TRANS LUX Corp - Quarter Report: 2013 September (Form 10-Q)

TRANS-LUX CORPORATION AND SUBSIDIARIES

September 30, 2013

(unaudited)

Note 1 –  Basis of Presentation

Financial information included herein is unaudited, however, such information reflects all adjustments (of a normal and recurring nature), which are, in the opinion of management, necessary for the fair presentation of the condensed consolidated financial statements for the interim periods.  The results for the interim periods are not necessarily indicative of the results to be expected for the full year.  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and therefore do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America.  It is suggested that the September 30, 2013 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.  The Condensed Consolidated Balance Sheet at December 31, 2012 is derived from the December 31, 2012 audited financial statements.

There have been no material changes in our significant accounting policies during the nine months ended September 30, 2013 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2012.  The Company has evaluated subsequent events through the filing date of this Form 10-Q and they are disclosed in Note 14 – Subsequent Events.

Recent Accounting Pronouncements:  In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-08, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill Impairment” (“ASU 2011-08”).  ASU 2011-08 is intended to simplify goodwill impairment testing by permitting assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the traditional two-step impairment test.  Under this update, we are not required to calculate the fair value of our reporting units unless we conclude that it is more-likely-than-not (likelihood of more than 50%) that the carrying value of our reporting units is greater than the fair value of such units based on our assessment of events and circumstances.  This update is effective for fiscal years beginning after December 15, 2011, with early adoption permitted.  We adopted the provisions of this update at the beginning of our 2012 fourth quarter, which has historically been the time at which we assessed the potential impairment of our goodwill and other indefinite lived intangible assets.  The adoption of ASU 2011-08 did not have a material impact on the Company’s condensed consolidated financial statements.

Reclassifications:  Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

Note 2 - Going Concern

A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business.This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, the Company has prepared its consolidated financial statements on a going concern basis.

Management cannot provide any assurance that the Company would have sufficient cash and liquid assets to fund normal operations. Further, the Company’s obligations under its pension plan exceeded plan assets by $6.4 million at September 30, 2013 and the Company had $1.1 million due under its pension plan over the next 12 months. Additionally, if the Company is unable to cure the defaults on the Debentures and the Notes, the Debentures and the Notes could be called and be immediately due. If the Debentures and Notes are called, the Company would need to obtain new financing. There can be no assurance that the Company will be able to do so and, even if it obtains such financing, how the terms of such financing will affect the Company.  If the debt is called and new financing cannot be arranged, it is unlikely that the Company will be able to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that may result from the outcome of this uncertainty. See Note 8 - Long-Term Debt for further details.

Subsequent to September 30, 2013, the Company has made its regularly scheduled quarterly contributions totaling $436,000 to the Company’s pension plan, which was paid in increments of $218,000 each on October 15, 2013 and January 15, 2014. The Company continues to consider further exchanges of the $1.1 million of remaining Notes and the $334,000 of remaining Debentures on the same terms as previously offered in our 2011 financial restructuring. The Company is seeking 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. To the extent the Company issues additional equity securities, it could be dilutive to existing shareholders.

Note 7 – Warrant Liabilities

As part of the Company’s restructuring plan, see Note 3 – Plan of Restructuring, the Company issued 166,600 one-year warrants (the “A Warrants”). The expiration date of the A Warrants was subsequently extended until September 13, 2013.  Each A Warrant entitled the holder to purchase one share of the Company’s Common Stock and a three-year warrant (the “B Warrants”), at an exercise price of $5.00 per share.  5,400 A Warrants were exercised before the expiration, resulting in the issuance of 5,400 B Warrants.  Each B Warrant entitles the holder to purchase one share of the Company’s Common Stock at an exercise price of $12.50 per share.  Each of these warrants for Common shares and their exercise prices has been adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events.

In connection with the Offering, the Company issued 48,000 three-year warrants to the Placement Agent (the “Placement Agent Warrants”). Upon the exercise of these Placement Agent Warrants, the Company will issue 9,600 A Warrants to the Placement Agent and upon the exercise of these A Warrants, the Company will issue 9,600 B Warrants to the Placement Agent.  The aggregate number of Placement Agent Warrants, A Warrants and B Warrants to which the Placement Agent is entitled is 67,200.  Each Placement Agent Warrant entitles the Placement Agent to purchase one share of the Company’s Common Stock at an exercise price of $12.50 per share and a two-year A Warrant.  Each A Warrant entitles the Placement Agent to purchase one share of the Company’s Common Stock and a three-year B Warrant at an exercise price of $5.00 per share.  Each B Warrant shall entitle the Placement Agent to purchase one share of the Company’s Common Stock at an exercise price of $12.50 per share.  Each of these warrants for Common shares and their exercise prices has been adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events.

In connection with a private placement of $650,000 of 4.00% notes in 2011, the Company issued 40,000 five-year warrants to the subscriber.  Each warrant entitles the subscriber to purchase one share of the Company’s Common Stock at an exercise price of $2.50 per share. These warrants for Common shares and their exercise price have been adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events.

The foregoing warrants include a potential adjustment of the strike price if the Company sells or grants any option or warrant at a price per share less than the strike price of the warrants. Therefore, the warrants are not considered indexed to the Company’s Common Stock and are accounted for on a liability basis. The Company recorded non-cash gains of $296,000 and $960,000 for the three and nine months ended September 30, 2013, respectively, and non-cash gains of $1.4 million and $3.3 million for the three and nine months ended September 30, 2012, respectively, related to changes in the fair market value of the warrants issued in the Offering, to the Placement Agent and to the subscriber in connection with the $650,000 of 4.00% secured notes, which is included in Change in warrant liabilities in the Condensed Consolidated Statements of Operations.

The Company had a bank Credit Agreement, as amended, which provided for a revolving loan of up to $599,000, based on eligible accounts receivable, at a variable rate of interest of Prime plus 2.00%, which was due to mature on June 30, 2013.  On June 11, 2013, the Company paid off the balance on the revolving loan and the Credit Agreement has been satisfied in full and the liens held by the senior lender on the collateral in connection therewith have been terminated. The amounts outstanding under the Credit Agreement were collateralized by all of the Digital display assets.

As of September 30, 2013, the Company had a $469,000 mortgage on its facility located in Des Moines, Iowa at a fixed rate of interest of 6.50% payable in monthly installments, which matures March 1, 2015 and requires a compensating balance of $200,000.

Subsequent to September 30, 2013, the Company executed a promissory note (the “Note”) in favor of Carlisle Investments, Inc. (“Carlisle”), pursuant to which Carlisle loaned $1,000,000 to the Company in order to provide the Company with temporary financing (the “Loan”). Mr. Marco Elser, a director of the Company, exercises voting and dispositive power as investment manager of Carlisle. In connection with the Loan, the Company has granted to Carlisle a first-priority (excluding the liens held by the Pension Benefit Guaranty Corporation, which are senior to the liens and security interest granted in connection with the Loan) continuing security interest in and lien upon all assets of the Company (excluding those assets subject to the security interest granted to Axis Capital, Inc. by the Company pursuant to that certain Master Agreement for Sale and Assignment of Leases dated as of June 6, 2013), in accordance with the terms of a security agreement entered into between the parties and dated as of December 2, 2013.  The Note bears interest at the rate of ten percent per annum and has a maturity date of June 1, 2014, with a bullet payment of all principal and accrued interest due at such time; provided, however, that the parties may agree in writing to convert or exchange all or any part of the Note into a long term investment by Carlisle in Trans-Lux (a “Conversion Transaction”). In the event the parties engage in a Conversion Transaction (of which there can be no assurance), all amounts due under the Note will be payable (or not, as the case may be) in accordance with the terms of the documentation executed by the parties in connection with such Conversion Transaction, if any. On December 4, 2013, net proceeds in the amount of $1,000,000 were received from Carlisle. The funds were used for working capital purposes.

Foreign revenues represent less than 10% of the Company’s revenues for 2013 and 2012. 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.

Information about the Company’s continuing operations in its two business segments for the three and nine months ended September 30, 2013 and 2012 is as follows:

Note 14 - Subsequent Events

As approved by shareholders at the Company’s Annual Meeting on October 2, 2013, the Company enacted a 1,000:1 reverse stock split followed immediately by a 1:40 forward stock split effective October 29, 2013. As a result, on October 29, 2013, every 1,000 outstanding shares of Common Stock were exchanged into 1 share of Common Stock.  Any shareholders who owned fractional shares of Common Stock after the reverse stock split were cashed out at the closing market price of $0.29 on October 25, 2013.  At the conclusion of the forward stock split, every 1 outstanding share of Common Stock was exchanged into 40 shares of Common Stock. Unless otherwise indicated, all share information in this Form 10-Q has been adjusted for the reverse and forward stock splits.

In December 2013, the Company issued 5,813 shares (adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events) of Restricted Stock and cash of $11,282 to certain current and former board members in lieu of cash as payment for board fees of $83,940 that were owed as of the October 2, 2013 Annual Meeting.

Subsequent to September 30, 2013, the Company executed a promissory note (the “Note”) in favor of Carlisle Investments, Inc. (“Carlisle”), pursuant to which Carlisle loaned $1,000,000 to the Company in order to provide the Company with temporary financing (the “Loan”).  Mr. Marco Elser, a director of the Company, exercises voting and dispositive power as investment manager of Carlisle.

In connection with the Loan, the Company has granted to Carlisle a first-priority (excluding the liens held by the Pension Benefit Guaranty Corporation, which are senior to the liens and security interest granted in connection with the Loan) continuing security interest in and lien upon all assets of the Company (excluding those assets subject to the security interest granted to Axis Capital, Inc. by the Company pursuant to that certain Master Agreement for Sale and Assignment of Leases dated as of June 6, 2013), in accordance with the terms of a security agreement entered into between the parties and dated as of December 2, 2013.  The Note bears interest at the rate of ten percent per annum and has a maturity date of June 1, 2014, with a bullet payment of all principal and accrued interest due at such time; provided, however, that the parties may agree in writing to convert or exchange all or any part of the Note into a long term investment by Carlisle in Trans-Lux (a “Conversion Transaction”). In the event the parties engage in a Conversion Transaction (of which there can be no assurance), all amounts due under the Note will be payable (or not, as the case may be) in accordance with the terms of the documentation executed by the parties in connection with such Conversion Transaction, if any. On December 4, 2013, net proceeds in the amount of $1,000,000 were received from Carlisle. The funds were used for working capital purposes.

Overview

Trans-Lux is a leading supplier of LED technology for high resolution video displays and lighting applications. The essential elements of these systems are the real-time, programmable digital displays and lighting fixtures 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’s LED lighting fixtures offer energy-saving lighting solutions that feature a comprehensive offering of the latest LED lighting technologies that provide facilities and public infrastructure with “green” lighting solutions that emit less heat, save energy and enable creative designs. The Company operates in two reportable segments: Digital display sales and Digital display lease and maintenance.

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

Total operating loss for the nine months ended September 30, 2013 decreased $1.1 million to $2.6 million from $3.7 million for the nine months ended September 30, 2012, principally due to a decrease in general and administrative expenses, offset by the decrease in revenues.

Digital display sales operating loss increased $251,000 or 15.9%, primarily as a result the decrease in revenues, offset by a decrease in general and administrative expenses.  The cost of Digital display sales decreased $2.4 million or 23.6%, primarily due to the decrease in revenues.  The cost of Digital display sales represented 75.2% of related revenues in 2013 compared to 77.7% in 2012.  Digital display sales general and administrative expenses decreased $107,000 or 2.4%, primarily due to a reduction of consultant marketing expenses.

Digital display lease and maintenance operating income increased $317,000 or 69.5%, primarily due to a decrease in general and administrative expenses and a decrease in the cost of Digital display lease and maintenance, offset by the decrease in revenues.  The cost of Digital display lease and maintenance decreased $729,000 or 16.3%, primarily due to a $331,000 decrease in depreciation expense and a $398,000 decrease in field service costs to maintain the displays.  The cost of Digital display lease and maintenance revenues represented 78.8% of related revenues in 2013 compared to 84.9% in 2012.  The cost of Digital display lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.  Digital display lease and maintenance general and administrative expenses decreased $107,000, primarily due to a decrease in bad debt expense.

Corporate general and administrative expenses decreased $1.1 million or 41.8%, primarily due to an $130,000 gain on Canadian currency exchange in 2013 compared to a loss of $131,000 on Canadian currency exchange in 2012, as well as decreases in payroll and benefits, consulting and restructuring expenses due to the Company’s cost reduction initiatives.

Net interest expense decreased $86,000 or 46.7%, primarily due to the reduction in long-term debt and a decrease in amortization of prepaid financing costs.

The loss on sale of receivables is attributable to the sale and assignment of certain leases to AXIS Capital, Inc.

The gain on debt extinguishment in 2012 is attributable to exchanges of the 8¼% Notes and 9½% Debentures.  See Note 8 to the condensed consolidated financial statements – Long-Term Debt.

The change in warrant liabilities is attributable to the expiration of the A Warrants and the change in the fair market value of the warrants issued in connection with the restructuring plan.  See Note 7 to the condensed consolidated financial statements – Warrant Liabilities.

The effective tax rate for the nine months ended September 30, 2013 and 2012 was 2.9% and 2.9%, respectively.  Both the 2013 and 2012 tax rates are being affected by the valuation allowance on the Company’s deferred tax assets as a result of reporting pre-tax losses. The income tax expense relates to the Company’s Canadian subsidiary.

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Total revenues for the three months ended September 30, 2013 increased $283,000 or 4.8% to $6.2 million from $5.9 million for the three months ended September 30, 2012, primarily due to an increase in sales in the LED lighting market.

Digital display sales revenues increased $357,000 or 8.4%, primarily in the LED lighting market.

Digital display lease and maintenance revenues decreased $74,000 or 4.4%, primarily due to the continued expected revenue decline in the older outdoor display equipment rental and maintenance bases acquired in the early 1990s. The global recession has negatively impacted the lease and maintenance revenues as well. The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications.

Total operating loss for the three months ended September 30, 2013 decreased $757,000 to $286,000 from $1.0 million for the three months ended September 30, 2012, principally due to the increase in revenues and a decrease in general and administrative expenses.

Digital display sales operating loss decreased $16,000 or 23.9%, primarily as a result of the increase in revenues, offset by an increase in general and administrative expenses.  The cost of Digital display sales increased $55,000 or 1.7%, primarily due to the increase in revenues.  The cost of Digital display sales represented 69.9% of related revenues in 2013 compared to 74.5% in 2012.  Digital display sales general and administrative expenses increased $286,000 or 24.8%, primarily due to an increase in payroll and benefits.

Digital display lease and maintenance operating income increased $342,000 to $430,000 from $88,000 for the three months ended September 30, 2012, primarily as a result of a decrease in the cost of Digital display lease and maintenance and a decrease in general and administrative expenses, offset by the decrease in revenues.  The cost of Digital display lease and maintenance decreased $285,000 or 18.9%, primarily due to a $112,000 decrease in depreciation expense and a $173,000 decrease in field service costs to maintain the displays.  The cost of Digital display lease and maintenance revenues represented 76.7% of related revenues in 2013 compared to 90.4% in 2012.  The cost of Digital display lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.  Digital display lease and maintenance general and administrative expenses decreased $131,000, primarily due to a decrease in bad debt expense.

Corporate general and administrative expenses decreased $399,000 or 37.5%, primarily due to a $54,000 loss on Canadian currency exchange in 2013 compared to a loss of $109,000 on Canadian currency exchange in 2012, as well as a decrease in payroll and benefits, consulting and restructuring expenses.

Net interest expense decreased $89,000 or 98.9%, primarily due to the reduction in long-term debt and a decrease in amortization of prepaid financing costs.

Other Long-Term Debt

The Company has a $469,000 mortgage on its facility located in Des Moines, Iowa at a fixed interest rate of 6.50% payable in monthly installments, which matures March 1, 2015.

The Company had a $1.7 million mortgage on its real estate rental property located in Santa Fe, New Mexico, which matured December 12, 2012. On February 26, 2013, the property was sold and the mortgage was satisfied.

Revolving Credit Facility

The Company had a bank Credit Agreement, as amended, which provided for a revolving loan of up to $599,000, based on eligible accounts receivable, at a variable rate of interest of Prime plus 2.00%, which was due to mature on June 30, 2013. On June 11, 2013, with the funds provided by the receivables financing agreement with AXIS Capital, Inc., the Company paid off the balance on the revolving loan and the Credit Agreement has been satisfied in full and the liens held by the senior lender on the collateral in connection therewith have been terminated. The amounts outstanding under the Credit Agreement were collateralized by all of the Digital display assets.

Restructuring Plan and Preferred Stock Offering

The Company has $1.1 million of 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) which are no longer convertible into common shares and which matured as of March 1, 2012; interest was payable semi-annually. As part of the Company’s restructuring plan, the Company offered the holders of the Notes the right to receive $225, without accrued interest, plus 10 shares (adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events) of the Company’s Common Stock for each $1,000 Note exchanged. The offer expired on October 31, 2011, but the Company continues to consider further exchanges of the Notes on the same terms as previously offered.  $9.0 million of the original $10.1 million of principal amount of the Notes have been exchanged, leaving $1.1 million outstanding.  Based on the payment schedule prior to the offer to exchange, the Company had not remitted the March 1, 2010 and 2011 and September 1, 2010 and 2011 semi-annual interest payments of $418,000 each and the March 1, 2012 semi-annual interest and principal payment of $1.4 million to the trustee. The non-payments constituted an event of default under the Indenture governing the Notes.  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.  During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment of principal, premium or interest shall be made on the Notes unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. If the holder of Senior Indebtedness accelerates the due date at any time, then no payment may be made until the default is cured or waived.  Such actions could require the disposition of some or all of our assets, which could require us to curtail or cease operations. The Notes are subordinate to all Senior Indebtedness of the Company.

The Company is subject to interest rate risk on its long-term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt.  The fair value of the Company’s fixed rate long-term debt is disclosed in Note 5 to the condensed consolidated financial statements – Fair Value. At September 30, 2013, the Company did not have any variable interest rate debt. In addition, the Company is exposed to foreign currency exchange rate risk mainly as a result of its investment in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the U.S. dollar would result in a currency exchange expense fluctuation of approximately $315,000, based on dealer quotes, considering current exchange rates. The Company does not enter into derivatives for trading or speculative purposes.  At September 30, 2013, the Company did not hold any derivative financial instruments.

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls are effective as of September 30, 2013.

Changes in Internal Control over Financial Reporting.  There has been no change in the Company’s internal control over financial reporting that occurred in the quarter ended September 30, 2013 and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business and/or which are covered by insurance.  The Company has accrued reserves individually and in the aggregate. Our former outside legal counsel has brought a claim against us for $593,000, which we have included in Accrued liabilities on the Consolidated Balance Sheets. Should actual litigation results differ from the Company’s estimates, revisions to increase or decrease the accrued reserves may be required.

The Company is subject to a number of risks including general business and financial risk factors. Any or all of such factors could have a material adverse effect on the business, financial condition or results of operations of the Company. You should carefully consider the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to those previously disclosed risk factors.

None.

As disclosed in Note 8 to the condensed consolidated financial statements – Long-Term Debt, the Company has $1.1 million of 8¼% Limited convertible senior subordinated notes due 2012 (the “Notes”) which are no longer convertible into common shares; interest was payable semi-annually. As part of the Company’s restructuring plan, the Company offered the holders of the Notes the right to receive $225, without accrued interest, plus 10 shares (adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events) of the Company’s Common Stock for each $1,000 Note exchanged.  The offer expired on October 31, 2011, but the Company continues to consider further exchanges of the Notes on the same terms as previously offered.  $9.0 million of the original $10.1 million of principal amount of the Notes have been exchanged, leaving $1.1 million outstanding.  Based on the payment schedule prior to the offer to exchange, the Company had not remitted the March 1, 2010 and 2011 and September 1, 2010 and 2011 semi-annual interest payments of $417,800 each and the March 1, 2012 semi-annual interest and principal payment of $1.4 million to the trustee.  The non-payments constitute an event of default under the Indenture governing the Notes and 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. During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment (including any required sinking fund payments) of principal, premium or interest shall be made on the Notes unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. If the holder of Senior Indebtedness accelerates the due date at any time, then no payment may be made until the default is cured or waived.  Such actions could require the disposition of some or all of our assets, which could require us to curtail or cease operations. The Notes are subordinate to all Senior Indebtedness of the Company. At September 30, 2013 and December 31, 2012, the total principal amount outstanding under the Notes is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets.

As disclosed in Note 8 to the condensed consolidated financial statements – Long-Term Debt, the Company has $0.3 million of 9½% Subordinated debentures due 2012 (the “Debentures”) which were due in annual sinking fund payments of $105,700 beginning in 2009, which payments have not been remitted by the Company, with the remainder due in 2012; interest is payable semi-annually. As part of the Company’s restructuring plan, the Company offered the holders of the Debentures the right to receive $100, without accrued interest, for each $1,000 Debenture exchanged.  The offer expired on October 31, 2011, but the Company continues to consider further exchanges of the Debentures on the same terms as previously offered.  $723,000 of the original $1.1 million principal amount of the Debentures have been exchanged, leaving $334,000 outstanding.  Based on the payment schedule prior to the offer to exchange, the Company had not remitted the June 1, 2010, 2011 and 2012 and December 1, 2010 and 2011 semi-annual interest payments of $50,200 each and the December 1, 2012 semi-annual interest and principal payment of $790,000 to the trustee. The non-payments constitute an event of default under the Indenture governing the Debentures and 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. During the continuation of any event which, with notice or lapse of time or both, would constitute a default under any agreement under which Senior Indebtedness is issued, if the effect of such default is to cause, or permit the holder of Senior Indebtedness to become due prior to its stated maturity, no payment of principal, premium or interest shall be made on the Debentures unless and until such default shall have been remedied, if written notice of such default has been given to the trustee by the Company or the holder of Senior Indebtedness. Such actions could require the disposition of some or all of our assets, which could require us to curtail or cease operations.The Debentures are subordinate to the Notes and all Senior Indebtedness of the Company.  At September 30, 2013 and December 31, 2012, the total principal amount outstanding under the Debentures is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets.

Not applicable.

As approved by shareholders at the Company’s Annual Meeting on October 2, 2013, the Company enacted a 1,000:1 reverse stock split followed immediately by a 1:40 forward stock split effective October 29, 2013. As a result, on October 29, 2013, every 1,000 outstanding shares of Common Stock were exchanged into 1 share of Common Stock. Any shareholders who owned fractional shares of Common Stock after the reverse stock split were cashed out at the closing market price of $0.29 on October 25, 2013.  At the conclusion of the forward stock split, every 1 outstanding share of Common Stock was exchanged into 40 shares of Common Stock. Unless otherwise indicated, all share information in this Form 10-Q has not been adjusted for the reverse and forward stock splits.

In December 2013, the Company issued 5,813 shares (adjusted for the reverse and forward stock splits, see Note 14 – Subsequent Events) of Restricted Stock and cash of $11,282 to certain board members in lieu of cash as payment for board fees of $83,940 that were owed as of the October 2, 2013 Annual Meeting.

Subsequent to September 30, 2013, the Company executed a promissory note (the “Note”) in favor of Carlisle Investments, Inc. (“Carlisle”), pursuant to which Carlisle loaned $1,000,000 to the Company in order to provide the Company with temporary financing (the “Loan”). Mr. Marco Elser, a director of the Company, exercises voting and dispositive power as investment manager of Carlisle. In connection with the Loan, the Company has granted to Carlisle a first-priority (excluding the liens held by the Pension Benefit Guaranty Corporation, which are senior to the liens and security interest granted in connection with the Loan) continuing security interest in and lien upon all assets of the Company (excluding those assets subject to the security interest granted to Axis Capital, Inc. by the Company pursuant to that certain Master Agreement for Sale and Assignment of Leases dated as of June 6, 2013), in accordance with the terms of a security agreement entered into between the parties and dated as of December 2, 2013.  The Note bears interest at the rate of ten percent per annum and has a maturity date of June 1, 2014, with a bullet payment of all principal and accrued interest due at such time; provided, however, that the parties may agree in writing to convert or exchange all or any part of the Note into a long term investment by Carlisle in Trans-Lux (a “Conversion Transaction”).  In the event the parties engage in a Conversion Transaction (of which there can be no assurance), all amounts due under the Note will be payable (or not, as the case may be) in accordance with the terms of the documentation executed by the parties in connection with such Conversion Transaction, if any. On December 4, 2013, net proceeds in the amount of $1,000,000 were received from Carlisle. The funds were used for working capital purposes.

31.1     Certification of Jean-Marc Allain, President and Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

32.1     Certification of Jean-Marc Allain, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

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