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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Trans-Lux Corporation    TNLX

TRANS-LUX CORPORATION

(TNLX)
Delayed Quote. Delayed OTC Bulletin Board - Other OTC - 08/14 02:27:19 pm
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TRANS LUX : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/14/2019 | 05:05pm EDT

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.

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.




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Results of Operations


Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the six months ended June 30, 2019 and 2018:




                                                        Six months ended June 30
      In thousands, except percentages                2019                    2018

Revenues:

Digital product sales                         $    6,204     84.5 %   $    6,301     82.9 %
Digital product lease and maintenance              1,142     15.5 %        1,296     17.1 %
Total revenues                                     7,346    100.0 %        7,597    100.0 %
Cost of revenues:
Cost of digital product sales                      4,741     64.5 %        4,880     64.2 %

Cost of digital product lease and maintenance 389 5.3 % 676 8.9 % Total cost of revenues

                             5,130     69.8 %        5,556     73.1 %
Gross profit                                       2,216     30.2 %        2,041     26.9 %
General and administrative expenses              (2,420)   (33.0) %      (2,796)   (36.8) %
Operating income (loss)                            (204)    (2.8) %        (755)    (9.9) %
Interest expense, net                              (335)    (4.5) %        (414)    (5.4) %

(Loss) gain on foreign currency remeasurement (107) (1.5) % 122 1.6 % Loss on extinguishment of debt

                     (193)    (2.6) %            -        - %
Gain on sale/leaseback transaction                     -        - %           11      0.1 %
Pension (expense) benefit                           (37)    (0.5) %           68      0.9 %
(Loss) income before income taxes                  (876)   (11.9) %        (968)   (12.7) %
Income tax expense                                  (12)    (0.2) %            -        - %
Net loss                                      $    (888)   (18.0) %   $    (968)   (12.7) %



Total revenues for the six months ended June 30, 2019 decreased $251,000 or 3.3% to $7.3 million from $7.6 million for the six months ended June 30, 2018, primarily due to decreases in consulting services and Digital product lease and maintenance, partially offset by an increase in other Digital product sales.

Digital product sales revenues decreased $97,000 or 1.5% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to a decrease in consulting services, partially offset by increases in the sports market. Consulting services represented $1.0 million of revenue from one customer in 2018 for planning services related to a potential larger project which has not yet commenced. There were no such projects in the same period in 2019.

Digital product lease and maintenance revenues decreased $154,000 or 11.9% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to the continued expected revenue decline in the older outdoor display equipment rental and maintenance 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 six months ended June 30, 2019 decreased $551,000 to $204,000 from $755,000 for the six months ended June 30, 2018, principally due to a reduction in general and administrative expenses, partially offset by the decrease in revenues. Without the consulting revenues in 2018, the total operating loss in 2019 would have decreased $1.6 million as compared to the same period in 2018.




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Digital product sales operating income increased $246,000 to $364,000 for the six months ended June 30, 2019 compared to $118,000 for the six months ended June 30, 2018, primarily due to a decrease in general and administrative expenses, partially offset by the decrease in revenues. The cost of Digital product sales decreased $139,000 or 2.8%, primarily due to the decrease in revenues. The cost of Digital product sales represented 76.4% of related revenues in 2019 compared to 77.4% in 2018. Without the consulting revenues in 2018, Digital product sales operating income (loss) would have been a loss of $882,000 in the six months ended June 30, 2018 and the cost of Digital product sales would have represented 92.1% of related revenues in the six months ended June 30, 2018. General and administrative expenses for Digital product sales decreased $204,000 or 15.7%, primarily due to decreases in marketing expenses, bad debt expenses and employee expenses.

Digital product lease and maintenance operating income increased $125,000 or 22.8% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily as a result of a decrease in the cost of Digital product lease and maintenance, partially offset by the decrease in revenues. The cost of Digital product lease and maintenance decreased $287,000 or 42.5%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 34.1% of related revenues in 2019 compared to 52.2% in 2018. 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 increased slightly.

Corporate general and administrative expenses decreased $180,000 or 12.7% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to decreases in payroll and benefits and employee expenses.

Net interest expense decreased $79,000 or 19.1% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to a decrease in the average outstanding long-term debt, due to the termination of the CNH and SM Investors loans.

The loss on extinguishment of debt for the six months ended June 30, 2019 represented the write-off of the remaining debt discount costs and the termination fees related to the CNH and SM Investors loans, partially offset by the gain on the extinguishment of $35,000 of Notes.

The effective tax rate for the six months ended June 30, 2019 and 2018 was 1.4% and 0.0%, respectively. Both the 2019 and 2018 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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Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the three months ended June 30, 2019 and 2018:




                                                        Three months ended June 30
In thousands, except percentages                      2019                     2018

Revenues:

Digital product sales                         $    3,113     83.1 %   $    2,353      76.8 %
Digital product lease and maintenance                634     16.9 %          709      23.2 %
Total revenues                                     3,747    100.0 %        3,062     100.0 %
Cost of revenues:
Cost of digital product sales                      2,219     59.2 %        2,093      68.4 %

Cost of digital product lease and maintenance 180 4.8 % 420 13.7 % Total cost of revenues

                             2,399     64.0 %        2,513      82.1 %
Gross profit                                       1,348     36.0 %          549      17.9 %
General and administrative expenses              (1,313)   (35.1) %      (1,443)    (47.1) %
Operating income (loss)                               35      0.9 %        (894)    (29.2) %
Interest expense, net                               (80)    (2.1) %        (218)     (7.1) %
(Loss) gain on foreign currency remeasurement       (50)    (1.3) %           50       1.6 %
Loss on extinguishment of debt                     (245)    (6.6) %            -         - %
Pension (expense) benefit                           (19)    (0.5) %           34       1.1 %
(Loss) income before income taxes                  (359)    (9.6) %      (1,028)    (33.6) %
Income tax expense                                   (6)    (0.1) %            -         - %
Net (loss) income                             $    (365)    (9.7) %   $  (1,028)    (33.6) %



Total revenues for the three months ended June 30, 2019 increased $685,000 or 22.4% to $3.7 million from $3.1 million for the three months ended June 30, 2018, primarily due to an increase in Digital product sales, partially offset by a decrease in Digital product lease and maintenance.

Digital product sales revenues increased $760,000 or 32.3% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to an increase in the sports market.

Digital product lease and maintenance revenues decreased $75,000 or 10.6% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to the continued expected revenue decline in the older outdoor display equipment rental and maintenance 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 income (loss) for the three months ended June 30, 2019 increased $929,000 to income of $35,000 from a loss of $894,000 for the three months ended June 30, 2018, principally due to the increase in revenues and a decrease in the cost of revenues as a percentage of revenues.

Digital product sales operating income (loss) increased $690,000 to income of $248,000 for the three months ended June 30, 2019 compared to a loss of $442,000 for the three months ended June 30, 2018, primarily due to the increase in revenues and a decrease in the cost of revenue as a percentage of revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product sales increased $126,000 or 6.0%, primarily due to the increase in revenues. The cost of Digital product sales represented 71.3% of related revenues in 2019 compared to 89.0% in 2018. This decrease as a percentage of revenues is primarily due to increased manufacturing efficiency. General and administrative expenses for Digital product sales decreased $56,000 or 8.0%, primarily due to a decrease in marketing expenses, partially offset by increases in bad debt expenses and employee expenses.




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Digital product lease and maintenance operating income increased $157,000 or 60.9% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily as a result of a decrease in the cost of Digital product lease and maintenance, partially offset by the decrease in revenues. The cost of Digital product lease and maintenance decreased $240,000 or 57.1%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 28.4% of related revenues in 2019 compared to 59.2% in 2018. 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 increased $8,000 or 25.8%, primarily due to an increase in bad debt expense.

Corporate general and administrative expenses decreased $82,000 or 11.5% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to a decrease in payroll and benefits and employee expenses.

Net interest expense decreased $138,000 or 63.3% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to decreases in the average outstanding long-term debt, due to the termination of the CNH and SM Investors loans.

The loss on extinguishment of debt for the three months ended June 30, 2019 represented the write-off of the remaining debt discount costs and the termination fees related to the CNH and SM Investors loans.

The effective tax rate for the three months ended June 30, 2019 and 2018 was 1.7% and 0.0%, respectively. Both the 2019 and 2018 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 recurring losses and continues to have a working capital deficiency. The Company incurred a net loss of $888,000 in the six months ended June 30, 2019 and had a working capital deficiency of $824,000 as of June 30, 2019. As of December 31, 2018, the Company had a working capital deficiency of $8.5 million. The decrease in the working capital deficiency as compared to December 31, 2018 is primarily due to the $5.5 million of exercises of the Unilumin Warrant and the $2.5 million raised from the Rights Offering, which allowed us to decrease the current portion of long-term debt and accounts payable, as well as the deferral of the timing of payments owed to certain directors related to $1.0 million of long-term debt and $771,000 of accrued liabilities directors.




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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. 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 had, from time to time, delayed certain product deliveries from our vendors, which in turn had, from time to time, delayed certain deliveries to our customers. The recent cash infusions have resolved these previous issues.

Certain directors deferred the timing of payments owed to them related to directors' fees and current portion of long-term debt beyond one year. In addition, a stockholder of the Company has committed to providing additional capital up to $2.0 million, to the extent necessary to fund operations. Management believes that its current cash resources and cash provided by operations will be sufficient to fund its anticipated current and near-term cash requirements and to execute our operating plan. The Company continually evaluates the need and availability of long-term capital, including replacing the Credit Agreement, in order to meet its cash requirements and fund potential new opportunities.

The Company used cash of $3.8 million and generated cash of $324,000 from operating activities for the six months ended June 30, 2019 and 2018, respectively. The 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 increased $690,000 in the six months ended June 30, 2019 to $2.3 million at June 30, 2019 from $1.6 million at December 31, 2018. This increase is primarily attributable to the gross proceeds from the exercises of the Unilumin Warrant of $5.5 million and the gross proceeds from the Rights Offering of $2.5 million, partially offset by cash used in operating activities of $3.8 million, primarily to reduce Accounts Payable by $3.0 million, payments of $1.6 million to terminate term loans and payments of $1.4 million to terminate the revolving loan. 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 2019 until the underlying debts mature.




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The following table summarizes the Company's fixed cash obligations as of June 30, 2019 for the remainder of 2019 and over the next four fiscal years:




                                    Remainder of
In thousands                                2019    2020      2021      2022     2023

Long-term debt, including interest $ 1,151$ 1,240 $ - $ - $ - Pension plan payments

                        238       845       658       655     459
Employment agreement obligations             225       338         -         -       -
Estimated warranty liability                  58        91        68        49      23
Operating lease payments                     309       350       342       348     309
Total                              $       1,981$ 2,864$ 1,068$ 1,052$ 791

As of June 30, 2019, the Company still had outstanding $352,000 of Notes which matured as of March 1, 2012. The Company also still had outstanding $220,000 of Debentures which matured on December 1, 2012. On February 15, 2019, holders of $35,000 of the Notes accepted the Company's offer to exchange each $1,000 of principal, forgiving any related interest, for $200 in cash, for an aggregate payment by the Company of $7,000. The Company continues to consider future exchanges of the $352,000 of remaining Notes and $220,000 of remaining Debentures, but has no agreements, commitments or understandings with respect to any further such exchanges.

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 2019 is expected to be $629,000, of which the Company contributed $391,000 through to June 30, 2019, and contributed $85,000 subsequent to June 30, 2019. At this time, we expect to make the remaining minimum required contributions of $153,000; however, there is no assurance that we will be able to make any or all of such remaining payments. 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, terrorist acts and war.




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© Edgar Online, source Glimpses

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