Good morning and welcome to the LSI Industries Second Quarter Earnings Conference Call. Today's presenter will be Mr. Bob Ready. During the discussion all participants will be muted. (Operator Instructions). Now without further delay I will turn your call over to Mr. Bob Ready.

Thank you. Good morning everybody. As you are probably aware of the fact, we really don't have any slides this morning. We felt that the conference call this morning should be really more of a Q&A, but as always there is a lot of information on our webpage and financial results are there as well, later today. So that you guys, people can follow-up on that and is always will be available as well. I think somebody just chipped on-board there, we were having some international technology problems with Fred out of Canada. Fred, are you on-board?

That was his line with the hold music. One moment.

Okay. Well anyway. As an opening my comments are obviously very-very straight forward as it relates to the economy. It's obviously a very-very tough time out there. No surprises to anybody. LSI is in a very-very straight forward direction. We really [batted] down one of the hatches, so to speak. And really structuring our business plan around the expected volume, as we understand it today. The automotive industry as we all know is in rather dire straights. The trade show that we have coming up in February will give us some more indication of how the dealers are really faring. But there is no question that for time being we'll see a very, very slowdown direction in the automotive industry. The retail economy, it speaks for itself based on the results of Christmas, as we all know that Christmas season is the area that the retailers depend on most for their year. And as we all know that was a very, very tough year for the retailers. Our national account business all of our primary customers are more or less on a wait and see attitude. It is just tough out there, the commercial/industrial business continues to shrink, there is certainly an indication by the announcement of some of our competitors in the directions that they are taking. For LSI, my guidance to our management team and to the rest of our employees is to really focus in two areas. The two areas obviously are at the continuation of keeping our balance sheet strong, this is a commandment here, has been for 32 years. And everybody understands that, that is our goal. We can accomplish it in many ways and certainly the efforts that are in place now to align our company through the existing markets and the volume of…

Sure, good morning. Second quarter was really not a great surprise in any area for us. We continue to see the shrinkage not only in volume opportunity translate into some tougher pricing and margin pictures. We absorbed really, I think the remaining part of the inventory that carry a little higher material costs this second quarter, and we look forward to some hopefully favorable conditions as we move into the third quarter on that front. What's really exciting about where we are today with everything that we have in place, is the degree of acceptance we are seeing in our solid-state lighting. Our day-to-day business will continue to be flat in the trenches as it always has been. And again, we see no reason to believe that we won't see a very similar level of volume at this point in time in a similar level of margin. However, the improving environment for LED lighting, both improving from a customer perspective as well as from an LSI perspective, given the work that we have done to develop and translate the original platform that was introduced a year ago is really very, very encouraging right now. We have not only finished designs, we are in manufacturing now on several new products, product models. We've talked about those in the last quarter in terms of introducing to you the direction that we were going and the types of markets we were going to pursue. I am happy to report that those products are now in manufacture status, we have introduced a number of these products to a great range of folks over the last 30 days in face-to-face meetings all over North America, not only in the United States, but in Canada as well and preparing to do that overseas. The response that we are getting to our designs, to our technology initiatives has been very-very encouraging. It's exciting to see that the platform that we develop for the petroleum industry, which does continue to grow. Our volume there continues to move forward is being recognized as a successful platform, incredible platform as we move into these other market applications. And frankly from a design perspective and a pattern perspective, we are doing things that nobody else in the marketplace is doing right now. So, that is tremendously encouraging. Obviously, it's going to take some time for that volume to grow to the point that is significant on a quarter-to-quarter basis, but I am happy to report that things are moving forward well and as expected. Bob?

Yeah. I would like to follow-up before I turn it over to David. I think one of things that's important to remember as far as, as we are moving forward is the fact that, and again Scott reminded to you, but I am going to remind you again, is that about year and a half ago when we really started to talk about the LED and solid-state technology, the direction was to see the United States or the North American market with as many canopy retrofits taking off the old and putting on the new technology. It has now given us an opportunity where we have thousands of fixtures hanging on canopy decks in all kind of climate environments and nobody else has, to my knowledge, has that ability to disclose that kind of information. It was the attempt to really establish as we call this platform as an education for ourselves and before we started to move out of these new products. And now that we have a tremendous success and we are beginning to build more history and the reliability of the product and the marketing team that was in place seeing is believing is working. What we didn’t do and have held in kind of a closed to the best direction was the commercial/industrial market, this was only directed toward our niche market. But as Scott mentioned within the last three weeks we are now blanketing the US having regional meetings with all of our C&I reps. We have done three of them and we have two more to go and what is so encouraging for [me and you], I have said in one of those meetings is the attitude of the agent toward the technology and the excitement of our design. Now as Scott said it…

Sure. Thank you, Bob, and good morning to everyone. Let's break it down into three low segments. I will touch on to-date. First, being the most positive areas that we’re looking at right now. Secondly, we’ll talk about the stands that we’re taking to right sizing containing cost. And then lastly, I will touch on the video board market. As of recent different from November and December, which in November and December we've seen a stall almost to freeze in order entry/activity in the QSR and the petroleum convenience store business, it seems like that pattern has been broken shortly after the first year. We have seen a lot of the programs that were put on hold, not necessarily activated but temporary or supplemental programs have surfaced now, and we were very encouraged about both the two industries I have mentioned there. And following that, we know it's just a matter of time until the economy eventually turns around that the program is put on hold will be breaking loose. But as you know, some of the major QSRs that we are dealing with have programs, they are public, and same way with the petroleum convenience store, the two largest convenience store chains in the petroleum; they are healthy with the money and they have needs for programs. So we are excited about that. Secondly, I said we touch based on what we're doing to keep this balance sheet continually strong here at LSI. We are rightsizing the company, we are not carrying out extra employees, like Bob said. The heart of the company is still very strong. We had some positives in a patent settlement that last year cost LSI about $0.25 million per quarter. That's all behind us now that has been settled. Moving forward, we expect zero…

Thanks David. I would like to add one more comment to that that I think it's important to remember is that, when LSI made the decision back in 1987to really look in to this Graphics business, based on my research it came to certainly to light that the graphics industry is a very fragmented industry, lots of smaller players, people that are throughout the United States, servicing all kinds of the large accounts as well as the small ones. Now that we are going through this kind of an economy, you have to wonder how many of those smaller companies are really going to make it. And it was our intention from the day that we made the decision to move into this industry and through the acquisitions, we have three great companies. The folks in the Rhode Island market are doing a phenomenal job with CVS and stop and go. The folks in Houston obviously are more specialized working towards the petroleum industry with some of their capabilities. And certainly North Canton brings to play the entire, our capability based on the investments that we've made in the printing at both digital and what I love about the potential. It's a very difficult time. I know a lot of people don't have a lot of patience in today's economy, but patience is something that we have. And as long as we keep that balance sheet strong, we are going to get through this and we are going to be able to come back with a capability that I believe will be unprecedented in the Graphics business. That is really the strategic direction. And all of these companies were built by entrepreneurs. They remember the days when the money wasn't there, the sacrifices, the multiple hats. And to be honest with you that is the strategic direction that's in place right now. And the presidents of these companies understand that, because they were the entrepreneurs that built the businesses. And together, we are working in a realm that basically puts us into that position, and will continue to do so. That all will allow us to continue on with the development of our R&D centre in Montreal and than move into the international market. And with that I would like to turn it over to Fred.

Thanks Bob. Good morning everyone. I would like to talk about the international market where we said previously in other conferences that we are in the process of identifying the company in each country that LSI will deal with, and that process takes time, because the procedure of LSI is to identify a company in a way that those companies, they are able to service and install not only just to present and distribute, because those companies, they are far away from LSI. And we want to limit the responsibility of LSI into this market by supplying the material and honoring the standard warranty with those equipments and get paid as soon as it ships. So, the responsibility of servicing and installing and communicating with the client locally in each country will be by the company who are currently identified. We are well advanced and already in a three different countries, we are on the final touch with those companies and we did present the product to many consulting engineer in those countries. The answer from and remark from consulting engineer was very-very positive. The product is unbelievable, it's well made, it's high-tech, it's the latest technology inside those products. And at the same time, we are right now in the process of getting the approval for those products for the different country in Europe because it needs certain approval again well advance was getting the approval on the product. As soon all this is done, we will be launching officially the product internationally especially with something in Europe. We have many meeting coming on with different application again it looks really very, very positive and we are looking forward in the near future to give you more information about the markets in Europe and Middle East. Now I will turn it back to Bob.

Thanks Fred. One of the things that is driving the international potential that is a requirement is certification of the products, there is a general certification that call to CE and then as by country and we are going through that process now to little more, how do I say it, little bit more detail is required than the normal UL process that we go through here in the North American market. But we understand what has to be done, the fact to the matter is, it is the products that we have introduced here, our all aim toward high volume retrofit capability, the same potential lies in Europe. We believe the potential to be even greater based on their energy costs. So, the bottom line is things are absolutely in a very controlled direction with a lot of emphasis obviously on the sale side that doesn't even have to be discussed. I mean most of our products as you will probably recall are sold through agents, these guys work on commissions, commission is their lifeblood. So, you can be assure that they are out there doing everything they could possible can do to survive as well. Giving them this new program of multiple LED solid-state products that really fit the retrofit market, real energy savings, long life is going to be stimulant for the agent to really put his best effort forward to improve his commission structure. So, all the tools are in place and all the directions are in place. The last but not least, Ron, is going to make a comment before we open it up to Q&A on the direction of the balance sheet and the reasoning behind the dividend.

Yes. Good morning, everybody. And I will take this opportunity to also indicate that we have not and will not have any discussions about any material, non-public information today, and I will refer to our Safe Harbor statements filed in the 10-K and 10-Qs. We do continue our focus on balance sheet management. In the last quarter I identified the few areas of financial focus that we were working on. And one of those certainly is managing the collections on our receivables. We are making progress. We do, however, have a slight increase in our DSOs for the balance sheet that will come out for December. That is of no concern we have some markets where we have gone with little longer extended terms and that’s very understandable than with the impact on our DSO. Good news in managing the balance sheet is inventory. Inventory during the quarter was reduced $3.6 million, so we’re at I think it's about $43.9 million now and heading south, and improving our turns there. So, that’s been good. In terms of the dividend, in the file that we will post on the website later, there will be a graph that shows the dividend, and obviously we have been in a period of increasing dividends with the reduced guidance that we have issued reflective of the markets that we serve and the business that we have at hand, we did adjust the dividend rate to an indicated annual rate of $0.20 per share. So, that reflects the $0.05 dividend that will be paid in February as announced in the press release. We do think that's an important part of shareholder return and we think its very important to continue the dividend payment, because it also does not cause us to add debt, it does not cause us to change the way we guide the company for growth in the future. So, the dividend is continuing at the $0.05 level.

And it also reflects the confidence that we have in our company, and the strategic direction that's in place in order to get through these economic turndown. Ron, you might make a comment or two on the impairment charge.

Sure Bob. The impairment, as those of you out there that have followed us know we had an impairment in the fourth quarter of fiscal '08, and in part, that was driven by a reduction in our stock price of LSI that went into the mechanics of the impairment testing. There was a continued softening of the stock price, but also combined with our revised business guidance. It produced an impairment in our lighting business primarily, a little bit in our graphics, totaling between the $212.7 million. This is following the FASB guidance and the economic views that are taken on impairments, but I can assure you that we view the business as still fundamentally strong. We view as Scott was talking about the LED technology in solid state in our lighting business as strong and getting stronger. So, we have just follow-through with what we had to do with viewing testing on the impairment and we still then have about $2.8 million of goodwill on the books at this point.

. : And over the years, we have built a great company. We have added companies, great entrepreneurship, great strengths and I am very encouraged. Nobody likes to go through what we are going through now. The important thing to me is that our market share is still there. If anything I think is going to grow, I think if we understand what it's going to take to ride this through, which I believe we do. We made money when we were at $200 million, we made money when we were $250 million, we made money when we were $300 million and you reorganize, restructure your business plan. The competition has always been there. When you grow a market like we have done and all of the years we have been doing this, we understand that. It's structuring yourself, so that you can react quicker, higher degree of customer service, bring the personality of people dealing with people back into the formula, it's the communications with your employees, the message has got to be loud and clear. Any growth business goes through a period of time where there is a certain amount of waste. We are identifying every single area, we are getting back to that entrepreneurship of what it takes to build a business. And the encouraging thing is that we've got a great customer base and we are not going to let that customer down. We are going to be there, we are going to be able to support that customer. When a customer does start to react to the economy change, it will take a little bit of time for that customer to react. We will build accordingly. Yes, we are downsizing our business, but that's appropriately in today's times. How long is this going to last?…

(Operator Instructions). First in queue is Mr. Glenn Wortman. Glenn your line is open. Glenn Wortman - Sidoti & Company: Yeah. Good morning, guys.

Good morning, Glenn. Glenn Wortman - Sidoti & Company: Yeah. Can you just talk a little bit more about the pricing pressure you are seeing in the lighting business, maybe level of magnitude are you seeing it across all your markets?

Well, it's not fair to say we are saying evenly across all the markets. Certainly, the commercial industrial market is the most competitive, and our market position there wouldn't logically dictate that we have less impact or less influence, if you will, on the overall market level. The competitors as you have well, I am sure review their fair announcements and their results are all fighting and as we are for a smaller [hike]. And the natural reaction is going be that the prices are going to be subdue because of that. So, in order of magnitude, it's not horrendous, it's not some thing we haven't seen before. And frankly, it's not something that we are unprepared to deal with. We are working very-very diligently as Bob has mentioned several times this morning on sizing the company appropriately, and structuring the company appropriately to make sure that we can remain competitive regardless of where their pricing goes. Where we have stronger market positions in some of that niche markets, we certainly maintain much more influence on the overall market price levels. But in those cases, we have probably, as we have mentioned in the automotive industry, petroleum industry, certainly and that's often, certainly the retail side of business, there is just less volume opportunity regardless of what your market share is. So again that's how I would characterize it.

If I could add to that, Glenn, this is nothing new to LSI. We have been in this position before as a smaller company. I think we know how to handle that. The fact of the matter is that, the fact of the matter is, is that we have done a great job in the last year and I was so glad we have in brining in a new procurement direction and working with our vendors and creating new opportunity, and working on price reductions, I mean those guys are feeling it too. So, this is a big pond we are all in and the survival of the people in this pond, I think really belong with a strong balance sheet and working on that bottom-line as we are doing in many different areas. And then give the reps the unique products that they need to go out and create the interest and a lot of it, of course, as we all know is based on energy and certainly maintenance and those are two key areas. And LSI has positioned itself well with these new product introduction to create those opportunities. It's not going to be easy right, but we are going to be here and we are going to be actually when we come out of this in my opinion much stronger company than we are today. Glenn Wortman - Sidoti & Company: Okay. Thank you. And then let me just give and say that the pricing pressures and obviously volume pressures as well. All is balanced by the foreign commodity prices, I mean, do you think your gross margins can hold here or do you expect some slippage there, in lighting?

I will answer that one, I think it’s a reaction day-to-day Glenn, and when I am looking into the future, I cannot tell anybody what that crystal ball shows. I mean you know as well as most our backlog is less than six weeks as an average its even less than that today. And I think that putting my company into what I call a reactive mode is be able to react to that customers’ needs, quicker better and a constant pressure on our engineering group not only for developing new products. But obviously looking for ways to costs reduce, the investment that we made in our manufacturing process that new piece of equipment that we acquired is definitely going to help in that. So, in essence, we have got to set ourselves up and to handle the competitiveness and do it in a way that’s more cost effective than we have ever done it before and that’s people wearing more adds and just doing things a little bit differently and I think that’s how we are going to be able to answer that question. Glenn Wortman - Sidoti & Company: Okay. Alright, thanks for your time.

Thank you.

Okay. Next in queue is Dick [Fucheck]. Dick, your line is open.

Dick [Fucheck]

Yes, hi, Bob. I want to comment not so much of a question, but comment on a few things to collaborate your discussed messages. We have recently, hold on, is that back, can you hear now?

I can hear you fine, Dick.

Was it better before or just better good?

No, you are just fine, right now.

Okay. Anyway, just for the interest of so many investors. I am, by the way, an investor and as well as manufacturer' agent for LSI. We are based in the St. Louis. We have offices in Des Moines in Kansas City, so we are mid westerners. I want to comment on just a recent order regarding the LED solid-state technology. One of our salesman, Rich Hayden just put lighting package together on a convenient store car wash service station type thing, to the tune of $80,000 in LED equipment. Typically that would have been 25 maybe $25,000 order, lighting order with typically HID equipment. So, you talk about excitement for the reps, that’s exciting and it's exciting for the growth of the company. A little in history, Bob and I go back, his feet are to the fire all the time, I understand of course, we all want to see this stock go back to where it was and I am sure will be with Bob's leadership. The buck stop with Bob, but let me just reiterate a few things. My history with Bob, we go back, we were young sales managers for a major company. They were the leaders in the petroleum industry at that time. They were fast growing in the C&I business. Bob was insisting on HID. Most people didn’t know what HID stood for, it was a fluorescent power group lamp that we were selling. He kept insisting to the President of the company. Finally, the President relented and designed a canopy fixture with a 400 watt mercury vapor two-by-two fixture. We were the first with an HID concept? A year later we got a letter from Merv Hayes, ''you two dumb bunnies, we only sold a hundred fixtures. I won't take this thing out of…

Dick, I didn't know you are lovely that.

I already know.

I really appreciate those comments. I really do.

Well, Bob, things have to be said sometimes, we lived in the growth of this company with you. And as reps, you said it before, we don't eat much, we sell something. And you've given us to build the company, has given us the ability to go out and have a very successful business. And we are fast growing and the Quickserve Restaurant business, that’s our growth particularly. And we haven't had our pretty darn good year on a call out this last year. That one of our better one, I am not going to say it should be this year, but that's a growth potential for us too. So anyway, I want to make those comments and keep up the good work on that.

Well, it was nice of you to do that. For the rest of the folks, that was really a surprise to hear Dick on the phone. But you know, Dick? And I really do appreciate those comments. What really has happened over the 32 years is we have been so fortunate to have a group of people come together to build a great company, certainly with a support of agents like yourself and certainly with our employees that work so hard to give our agents the products. This is a tough time. I am paying the big bucks and what set out here doesn't really ruffle my feathers. We take everything to heart, but what's important to me, is that this company has a tremendously strong root system. And with that strong balance sheet, we are going to continue to give you the products and the services to do the job that you have done for us. And I know other companies that you represent as well to keep your agency alive and hopefully thriving in the months to come. And for those comments, I thank you for your comments and it's nice to hear that agents, out here do appreciate some of the works that manufacturers really try to do to help them survive. If we can turn it over to, I am sure somebody else has another question.

Yes, sir. Next in queue, or in line is Rick [Basel]. Rick, your line is open.

Alright. Excuse me I have a cold, but my comments will be less commercial for you.

How are you, Rick?

I am doing alright except for this cold. Just a couple of things, I think on the last call there were some comments about a program in Stop n’ Shop, maybe you can update us there. And then people have been thinking about this CVS acquisition and what it means for you. Do you have any concrete information on when and if they are going to do the new stores?

David, I'll let you kind of handle that if you would please?

Sure. Speaking first to the CVS comment and that would be the acquisition of Long Drug in California. Our revenue stream will be active in the fourth quarter and the first quarter of 2010. Fourth quarter 2009 and we will finish it in the first quarter of 2010. And as far as Stop n’ Shop, yeah we did the initial rollout as Bob mentioned in his earlier commentary. And of all stores with the freshening and now we continue to do, I'll say batch orders, a nice size orders of total remodeling for their stores. And as you know, the grocery business is healthier than it's been compared to the rest of the economy, so good.

But was that a meaningful program, or really kind of?

It was in the upper quartile, very bottom of that, but 75% level if that helps you.

Okay. And one of your dealers was on the call just a few minutes ago, but is there any thoughts on the inventory, in the channel. I don't know, I know these guys generally aren't stocking, but is there anything that they are pairing back from what they might have in the channel right now on the dealer side?

Let me feel that one because it reflects both on the graphics and the lighting. There really isn't a channel of inventory for the lighting. It's all reactive to the moment and we shift most of our traditional product within 24 to 48 hours. That's the 80/20 theory, Rick, and it's purest and we monitor that, that's the direction that we have taken with reducing our inventory. That's one of the major emphases is to turn inventory into cash, it's working closer now with vendors for them to be able to react to us quicker, so that there isn't inventory sitting on the floor. Form a graphic standpoint, I know that David can answer that as well, but let me just throw it out. David you throw anything else in. From a graphics, as you know it’s a project-driven business. There is certain commitment to inventory what the edict is coming out of LSI has been for numbers of years is that we are not putting inventory in without the purchase order. Sometimes it takes longer to get that inventory out, we are going through that process now, we are kind of keeping our customers feet to the fire, we are not going to eat this stuff, but obviously there is a drag as it relates to inventory, inventory being pulled based on the economy. I think we are very, we had a very good position because months ago as we started to smell this change, we started working very effectively on that inventory number, the numbers are anything that’s in there now is all usable inventory. Its inventory that the customers will continue to use, the area if they change their direction from the image they have to renew one they'll be responsible to either take that inventory or give us a purchase order to pitch it, which in some cases these folks do. So, that is already built into the process. David, if you would like to add any more.

Yeah, I think, I will. In that some of that inventory with the petroleum, convenience store type people, those weren't two and three year contracts and as these contracts mature if there is obsolete inventory at the end of the contract sometimes earlier depending on the customer, we can invoice that. Now, inventories have been moving slower because of the downturn in business, in the contract when the contract expires, it gives us time to renegotiate, and sometime pull inventory from other competitors, because we have the ability to price that in, finance it and have the ability to warehouse it, and fulfill orders, better than the rest of the industry. So he who has the inventory isn't a loser he is the winner. Then again, we go back to the balance sheet. Especially in these treacherous times, the majors, the Chevrons, the Exxons, the BPs they don’t want that inventory as tied up in some bankruptcy court. And we always seemed to get stronger loyalty during these treacherous times. Okay.

I'll emphasize the fact that we do that as long as we have legitimate purchase orders. So, I want to be sure emphasized that.

Yes, it's not our inventory. It's their inventory that they are contractually obligated to and we help manage it.

Okay, you mention cost cuts to get in line with reduced revenues. I would like you to quantify those?

Well, Rick, I am not going to get into it. There are a lot of people listening. Obviously, it starts with as most of you are probably aware of LSI for 32 years had worked with a percentage of our employees to be what we call agency people or a cyclical company. That percentage could be as high as 25%. Obviously, that’s the first place that you start. And the second area is looking at the change in the climate and the conditions of the market. That’s the second level that you look at. You consider to look at second shift, third shift. You look at all areas, I mean, we are even looking at subscriptions if you want to take chuckle. But we are looking at every single penny and we are putting that plan together as it relates to them. And there are two words in this company right now, it's the word called convenience is out, necessary is in, and then necessary is reviewed. So, it goes back to the basics. Of when I built my company in the early years, so we didn’t have money, we didn’t have anything in place. It's a culture that’s been developed here, with obvious emphasis with a continuation of new research and development of our new products. A strong marketing direction on the 80/20 theory, the consolidation obviously of inventories and reduction of inventories, the continuation of working with vendors to come up with better pricing, better inventory flow. All of those things are part of the formula of cost reduction.

And then my last one is on, you've put out a press release saying that your prior acquisition, fell to the way side and you were poking around at another technology, your LED related deal, what's the status of that?

Yes. Simply, the acquisition that we had in letter of intent, a non-binding letter of intent, is that when we started to see, here the economy change and the evaluation of companies changed. The company that we were looking at was quite slow to react in giving us information because we had a very-very deep due-diligence program in place. And as things started to change, in the economy and the environment, we went back to them and said ''You know guys, your company really isn’t worth today what it was worth in the early months when we started all of this" And so, we went back with a different structure, as for as an opportunity, and they didn’t feel it was in there best interest. So, we parted ways. The second company that we are still looking at and still have a very strong interest in is on the technology side. The company that we walked away from, was on the lighting side, with a product line that we felt would fit the package better. But to be quite honest with you now, the direction that we seemed that we will take in that direction is to be more select on some of the products that we really feel we could have in our product line, our package line, but it will be developed around the new LED technology rather than traditional. In essence it may have been a blessing in disguise that things went the way they did, because now the emphasis is to fully go after solid state technology with this type of product line.

And just on the technology, one you are pursuing, is that's still alive or not alive?

Yes, it's alive. Yes.

Very, very early stage.

Early stages of due-diligence, but it's not a big company. It won't impact our balance sheet with a big hit. We are very-very weary of any debts, but it is a company that we feel has the kind of technology that can enhance what we've already developed and we will be sharing that with you as things progress.

Okay. Thanks.

Thanks, Rick.

Okay. Next in queue is Jed Dorsheimer. Jed, your line is open.

Hi, it's Josh Baribeau for Jed. Just a couple of questions, can you remind me again what the actual cash balance was?

We have about $8 million on our balance sheet at December 31st, Josh. And no debt and today, we remain debt free as well.

Okay. Could you give us a sense. I know you don't particularly break it out, but can you give us a sense of what the LED revenues looked like in the December quarter, maybe order of magnitude, or just quantify up or down from the prior quarter?

Ron, you want to talk?

I will take that. Josh, this is Scott. From an LED perspective, we are continuing to see growth there, and without getting into the actual volume, it's double-digit growth.

That's on our lighting side, Josh, you had a little bit of decline in that quarter especially in December on some of the other items that we had sold in the sports package in the first quarter. So it's based on time and developments of the type of business. What's encouraging is that the efforts that are put forth now with our sales direction has created lot more interest. I think I made that statement in my press release. There is a lot of interest in our product line now. And specifically, we are seeing more interest because of the success of the Ohio State project that we put into the Schottenstein Center, which has created a lot of interest from Ohio level. And we are putting still a lot of effort on a more reduced scale on the billboard market more in our own backyard, because there is some opportunities out there and we want to keep that alive, we want to keep our program going. We are going to continue to work to try to create more of that interest to build that part of our LED technology.

Josh, if you divide that LED business, the lighting as Scott characterizes, the white light LED solid-state one of solid growth. And the entertainment and sports side of it is going to be more of a lumpy structure as large projects come through in sales. And then there maybe some lumpiness until the next large project comes through.

Perfect. Thanks for the clarity just one last question. You did maintain your guidance. I assume that we will probably see a little bit of seasonality in Q3 is very typical, and you also mentioned that you are winding down some of the large national programs. Can you just comment a bit upon your, you are not necessarily a confidence level in this guidance, but maybe what's that's based upon, because I know there is not much of a backlog either as is tradition of the company. Just a little bit more color on the guidance please.

I think I will answer that, Josh. I think from my perspective that it makes sense that we put a very conservative direction in place. It's a very difficult, obviously with the economy the way it is. There are certain things that are hopefully going to stimulate that, and that is that we do have a lot of a number of prospects out there that show some potential volume. We are not at liberty to say who yet, because we just don't know what's going to happen. None of that estimate is in our guidance. It is really just day-to-day business, it's monitoring our agents and monitoring the market on the basis of what traditionally we think we are going to do. In conjunction with that, some of the things that we are working on as it relates to the international market. Certainly, it all depends on the certification of some of our products. We think there is a pretty good opportunity there once we get certification, because of what we have. Our agents as they are beginning to understand more and more the LED, you heard one of our agents, Dick, making some comments about how enthusiastic he is as a result. Remember these guys worked on submissions. And certainly in a competitive market, commissions are unfortunately very, very tight. And so you give an agent an opportunity to sell a product with a higher price, his commission in real dollars will go up with the sale of those products. So there are number of small things based on traditional methods and traditional history that we will feel pretty good about our guidance. But, of course, if the economy continuous to tank, those things are obviously under very-very tight scrutiny right now. There are some hope, I don't know how much, but there is a little inkling of hope that Obama is going to put more pressure on the energy that could create opportunities with the LED. I think you folks realize that as well. And all of those things go into our guidance to the best of our ability. We never had a big backlog anyway. So, it's very difficult and has been for all the years we’ve been doing it, to really pinpoint that guidance. So, we do the best we can with what information we have. Backlog doesn’t really drive guidance as much as customer relations and dialogue do and that’s what we build our guidance on.

Great, and just lastly, could you give us an indication of the LED products either lighting or the digital boards. The margin profile if it's above the company average below or roughly have the company average for margins?

From a lighting perspective, it really falls into what we consider our average margins at this point. We certainly expect that to barter well I will only say moderate. There is opportunity both up and down in that area, but right now it really is about average.

Josh, I think its really fair to say the way we’ve structured our pricing understanding that LED technology is a multiplier by two plus as far as over traditional lighting, it is our approach to seed the market with more and more examples that was a successful using the model of what we did with our canopy fixture program, if you recall we select, we actually allocated x number of units per agent throughout the United States with the special pricing direction to get it into the market, that drove the interest. We are taking the same approach by agent in the commercial/industrial to get more and more units into the field for people to see as we build the volume of product costs are coming down. And we can adjust as it relates to the profit contribution, as it relates to the material cost and certainly the volume that we believe are going to start to come. These are months away, until, unless somebody comes in and of course, your hope is always that some large marketer will come in, for example, a petroleum industry with a big energy plan. I think a lot of that is going to be stimulated again by state and government, federal government. So, all of those things are in play right now, but the direction we have taken is a very straight forward, is get our product in the field, get people to see it and build on that and price it accordingly for people to see the affordability. A lot comes into the design as we are working and learning more and our ability to produce and drive those manufacturing costs down to improve the margins on those products as well.

Well, great. Thanks for taking my question. I will pass it on.

Thanks, Josh.

Next in queue is Jim Ricchiuti. Jim, your line is open. James Ricchiuti - Needham & Company: Hi, good morning.

Hi, Jim. James Ricchiuti - Needham & Company: Couple of questions. Just want to make sure I am clear on this, and David maybe I’ll direct this question to you. It sounds like you do have the CVS business in hand?

We don’t know, we don’t have the purchase order. We expect the purchase order, I mean, we are in review of those on a weekly basis and like I say, unless something backfires the billings will be fourth quarter 2009 and first quarter 2010. It take a real shot to find out we weren't receiving that order. James Ricchiuti - Needham & Company: Okay, is any of that business in the current fiscal year guidance?

Yes. James Ricchiuti - Needham & Company: Okay.

The CVS, and keep in mind that’s a nice program, that’s not the monster though that compared to our past experience with Dairy Queen or Chevron or the 7-Eleven. So, if in fact we catch one of those in the near-term that will be on top of the guidance. James Ricchiuti - Needham & Company: How would this latest piece of business with CVS perhaps compare with previous convergence, say maybe the Albertson stores.

Well Albertsons, was probably three, four times that size. James Ricchiuti - Needham & Company: Okay.

Lot more stores, lot bigger stores, a lot more complex conversion. James Ricchiuti - Needham & Company: Okay. That’s helpful. Just with respect to expenses, typically the SG&A expense, and then maybe, Ron, I will put this one to you. There was a fairly significant sequential decline in revenues in the December quarter from September. Yet, your SG&A expense remains fairly level. It sounds like you guys took some cost containment initiatives in the quarter. How should we think about SG&A going forward?

Well we are good. As Bob has said, Scott and David said, we are going to continue to look at all aspects of costs and reduce wherever we can. Dave, mentioned the menu board patent suite. It's now behind us. That will have an impact of reducing our legal fees going forward, and of course that has been built into our guidance that we have issued. Sales commission is a big part of our SG&A cost. And that’s going to follow sales. It's going to follow sales incentive programs and so on. With that, I really can't be too specific on any single line item there. James Ricchiuti - Needham & Company: Again, this might be a difficult answer as well, Ron, but because it depends on the mix of the business, but can you give us any feel for what your quarterly breakeven might look like?

I would not answer that question. James Ricchiuti - Needham & Company: Okay. And just on the lighting side. I mean given that it looks as if the Graphics business, if it's not closed to a bottom, maybe it has bottom for you and from a revenue standpoint. What I am wondering is, maybe this one is for you, Scott, how much risk you see to Lighting segment revenues over the next couple of quarters just given the uncertainty in the economy, or do you feel that at these levels probably a little bit more downside, but do you see much in the way significant downside from these levels?

Well, I think I characterized what we are seeing is obviously the largest lion share of the volume in the Lighting business comes from the commercial/industrial market. And there is a little bit maybe lag there as you compare it to some of the other segments of the marketplace in terms of where that decline really got going, and got accelerated in the November, December timeframe. As you recall, we were able to show growth in that market, both in market share and volume up to that point, so while we've felt pressure overall in the lighting group now for several quarters because of the niche market business and the national account volume, the commercial industrial volume the changes that we saw really have been fairly recent. And I would love to say that we've reached the bottom there, but I don't think we can make that comment at this point. I think it's going to continue to be difficult, I think we are going to balance that frankly with some gains in some other areas, but it's very difficult to characterize that. And I wouldn't want to put a picture in anybody's head that we are completely sure what's going to happen. It really is a factor of the marketplace right now. James Ricchiuti - Needham & Company: Okay.

Jim, I would like to add one comment to that. I think from our perspective that we are hoping that things will stimulate. That direction is in the retrofit market and the products that we brought online to address that with the aggressiveness of the agent and really the return on the investment for the customer and showing that these products are bringing anywhere for 60% to 80% energy reduction it's part of the plan. And of course, it's a difficult plan to forecast, because we don’t really know yet how that customer base within our C&I market is really going to react to our products, because they haven't been out yet. I mean, the sales meetings are just going on now. What we did if you recall, as you certainly know, we spent all of our efforts in the petroleum business because of the tremendous image that LSI has, and a great job that the agents did. And that's starting to prove its point and now I am hoping that C&I will do that. So, that traditional balance of how things are going to flatten out, I think is really unknown and it's up to us to continue to put the pressure on ourselves to get these products in the hands of the agent and the customer and obviously, be as competitive as we can working with our vendors and with our manufacturing process to hit the traditional side. We do realize, the guns at both sides of our head and we are going to do everything we can to improve that bottom-line and keep that balance sheet strong. Revenues will be what they are based on everything that we have set so far, so it's up to us to squeeze this chicken even harder as it relates to the bottom-line and keep that balance sheet strong. James Ricchiuti - Needham & Company:

I will let Scott answer that, because he saw the same. He has probably already talked to them.

It's really the grouping of all of them, Jim, what's really important in this process is certainly, you got to be able to illustrate and demonstrate the technology that you are able to bring to bear in fixture design. But what's critical is that you have a minimum mass if you want to call it that that begins to get the agent excited about his ability to design sites around solid-state lighting as opposed to just inserting one particular solid-state lighting, or one LED product in the overall package design. So, what we have introduced, and we have talked about this in previous conference calls, we have introduced pole-mounted products, we have introduced building-mounted products, we have introduced in-ground accent products. We have introduced some interior products, some sign lighting products. It's a really a package now, Jim, that brings that level of excitement to the point that, the agent is now willing to take this story to his customer. And that's the threshold, if you will, but I think we have crossed. And I think being in a strong financial position and manufacturing position given the balance sheet in the way we are able to continue to invest in those areas, puts us in a position, not only to tell the story, but to deliver and that's what's critical. There is lot of competitors in the marketplace that are touting some design philosophies and some product, they frankly can’t deliver the way LSI has. And LSI has reputation in this marketplace of being able to react. And by introducing the kind of products that we are introducing, the way we are building and the way we are designing them and supporting that with a manufacturing and delivery story and solution that the frankly the rest of the market can’t touch. That’s what really puts us in that position of advantage.

To add to that and LSI has always been the smallest fish in the pond when we start building on that market. First thing we had to do in this solid-state technology was build the confidence of the agent. Technology that we have out there today has been somewhat bastardized and with different players coming in and not being able to deliver what they were selling. We didn't want to take that risk, and so we took a longer period of time, to develop that platform getting out into the market and prove to the agent that this was the product of the future, we did that with the canopy fixture, even if it was C&I agent at least he knew that the product was out there, he knew the results. And the next thing we had to do is instead of giving an agent one product especially a commercial/industrial agent, C&I agent. We had to give him a number of products, so that the calls that they were going to make would hopefully be more productive for him. The petroleum agents are little bit different in that they only have one lighting line, they have multiple other lines but it's all focused on just that oil distributor or that oil user and lighting is an important part. But for the commercial/industrial that guy is selling primarily lighting and that’s about all he sells. So, we took the time and we developed the platform, then we took that platform and we put the right wrapper on it, whether it would be a parking garage or whether it be a soffit light or in the case of a canopy light that would fit in a bank, and a new area light. All of those are high volume items that the rep…

Guys, I think that concludes. I really appreciate your time. If anybody else has any other questions, give us a call. We will be letting you know more about these new products as they unroll. It will be our job this year to do a better job, a PR work, if that’s the right word, to keep you in tune of what's going on. It's never been LSI's intent to hide the company, but just factually give you information. We have touched on a number of items that are now in place. We will continue to inform you as we see these items rollout. Be patient with us. We do appreciate your patience and certainly your interest in the company. But for the shareholders who maybe listening to this, the institutions who have invested, this is a company that understands its role. Its market position will continue to work and there will be up, as we always have them to turn out. I will continue to build a great company and eventually get our stock back up. I thank you for your time and have a good day.

Thank you for joining the LSI conference call. It is now concluded. Have a great day.