Overview

Trans-Lux is a full service provider of integrated multimedia systems for today's communications environments. The essential elements of these systems are the real-time, programmable electronic information displays we manufacture, distribute and service. Designed to meet the evolving communications needs of both the indoor and outdoor markets, these displays are used primarily in applications for the financial, banking, gaming, corporate, advertising, transportation, entertainment and sports industries. In addition to its display business, the Company owns and operates an income producing rental property. The Company operates in three reportable segments: Indoor display, Outdoor display and Real estate rental.

On June 26, 2008, the Board of Directors approved the sale of the assets of the Entertainment Division. As a result of the sale, the Company has accounted for the Entertainment Division as discontinued operations beginning in the second quarter of 2008 and recorded long-lived asset impairment charges of $2.8 million as well as $2.0 million in disposal costs for the quarter ended June 30, 2008. See Note 2 - Discontinued Operations to the condensed consolidated financial statements. The following discussion and analysis of financial condition and results of operations relates only to continuing operations.

The Indoor display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of indoor displays. This segment includes the financial, government/private and gaming markets. The Outdoor display segment includes worldwide revenues and related expenses from the rental, maintenance and sale of outdoor displays. Included in this segment are catalog sports, retail and commercial markets. The Real estate rental segment includes the operations of an income-producing real estate property.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Total revenues for the three months ended March 31, 2009 decreased $231,000 or 2.9% to $7.8 million from $8.0 million for the three months ended March 31, 2008, primarily due to decreases in Indoor display revenues and Outdoor display rentals and maintenance revenues, offset by an increase in Outdoor display sales revenues.

Indoor display revenues decreased $333,000 or 12.3%. Of this decrease, Indoor display equipment sales decreased $195,000 or 19.9%, primarily due to a decrease in sales from the financial services market. Indoor display equipment rentals and maintenance revenues decreased $139,000 or 8.1%, primarily due to disconnects and non-renewals of equipment on rental on existing contracts in the financial services market. 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. Also, the global recession has negatively impacted Indoor

sales and rentals and maintenance revenues.

Outdoor display revenues increased $132,000 or 2.5%. Of this increase, Outdoor display equipment sales increased $270,000 or 6.4%, primarily in the catalog sports and commercial markets. Outdoor display equipment rentals and maintenance revenues decreased $138,000 or 13.5%, primarily due to the continued expected revenue decline in the older Outdoor display equipment rental and maintenance bases acquired in the early 1990s.

Real estate rental revenues decreased $30,000 or 34.5%, primarily due to the termination of the sub-leases in June 2008 at our former Norwalk, CT location.

Total operating income for the three months ended March 31, 2009 decreased $76,000 or 32.6% to $157,000 from $233,000 for the three months ended March 31, 2008, principally due to the decline in revenues, offset by a decrease in general and administrative expenses.

Indoor display operating loss increased $80,000 to $219,000 in 2009 compared to $139,000 in 2008, primarily as a result of the decline in sales revenues, offset by a decrease in general and administrative expenses. The cost of Indoor displays represented 83.2% of related revenues in 2009 compared to 78.3% in 2008. Indoor displays cost of equipment rentals and maintenance as a percentage of related revenues increased primarily due to an increase in material costs, offset by a $83,000 decrease in depreciation expense and a $77,000 decrease in field service costs. The Company continually addresses the cost of field service to keep it in line with revenues from equipment rentals and maintenance. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales decreased $15,000 or 3.2%, primarily due to the decrease in revenues, offset by increased material costs. Indoor display general and administrative expenses decreased $111,000 or 15.3%, primarily due to a reduction in payroll and benefits and related expenses, offset by an increase in bad debt expense. Due to the current economic condition, during the first quarter, certain personnel and related expenses of the Indoor display business was reduced, resulting in annual cash savings of approximately $0.9 million.

Outdoor display operating income increased $24,000 or 7.7%, primarily as a result of a decrease in general and administrative expenses, offset by increases in material costs. The cost of Outdoor displays represented 77.4% of related revenues in 2009 compared to 74.0% in 2008. Outdoor display cost of equipment sales increased $401,000 or 12.8%, principally due to the increase in volume, the sales mix and increases in material costs. Outdoor display cost of equipment rentals and maintenance decreased $122,000 or 17.2%, primarily due to a $104,000 decrease in field service costs to maintain the equipment and a $17,000 decrease in depreciation expense. Outdoor display general and administrative expenses decreased $170,000 or 16.3%, primarily due to a reduction in selling payroll and benefits and related expenses, as well as a decrease in bad debt expense. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Due to the current economic condition, during the first quarter, certain personnel and related expenses of the commercial business were reduced, and all non-union personnel salaries were reduced, resulting in an annual cash savings of approximately $1.0 million.

Real estate rental operating income decreased $20,000 or 33.9%, primarily due to the decrease in revenues due to the termination of the sub-leases in June 2008 at our former Norwalk, CT location. The cost of Real estate rental represented 26.3% of related revenues in 2009 compared to 28.7% in 2008. Real estate rental general and administrative expenses remained level.

Corporate general and administrative expenses decreased $187,000 or 17.8%, primarily due to a decrease in facility expenses and benefits, such as medical costs. The Company continues to monitor and reduce certain overhead costs. Due to the current economic condition, during the first quarter, all personnel salaries and consulting fees were reduced, resulting in an annual savings of approximately $0.3 million.

Net interest expense decreased $14,000 due to a reduction in total debt, offset by an increase in the interest rates of the variable rate debt.

The effective tax rate (benefit) for the three months ended March 31, 2009 and 2008 was 3.7% and (3.9%), respectively. Both the 2009 and 2008 tax rate is being affected by the valuation allowance on its deferred tax assets as a result of reporting pre-tax losses. The current year's income tax expense relates to the Company's Canadian subsidiary. The 2008 tax rate benefit relates to the benefit from the loss from continuing operations, offset by income tax expense related to the Company's Canadian subsidiary.

Liquidity and Capital Resources

During the three months ended March 31, 2009, long-term debt, including current portion, decreased $665,000, due to regularly scheduled payments of long-term debt.

The Company has a bank Credit Agreement, which provides for a term loan of $10.0 million, a non-revolving line of credit of up to $6.2 million (which is no longer available) to finance purchases and/or redemptions of one-half of the 7 1/2% Subordinated Notes due 2006 (which were redeemed in June 2006 and no longer outstanding), and a revolving loan of up to $5.0 million at a variable rate of interest of Prime plus 1.75% (5.00% at March 31, 2009). Subsequent to the end of the quarter, the rate of interest was modified to Prime plus 2.00%, with a floor of 6.00%, the maturity of the Credit Agreement was extended to April 1, 2010, and certain of the financial covenants were modified. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25% and requires compliance with certain financial covenants, as defined in the Credit Agreement, which include a fixed charge coverage ratio of 1.1 to 1.0 for the current quarter and 1.25 to 1.0 thereafter, a loan-to-value ratio of not more than 50%, a cap on capital expenditures, a leverage ratio and maintaining a tangible net worth of not less than $24.0 million. As of March 31, 2009, the Company was in compliance with the forgoing financial covenants. The Company's objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing. The Company is in discussions with senior lenders and others to obtain additional borrowing capacity, which management believes it should be able to accomplish within the next twelve months, but the current global credit market has been impacting the timing of accomplishing these objectives. While management believes it will be successful, there can be no assurance that

management will be successful in achieving these objectives. The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements and fund potential new opportunities. The amounts outstanding under the Credit Agreement are collateralized by all of the Display division assets.

Under various agreements, the Company is obligated to make future cash payments in fixed amounts. These include payments under the Company's long-term debt agreements, employment and consulting agreement payments and rent payments required under operating lease agreements. The Company's long-term debt requires interest payments. The Company has both variable and fixed interest rate debt. Interest payments are projected based on current interest rates until the underlying debts mature.

The following table summarizes the Company's fixed cash obligations as of March
31, 2009 for the remainder of 2009 and the next four years:

<CAPTIONS>
                              Remainder of
In thousands                          2009     2010     2011      2012   2013
-----------------------------------------------------------------------------
Long-term debt, including interest  $3,252   $8,049   $1,249   $13,229   $  -
Employment and consulting
  agreement obligations                597      425      302       197    197
Operating lease payments               392      417      402       271     77
                                    -----------------------------------------
Total                               $4,241   $8,891   $1,953   $13,697   $274
-----------------------------------------------------------------------------

Cash and cash equivalents increased $120,000 for the three months ended March 31, 2009 compared to a decrease of $1.9 million for the three months ended March 31, 2008. The increase in 2009 is primarily attributable to cash provided by operating activities of $1.4 million and the proceeds from sale of available-for-sale securities of $135,000, offset by the investment in equipment for rental of $646,000, the investment in property, plant and equipment of $126,000 and scheduled payments of long-term debt of $665,000. The decrease in 2008 is primarily attributable to the investment in equipment for rental of $933,000, the investment in property, plant and equipment of $62,000, scheduled payments of long-term debt of $674,000 and cash used in operating activities of $42,000.

Although the Company has incurred losses from continuing operations, it believes that cash provided by continuing operations, which will depend upon our future operating performance, which is subject to general economic, financial, competetive and other factors that are beyond its control, together with cash and cash equivalents on hand should be sufficient to fund anticipated current and near term cash requirements. The Company's objective in regards to the Credit Agreement is to obtain additional funds from external sources through equity or additional debt financing and is in discussions with senior lenders and others. The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition

or purchasers of the Company's products, interest rate and foreign exchange fluctuations, terrorist acts and war.