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.

Critical Accounting Estimates

There have been no changes to the Company's critical accounting estimates as previously reported in the Company's 2021 Form 10-K.





Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the six months ended June 30, 2022 and 2021:





                                                         Six months ended June 30
In thousands, except percentages                       2022                     2021

Revenues:


Digital product sales                         $    10,253     93.5 %   $     4,489     82.0 %
Digital product lease and maintenance                 714      6.5 %           984     18.0 %
Total revenues                                     10,967    100.0 %         5,473    100.0 %
Cost of revenues:
Cost of digital product sales                       8,758     79.9 %         5,276     96.4 %
Cost of digital product lease and maintenance         307      2.8 %           317      5.8 %
Total cost of revenues                              9,065     82.7 %         5,593    102.2 %
Gross income (loss)                                 1,902     17.3 %         (120)    (2.2) %
General and administrative expenses               (1,584)   (14.4) %       (1,543)   (28.2) %
Operating income (loss)                               318      2.9 %       (1,663)   (30.4) %
Interest expense, net                               (272)    (2.5) %         (260)    (4.7) %

Gain (loss) on foreign currency remeasurement 60 0.5 % (72) (1.3) % Gain on extinguishment of debt

                          -       -  %            77      1.4 %
Gain on forgiveness of PPP loan                       824      7.5 %             -        - %
Pension benefit                                       105      1.0 %           134      2.4 %
Income (loss) before income taxes                   1,035      9.4 %       (1,784)   (32.6) %
Income tax expense                                   (12)    (0.1) %          (12)    (0.2) %
Net income (loss)                             $     1,023      9.3 %   $   (1,796)   (32.8) %

Total revenues for the six months ended June 30, 2022 increased $5.5 million or 100.4% to $11.0 million from $5.5 million for the six months ended June 30, 2021, primarily due to an increase in Digital product sales.

Digital product sales revenues increased $5.8 million or 128.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to the return of customer orders since COVID-19 pandemic restrictions have been reduced or eliminated over the past year.





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Digital product lease and maintenance revenues decreased $270,000 or 27.4% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, 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 income (loss) for the six months ended June 30, 2022 increased $2.0 million to income of $318,000 from a loss of $1.7 million for the six months ended June 30, 2021, principally due to the increase in revenues.

Digital product sales operating income (loss) increased $2.5 million to income of $760,000 for the six months ended June 30, 2022 compared to a loss of $1.7 million for the six months ended June 30, 2021, primarily due to the increase in revenues and a decrease in the cost of revenues as a percentage of revenues, as well as a decrease in general and administrative expenses. The cost of Digital product sales increased $3.5 million or 66.0%, primarily due to the increase in revenues. The cost of Digital product sales represented 85.4% of related revenues in 2022 compared to 117.5% in 2021. This decrease as a percentage of revenues is primarily due to the increase in revenues. General and administrative expenses for Digital product sales decreased $199,000 or 21.3%, primarily due to decreases in consulting expenses and bad debt expenses.

Digital product lease and maintenance operating income decreased $252,000 or 39.3% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily as a result of the decrease in revenues. The cost of Digital product lease and maintenance decreased $10,000 or 3.2%, primarily due to a decrease in depreciation expense, partially offset by an increase in service agents. The cost of Digital product lease and maintenance revenues represented 43.0% of related revenues in 2022 compared to 32.2% in 2021. 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 $8,000 or 32.0%, primarily due to a reduction in bad debt expenses.

Corporate general and administrative expenses increased $248,000 or 42.5% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in employees' expenses, partially offset by a decrease in consulting expenses.

Net interest expense increased $12,000 or 4.6% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to an increase in interest rates and outstanding debt.

The effective tax rate for the six months ended June 30, 2022 and 2021 was 1.2% and 0.7%, respectively. Both the 2022 and 2021 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, 2022 Compared to Three Months Ended June 30, 2021

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the three months ended June 30, 2022 and 2021:





                                                           Three months ended June 30
In thousands, except percentages                         2022                      2021

Revenues:


Digital product sales                           $     7,016     96.1 %   $     2,396       83.0 %
Digital product lease and maintenance                   286      3.9 %           491       17.0 %
Total revenues                                        7,302    100.0 %         2,887      100.0 %
Cost of revenues:
Cost of digital product sales                         5,800     79.5 %         3,022      104.7 %
Cost of digital product lease and maintenance           142      1.9 %           164        5.7 %
Total cost of revenues                                5,942     81.4 %         3,186      110.4 %
Gross income (loss)                                   1,360     18.6 %         (299)     (10.4) %
General and administrative expenses                   (822)   (11.2) %         (744)     (25.7) %
Operating income (loss)                                 538      7.4 %       (1,043)     (36.1) %
Interest expense, net                                 (130)    (1.8) %         (157)      (5.5) %

Income (loss) on foreign currency remeasurement 76 1.0 % (36) (1.2) % Pension benefit

                                          52      0.7 %            67        2.3 %
Income (loss) before income taxes                       536      7.3 %       (1,169)     (40.5) %
Income tax expense                                      (6)      -   %           (6)      (0.2) %
Net income (loss)                               $       530      7.3 %   $   (1,175)     (40.7) %

Total revenues for the three months ended June 30, 2022 increased $4.4 million or 152.9% to $7.3 million from $2.9 million for the three months ended June 30, 2021, primarily due to an increase in Digital product sales.

Digital product sales revenues increased $4.6 million or 192.8% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to the return of customer orders since COVID-19 pandemic restrictions have been reduced or eliminated over the past year.

Digital product lease and maintenance revenues decreased $205,000 or 41.8% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, 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 income (loss) for the three months ended June 30, 2022 increased $1.6 million to income of $538,000 from a loss of $1.0 million for the three months ended June 30, 2021, principally due to an increase in revenues, partially offset by a decrease in general and administrative expenses.

Digital product sales operating income (loss) increased $1.9 million to income of $831,000 for the three months ended June 30, 2022 compared to a loss of $1.1 million for the three months ended June 30, 2021, primarily due to an increase in revenues and a decrease in the cost of revenue as a percentage of revenues. The cost of Digital product sales decreased $2.8 million or 91.9%, primarily due to the increase in revenues. The cost of Digital product sales represented 82.7% of related revenues in 2022 compared to 126.1% in 2021. This decrease as a percentage of revenues is primarily due to manufacturing efficiencies due to the increase in revenues. General and administrative expenses for Digital product sales decreased $84,000 or 17.9%, primarily due to decreases in consulting expenses and bad debt expenses.

Digital product lease and maintenance operating income decreased $190,000 or 58.8% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily as a result of a decrease in the cost of Digital product lease and maintenance and the decrease in revenues, partially offset by an increase in general and administrative expenses. The cost of Digital product lease and maintenance decreased $22,000 or 13.4%, primarily due to a decrease in depreciation expense, partially offset by an increase in service agents and employees' expenses. The cost of Digital product lease and maintenance revenues represented 49.7% of related revenues in 2022 compared to 33.4% in 2021. 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 $7,000 or 175.0%, primarily due to an increase in bad debt expenses.





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Corporate general and administrative expenses increased $155,000 or 57.2% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to an increase in employees' expenses, partially offset by a decrease in consulting fees.

Net interest expense decreased $27,000 or 17.2% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to a decrease in outstanding debt.

The effective tax rate for the three months ended June 30, 2022 and 2021 was 1.1% and 0.5%, respectively. Both the 2022 and 2021 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 recorded income of $1.0 million in the six months ended June 30, 2022, which included the gain on forgiveness of the PPP loan of $824,000, but recorded a loss of $5.0 million in the year ended December 31, 2021. The Company had working capital deficiencies of $8.8 million and $9.8 million as of June 30, 2022 and December 31, 2021, respectively. The change in the working capital deficiency was primarily affected by increases in the accounts receivable and inventories, as well as decreases in accrued liabilities and current portion of long-term debt, partially offset by a decreases in cash and prepaids and other assets, as well as increases in accounts payable, current lease liabilities and customer deposits.

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.





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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 $1.1 million and used cash of $106,000 from operating activities for the six months ended June 30, 2022 and 2021, 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 and cash equivalents decreased $416,000 in the six months ended June 30, 2022 to $108,000 at June 30, 2022 from $524,000 at December 31, 2021. The decrease is primarily attributable to cash used in operating activities of $1.1 million, partially offset by proceeds from long-term debt borrowings of $250,000 and refund proceeds from loan forgiveness of $453,000. 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 2022 until the underlying debts mature. As interest rates have increased in 2022, and may continue to increase, the amounts the Company pays for interest could exceed the projected amounts.

The following table summarizes the Company's fixed cash obligations as of June 30, 2022 for the remainder of 2022 and over the next four fiscal years:





                                    Remainder of
In thousands                                2022   2023    2024    2025     2026
Long-term debt, including interest $       4,024   $   -   $  31   $  31   $ $ 31
Pension plan payments                        138       -     179     129       60
Estimated warranty liability                 170     113      89      59       43
Operating lease payments                     245     438     146     149      152
Total                              $       4,577   $ 551   $ 445   $ 368   $  286

As of June 30, 2022, 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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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 2022 is expected to be $138,000, which the Company expects to contribute in 2022, but none of which the Company has contributed as of June 30, 2022. 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.

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