The following discussion addresses our financial condition as of November 30, 2008 and May 31, 2008 and the results of our operations for the three and six months ended November 30, 2008 and 2007, respectively, and cash flows for the six month periods ended November 30, 2008 and 2007. This discussion should be read in conjunction with the Management's Discussion and Analysis section included on pages 10-18 and the Risk Factors discussed in Item 1A, of our 2008 Annual Report on From 10-K to which the reader is directed for additional information.

Overview

We generate revenues through the rental, lease and sale of electronic equipment, primarily test and measurement ("T&M") and personal computer-related data products ("DP") equipment.

For the first six months of fiscal 2009, 77% of our rental and lease revenues were derived from T&M equipment. This percentage has decreased slightly from the prior year period due to an increase in our DP revenues, while T&M revenues have declined, primarily due to a decline in lease revenues. While we have experienced increased rental activity for our T&M equipment, it has been offset by a decline in rental rates, reflecting competitive pressures.

For the first six months of fiscal 2009, rental revenues comprised 86% of our rental and lease revenue. That percentage has increased over the last two years due to an increase in T&M and DP rental activity in our U.S. and European operation, while lease revenues have declined.

A significant part of our T&M equipment portfolio is rented or leased to large companies in the aerospace and defense, telecommunications, semiconductor and electronics industries. We believe that a large part of our T&M equipment is used in research and development activities. We also rent equipment to companies of various sizes representing a cross-section of industry. Our business is relatively non-seasonal except for the third quarter months of December, January and February, when rental activity declines due to extended holiday closings by a number of customers. In addition, rental billing is reduced during February because it is a short month.

We sell used equipment in the normal course of business based on customer requirements. Our sale of used equipment allows us to maintain our inventory with equipment that meets current technological standards. In fiscal 2007, we entered into distribution agreements with three leading manufacturers to sell basic T&M equipment to current and prospective customers through our new distribution channel.

The profitability of our business depends in part on controlling the timing, pricing and mix of purchases and sales of equipment. We seek to acquire new and used equipment at attractive prices for the purpose of deriving a profit from a combination of renting and/or selling such equipment. The sale of equipment, either after acquisition or after it has been rented, can comprise a significant portion of our revenues and operating profit. To maximize our overall profit from the rental, leasing, and sales of equipment, we manage our equipment pool on an on-going basis by analyzing our product strategy for each specific equipment class in light of that equipment's historical and projected life cycle. In doing so, we must compare our estimate of potential profit from rental with the potential profit from the product's immediate sale and replacement with new or other equipment. In our analysis, we assume depreciation and impairment of equipment based on projected performance and historical levels although historical trends are not necessarily indicative of future trends. Our overall equipment management is complex, and our product strategy can change during a product's lifetime based upon numerous factors, including the U.S. and global economy, interest rates and new product launches. Our strategic equipment decisions are generally based on the following fundamentals:

· Our acquisition cost;

· Our estimates of current and future market demand for rentals;

· Our estimates of current and future supply of product;

· The book value of the product after depreciation and other impairment;

· Our estimates of the effect of interest rates on rental and leasing fees as well as capital financing; and

· Our estimates of the potential current and future sale prices.

If we do not accurately predict market trends, or if demand for the equipment we supply declines, we can be left with inventory that we are unable to rent or sell for a profit. We assess the carrying value of the equipment pool on a quarterly basis or when factors indicating impairment are present.

During the early part of this decade, our business significantly contracted due to a slow-down in the U.S. economy. When the U.S. and global economy began to rebound in fiscal 2004, we saw increased demand for our equipment, and were able to sell equipment that was older and more fully depreciated. Due in part to these events, we experienced greater than normal gross margin on equipment sales of 47% for our 2007 fiscal year. As we anticipated, our gross margin on sales in fiscal 2008 declined to 35%, reflecting increases in lower margin sales under our arrangements to act as a distributor of new T&M equipment for certain manufacturers and a large buyout of used equipment at lower than normal margins. Based on our current equipment management strategy, we anticipate that future gross margin on sales will trend downward as lower margin finance leases and distribution sales continue to grow, although the gross margin percentage will fluctuate on a quarterly basis. Our gross margin on sales for the three and six months ended November 30, 2008 was 28% and 31%, respectively, compared to 37% and 38% for the three and six months ended November 30, 2007, respectively.

The economy in the United States and, to a certain degree the other markets in which we operate, has been slowing, which has impacted our current profitability, and may impact our prospects for growth and profitability in future periods.

We generally measure our overall level of profitability with the following metrics:
· Net income per diluted common share (EPS);

· Net income as a percentage of average assets (annualized); and

· Net income as a percentage of average tangible equity (annualized).

STRATEGIC GROWTH PLANS

We believe that our resources and financial infrastructure remain capable of handling a significantly greater volume of business activity without a proportionate increase in expenses. Based on this belief, we have been seeking ways to increase revenues to leverage that infrastructure. These strategies include:

INTERNAL GROWTH STRATEGIES: We intend to foster internal growth by building upon our vendor and customer relationships and expanding the types of services and equipment we provide. Thus, for example,

· We created a new distribution channel by entering into distribution agreements with three leading manufacturers for a range of basic T&M equipment.

· We have re-focused our DP marketing approach to emphasize short-term, event-oriented rentals in addition to our traditional markets.

· We are developing vendor leasing programs that provide customers with flexible financing alternatives.

ACQUISITION GROWTH STRATEGIES: We are also seeking to grow through acquisitions. Acquisitions can permit us to rapidly add revenues, as well as to expand into new geographical areas and/or markets.

GEOGRAPHIC EXPANSION STRATEGIES: Prior to fiscal 2006, our activity was largely limited to North America, except for some limited rentals to North American companies operating in other geographical areas. We have been expanding our rental and leasing services globally. As part of that strategy, in fiscal 2006 we entered two of the largest world markets: Europe and China.

· Our wholly owned subsidiary in Tianjin, China, commenced operations in June 2005 after we received what we believe to be one of the first licenses for a wholly foreign-owned equipment rental business in China.

· In September 2005, we acquired a small T&M equipment rental company based in Belgium, from which we service the European market.

The financial results of our European operation improved during the first six months of fiscal 2009, compared to the same period in fiscal 2008, while our other foreign operations declined.

Although our strategic initiatives have contributed to our revenue growth, our operating results declined for the six months ended November 30, 2008, compared to the six months ended November 30, 2007. Each of our strategic initiatives entails risks that could impact our continuing business results over the long term. In addition to the risks associated with our core operations, there are special risks associated with international operations and with acquisitions, as well as with growth in general. Recent uncertainty in the U.S. and global economy as a result of more stringent credit requirements and access to capital may adversely affect our customers. While our results improved from 2004 through 2007, and were flat in fiscal 2008, our financial results for the first six months of fiscal 2009 were impacted by competitive pressure on rental rates and lower utilization rates due in part to the economic slow-down in the U.S. and our major international markets. Furthermore, as our foreign operations continue to grow, fluctuations in currency exchange rates will result in additional gains and losses which are difficult to predict. As noted above, our rental and lease utilization rates, operating results and net income could continue to be adversely affected by recent economic trends. For a more detailed summary of some of the risks associated with these and other factors, please see the Risk Factors discussed in Item 1A of our 2008 Annual Report on Form 10-K.

PROFITABILITY AND KEY BUSINESS TRENDS

For the first six months of fiscal 2009, compared to the same period in fiscal 2008, our revenues rose by 0.6 % to $70.4 million, our operating profit decreased by 32.9% to $10.8 million and our net income decreased by 28.1% to $7.9 million. Our revenue growth included growth in our DP business, European operation and distribution channel. Our T&M rental activity increased for the six months ended November 30, 2008 compared to the six months ended November 30, 2007. However, T&M revenues slightly declined, due primarily to competitive pressure on rental rates and a decline in lease revenues. Our profitability measurements are presented in the table below for the six months ended November 30, 2008 and 2007:

                                                                 2008          2007
Net income per diluted common share (EPS)                      $    0.31     $    0.42
Net income as a percentage of average assets (annualized)            5.5 %         7.7 %
Net income as a percentage of average tangible equity
(annualized)                                                         6.5 %         9.1 %

The decrease in our operating profit primarily reflects competitive pressures on rental rates and lower equipment utilization rates. In addition, our selling, general and administrative expenses have increased due to higher personnel and benefit costs to support our current operations and develop our strategic initiatives, and foreign currency losses of $837 for the six months ended November 30, 2008, compared to a foreign currency gain of $203 for the prior year period, as a result of a strengthening of the U.S. dollar against key currencies.

The amount of our equipment on rent, based on acquisition cost, increased 4.4% to $155.4 million at November 30, 2008 from $148.8 million at November 30, 2007. Acquisition cost of equipment on lease decreased 18.4% to $31.6 million at November 30, 2008 from $38.7 million at November 30, 2007. Utilization for our T&M equipment pool, based on acquisition cost of equipment on rent and lease compared to the total pool, was 57.9% at November 30, 2008 compared to 63.7% at November 30, 2007. Over the same period, utilization of our DP equipment pool decreased to 46.3% from 57.2%.

The following table shows the revenue and operating profit trends over the last five quarters (in thousands):

                                                         Three Months Ended
                                    Nov 30,       Aug 31,       May 31,       Feb 29,       Nov 30,
                                       2008          2008          2008          2008          2007
Rentals and leases                $  26,155     $  27,234     $  27,648     $  26,244     $  27,425
Sales of equipment and other
revenues                              9,278         7,752        11,253         9,419         7,938
Operating profit                      4,839         5,986         7,673         6,929         8,237

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On a regular basis, we review these estimates, including those related to asset lives and depreciation methods, impairment of long-lived assets including rental and lease equipment, allowance for doubtful accounts and income taxes, and adjust them as appropriate. These estimates are based on our historical experience and on various other assumptions believed to be reasonable under the circumstances.

These determinations, even though inherently subjective and subject to change, affect the reported amounts of our assets, liabilities and expenses. While we believe that our estimates are based on reasonable assumptions and judgments at the time they are made, some of our assumptions, estimates and judgments will inevitably prove to be incorrect. As a result, actual outcomes will likely differ from our accruals, and those differences-positive or negative-could be material.

We identified certain critical accounting policies which affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements in our Annual Report on Form 10-K for the year ended May 31, 2008. We have not made any material changes to these policies as previously disclosed.

Results of Operations

Comparison of Three Months Ended November 30, 2008 and November 30, 2007

Revenues

Total revenues for the three months ended November 30, 2008 and 2007 were flat at $35.4 million. Sales of equipment and other revenue increased 16.9%, offset by a decline in rental and lease revenues of 4.6%.

Rental and lease revenues in the second quarter of fiscal 2009 were $26.2 million, compared to $27.4 million in the prior year period. This reflects a decline in our T&M lease revenues, while our T&M rental revenues remained flat, with an increase in T&M rental activity offset by a decline in rental rates due to competitive pressure. In addition, demand for our DP equipment declined for the three months ended November 30, 2008 compared to the prior year period.

Sales of equipment and other revenues increased to $9.3 million for the three months ended November 30, 2008 compared to $7.9 million in the prior year period. In part, this increase reflects the results of our strategic initiatives outlined above relating to distribution sales and increased finance lease activity. Gross margin on sales decreased to $2.2 million in the second quarter of fiscal 2009 as compared to $2.5 million a year ago, while the gross margin percentage decreased to 27.8% for the second quarter of fiscal 2009 compared to 36.7% for the second quarter of fiscal 2008. As noted above, our gross margin percentage decreased primarily due to an increase in our lower margin finance leases and distribution sales.

Operating Expenses

Depreciation of rental and lease equipment increased to $11.6 million, or 44.2% of rental and lease revenues, in the second quarter of fiscal 2009, from $11.2 million, or 40.9% of rental and lease revenues, in the second quarter of fiscal 2008. The increased depreciation expense in fiscal 2009 was due to a higher average rental and lease equipment pool, while the increased depreciation ratio, as a percentage of rental and lease revenues, was due primarily to lower rental and utilization rates.

Costs of revenues other than depreciation increased 34.6% to $7.0 million in the second quarter of fiscal 2009 from $5.2 million in the prior year period. Costs of revenues other than depreciation primarily includes the cost of equipment sales, which increased as a percentage of equipment sales to 72.2% in the second quarter of fiscal 2009 from 63.3% in the second quarter of fiscal 2008, reflecting increased finance leases and distribution sales which carry a lower margin. Our cost of revenues other than depreciation increased primarily due to an increase in our finance leases and distribution sales. As noted above in the "overview section", we expect that this number will fluctuate quarter-to-quarter, depending primarily on customer requirements and funding and growth in our distribution channel.

Selling, general and administrative expenses were $12.1 million in the second quarter of fiscal 2009, as compared to $10.7 million in the second quarter of fiscal 2008. Selling, general and administrative expenses as a percentage of total revenues increased to 34.0% in the second quarter of fiscal 2009 from 30.3% in the second quarter of fiscal 2008. Our selling, general and administrative expenses increased due to higher personnel and benefit costs to support our current operations and develop our strategic initiatives, and a foreign currency loss of $361 for the three months ended November 30, 2008, compared to a foreign currency gain of $187 for the three months ended November 30, 2007, as a result of a strengthening of the U.S. dollar against key currencies.

Interest Income, Net

Net interest income was $0.6 million for the second quarter of fiscal 2009 compared to $0.9 million in the prior year period. The decrease reflects decreases in prevailing money-market interest rates and a lower cash balance. Interest income, net, includes $3.0 million of unrealized gain on our put option. In addition, interest income, net, includes $3.0 million of unrealized losses on our investments, trading.

Income Tax Provision

Our effective tax rate was 36.1% in the second quarter of fiscal 2009, compared to 37.2% for the same period in fiscal 2008. The decrease is due primarily to changes in estimated tax exposures.

Comparison of Six Months Ended November 30, 2008 and November 30, 2007

Revenues

Total revenues for the six months ended November 30, 2008 rose $0.4 million, or 0.6%, to $70.4 million, compared to $70.0 million in the same period in the prior year. The increase in total revenues was due to a 12.8% increase in sales of equipment and other revenues, offset by a decline in rental and lease revenues of 2.7%.

Rental and lease revenues in the first six months of fiscal 2009 were $53.4 million, compared to $54.9 million in the prior year period. This reflects a decline in our T&M lease revenues, while our T&M rental revenues remained flat, with an increase in T&M rental activity offset by a decline in rental rates due to competitive pressure. The decline was offset in part by higher demand for our DP equipment.

Sales of equipment and other revenues increased to $17.0 million for the six months ended November 30, 2008 compared to $15.1 million in the prior year period. In part, this increase reflects the results of our strategic initiatives outlined above relating to distribution sales and increased finance lease activity. Gross margin on sales decreased to $4.5 million in the first six months of fiscal 2009 as compared to $4.9 million a year ago, while the gross margin percentage decreased to 31.0% for the first six months of fiscal 2009 compared to 38.4% for the first six months of fiscal 2008. As noted above, our gross margin percentage decreased primarily due to an increase in our lower margin finance leases and distribution sales.

Operating Expenses

Depreciation of rental and lease equipment increased to $23.1 million, or 43.3% of rental and lease revenues, in the first six months of fiscal 2009, from $22.2 million, or 40.5% of rental and lease revenues, in the first six months of fiscal 2008. The increased depreciation expense in fiscal 2009 was due to a higher average rental and lease equipment pool, while the increased depreciation ratio, as a percentage of rental and lease revenues, was due primarily to lower rental and utilization rates.

Costs of revenues other than depreciation increased 22.9% to $12.4 million in the first six months of fiscal 2009 from $10.1 million in the prior year period. Costs of revenues other than depreciation primarily includes the cost of equipment sales, which increased to 69.0% of equipment sales in the first six months of fiscal 2009 from 61.6% in the first six months of fiscal 2008, reflecting increased finance leases and distribution sales which carry a lower margin. Our cost of revenues other than depreciation increased primarily due to an increase in our finance leases and distribution sales. As noted above in the "overview section", we expect that this number will fluctuate quarter-to-quarter, depending primarily on customer requirements and funding and growth in our distribution channel.

Selling, general and administrative expenses were $24.1 million in the first six months of fiscal 2009, as compared to $21.6 million in the first six months of fiscal 2008. Selling, general and administrative expenses as a percentage of total revenues increased to 34.2% in the first six months of fiscal 2009 from 30.9% in the first six months of fiscal 2008. Our selling, general and administrative expenses increased due to higher personnel and benefit costs to support our current operations and develop our strategic initiatives, and a foreign currency loss of $837 for the six months ended November 30, 2008, compared to a foreign currency gain of $203 for the six months ended November 30, 2007, as a result of a strengthening of the U.S. dollar against key currencies.

Interest Income, Net

Net interest income was $1.2 million for the first six months of fiscal 2009 compared to $1.8 million in the prior year period. The decrease reflects decreases in prevailing money-market interest rates and a lower cash balance. Interest income, net, includes $3.0 million of unrealized gain on our put option. In addition, interest income, net, includes $3.0 million of unrealized losses on our investments, trading.

Income Tax Provision

Our effective tax rate was 34.7% in the first six months of fiscal 2009, compared to 38.2% for the same period in fiscal 2008. The decrease is due primarily to changes in estimated tax exposures.

Liquidity and Capital Resources

Our primary capital requirements are purchases of rental and lease equipment. We generally purchase equipment throughout each year to replace equipment that has been sold and to maintain adequate levels of rental equipment to meet existing and new customer demands. To meet T&M rental demand, support areas of potential growth for both T&M and DP equipment and to keep our equipment pool technologically up-to-date, we made payments for the purchase of $31.2 million of rental and lease equipment during the first six months of fiscal 2009. This amount was 16% lower than the $37.2 million in the same period for fiscal 2008.

In addition to increasing our rental equipment pool, we periodically repurchase shares of our common stock under an authorization from our board of directors. Shares we repurchase are retired and returned to the status of authorized but unissued stock. During the six months ended November 30, 2008, we purchased 1,445,660 shares of our common stock for $16.4 million, at an average price of $11.33 per share. We may make purchases of common stock in the future through open market transactions or otherwise, but we have no commitments to do so.

In April 2007, our board of directors authorized a regular quarterly cash dividend of $0.10 per common share, or $0.40 per annum. We commenced payment of our quarterly cash dividend in July 2007. In January 2008, our board of directors approved an increase to $0.15 per common share, or $0.60 per annum. For the six months ended November 30, 2008 and 2007, we paid dividends of $7.8 million and $5.2 million, respectively.

We expect to continue paying a quarterly dividend in future quarters, although the amount and timing of dividends, if any, will be made at the discretion of our board of directors in each quarter, subject to compliance with applicable law.

At November 30, 2008, we held $22.8 million, at cost, in auction rate securities ("ARS"), which we classify as investments, trading. The fair value of our ARS at November 30, 2008 was $19.8 million. Our ARS are long-term debt instruments backed by student loans, a substantial portion of which are guaranteed by the United States government. All of our ARS have credit ratings of AAA or AA, and none are mortgage-backed debt obligations. Historically, our ARS have been highly liquid, using a Dutch auction process that resets the applicable interest rate at predetermined intervals, typically every 35 days, to provide liquidity at par. However, as a result of liquidity issues in the global credit and capital markets, the auctions for all of our ARS failed beginning in February 2008 when sell orders exceeded buy orders. The failures of these auctions do not affect the value of the collateral underlying the ARS, and we continue to earn and receive interest on our ARS at a predetermined formula with spreads tied to particular interest rate indexes. We value the ARS from quotes received from our broker which are derived from their internally developed model. In determining a discount factor for each ARS, the model weights various factors, including assessments of credit quality, duration, insurance wraps, portfolio composition, discount rates, overall capital market liquidity and comparable securities, if any.

On November 6, 2008, we accepted an offer from UBS AG ("UBS"), providing us with rights related to our ARS (the "Rights"). The Rights permit us to require UBS to purchase our ARS at par value, which is defined as the price equal to the liquidation preference of the ARS plus accrued but unpaid dividends or interest, at any time during the period of June 30, 2010 through July 2, 2012. Conversely, UBS has the right, in its discretion, to purchase or sell our ARS at any time until July 2, 2012, so long as we receive a payment at par value upon any sale or disposition. We expect to sell our ARS under the Rights. However, if the Rights are not exercised before July 2, 2012 they will expire and UBS will have no further rights or obligation to buy our ARS. So long as we hold our ARS, they will continue to accrue interest as determined by the auction process or the . . .