufacturer of standard and customized fixtures, displays and equipment for the convenience store, supermarket and restaurant industries, for $ 50.0 million, of which $ 0.1 million of the purchase price was retained pending a review of the acquired working capital.

The Company incurred acquisition-related costs totaling $ 1.0 million which are included in the selling and administrative expense line of the consolidated statements of operations.

The acquisition of EMI is expected to increase the Company’s total addressable markets within the grocery, quick service restaurant and convenience store verticals.

The Company funded the acquisition with a combination of cash on hand and from the $ 75 million revolving line of credit totaling $ 49.9 million.

The Company accounted for this transaction as a business combination.

The Company has preliminarily allocated the purchase price of approximately $ 49.9 million which includes an estimate of customary post-closing purchase price adjustments to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill.

This preliminary allocation is subject to the final determination of the purchase price which will be finalized in fiscal 2025, as well as the potential revision resulting from the finalization of pre-acquisition tax filings.

The Company is in the process of finalizing third party valuations of certain assets, as well as finalizing the value of the assets acquired and liabilities assumed.

The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of April 18, 2024, is as follows:

(In thousands)

Accounts Receivable

Property, Plant and Equipment

Operating Lease Right-Of-Use Assets

Intangible Assets

Accounts Payable

Accrued Expenses

Operating Lease Liabilities

Identifiable Assets

Net Purchase Consideration

The gross amount of accounts receivable acquired was $ 11.9 million.

Goodwill recorded from the acquisition of EMI is attributable to the impact of the positive cash flow from EMI in addition to expected synergies from the business combination.

The goodwill resulting from the acquisition is deductible for tax purposes.

The trade name and technology used an income (relief from royalty) approach, the non-compete used an income (with or without) approach, and the customer relationships used an income (excess earnings) approach.

The following table presents the details of the intangible assets acquired at the date of acquisition:

Estimated Fair

Estimated Useful

(in thousands)

Indefinite life

Technology assets

Customer relationships

EMI’s post-acquisition results of operations for the period from April 18, 2024, through June 30, 2024, are included in the Company’s Consolidated Statements of Operations.

Since the acquisition date, net sales of EMI for the period from April 18, 2024, through June 30, 2024, were $ 18.1 million and operating income was $ 0.7 million.

The operating results of EMI are included in the Display Solutions Segment.

Pro Forma Impact of the Acquisition of EMI (Unaudited)

The following table represents unaudited pro forma results of operations and gives effect to the acquisition of EMI as if the transaction had occurred on July 1, 2022.

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 EMI .

The unaudited pro forma financial information for the twelve months ended June 30, 2024, and June 30, 2023, is prepared using the acquisition method of accounting and has been adjusted to effect to the pro forma events that are:

(1) directly attributable to the acquisition;

(2) factually supportable;

and (3) expected to have a continuing impact on the combined results.

The fiscal 2024 unaudited pro forma operating income of $ 36.3 million excludes acquisition-related expenses of $ 1.0 million.

Twelve Month Ended

(in thousands;

Operating Income

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.

Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.

The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels.

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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.

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item.

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, 2023, or 2022.

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, 2024, or 2023.

There was no concentration of accounts receivable at June 30, 2024, or 2023.

Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of June 30, 2023, and June 30, 2022:

Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of June 30, 2024, and June 30, 2023:

(In thousands)

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The segment net sales reported above represent sales to external customers.

Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses.

Identifiable assets are those assets used by each segment in its operations.

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Display Solutions Segment inter-segment net sales

NOTE 3 —

EARNINGS PER SHARE

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:

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Anti-dilutive securities (b)

Calculated using the “Treasury Stock”

method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.

Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30, 2023, and June 30, 2022, 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.

NOTE 4 —

INVENTORIES, NET

The following information is provided as of the dates indicated:

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.

Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30, 2024, and June 30, 2023, 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.

NOTE 5 — INVENTORIES, NET

The following information is provided as of the dates indicated:

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Total Inventories

NOTE 5 —

ACCRUED EXPENSES

The Company has open purchase orders primarily related to inventory totaling $ 43.1 million as of June 30, 2024.

NOTE 6 — ACCRUED EXPENSES

The following information is provided as of the dates indicated:

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Operating lease liabilities

Accrued income tax

Finance lease liabilities

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Total Accrued Expenses

NOTE 6 —

GOODWILL AND OTHER INTANGIBLE ASSETS

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.

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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.

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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.

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The goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $ 37.3 million or 23 % 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 $ 13.6 million or 5,426 % 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 $ 22.7 million which is substantially 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 $ 95.5 million or 19 % above the carrying value of the reporting unit including goodwill.

The Company has two indefinite-lived intangible assets.

The Company performed its annual review of indefinite-lived intangible assets as of March 1, 2023, and determined there was no impairment.

The impairment test of the first indefinite-lived intangible asset passed with a fair market value of $ 17.0 million or 399 % above its carrying value.

The impairment test of the second indefinite-lived intangible asset passed with a fair market value of and $ 10.5 million or 21 % above its carrying value.

The Company performed its annual review of indefinite-lived intangible assets utilizing qualitative factors associated with the step zero methodology, as of March 1, 2024, and determined there was no impairment.

As of March 1, 2023 , 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 $ 34.4 million or 21 % 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 one reporting unit with goodwill in the Display Solutions Segment passed with an estimated business enterprise value of $ 13.6 million which is substantially 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 $ 99.4 million or 15 % 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 Company performed its annual review of indefinite-lived intangible assets as of March 1, 2023, 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 399 % above its carrying value.

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(In thousands)

SolutionsSegment

Balance as of June 30, 2023

Measurement period adjustment

Accumulated impairment losses

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Balance as of June 30, 2024

Goodwill acquired

Accumulated impairment losses

Goodwill, net as of June 30, 2024

In fiscal 2022, the Company recorded measurement period adjustments to the original purchase price of JSI Store Fixtures which impacted the amount of goodwill originally reported.

In fiscal 2024, the Company acquired EMI Industries, LLC, which impacted the amount of goodwill reported.

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

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(In thousands)

NOTE 7 —

REVOLVING LINE OF CREDIT AND LONG-TERM DEBT

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

NOTE 8 — REVOLVING LINE OF CREDIT AND LONG-TERM DEBT

The Company’s long-term debt as of June 30, 2024, and June 30, 2023, consisted of the following:

(In thousands)

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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, 2023, the Company’s borrowing rate against its revolving line of credit was 6.5 %.

The increment over LIBOR borrowing rate will be 100 basis points for the second quarter of fiscal 2024.

Interest on both the revolving line of credit and the term loan is charged based upon an increment over the Secured Overnight Financing Rate (SOFR) 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 SOFR Rate plus 100 basis points.

The increment over the SOFR 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, 2024, the Company’s borrowing rate against its revolving line of credit was 6.5 %.The increment over the SOFR borrowing rate will be 125 basis points for the first quarter of fiscal 2025.

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.

Under the terms of this line of credit, the Company 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, 2024, there was $ 36.2 million available for borrowing under the $ 75 million line of credit.

The Company is in compliance with all of its loan covenants as of June 30, 2024.

NOTE 8 —

CASH DIVIDENDS

The Company paid cash dividends of $ 5.4 million in fiscal years 2023 and 2022, respectively.

Dividends on restricted stock units in the amount of $ 0.1 million and $ 0.2 million were accrued as of June 30, 2023, and 2022, respectively.

NOTE 9 — CASH DIVIDENDS

The Company paid cash dividends of $ 5.7 million and $ 5.4 million in fiscal years 2024 and 2023, respectively.

Dividends on restricted stock units in the amount of $ 0.1 million were accrued for both fiscal years as of June 30, 2024, and 2023.

These dividends are paid upon the vesting of the restricted stock units when shares are issued to the award recipients.

In August 2024, the Board of Directors declared a regular quarterly cash dividend of $ 0.05 per share payable September 3, 2024, to shareholders of record August 26, 2024.

NOTE 9 —

EQUITY COMPENSATION

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (“2019 Omnibus Plan”).

NOTE 10 — EQUITY COMPENSATION

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (as amended on November 1, 2022, the “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 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 5,000,000 which are combined with the remaining shares available under the 2012 Stock Plan.

The number of shares reserved for issuance under the 2019 Omnibus Plan is 1,864,129 shares all of which are available for future grant or award as of June 30, 2024.

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 that are granted by the Company to attract and retain key executives.

The 2019 Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units and other stock-based awards.

Inducement awards are granted by the Company to attract and retain key executives.

Inducement awards are separately registered securities and are not part of the 2019 Omnibus Plan.

In fiscal 2024, 126,834 RSUs and 265,687 PSUs were granted.

In fiscal 2022, 146,821 RSUs and 190,980 PSUs were granted.

Employee Stock Purchase Plan

In November of 2021, our board of directors approved the LSI Employee Stock Purchase Plan (“ESPP”).

In November of 2021, our board of directors and shareholders approved the LSI Employee Stock Purchase Plan (“ESPP”).

A total of 270,000 shares of common stock were provided for issuance under the ESPP.

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The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model.

There were no options granted in fiscal 2023 and fiscal 2022.

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 2023.

Dividend yield

Expected volatility

Risk-free interest rate

Expected life (in years)

Fair value per share

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.

The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised.

It is the Company’s policy that when stock options are exercised, new common shares shall be issued.

Service-based options have a three-year ratable vesting period beginning one year after the date of grant.

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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 2023 and fiscal 2022.

The Company recorded $ 0.1 million and $ 0.3 million of expense related to stock options in fiscal years 2024 and 2023, respectively.

A summary of stock option activity as of June 30, 2024, and changes during the period from July 1, 2023, through June 30, 2024, are as follows:

Average Exercise Price

Exercise Price

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Outstanding at June 30, 2023

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Vested and expected to vest at June 30, 2024

The aggregate intrinsic value of options exercised during the years ended June 30, 2023, and June 30, 2022, was $ 2.0 million as of June 30, 2023, and was nominal as of June 30, 2022.

The Company received $ 3.9 million of cash proceeds from the exercise of stock options in fiscal 2023 and a nominal amount of proceeds from the exercise of stock options in fiscal 2022.

The aggregate intrinsic value of options exercised during the years ended June 30, 2024, and June 30, 2023, was $ 1.7 million as of June 30, 2024, and $ 2.0 million as of June 30, 2023.

The Company received $ 1.8 million and $ 3.9 million of proceeds from stock options exercises in fiscal 2024 and 2023, respectively.

As of June 30, 2024, 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 2.42 years.

For fiscal year 2024, the Company recognized a current income tax benefit of $ 1.4 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 2023, the Company recognized a current income tax benefit of $ 0.8 million for tax deductions related to equity compensation.

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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 $ 113,883 and $ 101,931 were accrued as of June 30, 2024, and 2023, respectively.

Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.

The Company recorded $ 1.3 million and $ 0.9 million of expense related to RSUs during fiscal years 2023, and 2022, respectively.

The Company recorded $ 1.5 million and $ 1.3 million of expense related to RSUs during fiscal year 2024, and 2023, respectively.

A summary of outstanding and unvested RSU activity as of June 30, 2024, and changes during the period from July 1, 2023, through June 30, 2024, are as follows:

Average Grant

Date Fair Value

Unvested at June 30, 2024

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PSUs vest if the Company meets certain financial metrics over a three-year period.

The PSUs are non-voting and do not accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock.

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.

The Company recorded $ 2.2 million and $ 2.0 million of expense related to PSUs during fiscal years 2024, and 2023, respectively.

A summary of outstanding and unvested PSU activity as of June 30, 2024, and changes during the period from July 1, 2023, through June 30, 2024, are as follows:

Average Grant

Date Fair Value

Unvested at June 30, 2023

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As of June 30, 2024, there was $ 1.5 million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is expected to be recognized over a weighted-average remaining period of 2.0 years.

Director Stock Compensation Awards

Director and Employee Stock Compensation Awards

The Company awarded a total of 31,608 and 43,722 common shares as stock compensation awards in fiscal years 2024, and 2023, respectively.

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The Company issued 131,226 and 207,090 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2024, and during fiscal 2023, respectively.

NOTE 10 —

LEASES AND PURCHASE COMMITMENTS

Purchase commitments of the Company totaled $ 50.0 million as of June 30, 2023.

NOTE 11 — LEASES

The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items, and various items of office equipment.

All but two of the Company’s leases are operating leases.

Leases have a remaining term of one to seven years some of which have an option to renew.

1 unchanged sentence

The lease agreements do not contain any material residual guarantees or material variable lease payments.

The number of operating leases increased in fiscal 2024 as a result of the acquisition of EMI mostly which are building leases.

The Company has periodically entered into short-term operating leases with an initial term of twelve months or less.

10 unchanged sentences

Variable lease cost

Sublease income

Total lease cost

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Operating Leases:

June 30, 2023

June 30, 2022

Total operating right-of-use assets

Accrued expenses (Current liabilities)

Accrued Expenses

Long-term operating lease liability

2 unchanged sentences

Weighted Average Discount Rate

Finance Leases:

June 30, 2023

June 30, 2022

Buldings under finance leases

Financing Leases

Buildings under finance leases

Equipment under finance leases

1 unchanged sentence

Total finance lease assets, net

Accured expenses (Current liabilities)

Accrued expenses (Current liabilities)

Long-term finance lease liability

3 unchanged sentences

Maturities of Lease Liability:

Operating Lease

Finance Lease

Operating Lease Liabilities

Operating Subleases

Net Lease Commitments

Total lease payments

Present Value of Lease Liabilities

NOTE 11 —

NOTE 12 — INCOME TAXES

The following information is provided for the years ended June 30:

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Federal tax credits

Officer's Compensation

Uncertain tax position activity

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Stock-based compensation

Capitalized R&D

State net operating loss carryover and credits

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The Company has U.S.

federal net operating loss carry forward deferred tax assets of $ 0.2 million and $ 1.1 million at June 30, 2023, and June 30, 2022, respectively.

The federal net operating loss carry forward was from the acquisition of JSI in May 2021.

The decrease of $ 0.9 million in fiscal 2023 was from utilization of the net operating loss.

The Company has deferred tax assets for research and development credits of $ 0.1 million at both June 30, 2023, and June 30, 2022.

federal net operating loss carry forward deferred tax asset of $ 0.2 million at June 30, 2023, with no remaining operating loss carryforward as of June 30, 2024.

The Company has deferred tax assets for research and development credits of $ 0.1 million for both fiscal years ended June 30, 2024, and June 30, 2023.

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 $ 0.3 million and $ 0.5 million at June 30, 2023, and June 30, 2022, respectively.

The decrease of $ 0.2 million was from utilization of the net operating loss.

The Company has Canadian net operating loss carry forward deferred tax assets of $ 0.3 million for both fiscal years ending June 30, 2024, and June 30, 2023.

The $ 0.3 million deferred tax asset was from the acquisition of JSI and has a 20 year carryforward period.

The Company has state net operating loss carryovers and tax credit deferred tax assets of $ 0.1 million and $ 0.3 million at June 30, 2023, and June 30, 2022, respectively.

The Company has state net operating loss carryovers and tax credit deferred tax assets of $ 0.1 million for both fiscal years ending June 30, 2024, and June 30, 2023.

A portion of the sate net operating loss carry forward was from the acquisition of JSI in May 2021.

7 unchanged sentences

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 2023 and fiscal 2022, related to the change in reserves for uncertain tax positions.

The Company recognized a $ 0.1 million net tax expense/(benefit) in both fiscal 2024 and fiscal 2023, related to the change in reserves for uncertain tax positions.

The Company recognized interest net of federal benefit and penalties of $ 17,000 and $ 37,000 , respectively, in fiscal 2024, and $ 500 and $( 3,000 ), respectively, in fiscal 2023.

7 unchanged sentences

Balance at end of the fiscal year

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, Mexico, and Puerto Rico.

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, 2021.

Except that US tax years prior to June 30, 2020, are subject to exam to the extent of the US tax refunds generated from the carry back of the June 30, 2020, federal net operating loss.

The IRS completed their examination of the US tax year ended June 30, 2020, and issued a no change report.

NOTE 12 —

SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION

(in thousands)

4 unchanged sentences

Issuance of common shares to fund ESPP plan

NOTE 13 —

COMMITMENTS AND CONTINGENCIES

NOTE 14 — COMMITMENTS AND CONTINGENCIES

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business.

1 unchanged sentence

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, 2024, there were no such standby letters of credit issued.

NOTE 14 –

SEVERANCE COSTS

The Company recorded severance charges of less than $ 0.1 million in fiscal 2023 and 2022, 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, 2023, and 2022:

(In thousands)

Balance at beginning of period

Accrual of expense

Balance at end of period

NOTE 15 —

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

NOTE 15 — SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

Quarter Ended

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AND SUBSIDIARIES

SCHEDULE II —

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED JUNE 30, 2024, and 2023

(In thousands)   

Balance Beginning

Additions Charged to Costs and Expenses

Company Acquired

Allowance for Credit Losses:

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures