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.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience along with other assumptions that we believe are reasonable in formulating our bases for making judgements regarding the carrying amounts of assets and liabilities that are not readily apparent elsewhere. Estimates are adjusted as new information becomes available. Actual results could differ from those estimates. The Company believes that the following accounting estimates are most critical since they require significant assumptions and judgments that inherently are subject to risks and uncertainties.

Income Taxes: The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

Warranty Reserve: The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including evaluating the quality of the component suppliers, the warranty obligation is affected by product failure rates. Should actual product failure rates differ from the Company's estimates, revisions to increase or decrease the estimated warranty liability may be required.

Pension Plan Obligations: The Company is required to make estimates and assumptions to determine the obligation of our pension benefit plan, which includes investment returns and discount rates. The Company recorded after-tax loss in unrecognized pension liability of $563,000 and $63,000 in 2024 and 2023, respectively, in other comprehensive income. Estimates and assumptions are reviewed annually with the assistance of external actuarial professionals and adjusted as circumstances change. Assumed mortality rates of plan participants are a critical estimate in measuring the expected payments a participant will receive over their lifetime and the amount of liability and expense we recognize. At December 31, 2024, plan assets were invested 29.6% in fixed income contracts and 70.4% in equity and index funds. The investment return assumption takes the asset mix into consideration. The assumed discount rate reflects the rate at which the pension benefits could be settled. The Company utilizes a yield curve in lieu of a single weighted discount rate in determining liabilities and the interest cost for the following year. At December 31, 2024, the weighted average rates used for the computation of benefit plan liabilities were: investment returns, 8.00%, and discount rate, 5.01%. The net periodic cost for 2025 will be based on the December 31, 2024 valuation. The defined benefit pension plan periodic cost was $246,000 and $289,000 in 2024 and 2023, respectively. At December 31, 2024, assuming no change in the other assumptions, a one-percentage point increase/(decrease) in the discount rate would have increased/(decreased) the net periodic cost by $9,000/($14,000).

As of December 31, 2003, the service benefit under the defined benefit pension plan had been frozen and, accordingly, there is no service cost for the years ended December 31, 2024 and 2023. The minimum required pension plan contribution for 2024 was $840,000, of which the Company did not make any contributions. The minimum required pension plan contribution for 2025 is expected to be $1.4 million, of which the Company has only contributed $260,000. See Note 15 to the Consolidated Financial Statements - Pension Plan for further details.

Results of Operations

The following table presents our Statements of Operations data, expressed as a percentage of revenue for the years ended December 31, 2024 and 2023:

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2024 Compared to 2023

Total revenues for the year ended December 31, 2024 decreased $2.7 million or 17.3% to $12.9 million from $15.6 million for the year ended December 31, 2023, primarily due to a decrease in Digital product sales, as well as a decrease in Digital lease and maintenance revenues.

Digital product sales revenues decreased $2.6 million or 17.4% to $12.1 million for the year ended December 31, 2024 compared to $14.7 million for the year ended December 31, 2023, primarily due to the non-recurrence of a couple of large sales that were delivered in the year ended December 31, 2023.

Digital product lease and maintenance revenues decreased $139,000 or 16.0% to $730,000 for the year ended December 31, 2024 compared to $869,000 for the year ended December 31, 2023, 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 year ended December 31, 2024 decreased $221,000 to $2.8 million from $3.0 million for the year ended December 31, 2023, principally due to a decrease in cost of revenues, partially offset by the decrease in revenues and an increase in general and administrative expenses.

Digital product sales operating loss decreased $294,000 to $1.2 million for the year ended December 31, 2024 compared to $1.5 million for the year ended December 31, 2023, primarily due to a decrease in the cost of revenues, partially offset by an increase in general and administrative expenses. The cost of Digital product sales decreased $3.0 million or 21.2%, primarily due to the decrease in revenues and a decrease in the cost of revenue as a percentage of revenues due to improved manufacturing efficiencies. The cost of Digital product sales represented 91.7% of related revenues in 2024 compared to 96.2% in 2023. General and administrative expenses for Digital product sales increased $142,000 or 6.8%, primarily due to increases in employees' expenses, marketing expenses and the accrual for credit losses, partially offset by decreases in consulting expenses and supplies.

Digital product lease and maintenance operating income decreased $61,000 or 13.8% to $380,000 for the year ended December 31, 2024 compared to $441,000 for the year ended December 31, 2023, primarily due to the reduction in revenues. The cost of Digital product lease and maintenance decreased $57,000 or 13.2%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 51.2% of related revenues in 2024 compared to 49.6% in 2023. 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 $21,000, primarily due to a decrease in the allowance for credit losses.

Corporate general and administrative expenses increased $12,000 or 0.6%, primarily due to increases in audit and employees' expenses, partially offset by a decrease in insurance expenses.

Net interest expense increased $206,000 or 29.3% to $908,000 for the year ended December 31, 2024 compared to $702,000 for the year ended December 31, 2023, primarily due to an increase in our principal balance.

The effective tax rate for the years ended December 31, 2024 and 2023 was an expense of 0.7% and 0.8%, respectively. The Company recognized income tax expense of $25,000 and $31,000 for the years ended December 31, 2024 and 2023, respectively. The income tax expense in 2024 and 2023 is affected by income tax expense related to the Company's Canadian subsidiary and 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 operating losses and continues to have a working capital deficiency. The Company recorded a net loss of $3.5 million in the year ended December 31, 2024, and had a working capital deficiency of $17.4 million as of December 31, 2024. The Company recorded a net loss of $4.1 million in the year ended December 31, 2023, and had a working capital deficiency of $13.9 million as of December 31, 2023. The increase in the working capital deficiency as compared to December 31, 2023 is primarily due to increases in accounts payable, accrued liabilities, current portion of long-term debt and customer deposits, as well as a decrease in inventories, partially offset by increases in cash, receivables and prepaids and other assets, as well as a decrease in current lease liabilities.

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, delayed the payment timetables of some of our 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.

Management believes 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-K. The Company continually evaluates the need and availability of long-term capital to meet its cash requirements and fund potential new opportunities.

The Company used cash for operating activities of $1.0 million and generated cash from operating activities of $622,000 in the years ended December 31, 2024 and 2023, respectively. The Company has implemented several initiatives to improve operational results and cash flows over future periods, including reducing headcount, 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 increased $186,000 in 2024. The increase is primarily attributable to borrowing of long-term debt of $1.2 million, partially offset by cash used for operating activities of $1.0 million, payments of long-term debt of $7,000 and purchases of equipment of $4,000. The current economic environment has increased the Company's trade receivables collection cycle, 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 long-term debt agreements, payments to the Company's pension plan, warranty liabilities and rental 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 2024 until the underlying debts mature.

The following table summarizes the Company's fixed cash obligations as of December 31, 2024 over the next five fiscal years:

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As of December 31, 2024, the Company still had outstanding $302,000 of Notes which matured as of March 1, 2012. On December 19, 2025, holders of $22,000 of the Notes accepted the Company's offer to exchange each $1,000 of principal, forgiving any related interest, for $500 in cash, for an aggregate payment by the Company of $11,000. The Company also still had outstanding $220,000 of Debentures which matured on December 1, 2012. On December 19, 2025, holders of $63,000 of the Debentures accepted the Company's offer to exchange each $1,000 of principal, forgiving any related interest, for $500 in cash, for an aggregate payment by the Company of $31,500. The Company continues to consider future exchanges of the remaining Notes and Debentures, but has no agreements, commitments or understandings with respect to any further exchanges. See Note 12 to the Consolidated Financial Statements - Long-Term Debt for further details.

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.

Pension Plan Contributions

The minimum required pension plan contribution for 2024 was $840,000, of which the Company did not make any contributions. The minimum required pension plan contribution for 2025 is expected to be $1.4 million, of which the Company has only contributed $260,000. See Note 15 to the Consolidated Financial Statements - Pension Plan for further details.

Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries that are not included in the Consolidated Financial Statements nor does it have any interests in or relationships with any special purpose off-balance sheet financing entities.

Safe Harbor Statement under the Private Securities Reform Act of 1995

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use words or phrases of expectation or uncertainty like "believe," "anticipate," "plan," "expect," "intent," "project," "future," "may," "will," "could," "would" and similar words to help identify forward-looking statements. Examples of forward-looking statements include statements regarding our future financial results, operating results, business strategies, projected costs, product development or future sales, competitive positions and plans and objectives of management for future operations.

We have based these forward-looking statements on our current expectations and projections about future events. However, they are subject to various risks and uncertainties, many of which are outside our control, including the circumstances described in the section entitled "Risk Factors" in this report. Accordingly, our actual results or financial condition could differ materially and adversely from those discussed in, or implied by, these forward-looking statements. We caution you not to place undue reliance on our forward-looking statements. Each forward-looking statement speaks only as of the date on which it is made, and, except to the extent required by federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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