LSI INDUSTRIES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company maintains disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 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. 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, 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. ITEM 9B. OTHER INFORMATION 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. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information about our directors and officers may be found under the captions “Nominees for Board of Directors” and “Executive Officers” in our Proxy Statement for the Annual Meeting of Shareholders to be held November 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, 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 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. 19 ITEM 11. EXECUTIVE COMPENSATION The information in the Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information in the Proxy Statement set forth under the captions “Security Ownership,” and “Equity Compensation Plan Information” is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Related Person Transactions” is incorporated herein by reference. ITEM 14. PRINCIPAL 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. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements appear as part of Item 8 of this Form 10-K. (2) Exhibits – Exhibits set forth below are either on file with the Securities and Exchange Commission and are incorporated by reference as exhibits hereto, or are filed with this Form 10-K. Exhibit No. Exhibit Description 2.1 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)++ 3.1 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). 3.2 Amended and Restated Code of Regulations of LSI (incorporated by reference to Exhibit 3.2 to LSI’s Form 10-K filed on September 11, 2020). 4.1 Description of Securities (incorporated by reference to Exhibit 4.1 to LSI’s Annual Report on Form 10-K filed on September 6, 2019). 10.1 Third Amendment to Loan Documents dated February 21, 2017, between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 4.2 to LSI’s Form 8-K filed on February 21, 2017). 10.2 Fourth Amendment to Loan Documents dated February 28, 2019, between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on May 8, 2019). 10.3 Amended and Restated Loan Agreement dated as of June 19, 2014 between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 of LSI’s Form 10-K filed on September 10, 2014). 20 10.4* Amended and Restated 2019 Omnibus Award Plan (incorporated by reference to LSI’s Schedule 14A filed on September 14, 2022). 10.5 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 23, 2016) 10.6* LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of January 24, 2024) (incorporated by reference to Exhibit 10.1 of LSI’s Form 10-Q filed on May 6, 2024). 10.7* Employment Agreement between LSI and James A. Clark (incorporated by reference to Exhibit 10.1 to LSI’s 8-K filed on October 17, 2018). 10.8* Employment Offer Letter between LSI and James E. Galeese (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on June 13, 2017). 10.9* Employment Offer Letter between LSI and Thomas A. Caneris (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on August 5, 2019). 10.10* Form of Change in Control Agreement (incorporated by reference to Exhibit 10.1 to LSI’s Form 10-Q filed on January 29, 2021). 10.11 Fifth Amendment to Loan Documents dated as of March 30, 2021, between LSI and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to LSI’s Form 8-K filed on April 1, 2021). 10.12* Form of Supplemental Benefits Agreement (incorporated by reference to Exhibit 10.2 to LSI’s Form 10-Q filed on January 29, 2021). 10.13* Form of 2019 Omnibus Award Plan Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to LSI’s Form 10-Q filed on November 5, 2020). 10.14* Form of 2019 Omnibus Award Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to LSI’s Form 10-Q filed on February 4, 2022). 10.15* Form of 2019 Omnibus Award Plan Performance Stock Unit Award Agreement++ (incorporated by reference to Exhibit 10.4 to LSI’s Form 10-Q filed on February 4, 2022). 10.16* LSI Industries Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to LSI’s Proxy Statement on Schedule 14A filed on September 15, 2021). 10.17 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). 10.18* 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). 10.19* 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) 14 Code of Conduct (incorporated by reference to Exhibit 14 to LSI’s Form 10-K filed on September 10, 2021) 19 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). 21 Subsidiaries of the Registrant 23.1 Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP) 24 Power of Attorney (included as part of signature page) 21 31.1 Certification of Principal Executive Officer required by Rule 13a-14(a) 31.2 Certification of Principal Financial Officer required by Rule 13a-14(a) 32.1 18 U.S.C. Section 1350 Certification of Principal Executive Officer 32.2 18 U.S.C. Section 1350 Certification of Principal Financial Officer 97.1 Executive Compensation Recoupment Policy 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Document 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) *Management compensatory agreement. ++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request. LSI will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to LSI’s reasonable expenses in furnishing such exhibit. The exhibits identified herein as being filed with the SEC have been so filed with the SEC but may not be included in this version of the Annual Report to Shareholders. ITEM 16. FORM 10-K SUMMARY Not included. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LSI INDUSTRIES INC. September 11, 2024 BY: /s/ James A. Clark Date James A. Clark Chief Executive Officer and President We, the undersigned directors, and officers of LSI Industries Inc. hereby severally constitute James A. Clark and James E. Galeese, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title /s/ James A. Clark Chief Executive Officer and President James A. Clark (Principal Executive Officer) Date: September 11, 2024 /s/ James E. Galeese Executive Vice President, and Chief Financial Officer James E. Galeese (Principal Financial Officer and Principal Accounting Officer) Date: September 11, 2024 /s/ Robert P. Beech Director Robert P. Beech Date: September 11, 2024 /s/ Ronald D. Brown Director Ronald D. Brown Date: September 11, 2024 /s/ Amy L. Hanson Director Amy L. Hanson Date: September 11, 2024 /s/ Ernest W. Marshall, Jr. Director Ernest W. Marshall, Jr. Date: September 11, 2024 /s/ Chantel E. Lenard Director Chantel E. Lenard Date: September 11, 2024 /s/ Wilfred T. O’Gara Director Wilfred T. O’Gara Date: September 11, 2024 23 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). 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, 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. Overview LSI Industries Inc. (LSI) is a leading producer of non-residential lighting and retail display solutions. 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 Net Sales by Business Segment (In thousands) 2024 2023 Lighting Segment $ 262,413 $ 272,451 Display Solutions Segment 207,225 224,528 Total Net Sales $ 469,638 $ 496,979 Operating Income (Loss) by Business Segment (In thousands) 2024 2023 Lighting Segment $ 33,327 $ 31,633 Display Solutions Segment 19,969 24,920 Corporate and Eliminations (17,779 ) (19,525 ) Total Operating Income $ 35,517 $ 37,028 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. Despite a decline in sales, the Company was able to improve its operating margin with strong operational disciplines and effective cost controls. 24 Non-GAAP Financial Measures We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income, and earnings per share, which exclude the impact of acquisition costs, 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. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. We exclude these items because they are not representative of the ongoing results of operations of our business. These Non-GAAP measures may be different from Non-GAAP measures used by other companies. In addition, the Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our results in conjunction with corresponding GAAP measures. Below is a reconciliation of these non-GAAP measures to operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, and Net Debt to adjusted EBITDA. Reconciliation of net income to adjusted net income: (In thousands, except per share data) 2024 2023 Diluted EPS Diluted EPS Net income as reported $ 24,977 $ 0.83 $ 25,762 $ 0.88 Long-term performance based compensation 3,272 (1 ) 0.11 2,879 (4 ) 0.10 Restructuring/severance costs 396 (2 ) 0.01 51 (5 ) - Acquisition costs 735 (3 ) 0.02 - - Consulting expense: commercial growth opportunities - - 707 (6 ) 0.02 Tax rate difference between reported and adjusted net income (755 ) (0.03 ) (402 ) (0.01 ) Net income adjusted $ 28,625 $ 0.95 $ 28,997 $ 0.99 The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated: (1) $1,108 (2) $143 (3) $266 (4) $1,119 (5) $15 (6) $157 The reconciliation of reported earnings per share to adjusted earnings per share may not produce identical amounts due to rounding differences. 25 Reconciliation of operating income to adjusted operating income: 2024 2023 (In thousands) Operating income as reported $ 35,517 $ 37,028 Acquisition costs 1,001 - Long-term performance based compensation 4,380 3,998 Restructuring/severance costs 539 66 Consulting expense: commercial growth opportunities - 864 Adjusted operating income $ 41,437 $ 41,956 Reconciliation of net income to EBITDA to adjusted EBITDA: 2024 2023 (In thousands) Net income - reported $ 24,977 $ 25,762 Income tax 8,122 7,564 Interest expense, net 2,156 3,687 Other expense (income) 262 15 Operating income as reported $ 35,517 $ 37,028 Depreciation and amortization 9,999 9,664 EBITDA $ 45,516 $ 46,692 Acquisition costs 1,001 - Long-term performance based compensation 4,380 3,998 Restructuring/severance costs 539 66 Consulting expense: commercial growth opportunities - 864 Adjusted EBITDA $ 51,436 $ 51,620 Reconciliation of cash flow from operations to free cash flow: 2024 2023 (In thousands) Cash flow from operations $ 43,393 $ 49,588 Capital expenditures (5,388 ) (3,208 ) Free cash flow $ 38,005 $ 46,380 26 Net debt to adjusted EBITDA: June 30, June 30, (In thousands) 2024 2023 Debt as reported $ 54,229 $ 35,200 Less: Cash and cash equivalents as reported 4,110 1,828 Net debt $ 50,119 $ 33,372 Adjusted EBITDA $ 51,436 $ 51,620 Net debt to adjusted EBITDA 0.97 0.65 Results of Operations 2024 Compared to 2023 Lighting Segment (In thousands) 2024 2023 Net Sales $ 262,413 $ 272,451 Gross Profit $ 89,026 $ 86,761 Operating Income $ 33,327 $ 31,633 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 (In thousands) 2024 2023 Net Sales $ 207,225 $ 224,528 Gross Profit $ 44,195 $ 50,179 Operating Income $ 19,969 $ 24,920 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. 27 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) 2024 2023 Gross (Loss)/Profit $ (53 ) $ 5 Operating (Loss) $ (17,779 ) $ (19,525 ) 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 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). 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. The weighted average common shares outstanding for purposes of computing diluted earnings per share in fiscal 2024 were 30,068,000 shares compared to 29,316,000 shares in fiscal 2023. Liquidity and Capital Resources The Company considers our level of cash on hand, borrowing capacity, current ratio and working capital levels to be our most important measures of short-term liquidity. For long-term liquidity indicators, we believe our ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures. Working capital was $83.3 million at June 30, 2024, compared to $73.3 million at June 30, 2023. 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 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 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. In September 2021, we amended our previous $100 million secured line of credit, to a $25 million term loan and the remaining $75 million as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. As of June 30, 2024, $36.2 million of the line of credit was available. As of June 30, 2024, we are in compliance with all of our loan covenants. We believe that our $100 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the next 12 months. 28 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. 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. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. Off-Balance Sheet Arrangements We have no financial instruments with off-balance sheet risk. Cash Dividends In August 2024, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable September 3, 2024, to shareholders of record as of August 26, 2024. The indicated annual cash dividend rate for fiscal 2024 was $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors at its discretion based upon its evaluation of earnings, cash flow requirements, financial conditions, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant. Critical Accounting Policies and Use of Estimates We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1. "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur may have a material impact on our financial condition or results of operations. The significant accounting 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. 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 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 2023 and fiscal 2024 which resulted in a modest increase in the reserve in fiscal 2024. 29 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. 30 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, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the reality that judgments in decision making can be faulty, the possibility of human error, and the circumvention or overriding of the controls and procedures. In meeting its responsibility for the reliability of the financial statements, the Company depends upon its system of internal accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded. The system is supported by policies and guidelines, and by careful selection and training of financial management personnel. The Company also has a Disclosure Controls Committee, whose responsibility is to help ensure appropriate disclosures and presentation of the financial statements and notes thereto. Additionally, the Company has an Internal Audit Department to assist in monitoring compliance with financial policies and procedures. The Board of Directors meets its responsibility for overview of the Company’s financial statements through its Audit Committee which is composed entirely of independent Directors who are not employees of the Company. The Audit Committee meets periodically with Management and Internal Audit to review and assess the activities of each in meeting their respective responsibilities. Grant Thornton LLP has full access to the Audit Committee to discuss the results of their audit work, the adequacy of internal accounting controls, and the quality of financial reporting. The Company acquired 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. 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. Grant Thornton LLP, an independent registered public accounting firm, has issued an opinion on the effectiveness of the Company’s internal control over financial reporting, which is presented in the financial statements. James A. Clark President and Chief Executive Officer (Principal Executive Officer) James E. Galeese Executive Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer) 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders LSI Industries Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of LSI Industries Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 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. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 September 11, 2024 32 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders LSI Industries Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of LSI Industries Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of June 30, 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Chicago, Illinois September 11, 2024 33 LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June 30, 2024, and 2023 (In thousands, except per share data) Twelve Months Ended 2024 2023 Net Sales $ 469,638 $ 496,979 Cost of products and services sold 335,962 360,003 Restructuring/Severance costs 508 31 Gross profit 133,168 136,945 Selling and administrative expenses 97,619 99,882 Severance costs 32 35 Operating income 35,517 37,028 Interest expense 2,156 3,687 Other expense 262 15 Income before income taxes 33,099 33,326 Income tax expense 8,122 7,564 Net income $ 24,977 $ 25,762 Earnings per common share (see Note 4) Basic $ 0.86 $ 0.92 Diluted $ 0.83 $ 0.88 Weighted average common shares outstanding Basic 29,049 28,127 Diluted 30,068 29,316 The accompanying notes are an integral part of these financial statements. 34 LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended June 30, 2024, and 2023 (In thousands) (In thousands) 2024 2023 Net Income $ 24,977 $ 25,762 Foreign currency translation adjustment ( 137 ) 294 Comprehensive Income $ 24,840 $ 26,056 The accompanying notes are an integral part of these financial statements. 35 LSI INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS June 30, 2024, and 2023 (In thousands, except shares) June 30, June 30, 2024 2023 ASSETS Current assets Cash and cash equivalents $ 4,110 $ 1,828 Accounts receivable, less allowance for credit losses of $ 848 and $ 435 , respectively 78,626 77,681 Inventories 70,913 63,718 Refundable income tax 3,197 3,120 Other current assets 5,653 3,529 Total current assets 162,499 149,876 Property, plant and equipment, at cost Land 4,010 4,010 Buildings 24,757 24,561 Machinery and equipment 74,204 67,457 Buildings under finance leases 2,033 2,033 Construction in progress 1,611 1,231 106,615 99,292 Less accumulated depreciation ( 73,655 ) ( 73,861 ) Net property, plant and equipment 32,960 25,431 Goodwill 57,397 45,030 Intangible assets, net 73,916 63,203 Operating lease right-of-use assets 15,912 8,921 Other long-term Assets, net 6,116 3,688 Total assets $ 348,800 $ 296,149 The accompanying notes are an integral part of these financial statements. 36 LSI INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (continued) June 30, 2024, and 2023 (In thousands, except shares) June 30, June 30, 2024 2023 LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 3,571 $ 3,571 Accounts payable 32,192 29,206 Accrued expenses 43,444 43,785 Total current liabilities 79,207 76,562 Long-term debt 50,658 31,629 Finance lease liabilities 636 960 Operating lease liabilities 11,267 5,954 Other long-term liabilities 2,677 3,466 Commitments and contingencies (Note 14) Shareholders' Equity Preferred shares, without par value; Authorized 1,000,000 shares, none issued - - Common shares, without par value; Authorized 50,000,000 shares; Outstanding 29,222,414 and 28,488,570 shares, respectively 156,365 148,691 Treasury shares, without par value ( 8,895 ) ( 7,166 ) Key Executive Compensation 8,895 7,166 Retained earnings 47,788 28,548 Accumulated other comprehensive income 202 339 Total shareholders' equity 204,355 177,578 Total liabilities & shareholders' equity $ 348,800 $ 296,149 The accompanying notes are an integral part of these financial statements. 37 LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY For the years ended June 30, 2024, and 2023 (amounts in thousands) Common Shares Treasury Shares Key Executive Accumulated Other Total Number Of Number Of Compensation Retained Comprehensive Shareholders' Shares Amount Shares Amount Amount Earnings Income (Loss) Equity Balance at June 30, 2022 27,484 $ 139,500 ( 822 ) $ ( 5,927 ) $ 5,927 $ 8,224 $ 45 $ 147,769 Net Income - - - - - 25,762 - 25,762 Other comprehensive gain - - - - - - 294 294 Board stock compensation 44 368 - - - - - 368 ESPP stock awards 14 142 142 Restricted stock units issued, net of shares withheld for tax withholdings 301 ( 896 ) - - - - - ( 896 ) Shares issued for deferred compensation 207 2,017 - - - - - 2,017 Activity of treasury shares, net - - ( 100 ) ( 1,239 ) - - - ( 1,239 ) Deferred stock compensation - - - - 1,239 - - 1,239 Stock-based compensation expense - 3,698 - - - - - 3,698 Stock options exercised, net 438 3,862 - - - - - 3,862 Dividends — $ 0.20 per share - - - - - ( 5,438 ) - ( 5,438 ) Balance at June 30, 2023 28,488 $ 148,691 ( 922 ) $ ( 7,166 ) $ 7,166 $ 28,548 $ 339 $ 177,578 Net Income - - - - - 24,977 - 24,977 Other comprehensive (loss) - - - - - - (137 ) (137 ) Board stock compensation 32 450 - - - - - 450 ESPP stock awards 14 194 - - - - - 194 Restricted stock units issued, net of shares withheld for tax withholdings 324 ( 447 ) - - - - - ( 447 ) Shares issued for deferred compensation 131 1,875 - - - - - 1,875 Activity of treasury shares, net - - ( 114 ) ( 1,729 ) - - - ( 1,729 ) Deferred stock compensation - - - - 1,729 - - 1,729 Stock-based compensation expense - 3,814 - - - - - 3,814 Stock options exercised, net 233 1,788 - - - - - 1,788 Dividends — $ 0.20 per share - - - - - ( 5,737 ) - ( 5,737 ) Balance at June 30, 2024 29,222 $ 156,365 ( 1,036 ) $ ( 8,895 ) $ 8,895 $ 47,788 $ 202 $ 204,355 The accompanying notes are an integral part of these financial statements. 38 LSI INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 2024, and 2023 (In thousands) 2024 2023 Cash Flows from Operating Activities Net income $ 24,977 $ 25,762 Non-cash items included in net income Depreciation and amortization 9,999 9,664 Deferred income taxes ( 1,608 ) ( 418 ) Deferred compensation plan 1,875 2,017 Stock compensation expense 3,814 3,698 ESPP discount 194 142 Issuance of common shares as compensation 450 368 Loss on disposition of fixed assets 306 59 Allowance for credit losses 57 ( 19 ) Inventory obsolescence reserve ( 1,259 ) 2,496 Changes in certain assets and liabilities: Accounts receivable 10,384 88 Inventories 6,310 8,207 Refundable income taxes ( 77 ) ( 2,079 ) Accounts payable ( 4,117 ) ( 5,577 ) Accrued expenses and other ( 7,913 ) 5,180 Net cash flows provided by operating activities 43,392 49,588 Cash Flows from Investing Activities Acquisition of EMI ( 49,900 ) - Purchases of property, plant, and equipment ( 5,388 ) ( 3,208 ) Proceeds from the sale of fixed assets 35 5 Net cash flows (used in) investing activities ( 55,253 ) ( 3,203 ) Cash Flows from Financing Activities Payments on long-term debt ( 139,884 ) ( 198,306 ) Borrowings on long-term debt 158,912 153,910 Cash dividends paid ( 5,737 ) ( 5,438 ) Shares withheld on employees' taxes ( 447 ) ( 896 ) Payments on financing lease obligations ( 324 ) ( 281 ) Proceeds from stock option exercises 1,788 3,862 Net cash flows provided by (used in) financing activities 14,308 ( 47,149 ) Change related to Foreign Currency ( 165 ) 130 Increase (decrease) in cash and cash equivalents 2,282 ( 634 ) Cash and cash equivalents at beginning of period 1,828 2,462 Cash and cash equivalents at end of period $ 4,110 $ 1,828 The accompanying notes are an integral part of these financial statements. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries (collectively, the “Company”), all of which are wholly owned. All intercompany transactions and balances have been eliminated in consolidation. Revenue Recognition: The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations. Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties. A number of the Company's display solutions and select lighting products are customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows: ● Customer specific branded print graphics ● Electrical components based on customer specifications ● Digital signage and related media content The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided through the installation process. For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the performance obligation. On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer. 40 Disaggregation of Revenue The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments: Twelve Months Ended (In thousands) June 30, 2023 Lighting Segment Display Solutions Segment Timing of revenue recognition Products and services transferred at a point in time $ 234,736 $ 177,564 Products and services transferred over time 37,715 46,964 $ 272,451 $ 224,528 Type of Product and Services LED lighting, digital signage solutions, electronic circuit boards $ 224,529 $ 25,011 Poles and other display solutions elements 44,473 156,057 Project management, installation services, shipping and handling 3,449 43,460 $ 272,451 $ 224,528 Twelve Months Ended (In thousands) June 30, 2024 Lighting Segment Display Solutions Segment Timing of revenue recognition Products and services transferred at a point in time $ 219,820 $ 151,972 Products and services transferred over time 42,593 55,253 $ 262,413 $ 207,225 Type of Product and Services LED lighting, digital signage solutions, electronic circuit boards $ 215,758 $ 32,521 Poles and other display solutions elements 43,719 132,604 Project management, installation services, shipping and handling 2,936 42,100 $ 262,413 $ 207,225 Practical Expedients and Exemptions ● The Company’s contracts with customers have an expected duration of one year or less, as such, the Company applies the practical expedient to expense sales commissions as incurred and has omitted disclosures on the amount of remaining performance obligations. ● Shipping costs that are not material in context of the delivery of products are expensed as incurred. ● The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing; therefore, payments do not contain significant financing components. ● The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations. Credit and Collections: The Company maintains allowances for credit losses for probable estimated losses resulting from either customer disputes or the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income. The Company determines its allowance for credit losses by first considering all known collectability problems of customers’ accounts, and then applying certain percentages against the various aging categories based on the due date of the remaining receivables. The resulting allowance for credit losses is an estimate based upon the Company’s knowledge of its business and customer base, the current economic climate, and historical trends. Receivables deemed uncollectable are written-off against the allowance for credit losses after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing, and other possible customer deductions. These allowances are based upon historical trends. The following table presents the Company’s net accounts receivable at the dates indicated. Net Accounts Receivable (In thousands) June 30, 2024 June 30, 2023 Accounts receivable $ 79,474 $ 78,116 Less: Allowance for credit losses ( 848 ) ( 435 ) Accounts receivable, net $ 78,626 $ 77,681 The net accounts receivable balance as of June 30, 2022 was $ 77.8 million. 41 Cash and Cash Equivalents: The cash balance includes cash and cash equivalents which have original maturities of less than three months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States, Canada, and Mexico. In the United States, the FDIC limit for insurance coverage on non-interest-bearing accounts is $250,000 per institution. As of June 30, 2024, and June 30, 2023, the Company had bank balances of $ 3.3 million and $ 2.3 million, respectively, without insurance coverage. Inventories, Net: Inventories are stated at the lower of cost or net realizable value. Cost of inventories includes the cost of purchased raw materials and purchased components, direct labor, as well as manufacturing overhead which is generally applied to inventory based on direct labor and on material content, is determined on the first-in, first-out basis. The Company maintains an inventory reserve for obsolete and excess inventory. The Company first determines its excess and obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item. Property, Plant and Equipment and Related Depreciation: Property, plant, and equipment are stated at cost. Major additions and betterments are capitalized while maintenance and repairs are expensed. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows: Buildings (in years) 28 - 40 Machinery and equipment (in years) 3 - 10 Computer software (in years) 3 - 8 Costs related to the purchase, internal development, and implementation of the Company’s fully integrated enterprise resource planning/business operating software system are either capitalized or expensed. Leasehold improvements are depreciated over the shorter of fifteen years or the remaining term of the lease. The Company recorded $ 5.0 million and $ 4.9 million of depreciation expense in the years ended June 30, 2024, and 2023 respectively. Goodwill and Intangible Assets: Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology and software are recorded on the Company's balance sheet. The definite-lived intangible assets are being amortized to expense over periods ranging between five and twenty years. The Company evaluates definite-lived intangible assets for possible impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however, they are subject to review for impairment. See additional information about goodwill and intangible assets in Note 7. Fair Value: The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk. 42 Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses and valuation of acquired assets and assumed liabilities. The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities. Product Warranties: The Company offers a limited warranty that its products are free from defects in workmanship and materials. The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to 10 years, from the date of shipment. The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation. The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amount as necessary. Changes in the Company’s warranty liabilities, which are included in accrued expenses in the accompanying consolidated balance sheets, during the periods indicated below were as follows: Product Warranties (In thousands) June 30, 2024 June 30, 2023 Balance at beginning of the period $ 6,501 $ 4,491 Addition from acquired company 345 - Additions charged to expense 3,781 6,626 Deductions for repairs and replacements ( 4,004 ) ( 4,616 ) Balance at end of the period $ 6,623 $ 6,501 Employee Benefit Plans: The Company has a 401(k) retirement plan whereby employee’s contributions to the 401(k) are matched by the Company. The 401(k) match program covers substantially all of its employees. The Company also has a nonqualified deferred compensation plan covering certain employees. The costs of employee benefit plans are charged to expense and funded annually. Total costs were $ 2.3 million and $ 2.5 million in June 30, 2024, and 2023, respectively. Research and Development Costs: Research and development costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation, and other administrative costs. The Company expenses as research and development all costs associated with development of software used in solid-state LED products. All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled $ 3.5 million and $ 3.4 million for the fiscal years ended June 30, 2024, and 2023, respectively. Cost of Products and Services Sold: Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, 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: The Company accounts for stock-based compensation to certain employees in accordance with accounting guidance for stock-based compensation. The accounting guidance requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, restricted stock units, and performance stock unites, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Equity award forfeitures are recognized at the date of employee termination. 43 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 2,087,000 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. 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 $ 0.1 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 $ 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. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. 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. 44 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. Subsequent Events: The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed. No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements. NOTE 2 — ACQUISITION OF 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 $ 11,386 Inventory 12,246 Property, Plant and Equipment 7,719 Operating Lease Right-Of-Use Assets 8,734 Other Assets 1,176 Intangible Assets 15,670 Accounts Payable ( 7,103 ) Accrued Expenses ( 6,308 ) Operating Lease Liabilities ( 5,987 ) Identifiable Assets 37,533 Goodwill 12,367 Net Purchase Consideration $ 49,900 The gross amount of accounts receivable acquired was $ 11.9 million. 45 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 Value Estimated Useful Life (Years) (in thousands) Tradename $ 4,880 Indefinite life Technology assets 3,160 7 Non-compete 140 5 Customer relationships 7,490 20 $ 15,670 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 June 30 (in thousands; unaudited) 2024 2023 Sales $ 535,849 $ 578,169 Gross Profit $ 141,788 $ 147,967 Operating Income $ 36,303 $ 38,798 NOTE 3 — BUSINESS SEGMENT INFORMATION The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s two operating segments are Lighting and Display Solutions (formerly known as the Graphics Segment), with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information. The Lighting Segment includes non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. In addition to the manufacture and sale of lighting fixtures, the Company offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Lighting Segment also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers. 46 The Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage. The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing, and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes. 47 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, 2024, and June 30, 2023: (In thousands) Twelve Months Ended June 30 2024 2023 Net Sales: Lighting Segment $ 262,413 $ 272,451 Display Solutions Segment 207,225 224,528 $ 469,638 $ 496,979 Operating Income (Loss): Lighting Segment $ 33,327 $ 31,633 Display Solutions Segment 19,969 24,920 Corporate and Eliminations ( 17,779 ) ( 19,525 ) $ 35,517 $ 37,028 Capital Expenditures: Lighting Segment $ 3,555 $ 1,829 Display Solutions Segment 1,386 1,373 Corporate and Eliminations 447 6 $ 5,388 $ 3,208 Depreciation and Amortization: Lighting Segment $ 5,167 $ 5,423 Display Solutions Segment 4,480 3,977 Corporate and Eliminations 352 264 $ 9,999 $ 9,664 June 30, 2024 June 30, 2023 Identifiable Assets: Lighting Segment $ 130,695 $ 142,941 Display Solutions Segment 208,248 145,307 Corporate and Eliminations 9,857 7,901 $ 348,800 $ 296,149 The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations. The Company records a 10 % mark-up on most intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows: Inter-segment sales Twelve Months Ended (In thousands) June 30 2024 2023 Lighting Segment inter-segment net sales $ 22,852 $ 22,283 Display Solutions Segment inter-segment net sales $ 797 $ 274 48 NOTE 4 — EARNINGS PER SHARE The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding: (in thousands, except per share data) BASIC EARNINGS PER SHARE 2024 2023 Net Income $ 24,977 $ 25,762 Weighted average shares outstanding during the period, net of treasury shares 27,981 27,159 Weighted average vested restricted stock units outstanding 81 73 Weighted average shares outstanding in the Deferred Compensation Plan during the period 987 895 Weighted average shares outstanding 29,049 28,127 Basic income per share $ 0.86 $ 0.92 DILUTED EARNINGS PER SHARE Net Income $ 24,977 $ 25,762 Weighted average shares outstanding Basic 29,049 28,127 Effect of dilutive securities (a): Impact of common shares to be issued under stock option plans, and Contingently issuable shares, if any 1,019 1,189 Weighted average shares outstanding 30,068 29,316 Diluted income per share $ 0.83 $ 0.88 Anti-dilutive securities (b) 54 154 (a) Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period. (b) Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30, 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. 49 NOTE 5 — INVENTORIES, NET The following information is provided as of the dates indicated: (In thousands) June 30, 2024 June 30, 2023 Inventories: Raw materials $ 52,644 $ 47,689 Work-in-progress 6,244 3,373 Finished goods 12,025 12,656 Total Inventories $ 70,913 $ 63,718 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: (In thousands) June 30, 2024 June 30, 2023 Accrued Expenses: Customer prepayments $ 8,475 $ 5,425 Compensation and benefits 10,217 13,662 Accrued warranty 6,623 6,501 Accrued sales commissions 3,937 5,082 Accrued freight 2,270 3,821 Operating lease liabilities 5,560 3,566 Finance lease liabilities 324 284 Other accrued expenses 6,038 5,444 Total Accrued Expenses $ 43,444 $ 43,785 NOTE 7 — GOODWILL AND OTHER INTANGIBLE ASSETS The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired. The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of three reporting units that contain goodwill. One reporting unit is within the Lighting Segment and two reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows, and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment. 50 Fiscal 2024; As of March 1, 2024 , 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 $ 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 $ 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 utilizing qualitative factors associated with the step zero methodology, as of March 1, 2024, and determined there was no impairment. Fiscal 2023: 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 $ 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 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 following table presents information about the Company's goodwill on the dates or for the periods indicated: (In thousands) Lighting Segment Display Solutions Segment Total Balance as of June 30, 2023 Goodwill $ 70,971 $ 63,347 $ 134,318 Accumulated impairment losses ( 61,763 ) ( 27,525 ) ( 89,288 ) Goodwill, net as of June 30, 2023 $ 9,208 $ 35,822 $ 45,030 Balance as of June 30, 2024 Goodwill $ 70,971 $ 63,347 $ 134,318 Goodwill acquired - 12,367 12,367 Accumulated impairment losses ( 61,763 ) ( 27,525 ) ( 89,288 ) Goodwill, net as of June 30, 2024 $ 9,208 $ 48,189 $ 57,397 In fiscal 2024, the Company acquired EMI Industries, LLC, which impacted the amount of goodwill reported. 51 The gross carrying amount and accumulated amortization by major other intangible asset class is as follows: (In thousands) June 30, 2023 Gross Carrying Amount Accumulated Amortization Net Amount Amortized Intangible Assets Customer relationships $ 62,083 $ 17,817 $ 44,266 Patents 268 268 - LED technology, software 20,966 15,783 5,183 Trade name 2,658 1,156 1,502 Non-compete 260 110 150 Total Amortized Intangible Assets $ 86,235 $ 35,134 $ 51,101 Indefinite-lived Intangible Assets Trademarks and trade names 12,102 - 12,102 Total indefinite-lived Intangible Assets 12,102 - 12,102 Total Other Intangible Assets $ 98,337 $ 35,134 $ 63,203 (In thousands) June 30, 2024 Gross Carrying Amount Accumulated Amortization Net Amount Amortized Intangible Assets Customer relationships $ 69,573 $ 21,332 $ 48,241 Patents 268 268 - LED technology, software 24,126 17,058 7,068 Trade name 2,658 1,265 1,393 Non-compete 400 168 232 Total Amortized Intangible Assets $ 97,025 $ 40,091 $ 56,934 Indefinite-lived Intangible Assets Trademarks and trade names 16,982 - 16,982 Total indefinite-lived Intangible Assets 16,982 - 16,982 Total Other Intangible Assets $ 114,007 $ 40,091 $ 73,916 (In thousands) 2024 2023 Amortization expense of other intangible assets $ 4,957 $ 4,761 52 The Company expects to record annual amortization expense as follows: (In thousands) 2025 $ 5,739 2026 $ 5,733 2027 $ 5,512 2028 $ 5,125 2029 $ 4,497 After 2029 $ 30,328 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: June 30, June 30, (In thousands) 2024 2023 Secured line of credit $ 38,766 $ 18,729 Term loan, net of debt issuance costs of $ 14 and $ 21 , respectively 15,463 16,471 Total debt 54,229 35,200 Less: amounts due within one year 3,571 3,571 Total amounts due after one year, net $ 50,658 $ 31,629 In September 2021, the Company amended its existing $ 100 million secured line of credit, to a $ 25 million term loan and $ 75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid annually in the amount of $ 3.6 million over a five-year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the 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 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 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. 53 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 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, 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. Employee Stock Purchase Plan 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. Employees may participate at their discretion and are able to purchase, through payroll deduction, common stock at a 10% discount on a quarterly basis. Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with the company. During fiscal year 2024, employees purchased 14,000 shares. At June 30, 2024, 242,000 shares remained available for purchase under the ESPP. Stock Options The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to value the stock options granted in the periods indicated. There were no options granted in fiscal 2023. 2024 2023 Dividend yield 1.4 % - Expected volatility 35 % - Risk-free interest rate 0.3 % - Expected life (in years) 5.0 - Fair value per share $ 5.25 - Stock option expense is recorded on a straight-line basis, or sooner if the grantee is retirement eligible as defined in the 2019 Omnibus Plan, net of forfeitures. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a five-year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued. Service-based options have a three-year ratable vesting period beginning one year after the date of grant. Inducement stock options have a term of ten years only if the employee is employed for three years from the date of grant. The maximum exercise period of service-based and performance-based stock options granted under the 2019 Omnibus Plan is ten years. The Company recorded $ 0.1 million and $ 0.3 million of expense related to stock options in fiscal years 2024 and 2023, respectively. 54 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: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at June 30, 2023 1,706,963 $ 5.70 5.4 $ 11,705,731 Granted 255,000 $ 14.60 Exercised ( 233,056 ) $ 7.35 Forfeited - $ - Expired ( 1,760 ) $ 10.38 Outstanding at June 30, 2024 1,727,147 $ 6.79 5.3 $ 13,305,057 Exercisable at June 30, 2024 1,472,147 $ 5.44 4.5 $ 13,300,257 Vested and expected to vest at June 30, 2024 1,664,611 $ 6.49 5.1 $ 13,303,742 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. For fiscal year 2023, the Company recognized a current income tax benefit of $ 0.8 million for tax deductions related to equity compensation. A discrete tax expense of $ 0.1 million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions. Restricted Stock Units A total of 126,834 RSUs with a weighted average fair value of $ 12.91 per share were awarded to employees during fiscal 2024. The RSUs awarded during fiscal 2024 have a three-year vesting period, with one-third vesting on each of the anniversary dates. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSUs were awarded. The unvested RSUs are non-voting but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of $ 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 $ 1.5 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: Shares Weighted- Average Grant Date Fair Value Unvested at June 30, 2024 350,768 $ 7.34 Granted 126,834 $ 12.91 Vested ( 171,732 ) $ 7.47 Forfeited ( 15,877 ) $ 9.00 Unvested at June 30, 2024 289,993 $ 9.61 55 As of June 30, 2024, there was $ 1.4 million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is expected to be recognized over a weighted-average remaining period of 1.5 years. The total fair value of RSUs that became fully vested during fiscal 2024 was $ 2.7 million. Performance Stock Units A total of 265,687 PSUs with a weighted average fair value of $ 11.61 per share were awarded to employees during fiscal 2024. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs were awarded. PSUs vest if the Company meets certain financial metrics over a three-year period. The PSUs are non-voting but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. 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: Shares Weighted- Average Grant Date Fair Value Unvested at June 30, 2023 586,451 $ 7.55 Granted 265,687 $ 11.61 Vested ( 181,300 ) $ 6.80 Forfeited ( 17,801 ) $ 10.22 Unvested at June 30, 2024 653,037 $ 9.34 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 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. These common shares were valued at their approximate $ 0.4 million fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company. Deferred Compensation Plan The Company has a non-qualified deferred compensation plan providing for both Company matching contributions and participant funded deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of June 30, 2024, there were 30 participants, all with fully vested account balances. A total of 1,036,714 common shares with a cost of $ 8.9 million, and 922,426 common shares with a cost of $ 7.2 million, both of which included the Company contributions and the participant deferrals, were held in the plan as of June 30, 2024, and 2023, respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this plan is the net result of newly issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued 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 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. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments. The number of operating leases increased in fiscal 2024 as a result of the acquisition of EMI mostly which are building leases. 56 The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The Company elected not to record these leases on the balance sheet. The rent expense for these leases was immaterial for fiscal years 2024 and 2023. The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component. Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. (In thousands) 2024 2023 Operating lease cost $ 6,248 $ 3,551 Financing lease cost: Amortization of right of use assets 291 295 Interest on lease liabilities 53 67 Variable lease cost 87 87 Sublease income ( 464 ) ( 348 ) Total lease cost $ 6,215 $ 3,652 Supplemental Cash Flow Information (in thousands) 2024 2023 Cash flows from operating leases Fixed payments - operating lease cash flows $ 5,996 $ 3,704 Liability reduction - operating cash flows $ 4,984 $ 3,319 Cash flows from finance leases Interest - operating cash flows $ 53 $ 67 Repayments of principal portion - financing cash flows $ 324 $ 281 Operating Leases: Total operating right-of-use assets $ 15,912 $ 8,921 Accrued Expenses 5,560 3,566 Long-term operating lease liability 11,267 5,954 Total operating lease liabilities $ 16,827 $ 9,520 Weighted Average remaining Lease Term (in years) 3.49 3.31 Weighted Average Discount Rate 5.90 % 5.44 % 57 Financing Leases Buildings under finance leases $ 2,033 $ 2,033 Equipment under finance leases 41 34 Accumulated depreciation ( 1,232 ) ( 929 ) Total finance lease assets, net $ 842 $ 1,138 Accrued expenses (Current liabilities) $ 324 $ 284 Long-term finance lease liability 636 960 Total finance lease liabilities $ 960 $ 1,244 Weighted Average remaining Lease Term (in years) 2.83 3.83 Weighted Average Discount Rate 4.86 % 4.86 % Maturities of Lease Liability: Operating Lease Liabilities Finance Lease Liabilities Operating Subleases Net Lease Commitments 2025 $ 6,330 $ 362 $ ( 31 ) $ 6,661 2026 4,927 362 - 5,289 2027 3,991 302 - 4,293 2028 2,348 - - 2,348 2029 499 - - 499 Thereafter 686 - - 686 Total lease payments $ 18,781 $ 1,026 $ ( 31 ) $ 19,776 Less: Interest ( 1,954 ) ( 66 ) ( 2,020 ) Present Value of Lease Liabilities $ 16,827 $ 960 $ 17,756 NOTE 12 — INCOME TAXES The following information is provided for the years ended June 30: (In thousands) 2024 2023 Components of income (loss) before income taxes: United States $ 32,295 $ 31,701 Foreign 804 1,625 Income before income taxes $ 33,099 $ 33,326 Provision for income taxes U.S. Federal $ 6,909 $ 6,327 Foreign ( 30 ) 325 State and local 2,851 1,330 Total current $ 9,730 $ 7,982 Deferred ( 1,608 ) ( 418 ) Total provision for income taxes $ 8,122 $ 7,564 58 (In thousands) 2024 2023 Reconciliation to federal statutory rate: Federal statutory rate 21.0 21.0 State and local taxes, net of federal benefit 4.2 2.9 Foreign operations ( 0.5 ) 0.6 Federal tax credits ( 1.1 ) ( 1.0 ) Officer's Compensation 1.9 1.0 Uncertain tax position activity 0.5 - Stock-based compensation ( 2.3 ) ( 1.2 ) Tax rate changes - ( 0.2 ) Other 0.8 ( 0.4 ) Effective tax rate 24.5 22.7 The components of deferred income tax assets and (liabilities) at June 30, 2024, and 2023 are as follows: Components of deferred income tax assets and liabilities (In thousands) 2024 2023 Uncertain tax positions $ 241 $ 185 Reserves against current assets 1,408 1,255 Accrued expenses 3,029 3,381 Deferred compensation 2,008 1,459 Stock-based compensation 1,859 1,680 Capitalized R&D 1,985 - State net operating loss carryover and credits 120 140 Lease Liability 4,187 2,397 Canadian NOL 313 319 U.S. Federal net operating loss carryover and credits 52 258 Deferred income tax asset before valuation allowance 15,202 11,074 Valuation allowance ( 108 ) ( 108 ) Deferred income tax asset 15,094 10,966 Goodwill, acquisition costs and intangible assets ( 3,977 ) ( 3,749 ) Depreciation ( 2,048 ) ( 1,634 ) Right of Use Asset ( 4,149 ) ( 2,269 ) Deferred income tax liability ( 10,174 ) ( 7,652 ) Net deferred income tax asset $ 4,920 $ 3,314 The Company has U.S. 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 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 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. A valuation allowance of $ 0.1 million exists at June 30, 2004, against Oregon tax credits not expected to be used. The Oregon credits are otherwise expected to expire over a 4-year period beginning June 30, 2027. At June 30, 2024, tax, interest, and penalties, net of potential federal tax benefits, were $ 0.6 million, $ 0.3 million, and $ 0.2 million, respectively, of the total reserve for uncertain tax positions of $ 1.1 million. The entire uncertain tax position of $ 0.6 million, net of federal tax benefit, would impact the effective tax rate if recognized. 59 At June 30, 2023, tax, interest, and penalties, net of potential federal tax benefits, were $ 0.6 million, $ 0.3 million, and $ 0.1 million, respectively, of the total reserve for uncertain tax positions of $ 1.0 million. The entire uncertain tax position of $ 0.6 million net of federal tax benefit, would impact the effective tax rate if recognized. The liability for uncertain tax position is included in Other Long-Term Liabilities. The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The Company recognized a $ 0.1 million net tax 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. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months. The tax activity in the liability for uncertain tax positions was as follows: Uncertain tax positions (In thousands) 2024 2023 Balance at the beginning of the fiscal year $ 656 $ 647 Decreases - tax positions in prior period ( 63 ) ( 134 ) Increase - tax positions in current period 232 143 Balance at end of the fiscal year $ 825 $ 656 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, Jamaica, 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. NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION (in thousands) Cash Payments: 2024 2023 Interest $ 1,906 $ 3,104 Income taxes $ 9,571 $ 9,559 Non-cash investing and financing activities Issuance of common shares as compensation $ 450 $ 368 Issuance of common shares to fund deferred compensation plan $ 1,877 $ 2,017 Issuance of common shares to fund ESPP plan $ 194 $ 142 NOTE 14 — COMMITMENTS AND CONTINGENCIES The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity. The Company may occasionally issue a standby letter of credit in favor of third parties. As of June 30, 2024, there were no such standby letters of credit issued. 60 NOTE 15 — SUMMARY OF QUARTERLY RESULTS (UNAUDITED) Quarter Ended (In thousands except per share data) Sep. 30 Dec. 31 Mar. 31 Jun. 30 Fiscal Year 2024 Net Sales $ 123,441 $ 109,005 $ 108,186 $ 129,007 $ 469,638 Gross Profit 36,589 31,536 31,210 33,833 133,168 Net Income 8,028 5,906 5,375 5,668 24,977 Earnings per share Basic $ 0.28 $ 0.20 $ 0.18 $ 0.19 $ 0.86 Diluted $ 0.27 $ 0.20 $ 0.18 $ 0.19 $ 0.83 Range of share prices High $ 16.05 $ 16.75 $ 15.47 $ 16.07 $ 16.75 Low $ 11.90 $ 12.19 $ 13.40 $ 13.97 $ 11.90 2023 Net Sales $ 127,069 $ 128,804 $ 117,470 $ 123,636 $ 496,979 Gross Profit 34,738 34,140 32,204 35,863 136,945 Net Income 6,262 6,417 4,669 8,414 25,762 Earnings per share Basic $ 0.23 $ 0.23 $ 0.16 $ 0.30 $ 0.92 Diluted $ 0.22 $ 0.22 $ 0.16 $ 0.28 $ 0.88 Range of share prices High $ 8.81 $ 12.39 $ 15.88 $ 14.12 $ 15.88 Low $ 5.70 $ 7.10 $ 12.17 $ 11.59 $ 5.70 (a) The total of the earnings per share for each of the four quarters does not equal the total earnings per share for the full year because the calculations are based on the average shares outstanding during each of the individual periods. There is no difference between basic and diluted shares due to losses. 61 LSI INDUSTRIES INC. AND SUBSIDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 2024, and 2023 (In thousands) Description Balance Beginning of Period Additions Charged to Costs and Expenses Additions from Company Acquired Deductions (a) Balance End of Period Allowance for Credit Losses: Year Ended June 30, 2024 $ 435 $ ( 8 ) $ 477 $ ( 56 ) $ 848 Year Ended June 30, 2023 $ 499 $ ( 19 ) $ - $ ( 45 ) $ 435 Inventory Obsolescence Reserve: Year Ended June 30, 2024 $ 6,288 $ 1,058 $ 1,428 $ ( 1,936 ) $ 6,838 Year Ended June 30, 2023 $ 5,447 $ 2,496 $ - $ ( 1,655 ) $ 6,288 Deferred Tax Asset Valuation Reserve: Year Ended June 30, 2024 $ 108 $ - $ - $ - $ 108 Year Ended June 30, 2023 $ 108 $ - $ - $ - $ 108 (a) For Allowance for credit losses, deductions are uncollectible accounts charged off, less recoveries. 62