UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

 

Commission file number 1-2257

 

TRANS-LUX CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

13-1394750

(State or other jurisdiction of

(I.R.S. Employer

 incorporation or organization)

Identification No.)

135 East 57th Street, 14th Floor, New York, New York

10022

(Address of principal executive offices)

(Zip code)

(800) 243-5544

(Registrant's telephone number, including area code)

 

Indicate by check mark 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     X      No   

 

Indicate by check mark 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 file such files).  Yes     X      No                       

 

Indicate by check mark 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 ___

Non-accelerated filer      X   

Emerging growth company ___

Smaller reporting company      X   

 

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 check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes               No     X                                          

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.


 

Date  

Class

Shares Outstanding

8/12/21

Common Stock - $0.001 Par Value

13,446,276

 


 

TRANS-LUX CORPORATIONAND SUBSIDIARIES

 

 

Table of Contents

 

 

   

Page No.

Part I - Financial Information (unaudited)

 
     

        Item 1.

Condensed Consolidated Balance Sheets – June 30, 2021 and December 31, 2020 (see Note 1)

1

     
 

Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2021 and 2020

2

     
 

Condensed Consolidated Statements of Comprehensive Loss – Three and Six Months Ended June 30, 2021 and 2020

2

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit – Three and Six Months Ended June 30, 2021 and 2020

3

     
 

Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2021 and 2020

4

     
 

Notes to Condensed Consolidated Financial Statements

5

     

         Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

     

        Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24

     

         Item 4.

Controls and Procedures

25

     

Part II - Other Information

 
     

          Item 1.

Legal Proceedings

25

     

          Item 1A.

Risk Factors

25

     

         Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

     

          Item 3.

Defaults upon Senior Securities

26

     

          Item 4.

Mine Safety Disclosures

26

     

         Item 5.

Other Information

26

     

          Item 6.

Exhibits

26

     

Signatures

 

28

     

Exhibits

   

 


Table of Contents

 

Part I - Financial Information (unaudited)

 

Item 1.

 

TRANS-LUX CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

June 30

2021

 

December 31

2020

In thousands, except share data

 

ASSETS

 

 

 

 

 

Current assets:

         

Cash and cash equivalents

$

43

 

$

43

Receivables, net

 

1,823

   

1,382

Inventories

 

1,140

 

 

1,542

Prepaids and other assets

 

235

 

 

327

Total current assets

 

3,241

 

 

3,294

Long-term assets:

         

Rental equipment, net

 

533

 

 

656

Property, plant and equipment, net

 

2,069

   

2,200

Right of use assets

 

713

 

 

858

Other assets

 

47

 

 

47

Total long-term assets

 

3,362

 

 

3,761

TOTAL ASSETS

$

6,603

 

$

7,055

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

Current liabilities:

         

Accounts payable

$

3,389

 

$

1,640

Accrued liabilities

 

4,216

   

4,555

Current portion of long-term debt

 

2,954

 

 

2,546

Current lease liabilities

 

305

   

302

Customer deposits

 

60

 

 

524

Total current liabilities

 

10,924

 

 

9,567

Long-term liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

-

   

269

Long-term lease liabilities

 

441

 

 

591

Deferred pension liability and other

 

4,015

 

 

3,677

Total long-term liabilities

 

4,456

 

 

4,537

Total liabilities

 

15,380

 

 

14,104

Stockholders' deficit:

 

 

 

 

 

Preferred Stock Series A - $20 stated value -  416,500 shares authorized;
   shares issued and outstanding: 0 in 2021 and 2020

 

-

   

-

Preferred Stock Series B - $200 stated value -  51,000 shares authorized;
   shares issued and outstanding: 0 in 2021 and 2020

 

-

 

 

-

Common Stock - $0.001 par value -  30,000,000 shares authorized;
   shares issued: 13,474,116 in 2021 and 2020;
   shares outstanding: 13,446,276 in 2021 and 2020

 

13

   

13

Additional paid-in-capital

 

41,330

 

 

41,330

Accumulated deficit

 

(39,803)

   

(38,007)

Accumulated other comprehensive loss

 

(7,254)

 

 

(7,322)

Treasury stock - at cost - 27,840 common shares in 2021 and 2020

 

(3,063)

 

 

(3,063)

Total stockholders' deficit

 

(8,777)

 

 

(7,049)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

6,603

 

$

7,055

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1


Table of Contents


 

TRANS-LUX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

3 Months Ended

June 30

 

6 Months Ended

June 30

   

In thousands, except per share data

2021

 

2020

 

2021

 

2020

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Digital product sales

$

2,396

 

$

1,518

 

$

4,489

 

$

2,852

Digital product lease and maintenance

 

491

 

 

531

 

 

984

 

 

1,110

Total revenues

 

2,887

 

 

2,049

 

 

5,473

 

 

3,962

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

                     

Cost of digital product sales

 

3,022

 

 

2,003

 

 

5,276

 

 

3,706

Cost of digital product lease and maintenance

 

164

 

 

139

 

 

317

 

 

325

Total cost of revenues

 

3,186

 

 

2,142

 

 

5,593

 

 

4,031

                       

Gross loss

 

(299)

 

 

(93)

 

 

(120)

 

 

(69)

General and administrative expenses

 

(744)

   

(1,037)

   

(1,543)

   

(2,267)

Restructuring costs benefit

 

-

 

 

(10)

 

 

-

 

 

29

Operating loss

 

(1,043)

   

(1,140)

   

(1,663)

   

(2,307)

Interest expense, net

 

(157)

 

 

(155)

 

 

(260)

 

 

(263)

(Loss) gain on foreign currency remeasurement

 

(36)

   

(89)

   

(72)

   

113

Gain on extinguishment of debt

 

-

 

 

-

 

 

77

 

 

-

Pension benefit

 

67

 

 

37

 

 

134

 

 

73

Loss before income taxes

 

(1,169)

   

(1,347)

   

(1,784)

   

(2,384)

Income tax expense

 

(6)

 

 

(6)

 

 

(12)

 

 

(12)

Net loss

$

(1,175)

 

$

(1,353)

 

$

(1,796)

 

$

(2,396)

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share - basic and diluted

$

(0.09)

 

$

(0.10)

 

$

(0.13)

 

$

(0.17)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

TRANS-LUX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

 

3 Months Ended

June 30

6 Months Ended

June 30

In thousands

2021

 

2020

 

2021

 

2020

Net loss

$

(1,175)

 

$

(1,353)

 

$

(1,796)

 

$

(2,396)

Other comprehensive income (loss):

Unrealized foreign currency translation gain (loss)

 

34

 

 

84

 

 

68

 

 

(107)

Total other comprehensive income (loss), net of tax

 

34

 

 

84

 

68

 

 

(107)

Comprehensive loss

$

(1,141)

 

$

(1,269)

 

$

(1,728)

 

$

(2,503)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


Table of Contents

 

TRANS-LUX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(unaudited)

 

                                       

Accumulated

Other

Comprehensive

Loss

       

Total

Stock-

holders'

Deficit

 

Preferred Stock

         

Add'l

Paid-in

Capital

               
 

Series A

Series B

Common Stock

   

Accumulated

Deficit

   

Treasury

Stock

 

In thousands, except share data

Shares

 

Amt

Shares

 

Amt

Shares

 

Amt

 

 

 

 

 

For the 6 months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2021

 -

 

$

 -

 -

 

$

 -

  13,474,116

 

$

13

 

$

41,330

 

$

(38,007)

 

$

(7,322)

 

$

(3,063)

 

$

  (7,049)

Net loss

 -

 

 

 -

 -

 

 

 -

-

 

 

-

 

 

-

 

 

(1,796)

 

 

-

 

 

-

 

 

(1,796)

Other comprehensive income, net of tax:

                                                     

Unrealized foreign currency translation gain

 -

 

 

 -

 -

 

 

 -

-

 

 

-

 

 

-

 

 

-

 

 

68

 

 

-

 

 

68

Balance June 30, 2021

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,330

 

$

(39,803)

 

$

(7,254)

 

$

(3,063)

 

$

(8,777)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 3 months ended June 30, 2021

                                                     

Balance April 1, 2021

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,330

 

$

(38,628)

 

$

(7,288)

 

$

(3,063)

 

$

(7,636)

Net loss

 -

   

 -

 -

   

 -

-

   

-

   

-

   

(1,175)

   

-

   

-

   

(1,175)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation gain

 -

   

 -

 -

   

 -

-

   

-

   

-

   

-

   

34

   

-

   

34

Balance June 30, 2021

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,330

 

$

(39,803)

 

$

(7,254)

 

$

(3,063)

 

$

(8,777)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 6 months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2020

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,088

 

$

(33,164)

 

$

(6,618)

 

$

(3,063)

 

$

(1,744)

Net loss

 -

 

 

 -

 -

 

 

 -

-

 

 

-

 

 

-

 

 

(2,396)

 

 

-

 

 

-

 

 

(2,396)

Issuance of warrants

 -

   

 -

 -

   

 -

-

   

-

   

94

   

-

   

-

   

-

   

94

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation loss

 -

   

 -

 -

   

 -

-

   

-

   

-

   

-

   

(107)

   

-

   

(107)

Balance June 30, 2020

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,182

 

$

(35,560)

 

$

(6,725)

 

$

(3,063)

 

$

(4,153)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 3 months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance April 1, 2020

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,088

 

$

(34,207)

 

$

(6,809)

 

$

  (3,063)

 

$

(2,978)

Net loss

 -

 

 

 -

 -

 

 

 -

-

 

 

-

 

 

-

 

 

(1,353)

 

 

-

 

 

-

 

 

(1,353)

Issuance of warrants

 -

   

 -

 -

   

 -

-

   

-

   

94

   

-

   

-

   

-

   

94

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation gain

 -

   

 -

 -

   

 -

-

   

-

   

-

   

-

   

84

   

-

   

84

Balance June 30, 2020

 -

 

$

 -

 -

 

$

 -

13,474,116

 

$

13

 

$

41,182

 

$

(35,560)

 

$

(6,725)

 

$

(3,063)

 

$

(4,153)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Table of Contents

TRANS-LUX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
 

6 Months Ended

June 30

 

In thousands

2021

 

2020

Cash flows from operating activities

 

 

 

 

 

Net loss

$

(1,796)

 

$

(2,396)

Adjustment to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

Depreciation and amortization

 

254

   

278

Amortization of right of use assets

 

145

 

 

145

Amortization of deferred financing fees and debt discount

 

63

   

42

Loss on disposal of assets

 

-

 

 

5

Gain on extinguishment of debt

 

(77)

   

-

Loss (gain) on foreign currency remeasurement

 

72

 

 

(113)

Issuance of warrants

 

-

   

94

Bad debt expense

 

45

 

 

46

Changes in operating assets and liabilities:

         

Accounts receivable, net

 

(487)

 

 

581

Inventories

 

402

   

29

Prepaids and other assets

 

92

 

 

(141)

Accounts payable

 

1,749

   

174

Accrued liabilities

 

131

 

 

(96)

Operating lease liabilities

 

(147)

   

(145)

Customer deposits

 

(464)

 

 

292

Deferred pension liability and other

 

(88)

 

 

(269)

Net cash used in operating activities

 

(106)

 

 

(1,474)

Cash flows from investing activities

         

Equipment manufactured for rental

 

-

 

 

(16)

Purchases of property, plant and equipment

 

-

 

 

(178)

Net cash used in investing activities

 

-

 

 

(194)

Cash flows from financing activities

         

Proceeds from long-term debt

 

125

 

 

1,184

Payments of long-term debt

 

(20)

 

 

-

Net cash provided by financing activities

 

105

 

 

1,184

Effect of exchange rate changes

 

1

 

 

(3)

Net decrease in cash, cash equivalents and restricted cash

 

0

 

 

(487)

Cash, cash equivalents and restricted cash at beginning of year

 

43

 

 

1,385

Cash, cash equivalents and restricted cash at end of period

$

43

 

$

898

Supplemental disclosure of cash flow information:

         

Interest paid

$

162

 

$

151

Income taxes paid

 

9

 

 

15

Reconciliation of cash, cash equivalents and restricted cash to amounts
   reported in the Consolidated Balance Sheets at end of period:

 

 

 

 

 

Current assets

         

Cash and cash equivalents

$

43

 

$

248

Long-term assets

         

Restricted cash

 

-

 

 

650

Cash, cash equivalents and restricted cash at end of period

$

43

 

$

898

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Table of Contents

 

TRANS-LUX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(unaudited)

 

Note 1 Basis of Presentation

 

As used in this report, “Trans-Lux,” the “Company,” “we,” “us,” and “our” refer to Trans-Lux Corporation and its subsidiaries.

 

Financial information included herein is unaudited, however, such information reflects all adjustments (of a normal and recurring nature), which are, in the opinion of management, necessary for the fair presentation of the Condensed Consolidated Financial Statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.  The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”) and therefore do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”).  The Condensed Consolidated Financial Statements included herein should be read in conjunction with the Consolidated Financial Statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.  The Condensed Consolidated Balance Sheet at December 31, 2020 is derived from the December 31, 2020 audited financial statements.

 

The following new accounting pronouncements were adopted in 2021:

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20).  ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  Public business entities should apply the amendments in ASU 2018-14 for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years (i.e., January 1, 2021).  Early application is permitted.  The adoption of this standard did not have a material effect on the Company’s consolidated financial position and results of operations.

 

The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the Company:

 

None.

 

Note 2 Liquidity and Going Concern

 

A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business.  This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent.  In accordance with this requirement, the Company has prepared its accompanying Consolidated Financial Statements assuming the Company will continue as a going concern.

 

5


Table of Contents

 

Due to the onset of the COVID-19 pandemic in 2020, the Company experienced a reduction in sales orders from customers.  As a result, the Company incurred a net loss of $1.8 million in the six months ended June 30, 2021 and had a working capital deficiency of $7.7 million as of June 30, 2021.

 

The Company is dependent on future operating performance in order to generate sufficient cash flows in order to continue to run its businesses.  Future operating performance is dependent on general economic conditions, as well as financial, competitive and other factors beyond our control, including the impact of the current economic environment, the spread of major epidemics (including coronavirus) and other related uncertainties such as government-imposed travel restrictions, interruptions to supply chains and extended shut down of businesses.  In order to more effectively manage its cash resources, the Company had, from time to time, increased the timetable of its payment of some of its payables, which delayed certain product deliveries from our vendors, which in turn delayed certain deliveries to our customers.

 

Our independent registered public accounting firm has issued an opinion on our Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020 that states that the Consolidated Financial Statements were prepared assuming we will continue as a going concern and further states that the continuing losses and uncertainty regarding our ability to make the required minimum funding contributions to the defined benefit pension plan and the past due principal and interest payments on our outstanding 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) and 9½% Subordinated debentures due 2012 (the “Debentures”) raises substantial doubt about our ability to continue as a going concern.  In addition, if we are unable to (i) obtain additional liquidity for working capital, (ii) make the required minimum funding contributions to the defined benefit pension plan, (iii) make the required principal and interest payments on the Notes and the Debentures and/or (iv) repay our obligations under our Loan Agreement (hereinafter defined) with MidCap Business Credit LLC (“MidCap”) which was subsequently assigned to Unilumin USA (“Unilumin”), there would be a significant adverse impact on our financial position and operating results.  The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements and fund potential new opportunities.

 

Note 3 Revenue Recognition

 

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that an entity determines are within the scope of this standard, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.  The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.  At contract inception, once the contract is determined to be within the scope of this standard, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.  The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.  Sales tax, value added tax and other taxes collected on behalf of third parties are excluded from revenue.

 

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Contracts with customers may contain multiple performance obligations.  For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation.  The Company determines standalone selling prices based on the price at which the performance obligation is sold separately.  If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component.  Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less.  None of the Company’s contracts contained a significant financing component as of June 30, 2021.

 

We recognize revenue in accordance with two different accounting standards: 1) Accounting Standards Codification (“ASC”) Topic 606 and 2) ASC Topic 842.  Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties.  A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606.  Our contracts with customers generally do not include multiple performance obligations.  We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer.  The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

 

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Disaggregated Revenues

 

The following table represents a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2021 and 2020, along with the reportable segment for each category:

 

   

Three months ended

 

Six months ended

In thousands

 

June 30, 2021

 

June 30, 2020

 

June 30, 2021

 

June 30, 2020

Digital product sales:

 

 

 

 

 

 

 

 

 

 

 

 

Catalog and small customized products

 

$

2,396

 

$

1,518

 

$

4,489

 

$

2,852

Large customized products

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Subtotal

 

 

2,396

 

 

1,518

 

 

4,489

 

 

2,852

Digital product lease and maintenance:

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

   

210

   

236

   

419

   

515

Maintenance agreements

 

 

281

 

 

295

 

 

565

 

 

595

Subtotal

 

 

491

 

 

531

 

 

984

 

 

1,110

Total

 

$

2,887

 

$

2,049

 

$

5,473

 

$

3,962

 

Performance Obligations

 

The Company has two primary revenue streams which are Digital product sales and Digital product lease and maintenance.

 

Digital Product Sales

 

The Company recognizes net revenue on digital product sales to its distribution partners and to end users related to digital display solutions and fixed digit scoreboards.  For the Company’s catalog products, revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.  For the Company’s customized products, revenue is either recognized at a point in time or over time depending on the size of the contract.  For those customized product contracts that are smaller in size, revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.  For those customized product contracts that are larger in size, revenue is recognized over time based on incurred costs as compared to projected costs using the input method, as this best reflects the Company’s progress in transferring control of the customized product to the customer.  The Company may also contract with a customer to perform installation services of digital display products.  Similar to the larger customized products, the Company recognizes the revenue associated with installation services using the input method, whereby the basis is the total contract costs incurred to date compared to the total expected costs to be incurred.

 

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Revenue on sales to distribution partners are recorded net of prompt-pay discounts, if offered, and other deductions.  To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method to which the Company expects to be entitled.  In the case of prompt-pay discounts, there are only two possible outcomes: either the customer pays on-time or does not.  Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.  Determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available.  The Company believes that the estimates it has established are reasonable based upon current facts and circumstances.  Applying different judgments to the same facts and circumstances could result in the estimated amounts to vary.  The Company offers an assurance-type warranty that the digital display products will conform to the published specifications.  Returns may only be made subject to this warranty and not for convenience.

 

Digital Product Lease and Maintenance

 

Digital product lease revenues represent revenues from leasing equipment that we own.  We do not generally provide an option for the lessee to purchase the rented equipment at the end of the lease and do not generate material revenue from sales of equipment under such options.  Our lease revenues do not include material amounts of variable payments.  Digital product maintenance revenues represent revenues from maintenance agreements for equipment that we do not own.  Lease and maintenance contracts generally run for periods of one month to 10 years.  A contract entered into by the Company with a customer may contain both lease and maintenance services (either or both services may be agreed upon based on the individual customer contract).  Maintenance services may consist of providing labor, parts and software maintenance as may be required to maintain the customer’s equipment in proper operating condition at the customer’s service location.  The Company concluded the lease and maintenance services represent a series of distinct services and the most representative method for measuring progress towards satisfying the performance obligation of these services is the input method.  Additionally, maintenance services require the Company to “stand ready” to provide support to the customer when and if needed.  As there is no discernable pattern of efforts other than evenly over the lease and maintenance terms, the Company will recognize revenue straight-line over the lease and maintenance terms of service.

 

The Company has an enforceable right to payment for performance completed to date, as evidenced by the requirement that the customer pay upfront for each month of services. Lease and maintenance service amounts billed ahead of revenue recognition are recorded in deferred revenue and are included in accrued liabilities in the Condensed Consolidated Financial Statements.

 

Revenues from equipment lease and maintenance contracts are recognized during the term of the respective agreements.  At June 30, 2021, the future minimum lease payments due to the Company under operating leases that expire at varying dates through 2028 for its rental equipment and maintenance contracts, assuming no renewals of existing leases or any new leases, aggregating $1,996,000 are as follows:  $375,000 – remainder of 2021, $516,000 – 2022, $365,000 – 2023, $292,000 – 2024, $200,000 – 2025 and $248,000 thereafter.

 

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Contract Balances with Customers

 

Contract assets primarily relate to rights to consideration for goods or services transferred to the customer when the right is conditional on something other than the passage of time.  The contract assets are transferred to the receivables when the rights become unconditional.  As of June 30, 2021 and December 31, 2020, the Company had no contract assets.  The contract liabilities primarily relate to the advance consideration received from customers for contracts prior to the transfer of control to the customer and therefore revenue is recognized on completion of delivery.  Contract liabilities are classified as deferred revenue by the Company and are included in customer deposits and accrued liabilities in the Condensed Consolidated Balance Sheets.

 

The following table presents the balances in the Company’s receivables and contract liabilities with customers:

 

In thousands

 

June 30, 2021

 

December 31, 2020

Gross receivables

 

$

2,297

 

$

2,042

Allowance for bad debts

 

474

 

 

660

Net receivables

 

 

1,823

 

 

1,382

Contract liabilities

 

 

481

 

 

618

 

During the three and six months ended June 30, 2021 and 2020, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods:

 

   

        Three months ended

 

Six months ended

In thousands

 

June 30, 2021

 

June 30, 2020

 

June 30, 2021

 

June 30, 2020

Revenue recognized in the period from:

 

 

 

 

 

 

 

 

 

 

 

 

Amounts included in the contract liability at the
   beginning of the period

 

$

121

 

$

28

 

$

484

 

$

82

Performance obligations satisfied in previous periods
   (for example, due to changes in transaction price)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Transaction Price Allocated to Future Performance Obligations – alternative more qualitative presentation

 

Remaining performance obligations represent the transaction price of contracts for which work has not been performed (or has been partially performed).  The guidance provides certain practical expedients that limit this requirement and, therefore, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.  As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations for digital product sales was $2.6 million and digital product lease and maintenance was $2.0 million.

 

The Company expects to recognize revenue on approximately 73%, 15% and 12% of the remaining performance obligations over the next 12 months, 13 to 36 months and 37 or more months, respectively.

 

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Costs to Obtain or Fulfill a Customer Contract

 

The Company capitalizes incremental costs of obtaining customer contracts.  Capitalized commissions are amortized based on the transfer of the products or services to which the assets relate.  Applying the practical expedient in paragraph 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.  These costs are included in General and administrative expenses.

 

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.  When shipping and handling costs are incurred after a customer obtains control of the products, the Company also has elected to account for these as costs to fulfill the promise and not as a separate performance obligation.  Shipping and handling costs associated with the distribution of finished products to customers are recorded in costs of goods sold and are recognized when the related finished product is shipped to the customer.

 

Note 4 – Inventories

 

Inventories consist of the following:

 

June 30

December 31

In thousands

 

2021

 

2020

Raw materials

 

$

864

 

$

1,124

Work-in-progress

263

324

Finished goods

 

 

13

 

 

94

 

 

$

1,140

 

$

1,542

 

Note 5 – Rental Equipment, net

 

Rental equipment consists of the following:

 

June 30

December 31

In thousands

 

2021

 

2020

Rental equipment

 

$

3,714

 

$

3,714

Less accumulated depreciation

 

3,181

 

3,058

Net rental equipment

 

$

533

 

$

656

 

Depreciation expense for rental equipment for the six months ended June 30, 2021 and 2020 was $123,000 and $143,000, respectively.  Depreciation expense for rental equipment for the three months ended June 30, 2021 and 2020 was $62,000 and $71,000, respectively.

 

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Note 6 – Property, Plant and Equipment, net

 

Property, plant and equipment consists of the following:

 

In thousands

 

June 30
2021

 

December 31
2020

Machinery, fixtures and equipment

 

$

2,923

 

$

2,923

Leaseholds and improvements

 

23

 

23

 

 

 

2,946

 

 

2,946

Less accumulated depreciation

 

877

 

 

746

Net property, plant and equipment

 

$

2,069

 

$

2,200

 

Machinery, fixtures and equipment having a net book value of $2.1 million and $2.2 million at June 30, 2021 and December 31, 2020, respectively, were pledged as collateral under various financing agreements.

 

Depreciation expense for property, plant and equipment for the six months ended June 30, 2021 and 2020 was $131,000 and $135,000, respectively.  Depreciation expense for property, plant and equipment for the three months ended June 30, 2021 and 2020 was $66,000 and $59,000, respectively.

 

Note 7 Long-Term Debt

 

Long-term debt consists of the following:

 

In thousands

June 30
2021

 

December 31
2020

 

8¼% Limited convertible senior subordinated notes due 2012

 

$

302

 

$

352

9½% Subordinated debentures due 2012

   

220

   

220

Revolving credit line

 

 

737

 

 

612

Term loans – related party

   

1,000

   

1,000

Term loan

 

 

811

 

 

811

Total debt

   

3,070

   

2,995

Less deferred financing costs and debt discount

 

 

116

 

 

180

Net debt

   

2,954

   

2,815

Less portion due within one year

 

 

2,954

 

 

2,546

Net long-term debt

 

$

 -

 

$

269

 

On September 16, 2019, the Company entered into a loan agreement (the “Loan Agreement”) with MidCap.  On June 3, 2020, March 23, 2021 and May 31, 2021, the Company and MidCap entered into modification agreements to the Loan Agreement.  Subsequent to the June 30, 2021, MidCap assigned the loan to Unilumin.  The Loan Agreement has a term of three years, unless earlier terminated by the parties in accordance with the termination provisions of the Loan Agreement.  The Loan Agreement allows the Company to borrow up to an aggregate of $4.0 million at an interest rate of the 3-month LIBOR interest rate plus 4.75% (7.93% at June 30, 2021) on a revolving credit loan based on accounts receivable, inventory and equipment for general working capital purposes.  As of June 30, 2021, the balance outstanding under the Loan Agreement was $737,000.  The Loan Agreement also requires the payment of certain fees, including a facility fee, an unused credit line fee and a collateral monitoring charge.  The Loan Agreement contains financial and other covenant requirements, including financial covenants that require the Company to attain certain EBITDA amounts for certain periods, including the six months ended June 30, 2021.  The Company was not in compliance with this covenant.  The Loan Agreement is secured by substantially all of the Company’s assets.

 

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On April 23, 2020, the Company entered into a loan note (the “Loan Note”) with Enterprise Bank and Trust (“Lender”) as lender under the CARES Act of the Small Business Administration of the United States of America (“SBA”), dated as of April 20, 2020.  Under the Loan Note, the Company borrowed $810,800 from Lender under the Paycheck Protection Program (“PPP”) included in the SBA’s CARES Act, all of which is outstanding as of June 30, 2021.  As of June 30, 2021, the Company had accrued $10,000 of interest related to the Loan Note, which is included in Accrued liabilities in the Consolidated Balance Sheets.  The Loan Note proceeds are forgivable as long as the Company uses the loan proceeds for eligible purposes including payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leave; rent; utilities; and maintains its payroll levels.  Certain employees were not retained by the Company, so the potential amount of loan forgiveness will be reduced.  The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1.00%, with a deferral of payments for the first six months.  While the Company believes that its use of the loan proceeds will meet the conditions of forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

 

The Company has a $500,000 loan from Carlisle Investments Inc. (“Carlisle”) at a fixed interest rate of 12.00%, which matured on April 27, 2019 with a bullet payment of all principal due at such time. Interest is payable monthly. Carlisle had agreed to not demand payment on the loan through at least December 31, 2020, and has not made any such demands as of the date of this filing. As of June 30, 2021, the entire amount was outstanding and is included in current portion of long-term debt in the Consolidated Balance Sheets.  As of June 30, 2021 and December 31, 2020, the Company had accrued $210,000 and $180,000, respectively, of interest related to this loan, which are included in accrued liabilities in the Condensed Consolidated Balance Sheets.  Marco Elser, a former director of the Company, exercises voting and dispositive power as investment manager of Carlisle.

 

The Company has an additional $500,000 loan from Carlisle at a fixed interest rate of 12.00%, which matured on December 10, 2017 with a bullet payment of all principal due at such time (the “Second Carlisle Agreement”).  Interest is payable monthly.  Carlisle had agreed to not demand payment on the loan through at least December 31, 2020, and has not made any such demands as of the date of this filing. As of June 30, 2021, the entire amount was outstanding and is included in current portion of long-term debt Consolidated Balance Sheets.  As of June 30, 2021 and December 31, 2020, the Company had accrued $210,000 and $180,000, respectively, of interest related to this loan, which are included in accrued liabilities in the Condensed Consolidated Balance Sheets.  Under the Second Carlisle Agreement, the Company granted a security interest to Carlisle in accounts receivable, materials and intangibles relating to a certain purchase order for equipment issued in April 2017.

 

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As of June 30, 2021 and December 31, 2020, the Company had outstanding $302,000 and $352,000, respectively, of Notes.  The Notes matured as of March 1, 2012 and are currently in default.  As of June 30, 2021 and December 31, 2020, the Company had accrued $295,000 and $329,000, respectively, of interest related to the Notes, which is included in Accrued liabilities in the Consolidated Balance Sheets.  The trustee, by notice to the Company, or the holders of 25% of the principal amount of the Notes outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately. On January 15, 2021, holders of $50,000 of the Notes accepted the Company’s offer to exchange each $1,000 of principal, forgiving any related interest, for $400 in cash, for an aggregate payment by the Company of $20,000.  As a result of the transaction, the Company recorded a gain on the extinguishment of debt, net of expenses, of $77,000 in the six months ended June 30, 2021.

 

As of June 30, 2021 and December 31, 2020, the Company had outstanding $220,000 of Debentures.  The Debentures matured as of December 1, 2012 and are currently in default.  As of June 30, 2021 and December 31, 2020, the Company had accrued $242,000 and $232,000, respectively, of interest related to the Debentures, which is included in Accrued liabilities in the Consolidated Balance Sheets.  The trustee, by notice to the Company, or the holders of 25% of the principal amount of the Debentures outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately.

 

Note 8 Pension Plan

 

As of December 31, 2003, the benefit service under the pension plan had been frozen and, accordingly, there is no service cost.  As of April 30, 2009, the compensation increments had been frozen and, accordingly, no additional benefits are being accrued under the pension plan.

 

The following table presents the components of net periodic pension cost for the three and six months ended June 30, 2021 and 2020:

 

Three months ended June 30

Six months ended June 30

In thousands

 

2021

 

2020

 

2021

 

2020

Interest cost

 

$

64

 

$

96

 

$

127

 

$

193

Expected return on plan assets

(210)

(204)

(420)

(407)

Amortization of net actuarial loss

 

 

80

 

 

71

 

 

160

 

 

141

Net periodic pension (benefit) expense

 

$

(66)

 

$

(37)

 

$

(133)

 

$

(73)

 

As of June 30, 2021 and December 31, 2020, the Company had recorded a current pension liability of $481,000 and $1.0 million, respectively, which is included in accrued liabilities in the Condensed Consolidated Balance Sheets, and a long-term pension liability of $4.0 million and $3.7 million, respectively, which is included in deferred pension liability and other in the Condensed Consolidated Balance Sheets.  The minimum required contribution in 2021 is expected to be $537,000, of which the Company has contributed $56,000 as of June 30, 2021.

 

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Note 9 Leases

 

The Company leases administrative and manufacturing facilities through operating lease agreements. The Company has no finance leases as of June 30, 2021.  Our leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common area or other maintenance costs). The facility leases include one or more options to renew.  The exercise of lease renewal options is typically at our sole discretion, therefore, the renewals to extend the lease terms are not included in our right of use (“ROU”) assets or lease liabilities as they are not reasonably certain of exercise.  We regularly evaluate the renewal options and, when they are reasonably certain of exercise, we include the renewal period in our lease term.

 

Operating leases result in the recognition of ROU assets and lease liabilities on the Condensed Consolidated Balance Sheets.  ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments.  Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments.  Most real estate leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more.  Lease expense is recognized on a straight-line basis over the lease term.  Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets.  The primary leases we enter into with initial terms of 12 months or less are for equipment.

 

Supplemental information regarding leases:

 

   

June 30

2021

In thousands, unless otherwise noted

 

Balance Sheet:

 

 

 

ROU assets

 

$

713

Current lease liabilities – operating

 

 

305

Non-current lease liabilities - operating

   

441

Total lease liabilities

 

 

746

Weighted average remaining lease term (years)

   

2.2

Weighted average discount rate

 

 

8.9%

Future minimum lease payments:

     

Remainder of 2021

 

$

186

2022

   

348

2023

 

 

295

Thereafter

 

 

 -

Total

 

 

829

Less: Imputed interest

 

 

83

Total lease liabilities

 

 

746

Less: Current lease liabilities

 

 

305

Long-term lease liabilities

 

$

441

 

Supplemental cash flow information regarding leases:

 

   

For the three months ended

June 30, 2021

 

For the six months ended

June 30, 2021

In thousands

  

   

Operating cash flow information:

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

92

 

$

184

Non-cash activity:

 

 

 

 

 

 

ROU assets obtained in exchange for lease liabilities

 

 

 -

 

 

 -

 

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Total operating lease expense and short-term lease expense was $190,000 and $3,000, respectively, for the six months ended June 30, 2021.  Total operating lease expense and short-term lease expense was $96,000 and $1,000, respectively, for the three months ended June 30, 2021.  Total operating lease expense and short-term lease expense was $195,000 and $36,000, respectively, for the six months ended June 30, 2020.  Total operating lease expense and short-term lease expense was $94,000 and $18,000, respectively, for the three months ended June 30, 2020.

 

Note 10 – Stockholders’ Deficit and Loss Per Share

 

The following table presents the calculation of loss per share for the three and six months ended June 30, 2021 and 2020:

 

Three months ended June 30

Six months ended June 30

In thousands, except per share data

 

2021

 

2020

 

2021

 

2020

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss, as reported

$

(1,175)

 

$

(1,353)

 

$

(1,796)

 

$

(2,396)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

13,643

 

 

13,696

 

 

13,670

 

 

13,696

Basic and diluted loss per share

 

$

(0.09)

 

$

(0.10)

 

$

(0.13)

 

$

(0.17)

 

Basic loss per common share is computed by dividing net loss attributable to common shares by the weighted average number of common shares outstanding for the period.  Diluted loss per common share is computed by dividing net loss attributable to common shares, by the weighted average number of common shares outstanding, adjusted for shares that would be assumed outstanding after warrants and stock options vested under the treasury stock method.

 

As of June 30, 2021, the Company did not have any warrants to purchase shares of Common Stock outstanding which were included in the calculation of basic loss per share because their exercise price was less than the average stock price for the period.  As of June 30, 2020, the Company had warrants to purchase 250,000 shares of Common Stock outstanding which were included in the calculation of basic loss per share because their exercise price was less than the average stock price for the period so their inclusion was dilutive.  As of June 30, 2021 and 2020, the Company had other warrants to purchase 1.6 million and 500,000 shares, respectively, of Common Stock outstanding, which were excluded from the calculation of diluted loss per share because their exercise price was greater than the average stock price for the period and their inclusion would have been anti-dilutive.

 

Note 11 – Contingencies

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business and/or which are covered by insurance.  The Company has accrued reserves individually and in the aggregate for such legal proceedings.  Should actual litigation results differ from the Company’s estimates, revisions to increase or decrease the accrued reserves may be required.  There are no open matters that the Company deems material.

 

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Note 12 Related Party Transactions

 

The Company has the following related party transactions:

 

As of June 30, 2021, Unilumin owns 52.0% of the Company’s Common Stock and beneficially owns 53.7% of the Company’s Common Stock.  Nicholas J. Fazio, Yang Liu and Yantao Yu, each directors and/or officers of the Company, are each directors and/or officers of Unilumin.  The Company purchased $596,000 and $189,000 of product from Unilumin in the six months ended June 30, 2021 and 2020, respectively, and $480,000 and $156,000 in the three months ended June 30, 2021 and 2020, respectively.  The amount payable by the Company to Unilumin was $1.4 million and $231,000 as of June 30, 2021 and December 31, 2020, respectively. As disclosed in Note 7, the Loan Agreement with MidCap, including all right and responsibilities, was assigned to Unilumin subsequent to June 30, 2021.

 

Note 13 Business Segment Data

 

Operating segments are based on the Company’s business components about which separate financial information is available and are evaluated regularly by the Company’s chief operating decision makers in deciding how to allocate resources and in assessing performance of the business.

 

The Company evaluates segment performance and allocates resources based upon operating income (loss). The Company’s operations are managed in two reportable business segments: Digital product sales and Digital product lease and maintenance.  Both design and produce large-scale, multi-color, real-time digital displays.  Both operating segments are conducted on a global basis, primarily through operations in the United States.  The Company also has operations in Canada.  The Digital product sales segment sells equipment and the Digital product lease and maintenance segment leases and maintains equipment.  Corporate general and administrative items relate to costs that are not directly identifiable with a segment.  There are no intersegment sales.

 

Foreign revenues represent less than 10% of the Company’s revenues in the six months ended June 30, 2021 and 2020.  The Company’s foreign operation does not manufacture its own equipment; the domestic operation provides the equipment that the foreign operation leases or sells.  The foreign operation operates similarly to the domestic operation and has similar profit margins.  Foreign assets are immaterial.

 

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Information about the Company’s operations in its two business segments for the three and six months ended June 30, 2021 and 2020 is as follows:

 

   

Three months ended June 30

 

Six months ended June 30

In thousands

 

2021

 

2020

 

2021

 

2020

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Digital product sales

 

$

2,396

 

$

1,518

 

$

4,489

 

$

2,852

Digital product lease and maintenance

 

 

491

 

 

531

 

 

984

 

 

1,110

Total revenues

 

$

2,887

 

$

2,049

 

$

5,473

 

$

3,962

Operating (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Digital product sales

 

$

(1,095)

 

$

(912)

 

$

(1,721)

 

$

(1,894)

Digital product lease and maintenance

 

 

323

 

 

366

 

 

642

 

 

728

Corporate general and administrative expenses

 

 

(271)

 

 

(594)

 

 

(584)

 

 

(1,141)

Total operating loss

 

 

(1,043)

 

 

(1,140)

 

 

(1,663)

 

 

(2,307)

Interest expense, net

   

(157)

   

(155)

   

(260)

   

(263)

(Loss) gain on foreign currency remeasurement

 

 

(36)

 

 

(89)

 

 

(72)

 

 

113

Gain on debt extinguishment

   

 -

   

 -

   

77

   

 -

Pension benefit

 

 

67

 

 

37

 

 

134

 

 

73

Loss before income taxes

   

(1,169)

   

(1,347)

   

(1,784)

   

(2,384)

Income tax expense

 

 

(6)

 

 

(6)

 

 

(12)

 

 

(12)

Net loss

 

$

(1,175)

 

$

(1,353)

 

$

(1,796)

 

$

(2,396)

 

   

June 30

2021

 

December 31

2020

   

 

Assets

 

 

 

 

 

 

Digital product sales

 

$

5,099

 

$

5,231

Digital product lease and maintenance

 

 

1,461

 

 

1,781

Total identifiable assets

   

6,560

   

7,012

General corporate

 

 

43

 

 

43

Total assets

 

$

6,603

 

$

7,055

 

Note 14 Subsequent Events

 

The Company has evaluated events and transactions subsequent to June 30, 2021 and through the date these Condensed Consolidated Financial Statements were included in this Form 10-Q and filed with the SEC.

 

As disclosed in Note 7, the Loan Agreement with MidCap, including all right and responsibilities, was assigned to Unilumin subsequent to June 30, 2021.

 

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

 

Overview

 

Trans-Lux is a leading supplier of LED technology for display applications.  The essential elements of these systems are the real-time, programmable digital products that we design, manufacture, distribute and service.  Designed to meet the digital signage solutions for any size venue’s indoor and outdoor needs, these displays are used primarily in applications for the financial, banking, gaming, corporate, advertising, transportation, entertainment and sports markets.  The Company operates in two reportable segments: Digital product sales and Digital product lease and maintenance.

 

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The Digital product sales segment includes worldwide revenues and related expenses from the sales of both indoor and outdoor digital product signage.  This segment includes the financial, government/private, gaming, scoreboards and outdoor advertising markets.  The Digital product lease and maintenance segment includes worldwide revenues and related expenses from the lease and maintenance of both indoor and outdoor digital product signage.  This segment includes the lease and maintenance of digital product signage across all markets.

 

Results of Operations

 

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

 

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the six months ended June 30, 2021 and 2020:

 

 

Six months ended June 30

In thousands, except percentages

2021

 

2020

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Digital product sales

$

4,489

 

82.0

%

 

$

2,852

 

72.0

%

Digital product lease and maintenance

 

      984

 

18.0

%

 

 

    1,110

 

28.0

%

Total revenues

 

   5,473

 

100.0

%

 

 

    3,962

 

100.0

%

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

Cost of digital product sales

 

   5,276

 

96.4

%

   

    3,706

 

93.5

%

Cost of digital product lease and maintenance

 

      317

 

5.8

%

 

 

       325

 

8.2

%

Total cost of revenues

 

   5,593

 

102.2

%

 

 

    4,031

 

101.7

%

Gross loss

 

     (120)

 

(2.2)

%

 

 

       (69)

 

(1.7)

%

General and administrative and restructuring expenses

 

  (1,543)

 

(28.2)

%

 

 

  (2,238)

 

(56.5)

%

Operating loss

 

  (1,663)

 

(30.4)

%

 

 

  (2,307)

 

(58.2)

%

Interest expense, net

 

     (260)

 

(4.7)

%

   

     (263)

 

(6.6)

%

(Loss) gain on foreign currency remeasurement

 

       (72)

 

(1.3)

%

 

 

       113

 

2.8

%

Gain on extinguishment of debt

 

         77

 

1.4

%

 

 

           -

 

-

%

Pension benefit

 

       134

 

2.4

%

 

 

         73

 

1.8

%

Loss before income taxes

 

  (1,784)

 

(32.6)

%

   

  (2,384)

 

(60.2)

%

Income tax expense

 

       (12)

 

(0.2)

%

 

 

       (12)

 

(0.3)

%

Net loss

$

 (1,796)

 

(32.8)

%

 

$

(2,396)

 

(60.5)

%

 

Total revenues for the six months ended June 30, 2021 increased $1.5 million or 38.1% to $5.5 million from $4.0 million for the six months ended June 30, 2020, primarily due to an increase in Digital product sales.

 

Digital product sales revenues increased $1.6 million or 57.4% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to an increase in the sports market, principally due to the reduced sales revenues in 2020 due to the onset and uncertainty of the coronavirus.

 

Digital product lease and maintenance revenues decreased $126,000 or 11.4% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s.  The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications.

 

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Total operating loss for the six months ended June 30, 2021 decreased $644,000 or 27.9% to $1.7 million from $2.3 million for the six months ended June 30, 2020, principally due to the increase in revenues.

 

Digital product sales operating loss decreased $173,000 to $1.7 million for the six months ended June 30, 2021 compared to $1.9 million for the six months ended June 30, 2020, primarily due to the increase in revenues and a decrease in the cost of revenue as a percentage of revenues.  The cost of Digital product sales increased $1.6 million or 42.4%, primarily due to the increase in revenues.  The cost of Digital product sales represented 117.5% of related revenues in 2021 compared to 129.9% in 2020.  This decrease as a percentage of revenues is primarily due to greater volume of revenues.  General and administrative expenses for Digital product sales decreased $106,000 or 10.2%, primarily due to decreases in employees’ expenses, partially offset by an increase in consulting expenses.

 

Digital product lease and maintenance operating income decreased $86,000 or 11.8% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily as a result of the decrease in revenues, partially offset by a decrease in general and administrative expenses.  The cost of Digital product lease and maintenance decreased $8,000 or 2.5%, primarily due to a decrease in depreciation expense, partially offset by an increase in employees’ expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus.  The cost of Digital product lease and maintenance revenues represented 32.2% of related revenues in 2021 compared to 29.3% in 2020.  The cost of Digital product lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.  General and administrative expenses for Digital product lease and maintenance decreased $32,000 or 56.1%, primarily due to a reduction in employees’ expenses.

 

Corporate general and administrative expenses decreased $557,000 or 48.8% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to reductions in employees’ expenses and legal, rent and insurance expenses.

 

Net interest expense decreased $3,000 or 1.1% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to a decrease in interest rates.

 

The effective tax rate for the six months ended June 30, 2021 and 2020 was 0.7% and 0.5%, respectively.  Both the 2021 and 2020 tax rates are being affected by the valuation allowance on the Company’s deferred tax assets as a result of reporting pre-tax losses.

 

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Table of Contents


Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

 

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the three months ended June 30, 2021 and 2020:

 

 

Three months ended June 30

In thousands, except percentages

2021

 

2020

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Digital product sales

$

2,396

 

83.0

%

 

$

   1,518

 

74.1

%

Digital product lease and maintenance

 

     491

 

17.0

%

 

 

        531

 

25.9

%

Total revenues

 

   2,887

 

100.0

%

 

 

     2,049

 

100.0

%

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

Cost of digital product sales

 

    3,022

 

104.7

%

   

     2,003

 

97.7

%

Cost of digital product lease and maintenance

 

       164

 

5.7

%

 

 

       139

 

6.8

%

Total cost of revenues

 

    3,186

 

110.4

%

 

 

    2,142

 

104.5

%

Gross loss

 

     (299)

 

(10.4)

%

 

 

         (93)

 

(4.5)

%

General and administrative and restructuring expenses

 

     (744)

 

(25.7)

%

 

 

  (1,047)

 

(51.1)

%

Operating loss

 

  (1,043)

 

(36.1)

%

 

 

  (1,140)

 

(55.6)

%

Interest expense, net

 

     (157)

 

(5.5)

%

   

     (155)

 

(7.6)

%

Loss on foreign currency remeasurement

 

       (36)

 

(1.2)

%

 

 

       (89)

 

(4.3)

%

Pension benefit

 

        67

 

2.3

%

 

 

         37

 

1.8

%

Loss before income taxes

 

  (1,169)

 

(40.5)

%

   

  (1,347)

 

(65.7)

%

Income tax expense

 

         (6)

 

(0.2)

%

 

 

         (6)

 

(0.3)

%

Net loss

$

(1,175)

 

(40.7)

%

 

$

 (1,353)

 

   (66.0)

%

 

Total revenues for the three months ended June 30, 2021 increased $838,000 or 40.9% to $2.9 million from $2.0 million for the three months ended June 30, 2020, primarily due to an increase in Digital product sales.

 

Digital product sales revenues increased $878,000 or 57.8% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to an increase in the sports market, principally due to the reduced sales revenues in 2020 due to the onset and uncertainty of the coronavirus.

 

Digital product lease and maintenance revenues decreased $40,000 or 7.5% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s.  The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications.

 

Total operating loss for the three months ended June 30, 2021 decreased $97,000 to $1.0 million from $1.1 million for the three months ended June 30, 2020, principally due to a decrease in corporate general and administrative expenses.

 

Digital product sales operating loss increased $183,000 to $1.1 million for the three months ended June 30, 2021 compared to $912,000 for the three months ended June 30, 2020, primarily due to an increase in the cost of revenue as a percentage of revenues.  The cost of Digital product sales increased $1.0 million or 50.9%, primarily due to the increase in revenues.  The cost of Digital product sales represented 126.1% of related revenues in 2021 compared to 131.9% in 2020.  This decrease as a percentage of revenues is primarily due to the greater volume of revenues.  General and administrative expenses for Digital product sales decreased $42,000 or 9.8%, primarily due to a decrease in employees’ expenses, partially offset by increases in consulting expenses and bad debt expenses.

 

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Digital product lease and maintenance operating income decreased $43,000 or 11.7% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily as a result of an increase in the cost of Digital product lease and maintenance and the decrease in revenues, partially offset by a decrease in general and administrative expenses.  The cost of Digital product lease and maintenance increased $25,000 or 18.0%, primarily due to an increase in service agents and employees’ expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus, partially offset by a decrease in depreciation expense.  The cost of Digital product lease and maintenance revenues represented 33.4% of related revenues in 2021 compared to 26.2% in 2020.  The cost of Digital product lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.  General and administrative expenses for Digital product lease and maintenance decreased $22,000 or 84.6%, primarily due to decreases in bad debt expenses and employees’ expenses.

 

Corporate general and administrative expenses decreased $323,000 or 54.4% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to reductions in employees’ expenses and legal, rent and insurance expenses.

 

Net interest expense increased $2,000 or 1.3% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a decrease in interest rates.

 

The effective tax rate for the three months ended June 30, 2021 and 2020 was 0.5% and 0.4%, respectively.  Both the 2021 and 2020 tax rates are being affected by the valuation allowance on the Company’s deferred tax assets as a result of reporting pre-tax losses.

 

Liquidity and Capital Resources

 

Current Liquidity

 

The Company has incurred significant recurring losses and continues to have a significant working capital deficiency.  The Company incurred a net loss of $1.8 million in the six months ended June 30, 2021 and had a working capital deficiency of $7.7 million as of June 30, 2021.  As of December 31, 2020, the Company had a working capital deficiency of $6.3 million.  The working capital deficiency increased primarily due to decreases in inventories and prepaids and other assets, as well as increases in accounts payable and current portion of long-term debt, offset by an increase in receivables, as well as decreases in accrued liabilities and customer deposits.

 

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The Company is dependent on future operating performance in order to generate sufficient cash flows in order to continue to run its businesses.  Future operating performance is dependent on general economic conditions, as well as financial, competitive and other factors beyond our control, including the impact of the current economic environment, the spread of major epidemics (including coronavirus) and other related uncertainties such as government imposed travel restrictions, interruptions to supply chains, extended shut down of businesses and the impact of inflation.  In order to more effectively manage its cash resources, the Company had, from time to time, increased the timetable of its payment of some of its payables, which delayed certain product deliveries from our vendors, which in turn delayed certain deliveries to our customers.

 

There is substantial doubt as to whether we will have adequate liquidity, including access to the debt and equity capital markets, to operate our business over the next 12 months from the date of issuance of this Form 10-Q.  The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements and fund potential new opportunities.

 

The Company used cash of $106,000 and $1.5 million from operating activities for the six months ended June 30, 2021 and 2020, respectivelyThe Company has implemented several initiatives to improve operational results and cash flows over future periods, including reducing head count, reorganizing its sales department and outsourcing certain administrative functions.  The Company continues to explore ways to reduce operational and overhead costs.  The Company periodically takes steps to reduce the cost to maintain the digital products on lease and maintenance agreements.

 

Cash, cash equivalents and restricted cash remained level in the six months ended June 30, 2021 as compared to the balance of $43,000 at December 31, 2020.  The fluctuations are primarily attributable to net borrowings on the revolving loan of $125,000, partially offset by cash used in operating activities of $106,000.  The current economic environment has increased the Company’s trade receivables collection cycle, and its allowances for uncollectible accounts receivable, but collections continue to be favorable.

 

Under various agreements, the Company is obligated to make future cash payments in fixed amounts.  These include payments under the Company’s current and long-term debt agreements, pension plan minimum required contributions, employment agreement payments and rent payments required under operating lease agreements.  The Company has both variable and fixed interest rate debt.  Interest payments are projected based on actual interest payments incurred in 2021 until the underlying debts mature.

 

The following table summarizes the Company’s fixed cash obligations as of June 30, 2021 for the remainder of 2021 and over the next four fiscal years:

 

In thousands

Remainder of
2021

 

2022

 

2023

 

2024

 

2025

Long-term debt, including interest

$

3,499

 

$

542

 

$

-

 

$

   -

 

$

-

Pension plan payments

326

406

355

248

114

Estimated warranty liability

79

124

81

56

27

Operating lease payments

 

195

 

 

348

 

 

309

 

 

-

 

 

-

Total

$

4,099

 

$

1,420

 

$

745

 

$

304

 

$

141

 

As of June 30, 2021, the Company had outstanding $302,000 of Notes which matured as of March 1, 2012.  The Company also had outstanding $220,000 of Debentures which matured on December 1, 2012.  The Company continues to consider future exchanges of the Notes and Debentures, but has no agreements, commitments or understandings with respect to any further such exchanges.

 

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Table of Contents

 

The Company may still seek additional financing in order to provide enough cash to cover our remaining current fixed cash obligations as well as providing working capital.  However, there can be no assurance as to the amounts, if any, the Company will receive in any such financing or the terms thereof.  The Company has no agreements, commitments or understandings with respect to any such financings.  To the extent the Company issues additional equity securities, it could be dilutive to existing shareholders.

 

For a further description of the Company’s long-term debt, see Note 7 to the Condensed Consolidated Financial Statements – Long-Term Debt.

 

Pension Plan Contributions

 

The minimum required pension plan contribution for 2021 is expected to be $537,000, of which the Company has already contributed $56,000 as of June 30, 2021.  See Note 8 to the Condensed Consolidated Financial Statements – Pension Plan for further details.

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

 

The Company may, from time to time, provide estimates as to future performance.  These forward-looking statements will be estimates and may or may not be realized by the Company.  The Company undertakes no duty to update such forward-looking statements.  Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company’s products, interest rate and foreign exchange fluctuations, the impact of inflation, terrorist acts and war.

 

Item 3.             Quantitative and Qualitative Disclosures about Market Risk

 

The Company is subject to interest rate risk on its long-term debt.  The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt.  The fair value of the Company’s fixed rate long-term debt is disclosed in Note 7 to the Condensed Consolidated Financial Statements – Long-Term Debt.  Every 1-percentage-point change in interest rates would result in an annual interest expense fluctuation of approximately $7,000.  In addition, the Company is exposed to foreign currency exchange rate risk mainly as a result of its investment in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the U.S. dollar would result in a currency remeasurement expense fluctuation of approximately $275,000, based on dealer quotes, considering current exchange rates.  The Company does not enter into derivatives for trading or speculative purposes and did not hold any derivative financial instruments at June 30, 2021.

 

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Table of Contents


Item 4.             Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.  As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Accounting Officer (our principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures.  Our Chief Executive Officer and Chief Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management (including our Chief Executive Officer and our Chief Accounting Officer) to allow timely decisions regarding required disclosures.  Based on such evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that these disclosure controls are effective as of June 30, 2021.

 

Changes in Internal Control over Financial Reporting.  There has been no change in the Company’s internal control over financial reporting that occurred in the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II – Other Information

 

Item 1.             Legal Proceedings

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business and/or which are covered by insurance.  The Company has accrued reserves individually and in the aggregate for such legal proceedings.  Should actual litigation results differ from the Company’s estimates, revisions to increase or decrease the accrued reserves may be required.  There are no open matters that the Company deems material.

 

Item 1A.          Risk Factors

 

The Company is subject to a number of risks including general business and financial risk factors.  Any or all of such factors could have a material adverse effect on the business, financial condition or results of operations of the Company.  You should carefully consider the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Item 2.             Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

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Table of Contents

 

Item 3.             Defaults upon Senior Securities

 

As disclosed in Note 7 to the Condensed Consolidated Financial Statements – Long-Term Debt, the Company had outstanding $302,000 of Notes which are no longer convertible into common shares.  The Notes matured as of March 1, 2012 and are currently in default.  As of June 30, 2021 and December 31, 2020, the Company had accrued $295,000 and $329,000, respectively, of interest related to the Notes, which is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

 

As disclosed in Note 7 to the Condensed Consolidated Financial Statements – Long-Term Debt, the Company has outstanding $220,000 of Debentures.  The Debentures matured as of December 1, 2012 and are currently in default.  As of June 30, 2021 and December 31, 2020, the Company had accrued $242,000 and $232,000, respectively, of interest related to the Debentures, which is included in accrued liabilities in the Condensed Consolidated Balance Sheets.  The trustee, by notice to the Company, or the holders of 25% of the principal amount of the Debentures outstanding, by notice to the Company and the trustee, may declare the outstanding principal plus interest due and payable immediately.

 

Item 4.             Mine Safety Disclosures

 

Not applicable.

 

Item 5.             Other Information

 

On August 2, 2021, the Company appointed Yantao Yu to be the Company’s Chief Operating Officer.  Mr. Yu, 45, has served as an independent director of the Company since July 30, 2019.  Mr. Yu has been the Chief Financial Officer of subsidiaries of the Unilumin Group Co. Ltd. in the United States, since September 2018. During the last two years, other than the Company’s transactions with Unilumin, there have been no transactions or proposed transactions by the Company in which Mr. Yu has had or is to have a direct or indirect material interest, and there are no family relationships between Mr. Yu and any of the Company’s other executive officers or directors.

 

Item 6.             Exhibits

 

10.1     Modification Agreement to the Loan Agreement with MidCap Business Credit LLC dated as of May 31, 2021, filed herewith.

 

10.2     Assignment Without Recourse of Loan Agreement with MidCap Business Credit LLC to Unilumin USA dated as of July 30, 2021, filed herewith.

 

31.1     Certification of Nicholas J. Fazio, Interim Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

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Table of Contents

 

31.2     Certification of Todd Dupee, Senior Vice President and Chief Accounting Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

32.1     Certification of Nicholas J. Fazio, Interim Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

32.2     Certification of Todd Dupee, Senior Vice President and Chief Accounting Officer,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

27


Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TRANS-LUX CORPORATION

(Registrant)

by 

/s/  Nicholas J. Fazio

Nicholas J. Fazio

Chief Executive Officer

by 

 /s/  Todd Dupee

Todd Dupee

Senior Vice President and

Chief Accounting Officer

 

 

 

Date:  August 13, 2021

 

28

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Exhibit 10.1

 

FORBEARANCE AGREEMENT

 

            THIS AGREEMENT is made as of May 31, 2021 by and among MidCap Business Credit LLC, a Texas limited liability company ("Lender"), Trans-Lux Corporation, a Delaware corporation ("Trans-Lux"), Fairplay Corporation, an Iowa corporation ("Fairplay", and together with Trans-Lux the "Borrowers" and each a "Borrower"), together with guarantors Trans-Lux Canada Ltd., a Canadian corporation, Trans-Lux Energy Corporation, a Connecticut corporation,  Trans-Lux Display Corporation, a Delaware corporation, and Trans-Lux Investment Corporation, a Delaware corporation, (collectively, the "Guarantors" and each a "Guarantor"; and together with Borrowers, jointly, severally and collectively, "Obligors" and each an "Obligor"). As noted below, terms not otherwise defined herein shall have the meanings ascribed in the Loan Agreement and the Modification Agreement, as defined below.

 

            WHEREAS, the Obligors entered into certain loan arrangements (the "Obligations") with the Lender evidenced by various documents including without limitation a Secured Revolving Time Note dated September 16, 2019 from the Borrowers to the Lender in the maximum principal amount of $4,000,000.00 (as amended, and as restated from time to time, the "Revolving Note"), said Obligations being secured by a blanket first security interest in all assets of all the Obligors pursuant to a Loan and Security Agreement (All Assets) also dated September 16, 2019 by and among the Obligors and the Lender (as amended, and as restated from time to time, the "Loan Agreement").

 

            WHEREAS, the Guarantors each executed and delivered to Lender Unlimited Guarantees dated September 16, 2019 (each, a "Guaranty" and collectively, the "Guarantees"; and, together with the Loan Agreement, Revolving Note, and any other documents evidencing the Obligations, the "Loan Documents") guarantying any and all liabilities, debts and obligations of Borrowers to Lender now existing or hereafter arising, including without limitation the Obligations, said Guarantees being secured by a blanket first security interest in all assets of the Guarantors further to the Loan Agreement as outlined above; and

 

1


 

WHEREAS, the Loan Agreement was previously amended by a Modification Agreement dated as of June 3, 2020, among the Lender and the Obligors (the "Modification Agreement") whereby the Lender: (i) waived Events of Default resulting from the Borrowers consolidated EBITDA being less than $220,000.00 for the six month period ending March 31, 2020 as required under Section 8(l) of the Loan Agreement, and the Borrowers’ acknowledged  material adverse change in the business and financial condition of the Borrowers; (ii) assented to the Borrowers entering into the Contract Manufacturing Agreement and Fairplay entering into the Security Agreement with Craftsmen; (iii) modified the Borrowing Base implementing the $250,000 Availability Block; (iv) modified and relaxed the Minimum EBITDA covenant per Borrowers request; and

 

WHEREAS, the Loan Agreement was further amended by a Second Modification Agreement dated as of December 16, 2020, among the Lender and the Obligors whereby the Lender agreed to: (i) waive an Event of Default resulting from the Borrowers permitting their consolidated EBITDA to be less than  $250,000.00 for the three month period ending September 30, 2020, (ii) continue to make Revolving Loans to the Borrowers on a discretionary basis in accordance with the Loan Agreement; and (iii) modify the Minimum EBITDA Covenant by eliminating the covenant test for the six month period ending December 31, 2020; and

 

WHEREAS,  in consideration of the Lender entering into the Modification Agreement with the Obligors, Nicholas Fazio executed and delivered to the Lender a work through agreement  dated June 4, 2020 (the "Work Through Agreement") agreeing to render assistance in connection with any liquidation of the Collateral, all as more full set forth therein; and

 

            WHEREAS, new Events of Default have occurred and are continuing under the Loan Agreement and the other Loan Documents as a result of, among other things, (i) the failure of the Borrowers to achieve consolidated EBITDA of at least $100,000.00 for the three month period ending March 31, 2021, as required under Section 8(l) of the Loan Agreement, which failure constitutes an Event of Default pursuant to Section 11(ii) of the Loan Agreement (the “Financial Covenant Default”), (ii) the Borrowers’ incurrence of certain additional indebtedness pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116–136 (2020), as amended, in violation of Section 8(f) of the Loan Agreement, which violation constitutes an Event of Default pursuant to Section 11(ii) of the Loan Agreement, and (iii) the failure of the Borrowers to extend the Carlisle Debt in form reasonably satisfactory to Lender on or before December 1, 2020, which failure constitutes an Event of Default pursuant to Section 11(xxi) of the Loan Agreement (together with the Financial Covenant Default, the "Existing Defaults");

 

            WHEREAS, on May 21, 2021, the Lender sent a Notice of Default to the Obligors, via Federal Express, notifying such Obligors of the Financial Covenant Default, implementing the Default Rate effective as of March 31, 2021, and reserving all of its rights and remedies;

 

            WHEREAS, the Obligors have requested that the Lender temporarily forbear from acting on the Existing Defaults and continue making advances on a discretionary basis through August 31, 2021 in order to permit the Borrowers sufficient time to refinance the Obligations; and

 

            WHEREAS, the Lender is so willing, but only upon the terms and conditions outlined herein below, and while expressly reserving all rights and remedies in connection with the Existing Defaults as expressly outlined herein,

           

            NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the Obligors and the Lender hereby stipulate, covenant and agree as follows:

 

1.                  Defined Terms.  Each capitalized term or phrase used herein and not defined herein shall have the meaning ascribed thereto in the Loan Agreement.

 

2


 

2.                  Recitals.   The Obligors agree that the Recitals are correct and are adopted by the parties and incorporated herein.

 

3.                  Current Indebtedness. The Obligors hereby acknowledge, ratify and confirm their respective liabilities to the Lender for repayment of the Obligations pursuant to the Loan Documents, including without limitation any and all unpaid principal and accrued interest, late charges, fees and other costs of collection, including without limitation attorneys' fees and expenses incurred or to be incurred in connection therewith.  As of May 26, 2021 the principal amount outstanding under the Loan Documents is $428,926.46 plus accrued and unpaid interest, fees (including attorneys’ fees), costs and all other amounts due thereunder. The Obligors acknowledge, agree and confirm that any interest, attorneys' fees and costs of collection will continue to accrue and be incurred during the term of this Agreement and thereafter.

 

4.                  Acknowledgement of Existing Defaults.  The Obligors expressly acknowledge the existence of the Existing Defaults. Each of the Obligors hereby represents and warrants that no Event of Default or failure of condition exists, or would exist with notice or lapse of time or both under any of the Loan Documents, other than the Existing Defaults.

 

5.                  Waiver of Defenses and Claims.  Each of the Obligors represents and warrants that it has no defenses, setoffs or counterclaims to the payment of its liabilities and Obligations to the Lender.  To the extent any such defenses, setoffs, counterclaims ever existed, they are hereby waived and the Lender is released, remised and forever discharged from any and all claims now existing or hereafter arising of each and all of the Obligors in consideration of the Lender's agreements contained herein.  Each of the Obligors also hereby releases the Lender together with its officers, agents, counsel, successors or assigns, from any and all claims or causes of action it may have against such parties, whether known or unknown, contingent or otherwise, as of the date hereof.

 

6.                  Validity of Documents.  Each of the Obligors acknowledges and agrees that:

 

(a)                the liabilities arising out of the Loan Documents are the respective legal, valid and binding obligations of each of the Obligors;

(b)               the liens, encumbrances and security interests granted to the Lender pursuant to the Loan Documents remain valid, perfected and enforceable; and

(c)                Except to the extent the Lender has agreed to limit its rights thereto pursuant to this Agreement, (i) the Lender may enforce the payment and performance of all obligations of the Obligors under the Loan Documents, and (ii) the Lender reserves and does not waive any of the rights under the Loan Documents, the terms and conditions of which remain in full force and effect except as specifically modified herein.

3


7.                  Negative Covenants. The Obligors hereby agree that, they will not, without the prior written consent of the Lender, sell, convey or otherwise dispose of any of their property other than customary sales or transfers in the ordinary course, nor directly or indirectly create, incur, assume or suffer to exist any mortgage, lien, charge or encumbrance on, or security interest in, or pledge of, or conditional sale or other title retention agreement with respect to any property or asset now owned or hereafter acquired by the Borrowers, except for any lien securing any indebtedness to the Lender and except as noted herein.  The Obligors also agree not to loan, transfer, outside of the ordinary course of business, or give money to any other party and/or to each other, except to pay an obligation to the Lender.

 

8.                  The Lender's Forbearance.  The Lender agrees to forbear from acting on the Existing Defaults until the earliest to occur of the following (collectively, the "Termination Events" and individually a "Termination Event"):

 

(a)                If the Borrowers shall fail to make any payments to the Lender when due; or

(b)               If the Borrowers shall fail to comply with or perform, or shall breach or violate, any warranty, representation, covenant, agreement, prohibition, restriction or condition contained herein or in the Loan Documents, including without limitation the occurrence of any further Event of Default other than the Existing Defaults; or

(c)                If by order of a court of competent jurisdiction, a trustee, receiver or liquidator of property of the Borrowers shall be appointed; or

(d)               If either Borrower shall file a petition in bankruptcy or for reorganization, or if, by decree of a court of competent jurisdiction, either Borrower shall be adjudicated a bankrupt, or be declared insolvent, or shall make an assignment of the benefit of creditors, or shall admit in writing its inability to generally pay its debts as they become due and payable, or shall consent to the appointment of a receiver or receivers; or

(e)                 If any of the creditors of the Borrowers shall file a petition in bankruptcy against either Borrower or for reorganization of such Borrower if not dismissed within forty-five days; or

(f)        August 31, 2021.

 

9.                  Terms of Forbearance.  The Lender's forbearance is subject to the following terms and conditions:

 

(a)                Notwithstanding the Existing Defaults, the Lender may, in its sole discretion, continue to make Revolving Loans to the Borrowers on a discretionary basis in accordance with the Loan Agreement. To the extent that the Lender determines to make any such additional Revolving Loans, such advances shall be subject to an additional availability block pursuant to which Availability under the Borrowing Base shall reduce by an additional Ten Thousand ($10,000.00) Dollars on each Friday that this Agreement is in effect, commencing on Friday, June 4, 2021 and continuing on Friday of each week thereafter (the "Additional Availability Block"). By way of example, on Friday, June 4, 2021, Availability will be reduced to $10,000.00 less than it would otherwise be pursuant to the terms of the Loan Agreement; on Friday, June 11, 2021, Availability will be reduced to $20,000.00 less than it would otherwise be pursuant to the terms of the Loan Agreement, and so on. Implementation of the Availability Block shall not, in any way, limit the Lender’s ability to establish additional reserves or such other amounts that the Lender may from time to time establish and adjust in reducing the amount available for borrowing under the Loan Agreement.

4


(b)               Pursuant to Section 16(b) of the Loan Agreement, in light of the Existing Defaults, the Borrowers shall pay to the Lender, upon the earliest Termination Event to occur,  a termination fee (the “Termination Fee”) in an amount equal to Eighty Thousand ($80,000.00) Dollars which Termination Fee shall be deemed earned in full upon execution of this Agreement.  Notwithstanding the foregoing, the Lender will agree to reduce the Termination Fee to $40,000 provided that all of the obligations are indefeasibly paid in full on or before August 31, 2021 and no prior Termination Event has occurred.

10.              Enforcement of Loan Documents.  Except for the Lender's agreement to forbear from foreclosing its collateral as set forth above, nothing in this Agreement and no action taken pursuant hereto, shall be deemed to prevent, impair or limit the Lender 's rights against the Obligors or under the Loan Documents and any other security documents at any time, it being expressly understood and agreed that the Lender expressly reserves those rights (except for those rights modified herein or subsequently modified in writing) and, does not waive any defaults by the Borrowers other than those waived herein or subsequently waived in writing.

 

11.              Financial Condition.  The Obligors warrant they have not transferred any of their property for less than "fair consideration" within the preceding twelve months.  The Obligors shall allow the Lender or its independent certified accountants reasonable access to their financial records, including without limitation past income tax returns, for the purpose of determining the accuracy and otherwise verifying the truth of the Obligors’ representations and warranties regarding their financial condition.

 

12.              Environmental Warranty.  The Obligors hereby represent, warrant and covenant that none of them has in any manner unlawfully generated, stored or disposed of, released or to the best of their knowledge after diligent inquiry, permitted the release of any flammable substance, explosives, radioactive materials, hazardous wastes, toxic substances, material from, into or in any property mortgaged to the Lender, as any of such terms may be defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601, and regulations adopted thereunder, or in any other applicable federal, state or local environmental laws, rules or regulations governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of such materials.  The Obligors shall defend, indemnify and hold harmless the Lender against any and all claims, damages, losses, liabilities, costs or expenses including reasonable attorneys' fees which the Lender may incur or which may be claimed against the Lender by any person or entity by reason of said property.

 

5


 

13.              No Assignment.  This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided however that no party other than the Lender may assign this Agreement or any rights hereunder without the Lender's prior written consent and any prohibited assignment shall be absolutely void.  No consent to an assignment from the Lender shall release any other party hereto from the liabilities to the Lender.

 

14.              Further Assurances. The Obligors will deliver any and all reports, documents and additional information reasonably requested by the Lender, from time to time, and will take such other actions as the Lender may reasonably request from time to time to perfect or continue the Lender's security interests in the Obligors’ property, and to accomplish the objectives of this Agreement.

 

15.              Governing Law.  This Agreement has been negotiated and accepted in, and shall be deemed to have been made in the Commonwealth of Massachusetts and the validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder, shall be determined under, governed by and construed in accordance with the laws (and not the law of conflicts) of the Commonwealth of Massachusetts.

 

16.              Waiver of Jury Trial.  THE OBLIGORS HEREBY WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT OR THE LOAN DOCUMENTS.

 

17.              Forbearance Not a Waiver.  Neither this Agreement nor any payment made of principal or interest made by the Borrowers pursuant hereto shall be deemed to affect an extension of the Loan Documents or to establish any deferred payment schedule that the Borrowers would otherwise have had the benefit but for the maturity of the Note. The Lender expressly reserves all rights and remedies in connection with the Existing Defaults.

 

18.              Entitlement to Immediate Relief from Stay.  The Borrowers hereby acknowledge and agree, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, that in the event either Borrower should make application for or seek relief or protection under any of the Sections or Chapters of the United States Bankruptcy Code (the "Code"), or in the event that any involuntary petition is filed against either Borrower, then, in such event, the Lender shall thereupon be entitled to immediate relief from any automatic stay imposed by Section 362 of the Code, or otherwise, on or against the exercise of the rights and remedies available to the Lender pursuant to this Agreement or the applicable Loan Documents, or otherwise.  The foregoing shall in no way preclude, restrict or prohibit the Borrowers from filing for protection under the Code.

 

19.              Entitlement to Additional Relief.  The Obligors hereby acknowledge and agree, in further consideration for the Lender entering into this Agreement that, upon the occurrence of a Termination Event hereunder, the Lender shall be entitled to, at the Lender’s election, the appointment of a receiver of each of the Obligors’ assets.  The Obligors further waive any and all rights to object to or otherwise challenge the Lender’s right to the appointment of a receiver hereunder.

 

6


 

20.              Lender Access to Consultants.  The Obligors hereby authorize and permit the Lender to have direct and unfettered contact with any accountants, financial advisors or turnaround consultants retained by the Obligors, and hereby authorizes such consultants or advisors to provide the Lender with full access to all of their financial projections, analyses and work product.

 

21.              Release upon Satisfaction.  In consideration of the covenants and agreements contained herein, the Obligors hereby agree to execute and deliver a general release to the Lender in conjunction with any payoff or satisfaction of the Obligations.

 

22.              Direct Charge.  The Borrowers hereby authorize and direct the Lender to charge any of Borrowers’ accounts under the control of the Lender to pay any payments of principal, accrued interest or costs and expenses (including, without limitation, attorneys' fees) as the same becomes due and payable pursuant to any note or other agreement between the Borrowers and the Lender.

 

23.              Informed Execution.  The Obligors warrant and represent to the Lender that the Obligors: (i) have read and understood all of the terms and conditions of this Agreement; (ii) intend to be bound by the terms and conditions of this Agreement; (iii) are executing this Agreement freely and voluntarily, without duress, after consultation with independent counsel of their own selection; and (iv) acknowledge and agree that the forbearance provided to the Borrowers by the Lender pursuant to this Agreement constitutes a fair and reasonable time frame within which all of the Obligations are to be paid in full.

 

24.              Severability.  Each provision of this Agreement shall be severable from every other provision hereof for the purpose of determining the legal enforceability of any specific provision.  Except as otherwise specifically provided herein, all obligations, liabilities and responsibilities of the Borrowers shall survive the consummation of the transaction set forth herein.

 

25.              Third Party Beneficiaries.  Except as otherwise expressly provided, this Agreement and all other instruments executed and delivered in connection herewith are not intended to benefit any third parties, including without limitation such parties that may have claims against the Borrowers.

 

26.              Counterparts.  This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of the counterparts shall constitute one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or Electronic Transmission shall be effective as delivery of a manually executed counterpart thereof.

 

7


 

27.              Ratification.  To the extent not otherwise modified herein, all of the Loan Documents executed by each of the parties hereto is ratified and confirmed.

 

28.              Authorization to Sign.  The parties signing below acknowledge and represent that they are duly authorized to sign on behalf of the Lender or the identified Obligors, as the case may be.

 

 

 

 

[Signature Page to Follow]

 

8



 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

BORROWERS:

 

TRANS-LUX CORPORATION

FAIRPLAY CORPORATION

 

 

By: /s/Todd Dupee                                                     

Name:     Todd Dupee

Title:       Senior Vice President and

               Chief Accounting Officer of each

               of the above Companies

 

Address:          135 East 57th Street, 14th Floor

                        New York, NY 10022

 

Telephone:       800-243-5544

Telecopier:       515-266-0127

Email:              tdupee@trans-lux.com

 

 

 

GUARANTORS:

 

TRANS-LUX CANADA LTD.

TRANS-LUX ENERGY CORPORATION

TRANS-LUX DISPLAY CORPORATION

TRANS-LUX INVESTMENT CORPORATION

 

 

By: /s/ Todd Dupee                                                    

Name:     Todd Dupee

Title:       Senior Vice President and

               Chief Accounting Officer of each

               of the above Companies

 

 

 

 

[Signature Page to Forbearance Agreement]

 

9


 


 

[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]

LENDER:

 

MIDCAP BUSINESS CREDIT LLC

 

 

By: /s/ Steven A. Samson                                          

Name:  Steven A. Samson

Title:    President

 

Address:          433 South Main Street

         West Hartford, Connecticut 06110

Attn:                Steven A. Samson, President

Telephone:       860-503-1629

Telecopier:       800-217-0500

Email:              ssamson@midcap.com

 

 

 

 

[Signature Page to Forbearance Agreement]

 

10


 

[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]

 

Acknowledged and agreed to by the undersigned, who hereby ratifies and confirms his obligations to the Lender under the Work Through Agreement.  The undersigned also hereby remises and releases the Lender together with its officers, directors, and counsel, from any and all claims or causes of action now existing or hereafter arising in consideration of the Lender entering into this Agreement with the Obligors.

 

 

                                                                                    _/s/ Nicholas Fazio____________________

                                                                                    Nicholas Fazio (Individually)

 

 

 

 

 

 

[Signature Page to Forbearance Agreement]

 

11

Exhibit 10.2

 

ASSIGNMENT WITHOUT RECOURSE

 

FOR GOOD AND VALUABLE CONSIDERATION this 30th day of July 2021, the receipt and sufficiency of which are acknowledged, MidCap Business Credit LLC, a Texas limited liability company with offices located at 433 South Main Street, West Hartford, Connecticut  (hereinafter "Lender") hereby assigns and transfers to Unilumin USA LLC, a Florida limited liability company with its principal place of business at 254 West 31st Street, New York, New York (the “Assignee”), all right, title and interest of Lender in, to and under all of the documents, instruments and agreements enumerated on Schedule 1 attached hereto and made a part hereof relating to certain loan arrangements by and between  Trans-Lux Corporation, a Delaware corporation ("Trans-Lux"), Fairplay Corporation, an Iowa corporation ("Fairplay", and together with Trans-Lux the "Borrower") and the Lender (the “Loans”).  The original of the Note (as defined in Schedule 1) is attached hereto.  Lender also agrees to execute an Allonge to Note in the form of Exhibit “A” attached hereto, and hereby authorizes the Assignee to file UCC-3 Assignments and PPSA filings in connection with any UCC filings and PPSA filings enumerated on Schedule 1, and further agrees that it will at Assignee’s request, execute any additional documents reasonably required by Assignee to consummate this Assignment consistent with the terms herein.

 

THE LENDER REPRESENTS AND WARRANTS THAT THE LOANS HAVE NOT BEEN PREVIOUSLY TRANSFERRED, PLEDGED OR ASSIGNED, AND THIS ASSIGNMENT IS MADE WITHOUT ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AND WITHOUT RECOURSE TO LENDER IN ANY EVENT.  THE ASSIGNEE UNDERSTANDS THAT THE AFORESAID AGREEMENTS ARE PRESENTLY IN DEFAULT.  THIS ASSIGNMENT IS MADE EXPRESSLY SUBJECT TO AN INTERCREDITOR AGREEMENT DATED JUNE 1, 2020 BY AND BETWEEN LENDER AND CRAFTSMAN INDUSTRIES, INC., A COPY OF WHICH IS PROVIDED HEREWITH.

 

FURTHER, THE ASSIGNEE IS FULLY AWARE OF THE FINANCIAL CONDITION OF THE BORROWER, AS WELL AS THE CONDITION, LOCATION AND EXTENT OF THE COLLATERAL DESCRIBED IN THE AFORESAID SECURITY AGREEMENTS.  ASSIGNEE ACKNOWLEDGES THAT LENDER MAKES NO WARRANTY OR REPRESENTATION CONCERNING THE ACCURATENESS, COMPLETENESS OR CORRECTNESS OF ANY WRITTEN MATERIALS FURNISHED.  SAID MATERIALS HAVE BEEN PROVIDED AS AN ACCOMODATION ONLY, ASSIGNEE HAVING CONDUCTED ITS OWN INDEPENDENT INVESTIGATION AND DUE DILIGENCE.  ANY RELIANCE BY ASSIGNEE ON ANY INFORMATION SUPPLIED BY LENDER IS AT ASSIGNEE’S SOLE RISK AND WITHOUT ANY LIABILITY TO LENDER UNDER ANY CIRCUMSTANCES. 

                                                                                   

                                                                                    MIDCAP BUSINESS CREDIT LLC

 

 

                                                                                    By: __/s/ Steven A. Samson____________

                                                                                          Steven A. Samson, President

 

1



To induce Lender to make the within Assignment Without Recourse and in consideration of Lender's making said Assignment Without Recourse and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Assignee hereby agrees and covenants with Lender (i) to assume, perform and faithfully discharge all of Lender's obligations under the documents, instruments and agreements enumerated on Schedule 1 attached hereto and made a part hereof; and (ii) to indemnify and hold the Lender harmless from any and all liabilities in connection with the Loans.

                       

                                                                                   

                                                                        UNILUMIN USA LLC

 

                                                                        By:_/s/ Nicholas Fazio____________


2


 

ACKNOWLEDGED AND AGREED TO THIS 30th DAY OF July, 2021 by the undersigned Borrower who each hereby represent and warrant that it has no defenses, setoffs or counterclaims in connection with their obligations under the Loan and Security Agreement to Lender, including without limitation the Obligations owing under the Loan and Security Agreement and the Note, said Obligations and security interests under the Loan and Security Agreement being hereby ratified and confirmed.  To the extent any such defenses, setoffs, or counterclaims ever existed, they are hereby waived and the Lender is released, remised and forever discharged from any and all claims under or relating to the Loan and Security Agreement, the Note and the Loans now existing through the date hereof by each Borrower in consideration of the Lender’s agreements contained herein.  Each Borrower also hereby releases the Lender together with its officers, agents, counsel, successors or assigns, from any and all claims or causes of action that any Borrower may have against such parties under or relating to the Loan and Security Agreement, the Note and the Loans, whether known or unknown, contingent or otherwise, as of the date hereof.

 

                                                                        BORROWERS:

 

TRANS-LUX CORPORATION

FAIRPLAY CORPORATION

 

By: /s/ Todd Dupee                                                    

Name:     Todd Dupee

Title:       Senior Vice President and

               Chief Accounting Officer of each

               of the above Companies

 

3



ACKNOWLEDGED AND AGREED TO THIS __ DAY OF July, 2021 by the undersigned (the "Guarantors") each of whom hereby represents and warrants that it has no defenses, setoffs or counterclaims in connection with their obligations under the Loan and Security Agreement and their respective Guarantees each being dated September 16, 2019 guarantying the Borrower’s liabilities and obligations to Lender, including without limitation the Obligations owing under the Loan and Security Agreement and the Note, said Guarantees and said Obligations and security interests under the Loan and Security Agreement being hereby ratified and confirmed.  To the extent any such defenses, setoffs, or counterclaims in connection with its Guaranty ever existed, they are hereby waived and the Lender is released, remised and forever discharged from any and all claims under or relating to Guarantees, the Loan and Security Agreement, the Note and the Loans now existing through the date hereof by each of the Guarantors in consideration of the Lender’s agreements contained herein.  The Guarantors also hereby release the Lender together with its officers, agents, counsel, successors or assigns, from any and all claims or causes of action that any of the Guarantors may have against such parties under or relating to the Guarantees, the Loan and Security Agreement, the Note and the Loans, whether known or unknown, contingent or otherwise, as of the date hereof.

 

GUARANTORS:

 

TRANS-LUX CANADA LTD.

TRANS-LUX ENERGY CORPORATION

TRANS-LUX DISPLAY CORPORATION

TRANS-LUX INVESTMENT CORPORATION

By: /s/ Todd Dupee                                                    

Name:     Todd Dupee

Title:       Senior Vice President and

               Chief Accounting Officer of each

               of the above Companies

 

4



SCHEDULE 1

 

 

1.      Secured Revolving Time Note dated September 16, 2019 in the Maximum Principal Amount of $4,000,000.00 from Trans-Lux Corporation and Fairplay Corporation (the “Note”)

 

2.      Loan and Security Agreement (All Assets) dated September 16, 2019 by and between the Borrower, the Lender and Trans-Lux Canada Ltd., Trans-Lux Energy Corporation, Trans-Lux Display Corporation, and Trans-Lux Investment Corporation as Guarantors (the “Loan and Security Agreement”)

 

(a)                Modification Agreement 6/3/20

(b)               Second Modification Agreement and Waiver 12/16/20

(c)                Second Amendment to Loan and Security Agreement (All Assets)

(d)               Forbearance Agreement 5/31/21

 

3.      UCC-1 Financing Statements:

 

(a)                Trans-Lux Corporation - Secretary of State, DE– Filing No. 2019 6210384

(b)               Fairplay Corporation – Iowa Secretary of State Filing No. P19005819-5

(c)                Trans-Lux Canada Ltd. – Ontario PPSA Filing No. 249 05210

(d)               Trans-Lux Energy Corporation – Secretary of State, CT – Filing No. 0003328455

(e)                Trans-Lux Display Corporation - Secretary of State, DE– File No. 2019 6211028

(f)                Trans-Lux Investment Corporation - Secretary of State, DE– File No. 2019 6210731

 

4.      Trademark Security Agreements dated September 16, 2019 filed with United States Patent and Trademark Office

 

(a)                Trans-Lux Corporation – Filed September 18, 2019 Reel/Frame 6752/0471

(b)               Fairplay Corporation - Filed September 18, 2019 Reel/Frame 6752/0463

 

5.      Intercreditor Agreement with Craftsmen Industries, Inc. 6/1/2020

 

6.      Liquidating Contract and Covenant Not to Compete

 

(a)                Todd Dupee dated September 16, 2019

(b)               Nicholas Fazio dated June 4, 2020

 

7.      Landlord's Consent and Subordination of Lien

 

(a)                Penta Partners, LLC, 1700 Delaware Avenue, Des Moines, Iowa

(b)               Aviator 3 & 7, LLC, 6110 Aviator Drive, Hazelwood, Missouri

(c)                WeWork, 135 East 57th Street, 14th Floor, New York, New York

(d)               Erickson Family, L.C., 2570 106th Street, Suite D, Urbandale, Iowa

 

5


 

8.      Unlimited Guarantees dated September 16, 2019

 

(a)             Trans-Lux Canada Ltd.

(b)            Trans-Lux Energy Corporation

(c)             Trans-Lux Display Corporation

(d)            Trans-Lux Investment Corporation

 

6



“EXHIBIT A”

 

Allonge to Note


 

            This Allonge to Note is made this 30th day of July, 2021, to that Revolving Time Note in the Maximum Principal Amount of $4,000,000.00 dated September 16, 2019 by Trans-Lux Corporation and Fairplay Corporation payable to order of Midcap Business Credit LLC, a Texas limited liability company

 

            For value received, pay to the order of Unilumin USA LLC (the “Purchaser”), WITHOUT RECORSE AND WITHOUT ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED IN FACT OR BY LAW, subject to, and in accordance with the terms of the certain Assignment without Recourse by and between the undersigned and the Purchaser dated of even date, WITHOUT RECOURSE.      

 

Witness:                                                       MIDCAP BUSIENSS CREDIT LLC

 

 

____________________________              By: __/s/ Steven A. Samson_________________

                                                                             Steven A. Samson, President

 

7

 

EXHIBIT 31.1


TRANS-LUX CORPORATION

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT


I, Nicholas J. Fazio, certify that:

1.         I have reviewed this quarterly report on Form 10-Q of Trans-Lux Corporation for the quarter ended June 30, 2021;

2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4.         I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:

a)          designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b)          designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)          evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)          disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.         I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)          all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


/s/ Nicholas J. Fazio

Date: August 13, 2021

Nicholas J. Fazio

Chief Executive Officer

(Principal Executive Officer)

 




 

EXHIBIT 31.2


TRANS-LUX CORPORATION

CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER

PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT


I, Todd Dupee, certify that:

1.         I have reviewed this quarterly report on Form 10-Q of Trans-Lux Corporation for the quarter ended June 30, 2021;

2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4.         I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:

a)         designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b)         designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)          evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)          disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.         I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)          all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


/s/ Todd Dupee           

Date: August 13, 2021

Todd Dupee

Senior Vice President and
Chief Accounting Officer

(Principal Financial Officer)

 




 

EXHIBIT 32.1



 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Nicholas J. Fazio, Chief Executive Officer of Trans-Lux Corporation (the "Registrant"), do hereby certify, to the best of my knowledge that:


(1) The Registrant's Annual Report on Form 10-Q for the quarter ended June 30, 2021 being filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


This Certification accompanies this Form 10-Q as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Registrant or the certifying officer.




 

/s/ Nicholas J. Fazio

Date: August 13, 2021

Nicholas J. Fazio

Chief Executive Officer

(Principal Executive Officer)

 



 

EXHIBIT 32.2



 

CERTIFICATION OF CHIEF ACCOUNTING OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I, Todd Dupee, Senior Vice President and Chief Accounting Officer of Trans-Lux Corporation (the "Registrant"), do hereby certify, to the best of my knowledge that:


(1) The Registrant's Annual Report on Form 10-Q for the quarter ended June 30, 2021 being filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


This Certification accompanies this Form 10-Q as an exhibit, but shall not be deemed as having been filed for purposes of Section 18 of the Securities Exchange Act of 1934 or as a separate disclosure document of the Registrant or the certifying officer.




 

/s/ Todd Dupee           

Date: August 13, 2021

Todd Dupee

Senior Vice President and

Chief Accounting Officer

(Principal Financial Officer)