lyts20201231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_________________________

FORM 10-Q

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2020 OR

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

Commission File No. 0-13375

LSI Industries Inc.

(Exact name of registrant as specified in its charter)

Ohio

31-0888951

(State or other jurisdiction

of incorporation or organization)

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

10000 Alliance Road, Cincinnati, Ohio		45242
(Address of principal executive offices)		(Zip Code)
(513) 793-3200
Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	LYTS	NASDAQ Global Select Market

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☒	Emerging growth company ☐
	Non-accelerated filer ☐	Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ NO ☒

As of January 22, 2021, there were 26,435,719 shares of the registrant's common stock, no par value per share, outstanding.

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2020

INDEX

			Begins on Page
PART I. Financial Information

	ITEM 1.	Financial Statements (Unaudited)

		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income	4
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Shareholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	8

		Notes to Condensed Consolidated Financial Statements	9

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	30

	ITEM 4.	Controls and Procedures	30

PART II. Other Information

	ITEM 5.	Other Information	30

	ITEM 6.	Exhibits	32

Signatures			33

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	December 31						December 31
(In thousands, except per share data)	2020			2019			2020			2019

Net Sales	$	76,387		$	82,377		$	146,393		$	171,078

Cost of products and services sold		56,676			62,136			108,407			128,724

Severance costs		5			-			5			-

Restructuring costs		-			277			3			535

Gross profit		19,706			19,964			37,978			41,819

Selling and administrative expenses		17,004			18,151			33,074			38,013

Severance costs		16			54			16			54

Restructuring gains		-			(1	)		-			(4,847	)

Operating income		2,686			1,760			4,888			8,599

Interest (income)		(1	)		(1	)		(2	)		(2	)

Interest expense		63			234			121			666

Other (income) expense		(135	)		(91	)		(240	)		(9	)

Income before income taxes		2,759			1,618			5,009			7,944

Income tax expense (benefit)		551			(125	)		811			1,726

Net income	$	2,208		$	1,743		$	4,198		$	6,218


Earnings per common share (see Note 4)
Basic	$	0.08		$	0.07		$	0.16		$	0.24
Diluted	$	0.08		$	0.07		$	0.15		$	0.24


Weighted average common shares outstanding
Basic		26,639			26,280			26,580			26,257
Diluted		27,360			26,534			27,161			26,364

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

Page 3

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2020		2019		2020		2019

Net Income	$	2,208	$	1,743	$	4,198	$	6,218

Foreign currency translation adjustment		102		29		147		6

Comprehensive Income	$	2,310	$	1,772	$	4,345	$	6,224

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

Page 4

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			June 30,
(In thousands, except shares)	2020			2020

ASSETS

Current assets

Cash and cash equivalents	$	13,584		$	3,517

Accounts receivable, less allowance for doubtful accounts of $336 and $273, respectively		44,475			37,836

Inventories		34,825			38,752

Refundable income tax		3,319			2,776

Other current assets		3,214			2,977

Total current assets		99,417			85,858

Property, Plant and Equipment, at cost
Land		3,943			3,933
Buildings		20,663			20,638
Machinery and equipment		68,298			67,796
Buildings under finance leases		2,033			2,033
Construction in progress		418			440
		95,355			94,840
Less accumulated depreciation		(70,599	)		(68,305	)
Net property, plant and equipment		24,756			26,535

Goodwill		10,373			10,373

Other Intangible Assets, net		28,619			29,960

Operating Lease Right-of-Use Assets		7,684			8,663

Other Long-Term Assets, net		10,432			10,874

Total assets	$	181,281		$	172,263

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

Page 5

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			June 30,
(In thousands, except shares)	2020			2020

LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable	$	18,499		$	14,216
Accrued expenses		22,737			20,433

Total current liabilities		41,236			34,649

Long-Term Debt		-			-

Finance Lease Liabilities		1,631			1,755

Operating Lease Liabilities		8,118			9,021

Other Long-Term Liabilities		1,023			1,138

Commitments and Contingencies (Note 12)		-			-

Shareholders' Equity
Preferred shares, without par value; Authorized 1,000,000 shares, none issued		-			-
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 26,385,721 and 26,286,009 shares, respectively		129,622			127,713
Treasury shares, without par value		(1,692	)		(1,121	)
Deferred compensation plan		1,692			1,121
Retained (loss)		(403	)		(1,920	)
Accumulated other comprehensive income (loss)		54			(93	)

Total shareholders' equity		129,273			125,700

Total liabilities & shareholders' equity	$	181,281		$	172,263

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

Page 6

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Common Shares				Treasury Shares						Key Executive			Accumulated Other		Retained			Total
	Number Of				Number Of						Compensation			Comprehensive		Earnings			Shareholders'
(In thousands, except per share data)	Shares		Amount		Shares			Amount			Amount			Income		(Loss)			Equity

Balance at June 30, 2019		26,176	$	125,729		(209	)	$	(1,468	)	$	1,468			16	$	(5,808	)	$	119,937

Net Income		-		-		-			-			-			-		6,218			6,218
Other comprehensive income		-		-		-			-			-			6		-			6
Stock compensation awards		36		150		-			-			-			-		-			150
Restricted stock units issued		18		-		-			-			-			-		-			-
Shares issued for deferred compensation		10		47		-			-			-			-		-			47
Activity of treasury shares, net		-		-		87			660			-			-		-			660
Deferred stock compensation		-		-		-			-			(660	)		-		-			(660	)
Stock compensation expense		-		597		-			-			-			-		-			597
Stock options exercised, net		6		29		-			-			-			-		-			29
Dividends — $0.20 per share		-		-		-			-			-			-		(2,643	)		(2,643	)
Cumulative effect of adoption of accounting guidance		-		-		-			-			-			-		(428	)		(428	)

Balance at December 31, 2019		26,246	$	126,552		(122	)	$	(808	)	$	808		$	22	$	(2,661	)	$	123,913

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

Balance at June 30, 2020		26,466	$	127,713		(180	)	$	(1,121	)	$	1,121		(93	)	$	(1,920	)	$	125,700

Net Income		-		-		-			-			-		-			4,198			4,198
Other comprehensive income		-		-		-			-			-		147			-			147
Stock compensation awards		25		150		-			-			-		-			-			150
Restricted stock units issued		28		-		-			-			-		-			-			-
Shares issued for deferred compensation		96		679		-			-			-		-			-			679
Activity of treasury shares, net		-		-		(83	)		(571	)		-		-			-			(571	)
Deferred stock compensation		-		-		-			-			571		-			-			571
Stock compensation expense		-		902		-			-			-		-			-			902
Stock options exercised, net		33		178		-			-			-		-			-			178
Dividends — $0.20 per share		-		-		-			-			-		-			(2,681	)		(2,681	)

Balance at December 31, 2020		26,648	$	129,622		(263	)	$	(1,692	)	$	1,692	$	54		$	(403	)	$	129,273

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

Page 7

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	December 31
(In thousands)	2020			2019

Cash Flows from Operating Activities
Net income	$	4,198		$	6,218
Non-cash items included in net income
Depreciation and amortization		4,023			4,551
Deferred income taxes		315			1,893
Deferred compensation plan		679			47
Stock compensation expense		902			597
Issuance of common shares as compensation		150			150
Gain on disposition of fixed assets		-			(4,753	)
Allowance for doubtful accounts		96			(356	)
Inventory obsolescence reserve		817			(212	)

Changes in certain assets and liabilities
Accounts receivable		(6,476	)		10,552
Inventories		3,195			413
Refundable income taxes		(522	)		(112	)
Accounts payable		3,933			1,864
Accrued expenses and other		834			406
Customer prepayments		1,273			(355	)
Net cash flows provided by operating activities		13,417			20,903

Cash Flows from Investing Activities
Purchases of property, plant and equipment		(880	)		(1,119	)
Proceeds from the sale of fixed assets		-			12,340
Net cash flows (used in) provided by investing activities		(880	)		11,221

Cash Flows from Financing Activities
Payments of long-term debt		-			(99,746	)
Borrowings of long-term debt		-			70,642
Cash dividends paid		(2,639	)		(2,643	)
Shares withheld for employees' taxes		(28	)		(124	)
Payments on financing lease obligations		(118	)		-
Proceeds from stock option exercises		178			29
Net cash flows used in financing activities		(2,607	)		(31,842	)

Change related to foreign currency		137			-

Increase in cash and cash equivalents		10,067			282

Cash and cash equivalents at beginning of period		3,517			966

Cash and cash equivalents at end of period	$	13,584		$	1,248

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

Page 8

LSI INDUSTRIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2020, the results of its operations for the three and six month periods ended December 31, 2020 and 2019, and its cash flows for the six month periods ended December 31, 2020 and 2019. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2020 Annual Report on Form 10-K. Financial information as of June 30, 2020 has been derived from the Company’s audited consolidated financial statements.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting Accounting Standards Update (“ASU”) 2016-02 (“ASU 2016-02”), “Leases (Topic 842)” (ASC 842) in the first quarter of fiscal 2020 are discussed below.

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 Graphics and select Lighting products are highly customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company 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 print graphics branding

●

Electrical components based on customer specifications

●

Digital signage and related media content

The Company also offers installation services for its Graphics and select Lighting products. Installation revenue is recognized over time as our customer simultaneously receives and consumes the benefits provided through the installation process.

For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the contract.

Page 9

Disaggregation of Revenue

The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:

	Three Months Ended				Six Months Ended
(In thousands)	December 31, 2020				December 31, 2020
	Lighting Segment		Graphics Segment		Lighting Segment		Graphics Segment
Timing of revenue recognition
Products and services transferred at a point in time	$	39,941	$	15,987	$	79,981	$	30,441
Products and services transferred over time		5,185		15,274		10,550		25,421
	$	45,126	$	31,261	$	90,531	$	55,862

	Three Months Ended				Six Months Ended
	December 31, 2020				December 31, 2020
	Lighting Segment		Graphics Segment		Lighting Segment		Graphics Segment
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards	$	40,514	$	6,870	$	78,383	$	11,951
Poles, printed graphics, non-LED lighting		4,154		15,392		11,228		29,717
Project management, installation services, shipping and handling		458		8,999		920		14,194
	$	45,126	$	31,261	$	90,531	$	55,862

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.

New Accounting Pronouncements:

On July 1, 2019, the Company adopted ASU 2016-02 using a modified-retrospective transition method, under which it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new guidance. In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.

The Company’s most significant leases are those related to certain manufacturing facilities along with a small office space. Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts and various office equipment. The adoption of the new lease standard resulted in the recognition of right-of-use assets (“ROU assets”) of $10.4 million, lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant improvement allowances and a $0.4 million adjustment to retained earnings on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.

Page 10

On July 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amended the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements and related disclosures.

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 3 - SEGMENT REPORTING INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s two operating segments are Lighting and Graphics, 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 outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the Company’s markets, primarily petroleum/convenience stores, parking lot and garage markets, automotive dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company serves these lighting product customers through the commercial, industrial, stock and flow, and renovation channels. The Lighting Segment also includes the design, engineering, and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.

The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics, interior branding, electrical and architectural signage, active digital signage along with the management of media content related to digital signage and menu board systems that are either digital or print by design. These products are used in visual image programs in several markets including the petroleum/convenience store market, quick-service restaurant market, the grocery store and pharmacy markets, as well as customers with multi-site retail operations. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit expenses, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

There was no concentration of consolidated net sales in the three and six months ended December 31, 2020 and 2019. There was no concentration of accounts receivable at December 31, 2020 or June 30, 2020.

Page 11

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2020 and December 31, 2019:

	Three Months Ended						Six Months Ended
(In thousands)	December 31						December 31
	2020			2019			2020			2019
Net Sales:
Lighting Segment	$	45,126		$	53,436		$	90,531		$	116,627
Graphics Segment		31,261			28,941			55,862			54,451
	$	76,387		$	82,377		$	146,393		$	171,078

Operating Income (Loss):
Lighting Segment	$	2,134		$	3,150		$	5,722		$	12,309
Graphics Segment		3,143			1,362			4,966			2,379
Corporate and Eliminations		(2,591	)		(2,752	)		(5,800	)		(6,089	)
	$	2,686		$	1,760		$	4,888		$	8,599

Capital Expenditures:
Lighting Segment	$	275		$	557		$	644		$	887
Graphics Segment		40			45			67			45
Corporate and Eliminations		160			162			169			187
	$	475		$	764		$	880		$	1,119

Depreciation and Amortization:
Lighting Segment	$	1,610		$	1,661		$	3,229		$	3,439
Graphics Segment		304			374			662			760
Corporate and Eliminations		76			117			132			352
	$	1,990		$	2,152		$	4,023		$	4,551

	December 31, 2020		June 30, 2020
Identifiable Assets:
Lighting Segment	$	115,265	$	118,819
Graphics Segment		37,085		35,021
Corporate and Eliminations		28,931		18,423
	$	181,281	$	172,263

The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations.

The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

	Three Months Ended				Six Months Ended
(In thousands)	December 31				December 31
	2020		2019		2020		2019
Lighting Segment inter-segment net sales	$	5,038	$	860	$	9,118	$	1,671

Graphics Segment inter-segment net sales	$	75	$	74	$	113	$	98

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

Page 12

NOTE 4 - EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	December 31				December 31
	2020		2019		2020		2019

BASIC EARNINGS PER SHARE

Net income	$	2,208	$	1,743	$	4,198	$	6,218

Weighted average shares outstanding during the period, net of treasury shares		26,367		26,101		26,343		26,063
Weighted average vested restricted stock units outstanding		20		39		15		31
Weighted average shares outstanding in the Deferred Compensation Plan during the period		252		140		222		163
Weighted average shares outstanding		26,639		26,280		26,580		26,257

Basic income per share	$	0.08	$	0.07	$	0.16	$	0.24


DILUTED EARNINGS PER SHARE

Net income	$	2,208	$	1,743	$	4,198	$	6,218

Weighted average shares outstanding:

Basic		26,639		26,280		26,580		26,257

Effect of dilutive securities (a):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any		721		254		581		107
Weighted average shares outstanding		27,360		26,534		27,161		26,364

Diluted income per share	$	0.08	$	0.07	$	0.15	$	0.24


Anti-dilutive securities (b)		1,062		1,904		1,101		2,506

(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 from the computation of diluted net income per share for the three and six months ended December 31, 2020 and December 31, 2019 because the exercise price was greater than the average 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.

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NOTE 5 - INVENTORIES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2020		2020

Inventories:
Raw materials	$	25,541	$	27,331
Work-in-progress		1,189		1,566
Finished goods		8,095		9,855
Total Inventories	$	34,825	$	38,752

NOTE 6 - ACCRUED EXPENSES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2020		2020

Accrued Expenses:
Accrued warranty	$	6,275	$	6,956
Compensation and benefits		4,754		5,271
Customer prepayments		2,985		1,698
Accrued FICA		2,189		730
Accrued sales commissions		1,757		1,289
Operating lease liabilities		298		376
Finance lease liabilities		245		239
Other accrued expenses		4,234		3,874
Total Accrued Expenses	$	22,737	$	20,433

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The fair value measurements of the reporting units are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined by ASC 820 “Fair Value Measurements.” 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 two reporting units that contain goodwill. There is one reporting unit within the Lighting Segment and one reporting unit within the Graphics Segment. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

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

Goodwill
(In thousands)	Lighting			Graphics
	Segment			Segment			Total
Balance as of December 31, 2020
Goodwill	$	70,971		$	28,690		$	99,661
Accumulated impairment losses		(61,763	)		(27,525	)		(89,288	)
Goodwill, net as of December 31, 2020	$	9,208		$	1,165		$	10,373

Balance as of June 30, 2020
Goodwill	$	86,711		$	28,690		$	115,401
Accumulated impairment losses		(77,503	)		(27,525	)		(105,028	)
Goodwill, net as of June 30, 2020	$	9,208		$	1,165		$	10,373

In the second quarter of fiscal 2021, the Company wrote-off the goodwill and impairment loss for a dissolved entity. The net impact to the consolidated financial statements, including the goodwill, net balance, was zero.

The following table presents the gross carrying amount and accumulated amortization by each major asset class:

Other Intangible Assets	December 31, 2020
(In thousands)	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	30,163	$	9,758	$	20,405
Patents		268		222		46
LED technology firmware, software		16,066		13,094		2,972
Trade name		2,658		884		1,774
Total Amortized Intangible Assets		49,155		23,958		25,197

Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		-		3,422
Total indefinite-lived Intangible Assets		3,422		-		3,422

Total Other Intangible Assets	$	52,577	$	23,958	$	28,619

Other Intangible Assets	June 30, 2020
(In thousands)	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	35,563	$	14,129	$	21,434
Patents		338		277		61
LED technology firmware, software		16,066		12,852		3,214
Trade name		2,658		829		1,829
Total Amortized Intangible Assets		54,625		28,087		26,538

Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		-		3,422
Total indefinite-lived Intangible Assets		3,422		-		3,422

Total Other Intangible Assets	$	58,047	$	28,087	$	29,960

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In the second quarter of fiscal 2021, the Company wrote-off intangible assets’ gross carrying amount and accumulated amortization for a dissolved entity. The net impact to the consolidated financial statements, including the total other intangible assets, was zero.

	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2020		2019		2020		2019

Amortization Expense of Other Intangible Assets	$	670	$	671	$	1,341	$	1,346

The Company expects to record annual amortization expense as follows:

(In thousands)

2021	$	2,682
2022	$	2,461
2023	$	2,412
2024	$	2,412
2025	$	2,412
After 2025	$	14,159

NOTE 8 - REVOLVING LINE OF CREDIT

The Company has a $75 million secured line of credit that expires in the third quarter of fiscal 2022. Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate as periodically determined, or at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 125 and 250 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will be 125 basis points for the third quarter of fiscal 2021. The Company expects to seek additional provisions for alternative interest rates when certain interbank offered rates are no longer available. The fee on the unused balance of the $75 million committed line of credit is 20 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge coverage ratio. As of December 31, 2020, there were no borrowings against the line of credit, and $75.0 million was available as of that date.

The Company is in compliance with all of its loan covenants as of December 31, 2020.

NOTE 9 - CASH DIVIDENDS

The Company paid cash dividends of $2.6 million in both the six months ended December 31, 2020 and December 31, 2019. Dividends on restricted stock units in the amount of $104,346 and $52,383 were accrued as of December 31, 2020 and 2019, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In January 2021, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 9, 2021 to shareholders of record as of February 1, 2021. The indicated annual cash dividend rate is $0.20 per share.

NOTE 10 – EQUITY COMPENSATION

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (“2019 Omnibus Plan”). The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan is 2,839,677 as of December 31, 2020. The 2019 Omnibus Plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other stock-based awards.

In the first half of fiscal 2021, the Company granted 318,406 non-qualified stock options with a weighted average exercise price of $6.86, 134,017 PSUs with a weighted average fair value of $6.80 and 133,126 RSUs with a weighted average fair value of $6.81. Stock compensation expense was $0.4 million and $0.2 million for the three months ended December 31, 2020 and 2019, respectively, and $0.9 million and $0.6 million for the six months ended December 31, 2020 and 2019, respectively.

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NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION

	Six Months Ended
(In thousands)	December 31
	2020		2019
Cash Payments:
Interest	$	48	$	742
Income taxes	$	1,123	$	-

Non-cash investing and financing activities
Issuance of common shares as compensation	$	150	$	150
Issuance of common shares to fund deferred compensation plan	$	679	$	47

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

The Company may occasionally issue a standby letter of credit in favor of third parties. As of December 31, 2020, there were no such standby letters of credit issued.

NOTE 13 – SEVERANCE COSTS

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

	Six Months			Six Months			Fiscal Year
	Ended			Ended			Ended
	December 31,			December 31,			June 30,
(In thousands)	2020			2019			2020

Balance at beginning of period	$	639		$	1,134		$	1,134
Accrual of expense		21			46			344
Payments		(392	)		(319	)		(839	)
Balance at end of period	$	268		$	861		$	639

The $0.3 million severance reserve reported as of December 31, 2020 has been classified as a current liability and will be paid out over the next twelve months.

NOTE 14 – RESTRUCTURING COSTS

In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility. The net proceeds from the sale were $12.3 million resulting in a gain of $4.8 million. The Company also incurred additional restructuring costs totaling $0.2 million in the first quarter of fiscal 2020 related to the closure of the New Windsor facility, which impacted both the Lighting and Graphics segment.

Restructuring costs incurred in the second quarter of fiscal 2020 related to the realignment of the Company’s manufacturing footprint at its Houston, Texas facility, which impacted the Graphics segment.

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

Three Months Ended

Six Months Ended