Notes To Consolidated Financial Statements
1.
Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading designer and manufacturer of digital signage display solutions. The Company sells and leases its digital signage display solutions.
Principles of consolidation
: The Consolidated Financial Statements include the accounts of Trans-Lux Corporation, a Delaware corporation, and all wholly-owned subsidiaries (collectively, the Company). Intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
: The preparation of the 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period in which the change is determined. Estimates are used when accounting for such items as costs of long-term sales contracts, allowance for uncollectible accounts, inventory valuation allowances, depreciation and amortization, valuation of pension obligations, valuation of warrants, income taxes, warranty reserve, managements assessment of going concern, contingencies and litigation.
Cash and cash equivalents
: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company has deposits in United States financial institutions that maintain Federal Deposit Insurance Corporation (FDIC) deposit insurance on all interest and non-interest-bearing accounts, collectively, with an aggregate coverage up to $250,000 per depositor per financial institution. At times, the amount of the deposits exceeds the FDIC limits. The portion of the deposits in excess of FDIC limits represents a credit risk of the Company.
Accounts receivable, net
: Accounts receivable are carried at net realizable value. Credit is extended based on an evaluation of each customers financial condition; collateral is generally not required. Reserves for uncollectible accounts receivable are provided based on historical experience and current trends. The Company evaluates the adequacy of these reserves regularly.
The following is a summary of the allowance for uncollectible accounts at December 31:
In thousands
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
235
|
|
$
|
39
|
Provisions
|
|
1,562
|
|
|
196
|
Write-offs
|
|
-
|
|
|
-
|
Balance at end of year
|
$
|
1,797
|
|
$
|
235
|
Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers, the relatively small account balances within the majority of the Companys customer base and their dispersion across different businesses. At December 31, 2018, one customer accounted for 18.0% of the balance in Accounts receivable, net. In 2018, there were no customers that accounted for at least 10% of our total revenues. At December 31, 2017, three customers accounted for 52.4% of the balance in Accounts receivable, net. In 2017, one customer accounted for 23.2% of total revenues.
Inventories
: Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Valuation allowances for slow-moving and obsolete inventories are provided based on historical experience and demand for servicing of the displays. The Company evaluates the adequacy of these valuation allowances regularly.
Rental equipment and property, plant and equipment, net
: Rental equipment and property, plant and equipment are stated at cost and depreciated over their respective useful lives using the straight-line method. Leaseholds and improvements are amortized over the lesser of the useful lives or term of the lease. Repairs and maintenance costs related to rental equipment and property, plant and equipment are expensed in the period incurred.
The estimated useful lives are as follows:
|
Years
|
Indoor rental equipment
|
10
|
Outdoor rental equipment
|
15
|
Machinery, fixtures and equipment
|
5 15
|
Leaseholds and improvements
|
7
|
When rental equipment and property, plant and equipment are fully depreciated, retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the accounts. Any gains or losses on disposals are recorded in the period incurred.
Goodwill
: Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired. The
goodwill of $744,000 relates to the Digital product sales segment.
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The Company annually evaluates the value of its goodwill on October 1 and determines if it is impaired by comparing the carrying value of goodwill to its estimated fair value. Changes in the assumptions used could materially impact the fair value estimates. Assumptions critical to our fair value estimates are: (i) discount rate used to derive the present value factors used in determining the fair value of the reporting unit, (ii) projected average revenue growth rates used in the reporting unit models and (iii) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and will change in the future based on period-specific facts and circumstances. The Company uses the income and the market approach when testing for goodwill impairment. The Company weighs these approaches by using a 67% factor for the income approach and a 33% factor for the market approach. Together these two factors estimate the fair value of the reporting unit. The Company uses a discounted cash flow model to determine the fair value under the income approach which contemplates a conservative overall weighted average revenue growth rate. If the Company were to reduce its revenue projections on the reporting unit by 5.5% within the income approach, the fair value of the reporting unit would be below carrying value. The gross profit margins used are consistent with historical margins achieved by the Company during previous years. If there is a margin decline of 6.7% or more, the model would yield results of a fair value less than carrying amount. The Company uses a market multiple approach based on revenue to determine the fair value under the market approach which includes a selection of and market price of a group of comparable companies and the performance of the guidelines of the comparable companies and of the reporting unit.
The impairment test for goodwill is a two-step process. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to calculate the implied fair value of the goodwill of the reporting unit by deducting the fair value of all of the individual assets and liabilities of the reporting unit from the respective fair values of the reporting unit as a whole. To the extent the calculated implied fair value of the goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference.
Fair value is determined using cash flow and other valuation models (generally Level 3 inputs in the fair value hierarchy described in Note 4 Fair Value). There was no impairment of goodwill in 2018 or 2017.
Impairment or disposal of long-lived assets
: The Company evaluates whether there has been an impairment in value of its long-lived assets if certain circumstances indicate that a possible impairment may exist. An impairment in value may exist when the carrying value of a long-lived asset exceeds its undiscounted cash flows. If it is determined that an impairment in value has occurred, the carrying value is written down to its fair value as determined by a discounted cash flow model. There were no impairments of long-lived assets in 2018 or 2017.
Restricted cash:
The Company classifies cash as restricted when the cash is unavailable for withdrawal or usage for general operations. Restrictions may include legally restricted deposits, contracts entered into with others, or the Companys statements of intention with regard to particular deposits.
The Company has Restricted cash in 2018 and 2017 for letters of credit in connection with the forgivable loan ($650,000 in 2018 and 2017) and security deposits ($250,000 in 2018 and $512,000 in 2017). During 2018, a security deposit of $212,000 was released and another security deposit was reduced by $50,000. The Company has presented these funds in Restricted cash in the Consolidated Balance Sheets since the use of the funds under the letters of credit is restricted.
Shipping Costs:
The costs of shipping product to our customers of $487,000 and $614,000 in 2018 and 2017, respectively, are included in Cost of digital product sales.
Advertising/Marketing Costs:
The Company expenses the costs of advertising and marketing at the time that the related advertising takes place. Advertising and marketing costs of $174,000 and $401,000 in 2018 and 2017, respectively, are included in General and administrative expenses.
Revenue recognition
: See Note 3.
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 Companys estimates, revisions to increase or decrease the estimated warranty liability may be required.
Taxes on income
: Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Companys assets and liabilities at tax rates expected to be in effect when such temporary differences are expected to reverse and for operating loss carryforwards. The temporary differences are primarily attributable to operating loss carryforwards, depreciation and the pension plan. The Company records a valuation allowance against net deferred income tax assets if, based upon the available evidence, it is more-likely-than-not that the deferred income tax assets will not be realized.
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The Company considers whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. The Companys policy is to classify interest and penalties related to uncertain tax positions in income tax expense. To date, there have been no interest or penalties charged to the Company in relation to the underpayment of income taxes. The Companys determinations regarding uncertain income tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof.
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJ Act) was enacted. Effective January 1, 2018, the legislation significantly changed U.S. tax law by lowering the federal corporate tax rate from 35.0% to 21.0%, modifying the foreign earnings deferral provisions, and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. Effective for 2018 and forward, there are additional changes including changes to refundable alternative minimum tax (AMT) credits, bonus depreciation, the deduction for executive compensation and interest expense. As of December 31, 2018, two provisions affecting the financial statements are the refundable AMT credits and the one-time toll charge. The change in tax rate which would affect the value of deferred tax assets in the amount of $1.7 million does not affect the financial statements since those assets have had a valuation reserve established for several years. Since the toll charge on deemed repatriated earnings of foreign subsidiaries is effective for the tax year ending in 2017, the Company has included a deemed dividend in taxable income of $3.3 million for the tax year ending December 31, 2017. The tax cost has been offset by net operating loss carryforwards. The deferred refundable AMT credits amounting to $0.7 million, which are now fully refundable, have been included in the Consolidated Balance Sheets as a result of this act. See Note 9 Taxes on Income for further details.
Foreign currency
: The functional currency of the Companys Canadian business operation is the Canadian dollar. The assets and liabilities of such operation are translated into U.S. dollars at the year-end rate of exchange, and the operating and cash flow statements are converted at the average annual rate of exchange. The resulting translation adjustment is recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets and as a separate item in the Consolidated Statements of Comprehensive Loss. In relation to intercompany balances, these have been classified as short-term in nature and therefore the changes in the foreign currency remeasurement adjustment for intercompany balances are recorded as Loss on foreign currency remeasurement in the Consolidated Statements of Operations.
Share-based compensation
: The Company measures share-based payments to employees, directors and non-employees at the grant date fair value of the instrument. The fair value is estimated on the date of grant using the Black-Scholes valuation model, which requires various assumptions including estimating stock price volatility, expected life of the instrument, estimated forfeiture rate and risk free interest rate.
For details on the accounting effect of share-based compensation, see Note 15 Share-Based Compensation.
Consideration of Subsequent Events:
The Company evaluated events and transactions occurring after December 31, 2018 through the date these Consolidated Financial Statements were included in this Form 10-K and filed with the SEC, to identify subsequent events which may need to be recognized or non-recognizable events which would need to be disclosed.
The following new accounting pronouncements were adopted in 2018:
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07,
Compensation Retirement Benefits (Topic 715)
. ASU 2017-07 improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. Public business entities should apply the amendments in ASU 2017-07 for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years (i.e., January 1, 2018). Early application is permitted. The adoption of this standard did not have a material effect on the Companys consolidated financial position and results of operations. See Note 14 Pension Plan for further details on the effect of the change.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 requires Restricted cash and restricted cash equivalents to be included within beginning and ending total cash amounts reported in the Consolidated Statements of Cash Flows. Disclosure of the nature of the restrictions on cash balances is required under the guidance. This standard is effective for annual and interim reporting periods for fiscal years beginning after December 31, 2017. We adopted the guidance in 2018 and retrospectively adopted the guidance back to January 1, 2017. Upon adoption, the $550,000 of changes in Restricted cash in the year ended December 31, 2017, which had previously been presented as investing activities, are now included within beginning and ending cash and equivalents balances in our Consolidated Statements of Cash Flows. Additionally, in August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provided guidance on certain cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2017 (i.e., January 1, 2018). We adopted the guidance retrospectively effective as of January 1, 2018, which did not have a material effect on the Companys consolidated financial position and results of operations.
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In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This standard represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures. The Company applied this standard effective January 1, 2018 using the modified retrospective method. The Company has elected to apply this initial application of the standard only to contracts that are not completed at the date of initial application. For contracts which were modified before the adoption date, the Company has not restated the contract for those modifications. Instead, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price, if necessary. The cumulative effect of initially applying the new revenue standard would be applied as an adjustment to the opening balance of retained earnings.
The Company determined that there was no cumulative effect to be recorded and, except for the required financial statement disclosures included in Note 3 Revenue Recognition, there was no impact to the Companys consolidated financial statements.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the Company:
In August 2018, the 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 Company does not expect the adoption of this standard to have a material effect on the Companys consolidated financial position and results of operations.
In February 2018, the FASB issued ASU 2018-02,
Income Statement Reporting Comprehensive Income (Topic 220)
. ASU 2018-02 provides companies with an option to reclassify stranded tax effects within accumulated other comprehensive income (AOCI) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJ Act (or portion thereof) is recorded. ASU 2018-02 also requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI and whether an election was made to reclassify the stranded income tax effects from the TCJ Act. Public business entities should apply the amendments in ASU 2018-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019). Early application is permitted. The Company is in the process of evaluating this pronouncement but has not yet determined the effect of the adoption of this standard on the Companys consolidated financial position and results of operations.
In January 2017, the FASB issued ASU 2017-04,
Intangibles Goodwill and Other (Topic 350)
. ASU 2017-04 simplifies the test for goodwill impairment. Public business entities should apply the amendments in ASU 2017-04 for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years (i.e., January 1, 2020). Early application is permitted. The Company does not expect the adoption of this standard to have a material effect on the Companys consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019). Early application is permitted. In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, which provided an additional (and optional) transition method to adopt the new leases standard whereby an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company is in the process of evaluating this pronouncement and believes that
our adoption of the standard will likely have a material impact to our Consolidated Balance Sheets for the recognition of certain operating leases as right-of-use assets of approximately $1.5 million and lease liabilities of $1.5 million. We are in the process of analyzing our leases, implementing systems, developing processes and internal controls and finalizing our accounting policies to comply with the standard's adoption requirements. The Company will be adopting this standard effective January 1, 2019 using the modified retrospective method.
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Table of Contents
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting
. ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. Public business entities should apply the amendments in ASU 2018-07 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019). Early application is permitted for all entities on a modified retrospective basis.
The Company does not expect the adoption of this standard to have a material effect on the Companys consolidated financial position and results of operations.
Reclassifications
: Certain reclassifications of prior years amounts have been made to conform to the current years presentation. In 2018, Forgivable loan was included in Long-term debt, less current portion in the Consolidated Balance Sheets. In 2017, Pension benefit was included in General and administrative expenses in the Consolidated Statements of Operations and Current portion of long-term debt related party was included in Current portion of long-term debt in the Consolidated Balance Sheets.
2. Liquidity
Subsequent to December 31, 2018, the Company received proceeds of $8.0 million from a
rights offering
to current shareholders
for gross proceeds of at least $2,500,000 by June 1, 2019
(the Rights Offering) and the exercise of the $5.5 million warrant (the Unilumin Warrant) issued to Unilumin North America Inc. (Unilumin). Certain directors deferred the timing of payments owed to them related to directors fees and long-term debt.
The Company has incurred significant recurring losses and has a significant working capital deficiency. The Company incurred a net loss of $4.7 million in 2018 and had a working capital deficiency of $8.5 million as of December 31, 2018.
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 delayed certain product deliveries from our vendors, which in turn delayed certain deliveries to our customers.
Subsequent to December 31, 2018, the Company received gross proceeds of $2.5 million from the Rights Offering and $5.5 million from the exercise of the Unilumin Warrant, of which a portion of the proceeds from such financings have been used to satisfy outstanding obligations including certain long-term debt, certain payables, certain accrued liabilities and pension obligations. Certain current liabilities have been extended beyond one year. 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 within one year from the date of issuance of this Form 10-K . The Company continually evaluates the need and availability of long-term capital, including replacing the Credit Agreement (hereinafter defined), in order to meet its cash requirements and fund potential new opportunities.
3. Revenue Recognition
Under the new revenue recognition guidance provided by ASU 2014-09, 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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Table of Contents
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 Companys contracts contained a significant financing component as of December 31, 2018.
Disaggregated Revenues
The following table represents a disaggregation of revenue from contracts with customers for the years ended December 31, 2018 and 2017, along with the reportable segment for each category:
In thousands
|
|
2018
|
|
|
2017
|
Digital product sales:
|
|
|
|
|
|
Catalog and small
customized products
|
$
|
10,958
|
|
$
|
15,198
|
Large customized
products
|
|
1,000
|
|
|
6,895
|
Subtotal
|
|
11,958
|
|
|
22,093
|
Digital product lease and
maintenance
|
|
2,441
|
|
|
2,350
|
|
|
|
|
|
|
Total
|
$
|
14,399
|
|
$
|
24,443
|
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 Companys catalog products, revenue is generally recognized when the customer obtains control of the Companys 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 Companys 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 Companys 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 Companys 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.
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 Companys 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 Companys 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.
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Digital Product Lease and Maintenance
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 customers equipment in proper operating condition at the customers 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 Consolidated
Balance Sheets.
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 December 31, 2018 and 2017, 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 and included in Accrued liabilities in the Consolidated Balance Sheets.
The following table presents the balances in the Companys receivables and contract liabilities with customers as of December 31, 2018 and 2017:
In thousands
|
|
2018
|
|
|
2017
|
Gross receivables
|
$
|
4,067
|
|
$
|
3,757
|
Allowance for bad debts
|
|
1,796
|
|
|
235
|
Net receivables
|
|
2,271
|
|
|
3,522
|
Contract liabilities
|
|
465
|
|
|
1,209
|
During the years ended December 31, 2018 and 2017, the Company recognized bad debt expense of $1.6 million (primarily related to two customers) and $196,000, respectively.
During the year ended December 31, 2018, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the period:
In thousands
|
|
2018
|
Revenue recognized in the period from:
|
|
|
Amounts included in the contract liability
at the beginning of the period
|
$
|
891
|
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 represents 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 December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations for digital product sales was $2.8 million and digital product lease and maintenance was $3.2 million. The Company expects to recognize revenue on approximately 75%, 21% and 4% 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
Prior to the adoption of ASU 2014-9, the Company expensed incremental commissions paid to sales representatives for obtaining customer contracts. Under ASU 2014-9, the Company currently capitalizes these 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.
4. Fair Value
The Company carries its money market funds and cash surrender value of life insurance related to its deferred compensation arrangements at fair value. Under ASC 820, the fair value of all assets and liabilities is determined using a three-tier fair value hierarchy.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
-
Level 1 Inputs to the valuation methodology based on unadjusted quoted market prices in active markets that are accessible at the measurement date.
-
Level 2 Inputs to the valuation methodology that include quoted market prices that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
-
Level 3 Inputs to the valuation methodology that are unobservable and significant to the fair value measurement.
Based on this hierarchy, the Company determined the fair value of its money market funds using quoted market prices, a Level 1 or an observable input, and the cash surrender value of life insurance, a Level 2 based on observable inputs primarily from the counter party. The Companys money market funds and the cash surrender value of life insurance had carrying amounts of $0 and $1,000, respectively, at December 31, 2018 and 2017, and are included in Cash and cash equivalents and Other assets, respectively, in the Consolidated Balance Sheets. The carrying amounts of cash equivalents, receivables and accounts payable approximate fair value due to the short maturities of these items. The fair value of the Companys 8¼% Limited convertible senior subordinated notes due 2012 (the Notes), using observable inputs, was $77,000 at December 31, 2018 and 2017. The fair value of the Companys 9½% Subordinated debentures due 2012 (the Debentures), using observable inputs, was $44,000 at December 31, 2018 and 2017. The fair value of the Companys remaining long-term debt including current portion approximates its carrying value of $4.7 million at December 31, 2018 and $4.5 million at December 31, 2017.
5. Inventories
Inventories consist of the following:
In thousands
|
2018
|
|
2017
|
Raw materials
|
$
|
1,178
|
|
$
|
1,204
|
Work-in-progress
|
|
626
|
|
|
704
|
Finished goods
|
|
397
|
|
|
256
|
Total inventory
|
$
|
2,201
|
|
$
|
2,164
|
6. Rental Equipment, net
Rental equipment consists of the following:
In thousands
|
2018
|
|
2017
|
Rental equipment
|
$
|
7,109
|
|
$
|
10,425
|
Less accumulated depreciation
|
|
5,799
|
|
|
8,409
|
Net rental equipment
|
$
|
1,310
|
|
$
|
2,016
|
During 2018, $3.3 million of fully depreciated rental equipment was written off. Depreciation expense for rental equipment for the years ended December 31, 2018 and 2017 was $706,000 and $1.1 million, respectively.
7. Property, Plant and Equipment, net
Property, plant and equipment consists of the following:
In thousands
|
2018
|
|
2017
|
Machinery, fixtures and equipment
|
$
|
2,691
|
|
$
|
2,972
|
Leaseholds and improvements
|
|
12
|
|
|
12
|
|
|
2,703
|
|
|
2,984
|
Less accumulated depreciation
|
|
523
|
|
|
698
|
Net property, plant and equipment
|
$
|
2,180
|
|
$
|
2,286
|
29
Table of Contents
Equipment having a net book value of $2.2 million at December 31, 2018 and 2017 are pledged as collateral under various financing agreements.
During 2018 and 2017, $421,000 and $70,000, respectively, of fully depreciated property, plant and equipment was written off. Depreciation expense for property, plant and equipment for the years ended December 31, 2018 and 2017 was $246,000 and $196,000, respectively.
8. Other Assets
Other assets consist of the following:
In thousands
|
2018
|
|
2017
|
Refundable AMT credits
|
$
|
592
|
|
$
|
611
|
Prepaids
|
|
55
|
|
|
121
|
Deposits
|
|
73
|
|
|
72
|
Total other assets
|
$
|
720
|
|
$
|
804
|
9. Taxes on Income
On December 22, 2017, the TCJ Act was enacted. Effective January 1, 2018, the legislation significantly changed U.S. tax law by lowering the federal corporate tax rate from 35.0% to 21.0%, modifying the foreign earnings deferral provisions, and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. Effective for 2018 and forward, there are additional changes including changes to refundable AMT credits, bonus depreciation, the deduction for executive compensation and interest expense. As of December 31, 2017, two provisions affecting the financial statements are the refundable AMT credits and the one-time toll charge. The change in tax rate which affected the value of deferred tax assets in the amount of $1.7 million was offset by a change in the valuation reserve. Since the toll charge on deemed repatriated earnings of foreign subsidiaries was effective for the tax year ending in 2017, the Company included a deemed dividend in taxable income of $3.3 million for the tax year ending December 31, 2017. In 2018, the deemed dividend in taxable income was reduced by $155,000 to now be $3.2 million. The tax cost has been offset by net operating loss carryforwards. The deferred refundable AMT credits amounting to $777,000, which are now fully refundable through 2021, have been included in the Consolidated Balance Sheets as a result of this act. The remaining refundable AMT credit as of December 31, 2018 and 2017 was $592,000 and $611,000, respectively.
The SEC issued Staff Accounting Bulletin No. 118, which provides the Company with up to one year to finalize accounting for the impacts of the TCJ Act. When the initial accounting for U.S Tax Reform impacts is incomplete, the Company may include provisional amounts when reasonable estimates can be made or continue to apply the prior tax law if a reasonable estimate cannot be made. The Company has estimated the provisional tax impacts related to the toll charge and as result, the Company recognized a net tax expense of approximately $712,000 ($513,000 for Federal and $199,000 for State) offset by NOL's.
The components of income tax expense (benefit) are as follows:
In thousands
|
2018
|
|
2017
|
Current:
|
|
|
|
| |
Federal
|
$
|
-
|
|
$
|
(777)
|
State and local
|
|
25
|
|
|
-
|
Foreign
|
|
22
|
|
|
26
|
|
$
|
47
|
|
$
|
(751)
|
Deferred:
|
|
|
|
| |
Federal
|
$
|
-
|
|
$
|
-
|
State and local
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Income tax expense (benefit)
|
$
|
47
|
|
$
|
(751)
|
Loss before income taxes from the United States operations was $4.5 million and $3.5 million for the years ended December 31, 2018 and 2017, respectively. Loss before income taxes from Canada was $0.1 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively.
The effective income tax rate differed from the expected federal statutory income tax benefit rate of 21.0% as follows:
|
2018
|
|
2017
|
Statutory federal income tax benefit Rate
|
21.0
|
%
|
|
34.0
|
%
|
State income taxes, net of federal Benefit
|
4.2
|
|
|
0.1
|
|
Deemed dividend tax of deferred foreign income under the TCJ Act
|
0.5
|
|
|
(14.3)
|
|
AMT credit fully refundable under the TCJ Act
|
-
|
|
|
21.6
|
|
Foreign income taxed at different Rates
|
(1.1)
|
|
|
(1.9)
|
|
Deferred tax asset remeasured under the TCJ Act
|
-
|
|
|
(48.6)
|
|
Deferred tax asset valuation Allowance
|
(22.6)
|
|
|
30.6
|
|
Other
|
(3.0)
|
|
|
(0.6)
|
|
Effective income tax (expense) benefit rate
|
(1.0)
|
%
|
|
20.9
|
%
|
30
Table of Contents
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred income tax assets and liabilities are as follows:
In thousands
|
2018
|
|
2017
|
Deferred income tax asset:
|
|
|
|
|
|
Tax credit carryforwards
|
$
|
30
|
|
$
|
30
|
Operating loss carryforwards
|
|
5,347
|
|
|
4,663
|
Net pension costs
|
|
2,357
|
|
|
2,499
|
Accruals
|
|
(3)
|
|
|
(3)
|
Allowance for bad debts
|
|
467
|
|
|
45
|
Other
|
|
302
|
|
|
302
|
Valuation allowance
|
|
(7,447)
|
|
|
(6,405)
|
|
|
1,053
|
|
|
1,131
|
Deferred income tax liability:
|
|
|
|
| |
Depreciation
|
|
425
|
|
|
559
|
Other
|
|
628
|
|
|
572
|
|
|
1,053
|
|
|
1,131
|
Net deferred income taxes
|
$
|
-
|
|
$
|
-
|
Operating tax loss carryforwards primarily relate to U.S. federal net operating loss carryforwards of approximately $18.9 million, which begin to expire in 2019. The operating loss carryforwards have been limited by a change in ownership of the Company in 2012 as defined under Section 382 of the Internal Revenue Code. This change in ownership as of June 26, 2012 had limited our operating loss carryforwards at that point to $295,000 per year aggregating $5.9 million. Losses in subsequent years have increased the operating loss carryforwards.
A valuation allowance has been established for the amount of deferred income tax assets as management has concluded that it is more-likely-than-not that the benefits from such assets will not be realized.
The Companys determinations regarding uncertain income tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company does not have any material uncertain tax positions in 2018 and 2017.
The Company is subject to U.S. federal income tax as well as income tax in multiple state and local jurisdictions and Canadian federal and provincial income tax. Currently, no federal, state or provincial income tax returns are under examination.
10. Accrued Liabilities
Accrued liabilities consist of the following:
In thousands
|
2018
|
|
2017
|
Directors fees
|
$
|
1,148
|
|
$
|
1,007
|
Taxes payable
|
|
1,083
|
|
|
972
|
Deferred revenues
|
|
1,000
|
|
|
1,003
|
Interest payable
|
|
731
|
|
|
498
|
Compensation and employee benefits
|
|
636
|
|
|
596
|
Current portion of pension liability
(see Note 14)
|
|
623
|
|
|
576
|
Warranty reserve
|
|
405
|
|
|
322
|
Audit fees
|
|
148
|
|
|
165
|
Other
|
|
558
|
|
|
642
|
|
$
|
6,332
|
|
$
|
5,781
|
A summary of the warranty reserve for the years ended December 31, 2018 and 2017 is as follows:
In thousands
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
322
|
|
$
|
303
|
Provisions
|
|
307
|
|
|
123
|
Deductions
|
|
(224)
|
|
|
(104)
|
Balance at end of year
|
$
|
405
|
|
$
|
322
|
11. Warrant Issuances
In connection with a Securities Purchase Agreement (SPA) with Unilumin, the Company issued the Unilumin Warrant to purchase 5,670,103 shares of the Companys Common Stock at an exercise price of $0.97 per share. The exercise price of the Unilumin Warrant would have been automatically adjusted to $0.75 per share if the Company was unable to complete the Rights Offering by June 1, 2019. The exercise price of the Unilumin Warrant would have been also be decreased to the same price as the exercise price of the rights issued in the Rights Offering if the exercise price of such rights was less than $1.00 per share. The Unilumin Warrant was exercisable until November 2, 2020, provided that they were mandatorily exercisable upon completion of the Rights Offering if in excess of 91% of the Companys currently issued and outstanding Preferred Stock converted into Common Stock. In connection with any such Preferred Stock conversion, Unilumin acknowledged that the conversion price of the Preferred Stock may be decreased, subject to stockholder approval. If all or a significant portion of the Unilumin Warrant is exercised, Unilumin would own in excess of fifty percent of the Companys outstanding Common Stock on a fully diluted basis, even if the Rights Offering is completed. Subsequent to December 31, 2018, the Company completed the Rights Offering and 96.1% of the Series B Convertible Preferred Stock (SBCPS) holders converted their shares into Common Stock. As such, Unilumin fully exercised the Unilumin Warrant for 5,670,103 shares of Common Stock at the exercise price of $0.97 per share, aggregating $5.5 million.
31
Table of Contents
On June 11, 2018, in connection with a Subordinated Secured Promissory Note (the SMI Note), the Company issued SM Investors, L.P. (SMI) a three-year warrant to purchase 82,500 shares of Common Stock at an exercise price of $0.01 per share. The Company utilized the Black-Scholes method to calculate the fair value of this warrant at the time of issuance, using the following assumptions: annual volatility of 100.6%, a risk free rate of 2.53%, Common Stock price of $0.74 and no Common Stock dividends. The calculated fair value was $95,000, and is being treated as a debt discount amortized over the two-year term of the loan.
On June 11, 2018, in connection with a Subordinated Secured Promissory Note (the SMII Note) with SM Investors II, L.P. (SMII), the Company issued SMII a three-year warrant to purchase 167,500 shares of Common Stock at an exercise price of $0.01 per share. The Company utilized the Black-Scholes method to calculate the fair value of this warrant at the time of issuance, using the following assumptions: annual volatility of 100.6%, a risk free rate of 2.53%, Common Stock price of $0.74 and no Common Stock dividends. The calculated fair value was $192,000, and is being treated as a debt discount amortized over the two-year term of the loan.
On April 23, 2015, the Company entered into a credit agreement with BFI Capital Fund II, LLC (BFI) for a $1.5 million credit line, which was repaid in full prior to 2016. In connection with the agreement, the Company also issued BFI a warrant to purchase 10,000 shares of Common Stock at an exercise price of $12.00 per share, which expires on April 23, 2020. The fair value of this warrant at the date of issuance was $21,000. This warrant does not include a potential adjustment of the strike price if the Company sells or grants any options or warrants at a price per share less than the strike price of the warrants, so they are considered indexed to the Companys Common Stock and were accounted for as equity in Additional paid-in-capital in the Consolidated Balance Sheets.
In November 2012, the Board of Directors approved the issuance to two board members, George W. Schiele and Salvatore J. Zizza, of warrants to purchase 20,000 shares of Common Stock at an exercise price of $12.50 per share. In April 2013, the Board of Directors approved the issuance to one board member, Jean Firstenberg, of warrants to purchase 2,000 shares of Common Stock at an exercise price of $12.50 per share. These warrants became fully vested on October 2, 2016 and expired on October 2, 2018. No expense was recorded in 2017 or 2018 related to these warrants. These warrants did not include a potential adjustment of the strike price if the Company sells or grants any options or warrants at a price per share less than the strike price of the warrants, so they were considered indexed to the Companys Common Stock and were accounted for as equity.
12. Long-Term Debt
Long-term debt consists of the following:
In thousands
|
2018
|
|
2017
|
8¼% Limited convertible senior
subordinated notes due 2012
|
$
|
387
|
|
$
|
387
|
9½% Subordinated debentures
due 2012
|
|
220
|
|
|
220
|
Revolving credit line
|
|
1,440
|
|
|
2,722
|
Term loans
|
|
1,590
|
|
|
790
|
Term loans related party
|
|
1,000
|
|
|
1,000
|
Forgivable loan
|
|
650
|
|
|
650
|
Total debt
|
|
5,287
|
|
|
5,769
|
Less deferred financing costs and debt
discount
|
|
257
|
|
|
206
|
Net debt
|
|
5,030
|
|
|
5,563
|
Less portion due within one year
|
|
3,584
|
|
|
4,029
|
Net long-term debt
|
$
|
1,446
|
|
$
|
1,534
|
Payments of long-term debt due for the next five years are:
In thousands
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
$
|
3,637
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
On July 12, 2016, the Company and its wholly-owned subsidiaries Trans-Lux Display Corporation, Trans-Lux Midwest Corporation and Trans-Lux Energy Corporation entered into a credit agreement, as subsequently amended on various dates, the latest being on March 1, 2019 (collectively, the Credit Agreement) with CNH Finance Fund I, L.P. (CNH) as lender. Under the Credit Agreement, the Company was able to borrow up to an aggregate of $4.0 million, which includes (i) up to $3.0 million of a revolving loan, at an interest rate of prime plus 6.0% (11.50% and 8.50% at December 31, 2018 and 2017, respectively), and (ii) a $1.0 million term loan, at an interest rate of prime plus 6.0% (11.50% and 10.50% at December 31, 2018 and 2017, respectively). The availability under the revolving loan was calculated based on certain percentages of eligible receivables and inventory. On November 6, 2018,
the Company and CNH agreed to a forbearance agreement which was effective through February 28, 2019, as long as there are no additional defaults under the Credit Agreement. On March 1, 2019, the effectiveness of the forbearance agreement was extended through April 15, 2019. Under this agreement, CNH would forbear from exercising its rights and remedies under the Credit Agreement for the specified period subject to the agreed terms and conditions, which include an increase in the interest rate and certain other restrictions. On April 10, 2019, the Company satisfied the Credit Agreement in full and the Credit Agreement was terminated.
32
Table of Contents
During 2018, the Company made net payments of $1.3 million on the revolving loan and $200,000 on the term loan, of which $1.4 million and $590,000, respectively, was outstanding as of December 31, 2018. During 2017, the Company had drawn $917,000 on the revolving loan and $600,000 on the term loan, of which $2.7 million and $790,000, respectively, was outstanding as of December 31, 2017.
Interest under the Credit Agreement was payable monthly in arrears. The Credit Agreement also required the payment of certain fees, including, but not limited to a facility fee, an unused line fee and a collateral management fee.
As of December 31, 2018 and 2017, the Company had outstanding $387,000 of Notes. The Notes matured as of March 1, 2012 and are currently in default. As of December 31, 2018 and 2017, the Company had accrued $298,000 and $266,000, 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 February 15, 2019, holders of $35,000 of the Notes accepted the Companys 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. As a result of the transaction, the Company will record a gain on the extinguishment of debt, net of expenses, of $58,000 in 2019.
As of December 31, 2018 and 2017, the Company had outstanding $220,000 of Debentures. The Debentures matured as of December 1, 2012 and are currently in default. As of December 31, 2018 and 2017, the Company had accrued $190,000 and $169,000, 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.
On June 11, 2018, the Company entered into the SMI Note with SMI, pursuant to which the Company has borrowed $330,000 from SMI at an initial interest rate of 10.00%. The maturity date of the SMI Note is the earlier of June 11, 2020 or the Companys completion of an additional financing package of at least $1 million. The Company also issued SMI a three-year warrant to purchase 82,500 shares of the Company at an exercise price of $0.01 per share. The Company utilized the Black-Scholes method to calculate the fair value of this warrant at the time of issuance, which was $95,000, and is being treated as a debt discount amortized over the two-year term of the loan.
On June 11, 2018, the Company entered into the SMII Note with SMII, pursuant to which the Company has borrowed $670,000 from SMII at an initial interest rate of 10.00%. The maturity date of the SMII Note is the earlier of June 11, 2020 or the Companys completion of an additional financing package of at least $1 million. The Company also issued SMII a three-year warrant to purchase 167,500 shares of the Company at an exercise price of $0.01 per share. The Company utilized the Black-Scholes method to calculate the fair value of this warrant at the time of issuance, which was $192,000, and is being treated as a debt discount amortized over the two-year term of the loan.
SMI and SMII agreed to waive their right of payment with respect to the purchase of 1,315,789 shares for $1.5 million in connection with the SPA.
In connection with the SMI Note and the SMII Note, the Company and its wholly-owned subsidiaries Trans-Lux Display Corporation, Trans-Lux Midwest Corporation and Trans-Lux Energy Corporation, as borrowers, entered into a Waiver, Consent and Ninth Amendment to the Credit Agreement, dated as of June 11, 2018, with CNH, to provide for certain amendments to that certain Credit Agreement with CNH, dated July 12, 2016, to allow for the Companys entry into the SMI Note and the SMII Note and the security interests granted to SMI and SMII thereunder.
The Company, SMI, SMII and CNH also entered into a Subordination and Intercreditor Agreement (the SIA), dated as of June 11, 2018, setting forth CNHs senior lien position to all collateral of the Company, and the rights of each of CNH, SMI and SMII with respect to the collateral of the Company. The SIA allows the Company to make payments to SMI and SMII as long as the Company is not in default on the Credit Agreement with CNH.
On April 27, 2016, the Company received a $500,000 loan from Carlisle Investments Inc. (Carlisle) at a fixed interest rate of 12.00%, which is due to mature on April 27, 2019 with a bullet payment of all principal due at such time. Interest is payable monthly. Marco Elser, a director of the Company, exercises voting and dispositive power as investment manager of Carlisle.
On November 6, 2017, the Company received an additional $500,000 loan from Carlisle at a fixed interest rate of 12.00%, which was due to mature on December 10, 2017 with a bullet payment of all principal due at such time (the Second Carlisle Agreement). As of December 31, 2018, the entire amount was outstanding. 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.
33
Table of Contents
On July 28, 2017, the Company entered into a credit agreement with Mr. Arnold Penner, pursuant to which the Company could borrow up to $1.5 million at a loan fee of $35,000, with a maturity date of August 19, 2017. On October 17, 2017, the Company repaid the balance of the loan and satisfied the agreement in full.
On May 23, 2017, the Company received $650,000 structured as a forgivable loan from the City of Hazelwood, Missouri, which is included in Forgivable loan in the Consolidated Balance Sheets. The loan will be forgiven on a pro-rata basis if predetermined employment levels are attained and would expire on April 1, 2024. If the Company attains the employment levels required by the agreement, there is no interest due, otherwise interest accrues at a rate of prime plus 2.00% (7.50% and 6.50% at December 31, 2018 and 2017, respectively). In February 2018, in accordance with the agreement, the Company requested a 1-year extension of the terms of the agreement, which was approved by the City of Hazelwood in March 2018, so the agreement now terminates on April 1, 2025.
13. Stockholders Deficit
During 2018 and 2017, the Board of Directors did not declare any quarterly cash dividends on the Companys Common Stock. In September 2018, the Board of Directors declared a cash dividend of $6.00 per share for each share of SBCPS (aggregating $99,000, which was paid in November 2018). In April 2018, the Board of Directors declared a stock dividend of 7.6923 shares of Common Stock for each share of SBCPS (aggregating 127,013 common shares, which were issued in May 2018). In the year ended December 31, 2017, the Company declared cash dividends related to the SBCPS of $198,000. As of December 31, 2018 and 2017, the Company had recorded accumulated unpaid dividends related to SBCPS of $41,000.
The Company was authorized to issue 500,000 shares of preferred stock as of December 31, 2018, of which (i) 416,500 shares were designated as Series A Convertible Preferred Stock, none of which were outstanding, (ii) 51,000 shares were designated as SBCPS, 16,512 of which were outstanding as of December 31, 2018, and (iii) 32,500 shares were not yet designated. The SBCPS has a stated price of $200.00 per share and was convertible into 20 shares of Common Stock. Subsequent to December 31, 2018, the Company filed amendments to increase the authorized shares of preferred stock to 2,500,000 and to increase the conversion rate of the SBCPS to 100 shares of Common Stock. Also subsequent to December 31, 2018, the holders of 15,864 shares of SBCPS converted their shares into 1,586,400 shares of Common Stock, leaving 648 shares of SBCPS outstanding. The SBCPS carries a 6.0% cumulative annual dividend, which amounts to $198,000 on an annual basis. As of November 19, 2018, the shares of SBCPS were subject to mandatory conversion at the Companys discretion. The undesignated preferred stock would contain such rights, preferences, privileges and restrictions as may be fixed by our Board of Directors.
Shares of the Companys Common Stock reserved for future issuance in connection with convertible securities and stock option plans were 6,260,343 and 402,000 at December 31, 2018 and 2017, respectively.
During 2018 and 2017, certain board members deferred payment of their director fees. In lieu of a cash payment, certain board members and former board members have agreed to receive restricted shares of Common Stock of the Company or a combination of cash and restricted shares of Common Stock of the Company, which such restricted shares shall contain a legend under the Securities Act of 1933 and shall not be transferable unless and until registered or otherwise in accordance with applicable securities laws. No restricted stock was issued in lieu of cash payments for directors fees in 2018 or 2017.
Accumulated other comprehensive loss is comprised of approximately $6.5 million and $5.8 million of unrecognized pension costs at December 31, 2018 and 2017, respectively, and $76,000 and $281,000 of unrealized foreign currency translation gains at December 31, 2018 and 2017, respectively.
The components of accumulated other comprehensive loss are as follows:
In thousands
|
Pension plan
actuarial loss
|
|
Foreign currency
translation
gain (loss)
|
|
Total
|
Balances at January 1, 2017
|
$
|
(5,722)
|
|
$
|
112
|
|
$
|
(5,610)
|
Actuarial loss
|
|
(95)
|
|
|
-
|
|
|
(95)
|
Translation gain
|
|
-
|
|
|
169
|
|
|
169
|
Balances at December 31, 2017
|
|
(5,817)
|
|
|
281
|
|
|
(5,536)
|
Actuarial loss
|
|
(653)
|
|
|
-
|
|
|
(653)
|
Translation loss
|
|
-
|
|
|
(205)
|
|
|
(205)
|
Balances at December 31, 2018
|
$
|
(6,470)
|
|
$
|
76
|
|
$
|
(6,394)
|
14. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its subsidiaries are covered by a non-contributory defined benefit pension plan. Pension benefits vest after five years of service and are based on years of service and final average salary. The Companys general funding policy is to contribute at least the required minimum amounts sufficient to satisfy regulatory funding standards, but not more than the maximum tax-deductible amount. The benefit service under the pension plan had been frozen since 2003 and, accordingly, there is no service cost for the years ended December 31, 2018 and 2017. In 2009, the compensation increments were frozen, and accordingly, no additional benefits are being accrued under the plan. For 2018 and 2017, the accrued benefit obligation of the plan exceeded the fair value of plan assets, due primarily to the plans investment performance and updates to actuarial longevity tables. The Companys obligations under its pension plan exceeded plan assets by $4.3 million at December 31, 2018.
34
Table of Contents
In accordance with the adoption of ASU 2017-07, the Company has retrospectively revised the presentation of the non-service components of periodic pension benefit to Pension benefit in the Consolidated Statements of Operations. The following table presents a summary of the effect for the period ended December 31, 2017:
|
As
reported
|
|
As
revised
|
|
Effect of change
|
In thousands
|
|
|
General and administrative expenses
|
$
|
6,578
|
|
$
|
6,613
|
|
$
|
35
|
Operating loss
|
|
(2,846)
|
|
|
(2,881)
|
|
|
(35)
|
Pension benefit
|
|
-
|
|
|
(35)
|
|
|
(35)
|
Loss before income taxes
|
|
(2,849)
|
|
|
(2,849)
|
|
|
-
|
The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The portfolio contains a diversified blend of equity and fixed income investments. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
At December 31, 2018 and 2017, the Companys pension plan weighted-average asset allocations by asset category are as follows:
|
2018
|
|
2017
|
Equity and index funds
|
64.7
|
%
|
|
72.0
|
%
|
Fixed income funds
|
35.3
|
|
|
28.0
|
|
|
100.0
|
%
|
|
100.0
|
%
|
The pension plan asset information included below is presented at fair value as established by ASC 820.
The following table presents the pension plan assets by level within the fair value hierarchy as of December 31, 2018 and 2017:
In thousands
|
2018
|
|
2017
|
Level 1:
|
|
|
|
| |
Equity and index funds
|
$
|
5,593
|
|
$
|
7,289
|
Fixed income funds
|
|
3,054
|
|
|
2,841
|
Total Level 1
|
|
8,647
|
|
|
10,130
|
Level 2
|
|
-
|
|
|
-
|
Level 3
|
|
-
|
|
|
-
|
Total pension plan assets
|
$
|
8,647
|
|
$
|
10,130
|
The funded status of the plan as of December 31, 2018 and 2017 is as follows:
In thousands
|
2018
|
|
2017
|
Change in benefit obligation:
|
|
|
|
|
|
Projected benefit obligation at
beginning of year
|
$
|
14,320
|
|
$
|
13,408
|
Interest cost
|
|
455
|
|
|
466
|
Actuarial (gain) loss
|
|
(908)
|
|
|
1,067
|
Benefits paid
|
|
(902)
|
|
|
(621)
|
Projected benefit obligation at
end of year
|
|
12,965
|
|
|
14,320
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
| |
Fair value of plan assets at
beginning of year
|
|
10,130
|
|
|
8,984
|
Actual return on plan assets
|
|
(1,002)
|
|
|
1,469
|
Company contributions
|
|
421
|
|
|
298
|
Benefits paid
|
|
(902)
|
|
|
(621)
|
Fair value of plan assets at end of
year
|
|
8,647
|
|
|
10,130
|
|
|
|
|
| |
Funded status (underfunded)
|
$
|
(4,318)
|
|
$
|
(4,190)
|
|
|
|
|
| |
Amounts recognized in other
accumulated comprehensive loss:
|
|
|
|
|
|
Net actuarial loss
|
$
|
7,954
|
|
$
|
7,301
|
Weighted average assumptions as of
December 31:
|
|
|
|
|
|
Discount rate:
|
|
|
|
| |
Components of cost
|
|
3.65%
|
|
|
4.17%
|
Benefit obligations
|
|
4.30%
|
|
|
3.66%
|
Expected return on plan assets
|
|
8.00%
|
|
|
8.00%
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
35
Table of Contents
The Company determines the long-term rate of return for plan assets by studying historical markets and the long-term relationships between equity securities and fixed income securities, with the widely-accepted capital market principal that assets with higher volatility generate higher returns over the long run. The 8.0% expected long-term rate of return on plan assets is determined based on long-term historical performance of plan assets, current asset allocation and projected long-term rates of return.
In 2019, the Company expects to amortize $262,000 of actuarial losses to pension expense. The accumulated benefit obligation at December 31, 2018 and 2017 was $13.0 million and $14.3 million, respectively. The minimum required contribution in 2019 is expected to be $623,000, which is included in Accrued liabilities in the Consolidated Balance Sheets. The long-term pension liability is $3.7 million and is included in Deferred pension liability and other in the Consolidated Balance Sheets. In March 2010, 2011 and 2013, the Company submitted to the Internal Revenue Service (IRS) requests for waivers of the minimum funding standard for its defined benefit pension plan for the 2009, 2010 and 2012 plan years. The waiver requests were submitted as a result of the economic climate and the business hardship that the Company was experiencing. The waivers for the 2009, 2010 and 2012 plan years were approved and granted subject to certain conditions and have deferred payment of $285,000, $559,000 and $669,000 of the minimum funding standard for the 2009, 2010 and 2012 plan years, respectively. As of December 31, 2017, the Company has fully repaid the amounts deferred for each of these waivers. In 2018, we made $421,000 of the $592,000 of minimum required contributions to the plan. Subsequent to December 31, 2018, we made a $391,000 contribution to the plan. At this time, the Company is expecting to make its minimum
required $623,000 of contributions remaining for 2019
, which includes the balance of the 2018 minimum required contributions; however, there is no assurance that the Company will be able to make any or all such remaining payments.
If we are unable to fulfill our related obligations, the implementation of any such enforcement remedies would have a material adverse impact on our financial condition, results of operations, and liquidity.
The following estimated benefit payments are expected to be paid by the Companys pension plan in the next 5 years:
In thousands
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
$
|
924
|
|
$
|
703
|
|
$
|
1,165
|
|
$
|
705
|
|
$
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The following table presents the components of the net periodic pension cost for the years ended December 31, 2018 and 2017:
In thousands
|
2018
|
|
2017
|
Interest cost
|
$
|
455
|
|
$
|
466
|
Expected return on plan assets
|
|
(787)
|
|
|
(716)
|
Amortization of net actuarial loss
|
|
229
|
|
|
219
|
Net periodic pension cost (benefit)
|
$
|
(103)
|
|
$
|
(31)
|
The following table presents the change in unrecognized pension costs recorded in other comprehensive loss as of December 31, 2018 and 2017:
In thousands
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
7,301
|
|
$
|
7,206
|
Net actuarial loss
|
|
882
|
|
|
314
|
Recognized loss
|
|
(229)
|
|
|
(219)
|
Balance at end of year
|
$
|
7,954
|
|
$
|
7,301
|
In addition, the Company provided unfunded supplemental retirement benefits for the retired, former Chief Executive Officer. During 2009 the Company accrued $0.5 million for such benefits, which has not yet been paid, which is included in Accrued liabilities in the Consolidated Balance Sheets. The Company does not offer any post-retirement benefits other than the pension and supplemental retirement benefits described herein.
15. Share-Based Compensation
The Company accounts for all share-based payments to employees and directors, including grants of employee stock options, at fair value and expenses the benefit in the Consolidated Statements of Operations over the service period (generally the vesting period). The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes pricing valuation model, which requires various assumptions including estimating stock price volatility, expected life of the stock option, risk free interest rate and estimated forfeiture rate.
On October 5, 2018, the Company granted 20,000 shares of Common Stock to the Companys Chief Executive Officer. The closing share price on the date of the grant was $0.49 and there was no vesting period. The Company recorded compensation expense of $10,000 in 2018.
On December 29, 2017, the Company granted 451,500 shares of Common Stock to certain directors and executive management team members. The closing share price on the date of the grant was $0.75 and there was no vesting period. The Company recorded compensation expense of $338,000 in 2017.
36
Table of Contents
The Company has two stock option plans. As of December 31, 2018, no shares of Common Stock were available for grant under the 2012 Long-Term Incentive Plan and 800 shares of Common Stock were available for grant under the Non-Employee Director Stock Option Plan.
Changes in the stock option plans are as follows:
|
Number of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Authorized
|
|
Granted
|
|
Available
|
|
Balance January 1, 2017
|
200,800
|
|
-
|
|
200,800
|
|
|
N/A
|
Authorized
|
-
|
|
-
|
|
-
|
|
| |
Expired
|
(200,000)
|
|
-
|
|
(200,000)
|
|
|
|
Granted
|
-
|
|
-
|
|
-
|
|
| |
Balance December 31, 2017
|
800
|
|
-
|
|
800
|
|
|
|
Authorized
|
-
|
|
-
|
|
-
|
|
| |
Expired
|
-
|
|
-
|
|
-
|
|
|
|
Granted
|
-
|
|
-
|
|
-
|
|
| |
Balance December 31, 2018
|
800
|
|
-
|
|
800
|
|
|
|
Under the 2012 Long-Term Incentive Plan, option prices must be at least 100% of the market value of the Common Stock at the time of grant. Exercise periods are for ten years from the date of grant and terminate at a stipulated period of time after an employees termination of employment. During 2017, stock grants were awarded, causing the potential for stock options to be terminated. At December 31, 2018, no options were outstanding or exercisable. During 2018 and 2017, no options were granted or exercised.
Under the Non-Employee Director Stock Option Plan, option prices must be at least 100% of the market value of the Common Stock at the time of grant. No option may be exercised prior to one year after the date of grant and the optionee must be a director of the Company at the time of exercise, except in certain cases as permitted by the Compensation Committee. Exercise periods are for six years from the date of grant and terminate at a stipulated period of time after an optionee ceases to be a director. At December 31, 2018, there were no outstanding options to purchase shares.
As of December 31, 2018, there was no unrecognized compensation cost related to non-vested options granted under the Plans.
16. Loss Per Share
The following table presents the calculation of loss per share for the years ended December 31, 2018 and 2017:
In thousands, except per share data
|
2018
|
|
2017
|
Numerator:
|
|
|
|
| |
Net loss, as reported
|
$
|
(4,694)
|
|
$
|
(2,849)
|
Dividends paid on preferred shares
|
|
(198)
|
|
|
(198)
|
Net loss attributable to common
shares
|
$
|
(4,892)
|
|
$
|
(3,047)
|
Denominator:
|
|
|
|
| |
Weighted average shares outstanding
|
|
2,603
|
|
|
1,714
|
Basic and diluted loss per share
|
$
|
(1.88)
|
|
$
|
(1.78)
|
At December 31, 2018 and 2017, dividends accumulated on preferred shares totaled $41,000.
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.
At December 31, 2018 and 2017, outstanding warrants convertible into 5,680,000 and 52,000 shares of Common Stock, respectively, were excluded from the calculation of diluted loss per share because their impact would have been anti-dilutive.
17. Commitments and Contingencies
Commitments:
The Company has employment agreements with its Chief Executive Officer and its Chief Accounting Officer, which expire in October 2020. At December 31, 2018, the aggregate commitment for future salaries, excluding bonuses, was approximately $788,000. Contractual salaries expense was $338,000 and $550,000 for the years ended December 31, 2018 and 2017.
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 believes that it has accrued adequate reserves individually and in the aggregate for such legal proceedings. Should actual litigation results differ from the Companys estimates, revisions to increase or decrease the accrued reserves may be required.
There are no open matters that the Company deems material.
37
Table of Contents
Operating leases:
Certain premises are occupied under operating leases that expire at varying dates through 2023. Certain of these leases provide for the payment of real estate taxes and other occupancy costs. On February 1, 2016, the Company sold its Des Moines, Iowa facility in a sale/leaseback transaction. The lease was for a two-year lease period at an annual rental of $158,000. In 2017, the Company extended the lease for another year at the same rate. In 2018, the Company extended the lease for yet another year at the same rate. On June 21, 2016, the Company entered into a lease for a manufacturing facility in Hazelwood, Missouri for a seven-year lease period at an initial annual rental of $317,000. Future minimum lease payments due under operating leases at December 31, 2018 aggregating $1.9 million are as follows: $566,000 - 2019, $350,000 2020, $342,000 2021, $348,000 2022 and $309,000 2023. Rent expense was $662,000 and $848,000 for the years ended December 31, 2018 and 2017, respectively.
18. Related Party Transactions
In addition to the warrant issuances to directors and Unilumin described in Note 11 and the Companys loans from Carlisle described in Note 12, the Company has the following related party transactions:
Yaozhong Shi, a director of the Company, is the Chairman of Transtech LED Company Limited (Transtech), which is one of our primary LED suppliers. The Company purchased $211,000 and $1.9 million of product from Transtech in 2018 and 2017, respectively. Amounts payable by the Company to Transtech were $305,000 and $149,000 as of December 31, 2018 and 2017, respectively.
On March 4, 2019, Unilumin exercised a portion of the Unilumin Warrant to purchase 2,061,856 shares of our Common Stock, resulting in gross proceeds of $2.0 million.
On April 5, 2019, the Rights Offering terminated. At the closing of the Rights Offering on April 9, 2019, the Company received gross proceeds of $2.5 million in exchange for 2,500,000 shares of Common Stock.
On April 5, Unilumin exercised the remaining of the Unilumin Warrant to purchase 3,608,247 shares of our Common Stock, resulting in gross proceeds of $3.5 million.
The Company used the proceeds from the Rights Offering and the Unilumin Warrant to satisfy its obligations under its credit and security agreement (Credit Agreement) with CNH Finance Fund I, L.P. (CNH). The Company also used a portion of the net proceeds for working capital. As a result of the exercises of the Unilumin Warrant, the Rights Offering and the conversion of the SBCPS to Common Stock, Unilumin now holds 52.2% of the Companys outstanding Common Stock.
On March 4, 2019, the Unilumin exercised $2.0 million of the Unilumin Warrant, and on April 5, 2019, Unilumin exercised the remaining $3.5 million of the Unilumin Warrant, raising an aggregate of $5.5 million for the Company. Nicholas Fazio and Yang Liu, both directors of the Company, are directors of Unilumin.
As of December 31, 2018, the Company had outstanding payables to certain executive officers aggregating $427,000.
19. Business Segment Data
Operating segments are based on the Companys business components about which separate financial information is available and are evaluated regularly by the Companys chief operating decision-maker 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. The Companys 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 products. 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 Companys revenues for 2018 and 2017. The 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.
38
Table of Contents
Information about the Companys operations in its two business segments for the years ended December 31, 2018 and 2017 and as of December 31, 2018 and 2017 were as follows:
In thousands
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
Digital product sales
|
$
|
11,958
|
|
$
|
22,093
|
Digital product lease & maintenance
|
|
2,441
|
|
|
2,350
|
Total revenues
|
$
|
14,399
|
|
$
|
24,443
|
Operating (loss) income:
|
|
|
|
|
|
Digital product sales
|
$
|
(1,744)
|
|
$
|
(149)
|
Digital product lease & maintenance
|
|
1,062
|
|
|
653
|
Corporate general and
administrative expenses
|
|
(3,364)
|
|
|
(3,385)
|
Total operating loss
|
|
(4,046)
|
|
|
(2,881)
|
Interest expense, net
|
|
(940)
|
|
|
(708)
|
Gain (loss) on foreign currency
remeasurement
|
|
225
|
|
|
(178)
|
Gain on sale/leaseback transaction
|
|
11
|
|
|
132
|
Pension benefit
|
|
103
|
|
|
35
|
Loss before income taxes
|
|
(4,647)
|
|
|
(3,600)
|
Income tax (expense) benefit
|
|
(47)
|
|
|
751
|
Net loss
|
$
|
(4,694)
|
|
$
|
(2,849)
|
Assets:
|
|
|
|
|
|
Digital product sales
|
$
|
7,689
|
|
$
|
9,722
|
Digital product lease &
Maintenance
|
|
3,054
|
|
|
4,515
|
Total identifiable assets
|
|
10,743
|
|
|
14,237
|
General corporate
|
|
723
|
|
|
747
|
Total assets
|
$
|
11,466
|
|
$
|
14,984
|
Depreciation and amortization:
|
|
|
|
|
|
Digital product sales
|
$
|
234
|
|
$
|
176
|
Digital product lease &
Maintenance
|
|
706
|
|
|
1,105
|
General corporate
|
|
12
|
|
|
20
|
Total depreciation and amortization
|
$
|
952
|
|
$
|
1,301
|
Capital expenditures:
|
|
|
|
| |
Digital product sales
|
$
|
140
|
|
$
|
190
|
Digital product lease &
Maintenance
|
|
-
|
|
|
32
|
General corporate
|
|
-
|
|
|
-
|
Total capital expenditures
|
$
|
140
|
|
$
|
222
|
20. Subsequent Events
The Company has evaluated events and transactions subsequent to December 31, 2018 and through the date these Consolidated Financial Statements were included in this Form 10-K and filed with the SEC.
As described in the Schedule 14C, the Company received the written consent of the requisite vote, including separate votes by the holders of the Companys Common Stock and SBCPS, to approve a certificate of amendment (the Charter Amendment) to the Companys Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to increase the authorized shares of Common Stock to 30,000,000 and the authorized shares of preferred stock, $0.001 par value per share, to 2,500,000 shares. The Company also received the written consent of the requisite vote to approve an Amended and Restated Certificate of Designations of the SBCPS (the Certificate of Designations) with the Delaware Secretary of State to reduce the conversion price of the Companys SBCPS to $2.00 per share. The Schedule 14C was mailed to the non-consenting stockholders and filed with the Securities Exchange Commission on January 7, 2019. The Company was authorized to implement these actions twenty days after the mailing to the non-consenting stockholders of the Companys Schedule 14C. Accordingly, the Company filed the Charter Amendment and the Certificate of Designations in Delaware on January 28, 2019.
On February 15, 2019, holders of $35,000 of the Notes accepted the Companys 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.
On February 21, 2019, 96.1% of our issued and outstanding SBCPS was converted into 1,586,400 shares of Common Stock.
On March 4, 2019, Unilumin exercised a portion of the Unilumin Warrant to purchase 2,061,856 shares of our Common Stock, resulting in gross proceeds of $2.0 million.
On April 5, 2019, the Rights Offering terminated. At the closing of the Rights Offering on April 9, 2019, the Company received gross proceeds of $2.5 million in exchange for 2,500,000 shares of Common Stock.
On April 5, 2019, Unilumin exercised the remaining portion of the Unilumin Warrant to purchase 3,608,247 shares of our Common Stock, resulting in gross proceeds of $3.5 million.
The Company used the proceeds from the Rights Offering and the Unilumin Warrant to satisfy its obligations under its Credit Agreement with CNH. The Company also used a portion of the net proceeds for working capital. As a result of the exercises of the Unilumin Warrant, the Rights Offering and the conversion of the SBCPS to Common Stock, Unilumin now holds 52.2% of the Companys outstanding Common Stock.