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.

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 $2.9 million as well as $2.0 million in disposal costs for the quarter ended June 30, 2008. See Note 2. 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, digital billboards and commercial markets. The Real estate segment includes the operations of an income-producing real estate property.

Results of Operations

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Total revenues for the nine months ended September 30, 2008 increased $391,000 or 1.4% to $29.3 million compared to $28.9 million for the nine months ended September 30, 2007. Indoor display sales revenues increased, but were offset by decreases in Indoor display rental and maintenance revenues, Outdoor display revenues and Real estate rentals revenue.

Indoor display revenues increased $1.3 million or 16.2%. Of this increase, Indoor display equipment sales increased $1.6 million or 67.2%, primarily due to an increase in sales from the financial services and transportation markets. Indoor display equipment rentals and maintenance revenues decreased $348,000 or 6.3%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market. The financial services market continues to be negatively impacted by the ongoing consolidation within that industry and the wider use of flat-panel screens.

Outdoor display revenues decreased $808,000 or 3.9%. Of this decrease, Outdoor display equipment rentals and maintenance revenues decreased $499,000 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. Outdoor display equipment sales decreased $309,000 or 1.8%, primarily in the commercial market, offset by increased sales in the catalog sports market.

Real estate rentals revenue decreased $98,000 or 30.1%, primarily due to less than full occupancy of the sub-leased portion of our former Norwalk, CT location, which sub-leases terminated in June 2008.

Total operating income for the nine months ended September 30, 2008 increased $1.5 million to $2.3 million compared to $767,000 for the nine months ended September 30, 2007, principally due to the increase in Indoor sales revenues and a reduction in general and administrative expenses in both the Indoor and Outdoor display segments.

Indoor display operating loss decreased to $193,000 in 2008 compared to a loss of $1.3 million in 2007, primarily as a result of the increase in revenues in the financial services and transportation markets. The cost of Indoor displays represented 77.7% of related revenues in 2008 compared to 80.0% in 2007. Indoor displays cost of equipment rentals and maintenance decreased $215,000 or 4.1%, primarily due to a $384,000 decrease in depreciation expense, offset by a $169,000 increase in field service costs to maintain the equipment. The Company continues to address the cost of field service to align with revenue levels. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales increased $1.0 million or 92.2%, primarily due to the increase in revenues. Indoor display general and administrative expenses decreased $633,000 or 21.8%, primarily due to a reduction in selling payroll and benefits and related expenses and a $204,000 decrease in the allowance for uncollectable accounts.

Outdoor display operating income increased $491,000 or 27.0% to $2.3 million in 2008 compared to $1.8 million in 2007, primarily as a result of a decrease in field service costs to maintain the equipment on rental and maintenance contracts. The cost of Outdoor displays represented 74.8% of related revenues in 2008 compared to 75.9% in 2007. Outdoor display cost of equipment sales remained level. Outdoor display cost of equipment rentals and maintenance decreased $915,000 or 30.4%, primarily due to a $475,000 decrease in field service costs to maintain the equipment and a $439,000 decrease in depreciation expense. Outdoor display general and administrative expenses decreased $462,000 or 14.8%, primarily due to a reduction in selling and administrative payroll and benefits and related expenses and a $116,000 decrease in the allowance for uncollectable accounts. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.

Real estate rentals operating income decreased $111,000 or 45.3%, primarily due to the decrease in revenues. Cost of Real estate rentals increased slightly. The cost of Real estate rentals represented 38.2% of related revenues in 2008 compared to 22.1% in 2007. The cost of Real estate rentals as a percentage of related revenues increased primarily due to the reduction in revenues. Real estate

rentals general and administrative expenses remained level.

Corporate general and administrative expenses decreased $349,000 or 10.6%, primarily due to decreases in benefits and legal expenses and a foreign currency gain of $107,000 compared to a foreign currency loss of $172,000 in the prior year. The Company continues to monitor and reduce certain overhead costs.

Net interest expense decreased $442,000, due to lower interest rates of the variable debt and a reduction in total debt. The debt conversion cost of $1.5 million in 2007 relates to the one-time, non-cash, non-tax deductible charge for the exchange of debt for Common Stock relating to the exchange offer that was completed March 14, 2007. See Note 5.

Other income of $608,000 in 2007 mainly relates to a gain resulting from the termination of an office lease.

The effective tax rate for the nine months ended September 30, 2008 and 2007 was 3.6% and 24.3%, respectively. The 2008 rate was affected by the $2.9 million increase in the valuation allowance on its deferred tax assets as a result of reporting a pre-tax loss. The 2007 rate was affected by the $1.5 million one-time, non-cash, non-tax deductible charge relating to exchange of debt for Common Stock, see Note 5. The Company adopted the provisions of FIN 48 on January 1, 2007. See Note 7. The current year's income tax expense relates to the Company's Canadian subsidiary.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Total revenues for the three months ended September 30, 2008 increased $192,000 or 1.8% to $10.8 million from $10.7 million for the three months ended September 30, 2007, primarily due to an increase in Indoor display sales revenues, offset by decreases in Indoor display rentals and maintenance revenues, Outdoor display revenues and Real estate rentals revenue.

Indoor display revenues increased $447,000 or 16.1%. Of this increase, Indoor display equipment sales increased $503,000 or 49.9%, primarily due to an increase in sales from the financial services and transportation markets. Indoor display equipment rentals and maintenance revenues decreased $56,000 or 3.2%, primarily due to disconnects and non-renewals of equipment on rental and maintenance on existing contracts in the financial services market. The financial services market continues to be negatively impacted by the ongoing consolidation within that industry.

Outdoor display revenues decreased $205,000 or 2.6%. Of this decrease, Outdoor display equipment rentals and maintenance revenues decreased $143,000 or 11.3%, primarily due to the continued expected revenue decline in the older Outdoor display equipment rental and maintenance bases acquired in the early 1990s. Outdoor display equipment sales decreased $62,000 or 1.0%, primarily in the outdoor commercial market, offset by an increase in the outdoor catalog sports market.

Real estate rentals revenue decreased $50,000 or 45.5%, primarily due to the termination of the sub-

leases at our former Norwalk, CT location, which was vacated in June 2008.

Total operating income for the three months ended September 30, 2008 increased $275,000 to $967,000 from $692,000 for the three months ended September 30, 2007, principally due to the increase in the Indoor sales revenues and a reduction in general and administrative expenses in the Outdoor display segment.

Indoor display operating loss decreased $99,000 to $275,000 in 2008 compared to a loss of $374,000 in 2007, primarily as a result of the increase in revenues in the financial services and transportation markets. The cost of Indoor displays represented 82.0% of related revenues in 2008 compared to 83.0% in 2007. The cost of Indoor displays as a percentage of related revenues decreased primarily due to a $135,000 decrease in depreciation expense, offset by a $16,000 increase in field services costs to maintain the equipment. The Company continues to address the cost of field service to align with revenue levels. Cost of Indoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. Indoor display cost of equipment sales increased $459,000 or 94.4%, primarily due to the increase in revenues. Indoor display general and administrative expenses remained level, primarily due to a reduction in selling payroll and benefits and related expenses offset by a $95,000 increase in the allowance for uncollectable accounts.

Outdoor display operating income increased $236,000 or 24.0% to $1.2 million in 2008 compared to $985,000 in 2007, primarily as a result of a reduction in general and administrative expenses. The cost of Outdoor displays represented 75.9% of related revenues in 2008 compared to 74.0% in 2007. Outdoor display cost of equipment sales increased $293,000 or 6.1%, principally due to the volume mix of products sold. Outdoor display cost of equipment rentals and maintenance decreased $298,000 or 30.5%, primarily due to a $151,000 decrease in field service costs to maintain the equipment and a $146,000 decrease in depreciation expense. Outdoor display general and administrative expenses decreased $438,000 or 42.2%, primarily due to a reduction in selling and administrative payroll and benefits and related expenses and a $81,000 decrease in the allowance for uncollectable accounts. Cost of Outdoor display equipment rentals and maintenance includes field service expenses, plant repair costs, maintenance and depreciation.

Real estate rentals operating income decreased $60,000, primarily due to the decrease in revenues. Cost of Real estate rentals increased slightly. The cost of Real estate rentals represented 63.3% of related revenues in 2008 compared to 23.6% in 2007. The cost of Real estate rentals as a percentage of related revenues increased primarily due the reduction in revenues. Real estate rentals general and administrative expenses remained level.

Corporate general and administrative expenses decreased $114,000 or 12.1%, primarily due to a decrease in benefits, legal expenses and audit fees and a foreign currency gain of $87,000 compared to a foreign currency loss of $99,000 in the prior year, offset by an increase in general insurance expenses. The Company continues to monitor and reduce certain overhead costs.

Net interest expense decreased $163,000, due to lower interest rates of the variable debt and a reduction in total debt.

The effective tax rate for the three months ended September 30, 2008 and 2007 was 30.9% and 35.6%, respectively. The 2008 rate was affected by the $0.3 million increase in the valuation allowance on its deferred tax assets as a result of reporting a pre-tax loss. The current year's income tax expense relates to the Company's Canadian subsidiary.

Liquidity and Capital Resources

During the nine months ended September 30, 2008, long-term debt, including current portion, decreased a total of $7.8 million. Of this decrease, $2.0 million was due to regularly scheduled payments of long-term and $5.8 million was as a result of the sale of the Entertainment Division. See Note 2.

The Company has a bank Credit Agreement that provides for a term loan of $10.0 million, a non-revolving line of credit of up to $6.2 million to finance purchases and/or redemptions of one-half of the 7 1/2% Convertible Subordinated Notes due December 1, 2006 (the "7 1/2% Notes") in September 2006 and a revolving loan of up to $5.0 million at a variable rate of interest of Prime plus 1.75% (6.75% at September 30, 2008). The Credit Agreement matures on August 1, 2009 and as of September 30, 2008 has been classified as current in the Condensed Consolidated Balance Sheets. Effective December 31, 2006, $6.1 million of the non-revolving line of credit was converted into a four-year term loan also maturing August 1, 2009. At September 30, 2008, the entire revolving loan facility had been drawn. The Credit Agreement requires an annual facility fee on the unused commitment of 0.25%, and requires compliance with certain financial covenants, which include a minimum tangible net worth of $17.0 million, a loan-to-value ratio of not more than 50%, a leverage ratio, a cap on capital expenditures and maintaining accounts with an average monthly compensating balance of not less than $750,000. As of September 30, 2008, the Company was in compliance with the forgoing financial covenants, but was not in compliance with the fixed charge coverage ratio of 1.25 to 1.0, which the senior lender waived subsequent to the end of the quarter. The Company is in discussion with senior lenders and others to obtain additional borrowing capacity.

On March 15, 2007, the Company completed an offer to exchange 133 shares of its Common Stock, $1 par value per share, for each $1,000 principal amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 (the "8 1/4% Notes"). The offer was for up to $9.0 million principal amount, or approximately 50% of the $18.0 million principal amount outstanding of the 8 1/4% Notes. A total of $7.8 million principal amount of the 8 1/4% Notes were exchanged, leaving $10.1 million principal amount of the 8 1/4% Notes outstanding. A total of 1,041,257 shares of Common Stock were issued in the exchange. In accordance with FASB No. 84, "Induced Conversions of Convertible Debt," the Company recorded a non-cash, non-tax deductible charge for the exchange of debt for Common Stock and additional amortization of prepaid financing costs aggregating $1.5 million in debt conversion cost as a result of the exchange offer.

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 of its
continuing operations as of September 30, 2008 for the remainder of 2008 and the
next four years:

<CAPTIONS>
                                   Remainder of
In thousands                               2008      2009     2010     2011      2012
-------------------------------------------------------------------------------------
Long-term debt, including interest       $1,340   $10,766   $1,362   $1,345   $13,735
Employment and consulting
  agreement obligations                     315       912      427      303       198
Operating lease payments                    163       509      425      406       272
                                         ------   -------   ------   ------   -------
Total                                    $1,818   $12,187   $2,214   $2,054   $14,205
-------------------------------------------------------------------------------------

Cash and cash equivalents decreased $4.3 million for the nine months ended September 30, 2008 compared to a decrease of $2.3 million for the nine months ended September 30, 2007. The decrease in 2008 from continuing operations is primarily attributable to the investment in equipment for rental and property, plant and equipment of $3.0 million and $2.0 million of scheduled payments of long-term debt, offset by $1.3 million of cash provided by operating activities. The decrease in 2008 from discontinued operations is $0.6 million, $5.2 million of cash provided by discontinued operations, offset by $5.7 million of payments of long-term debt as a result of the sale of the Entertainment Division with the net proceeds. The decrease in 2007 from continuing operations is primarily attributable to the investment in equipment for rental of $3.3 million and $1.6 million of scheduled payments of long-term debt, offset by $1.8 million of cash provided by operating activities of continuing operations. The increase in 2007 from discontinued operations is $0.9 million of cash provided by discontinued operations.

Although the Company has incurred losses from continuing operations, it believes that cash generated from continuing operations 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.