The following discussion includes forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). When used in this discussion, the words "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "continue," "plan" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things, those associated with:

• the demand for the equipment types we offer, expansion into new markets and the development of a sizeable dealer base;

• our significant capital requirements;

• our ability or inability to obtain the financing we need, or to use internally generated funds, in order to continue originating contracts;

• the risks of defaults on our leases;

• our provision for credit losses;

• our residual interests in underlying equipment;

• possible adverse consequences associated with our collection policy;

• the effect of higher interest rates on our portfolio;

• increasing competition;

• increased governmental regulation of the rates and methods we use in financing and collecting on our leases and contracts;

• acquiring other portfolios or companies;

• dependence on key personnel;

• adverse results in litigation and regulatory matters, or promulgation of new or enhanced legislation or regulations; and

• general economic and business conditions.

The risk factors above and those under "Risk Factors" beginning on page 7, as well as any other cautionary language included herein, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we described in our forward-looking statements. Many of these factors are significantly beyond our control. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained herein will in fact transpire.

Overview

We are a specialized commercial finance company that provides "microticket" equipment leasing and other financing services. The average amount financed by TimePayment during 2008 was approximately $5,500 while Leasecomm historically financed contracts averaging approximately $1,900. Our portfolio consists of point-of-sale ("POS") authorization systems and other small business equipment leased or rented to small commercial enterprises.

We derive the majority of our revenues from leases originated and held by us, payments on service contracts, rental contracts and fee income. Historically, we funded the majority of our leases and contracts through our revolving-credit loans, term loans and on-balance sheet securitizations, and to a lesser extent our subordinated debt program and internally generated funds. Between October 2002 and June 2004, an interruption in our financing sources had a significant impact on our ability to originate contracts. As of September 30, 2002, our then-existing credit facility failed to renew and we began paying down the debt, suspending virtually all new contract originations in October 2002 until new financing could be obtained or until the credit facility could be paid in full. In April 2003, we entered into a long-term agreement with our lenders which waived certain covenant defaults and required us to repay the credit facility over a 22-month term.

In June 2004, we secured a one-year $8 million line of credit and a $2 million three-year subordinated note that allowed us to resume microticket contract originations. In conjunction with raising new capital, we also established a new wholly-owned operating subsidiary, TimePayment Corp. In September 2004, we secured a three-year, $30 million, senior secured revolving line of credit from CIT. The CIT line of credit replaced the $8 million line of credit obtained in June 2004 under more favorable terms and conditions. In addition, we used the proceeds from the CIT line of credit to retire the existing debt with the former bank group. During the year ended December 31, 2005, we began to actively increase our industry presence with a more focused and targeted sales and marketing effort. We continue to invest capital to build an infrastructure to support our sales and marketing initiatives, and have brought in experienced sales and marketing management to spearhead the effort. On July 20, 2007, by mutual agreement between CIT and us, we paid off and terminated the CIT line of credit without penalty.

On August 2, 2007, we entered into a new three-year $30 million line of credit with Sovereign Bank based on qualified TimePayment lease receivables. On July 9, 2008 we entered into an amended agreement to increase our line of credit with Sovereign from $30 million to $60 million. The maturity date of the amended agreement is August 2, 2010. Outstanding borrowings are collateralized by eligible lease contracts and a security interest in all of our other assets and, until February 2009, bore interest at Prime or at LIBOR plus 2.75%. Under the terms of the facility, loans are Prime Rate Loans, unless we elect LIBOR Loans. If a LIBOR Loan is not renewed at maturity it automatically coverts to a Prime Rate Loan.

On February 10, 2009 we entered into an amended agreement to increase our line of credit with Sovereign to $85 million. Under the amended agreement, outstanding borrowings bear interest at either Prime plus 1.75% or LIBOR plus 3.75%, in each case subject to a minimum interest rate of 5%. All other terms of the facility remained the same.

In a typical lease transaction, we originate a lease through our nationwide network of equipment vendors, independent sales organizations and brokers. Upon our approval of a lease application and verification that the lessee has received the equipment and signed the lease, we pay the dealer for the cost of the equipment, plus the dealer's profit margin.

In the past, we have also from time to time acquired service contracts under which a homeowner purchases a security system and simultaneously signs a contract with the dealer for the monitoring of that system for a monthly fee. Upon approval of the monitoring application and verification with the homeowner that the system is installed, we would purchase the right to the payment stream under the monitoring contract from the dealer at a negotiated multiple of the monthly payments. We have not purchased any new security monitoring contracts since 2004, although we do originate security equipment leases that include monitoring. Our service contract portfolio represents a less significant portion of our revenue stream over time.

Substantially all leases originated or acquired by us are non-cancelable. During the term of the lease, we are scheduled to receive payments sufficient to cover our borrowing costs, the cost of the underlying equipment and

provide us with an appropriate profit. We pass along some of the costs of our leases and contracts by charging collection fees, loss and damage waiver fees, late fees and other service fees, when applicable. The initial non-cancelable term of the lease is equal to or less than the equipment's estimated economic life and often provides us with additional revenues based on the residual value of the equipment at the end of the lease. Initial terms of the leases in our portfolio generally range from 12 to 60 months, with an average initial term of 47 months as of December 31, 2008.

Critical Accounting Policies

We consider certain of our accounting policies to be the most critical to our financial condition and results of operations in the sense that they involve the most complex or subjective decisions or assessments. We have identified our most critical accounting policies as those policies related to revenue recognition, the allowance for credit losses, income taxes and accounting for share-based compensation. These accounting policies are discussed below as well as within the notes to our consolidated financial statements.

Revenue Recognition

Our lease contracts are accounted for as financing leases. At origination, we record the gross lease receivable, the estimated residual value of the leased equipment, initial direct costs incurred and the unearned lease income. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Amortization of unearned lease income and initial direct costs is suspended if, in our opinion, full payment of the contractual amount due under the lease agreement is doubtful. In conjunction with the origination of leases, we may retain a residual interest in the underlying equipment upon termination of the lease. The value of such interest is estimated at inception of the lease and evaluated periodically for impairment. At the end of the lease term, the lessee has the option to buy the equipment at the fair market value, return the equipment or continue to rent the equipment on a month-to-month basis. If the lessee continues to rent the equipment, we record our investment in the rental contract at its estimated residual value. Rental revenue and depreciation are recognized based on the methodology described below. Other revenues such as loss and damage waiver fees and service fees relating to the leases and contracts are recognized as they are earned.

Our investments in cancelable service contracts are recorded at cost and amortized over the expected life of the contract. Income on service contracts from monthly billings is recognized as the related services are provided. Our investment in rental contracts is either recorded at estimated residual value and depreciated using the straight-line method over a period of 12 months or at the acquisition cost and depreciated using the straight line method over a period of 36 months. Rental income from monthly billings is recognized as the customer continues to rent the equipment. We periodically evaluate whether events or circumstances have occurred that may affect the estimated useful life or recoverability of our investments in service and rental contracts.

Allowance for Credit Losses

We maintain an allowance for credit losses on our investment in leases, service contracts and rental contracts at an amount that we believe is sufficient to provide adequate protection against losses in our portfolio. Given the nature of the "microticket" market and the individual size of each transaction, we do not have a formal credit review committee to review individual transactions. Rather, we developed a sophisticated, risk-adjusted pricing model and have automated the credit scoring, approval and collection processes. We believe that with the proper risk-adjusted pricing model, we can grant credit to a wide range of applicants provided we have priced appropriately for the associated risk. As a result of approving a wide range of credits, we experience a relatively high level of delinquency and write-offs in our portfolio. We periodically review the credit scoring and approval process to ensure that the automated system is making appropriate credit decisions. Given the nature of the "microticket" market and the individual size of each transaction, we do not evaluate transactions individually for the purpose of developing and determining the adequacy of the allowance for credit losses. Contracts in our portfolio are not re-graded subsequent to the initial extension of credit and the allowance is not allocated to specific contracts. Rather, we view the contracts as having common characteristics and maintain a general allowance against our entire portfolio utilizing historical collection statistics and an assessment of current credit risk in the portfolio as the basis for the amount.

We have adopted a consistent, systematic procedure for establishing and maintaining an appropriate allowance for credit losses for our microticket transactions. We estimate the likelihood of credit losses net of recoveries in the portfolio at each reporting period based upon a combination of the lessee's bureau reported credit score at lease inception and the current delinquency status of the account. In addition to these elements, we also consider other relevant factors including general economic trends, trends in delinquencies and credit losses, static pool analysis of our portfolio, trends in recoveries made on charged off accounts, and other relevant factors which might affect the performance of our portfolio. This combination of historical experience, credit scores, delinquency levels, trends in credit losses, and the review of current factors provide the basis for our analysis of the adequacy of the allowance for credit losses. We take charge-offs against our receivables when such receivables are deemed uncollectible. In general a receivable is uncollectable when it is 360 days past due where no contact has been made with the lessee for 12 months or, if earlier, when other adverse events occur with respect to an account. Historically, the typical monthly payment under our microticket leases has been small and as a result, our experience is that lessees will pay past due amounts later in the process because of the small amount necessary to bring an account current.

Income Taxes

Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets. The process involves summarizing temporary differences resulting from the different treatment of items, such as leases, for tax and accounting purposes. In addition, our income tax calculations involve the application of complex tax regulations in a multitude of jurisdictions. Differences between the basis of assets and liabilities result in deferred tax assets and liabilities, which are recorded on the balance sheet. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and to the extent management believes recovery is more likely than not, a valuation allowance is unnecessary.

Share-Based Compensation

As of January 1, 2005, we adopted Statement of Financial Accounting Standards ("SFAS") 123(R) - Share Based Payments, which requires the measurement of compensation cost for all outstanding unvested share-based awards at fair value and recognition of compensation over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We estimate the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of SFAS 123(R) Securities and Exchange Commission, ("SEC") Staff Accounting Bulletin No. 107 - Share Based Payments. Key input assumptions used to estimate the fair value of stock options include the expected option term, volatility of our stock, the risk-free interest rate and our dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us under SFAS 123(R).

Results of Operations

Revenues


                                    2008       Change        2007       Change         2006
                                                        (In thousands)

    Income on financing leases    $ 23,095        87.7 %   $ 12,302       214.1 %    $  3,917
    Rental income                    9,829       (27.8 )     13,612       (34.9 )      20,897
    Income on service contracts        925       (27.2 )      1,271       (32.0 )       1,870
    Loss and damage waiver fees      3,236        59.2        2,033         7.3         1,895
    Service fees and other           2,300        45.9        1,576       (35.6 )       2,448
    Interest income                    140       (84.0 )        877       (38.0 )       1,415

    Total revenues                $ 39,525        24.8 %   $ 31,671        (2.4 )%   $ 32,442

Our lease contracts are accounted for as financing leases. At origination, we record the gross lease receivable, the estimated residual value of the leased equipment, initial direct costs incurred and the unearned lease income. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Other revenues such as loss and damage waiver fees, service fees relating to the leases and contracts, and rental revenues are recognized as they are earned.

Total revenues for the year ended December 31, 2008 were $39.5 million, an increase of $7.8 million or 24.8% from the year ended December 31, 2007. Revenue from leases was $23.1 million, up $10.8 million from the previous year as a result of the increased originations. Rental income was $9.8 million, down $3.8 million from 2007. Other revenue components contributed $6.6 million, up $0.8 million from the previous year, despite a decline in interest income of $737,000 during the year. The decrease in interest income is a result of the decrease in cash and cash equivalents on hand as well as lower rates of investment. The decline in rental income is primarily explained by attrition rates in the two sources of rental income. One source is rental agreements that are originated and cancellable on a monthly basis. The other is the rental income that is recognized at the end of the lease term when a lessee chooses to keep the equipment and rents it on a monthly basis. Since we resumed funding in 2004 following an interruption in our funding sources, we have not originated any new rental contracts and few lease contracts have been eligible to convert to rental agreements since they have not reached the end of term. We have not funded any new service contracts since we resumed funding in 2004; therefore this segment of revenue continues to decline.

Total revenues for the year ended December 31, 2007 were $31.7 million, a decrease of $771,000 or 2.4% from the year ended December 31, 2006. Revenue from leases was $12.3 million, up $8.4 million from the previous year and rental income was $13.6 million, down $7.3 million from 2006. Other revenue components contributed $5.8 million, down $1.9 million from the previous year. The decline in service contract revenue accounted for $599,000 of the $1.9 million decrease in other revenue while decreases in service fees and interest income accounted for $872,000 and $538,000 of the decline respectively. The decline in rental income is primarily explained by attrition rates in the two sources of rental income described above. In addition, the decline in income from service contracts is consistent with the lack of any new service contract originations since we resumed funding in 2004.

Selling, General and Administrative


                                               2008         Change         2007        Change          2006
                                                                  (Dollars in thousands)

Selling, general and administrative          $ 13,060           1.8 %    $ 12,824        (11.6 )%    $ 14,499
As a percent of revenue                          33.0 %                      40.5 %                      44.7 %

Our selling, general and administrative ("SG&A") expenses include costs of maintaining corporate functions such as accounting, finance, collections, legal, human resources, sales and underwriting, and information systems. SG&A expenses also include commissions, service fees and other marketing costs associated with our portfolio of leases and rental contracts. SG&A expenses increased by $236,000 or 1.8%, for the year ended December 31, 2008, as compared to the year ended December 31, 2007. Significant factors in the increase of the SG&A expense include increases in: payroll and employee benefits of $171,000; bank service charges of $172,000; marketing and promotion expenses of $122,000; collection expenses of $120,000; and postage expense of $111,000. These increases were offset in part by decreases in: professional fees of $262,000; debt closing expense of $150,000; and sales programs of $105,000.

SG&A expenses decreased by $1.7 million, or 11.6%, for the year ended December 31, 2007, as compared to the year ended December 31, 2006. Significant factors in the decline of the SG&A expense included declines in legal expenses of $405,000 and collection expenses of $1.1 million. The expense reductions resulted from the decrease in the overall volume of our portfolio, an improvement in the credit quality of our portfolio, the settlement of outstanding litigation and our cost control efforts.

Provision for Credit Losses


                                      2008       Change       2007       Change       2006
                                                     (Dollars in thousands)

      Provision for credit losses   $ 15,313        94.9 %   $ 7,855        12.5 %   $ 6,985
      As a percent of revenue           38.7 %                  24.8 %                  21.5 %

We maintain an allowance for credit losses on our investment in leases, service contracts and rental contracts at an amount that we believe is sufficient to provide adequate protection against losses in our portfolio. Our provision for credit losses increased $7.5 million or 94.9%, for the year ended December 31, 2008, as compared to the year ended December 31, 2007. Net charge-offs increased $1.9 million to $9.3 million, or 25.7%, for the year ended December 31, 2008, as compared to the year ended December 31, 2007. The provision was based on providing a general allowance against leases funded during the year and our analysis of actual and expected losses in our portfolio as a whole. The increase in the allowance reflects the growth in lease receivables associated with new lease originations, increased delinquency levels, and the current economic climate.

Our provision for credit loss increased $870,000 or 12.5%, for the year ended December 31, 2007, as compared to the year ended December 31, 2006. Net charge-offs decreased $3.1 million to $7.4 million, or 29.8%, for the year ended December 31, 2007, as compared to the year ended December 31, 2006. The provision was based on providing a general allowance against leases funded during the year and our analysis of actual and expected losses in our portfolio as a whole.

Depreciation and Amortization


                                        2008      Change        2007       Change        2006
                                                        (Dollars in thousands)

  Depreciation - fixed assets           $ 383        36.8 %    $   280        38.6 %    $   202
  Depreciation - rental equipment         415       (40.3 )        695       (83.1 )      4,108
  Amortization - service contracts        178       (51.8 )        369       (63.7 )      1,016

  Total depreciation and amortization   $ 976       (27.4 )%   $ 1,344       (74.8 )%   $ 5,326

  As a percent of revenue                 2.5 %                    4.2 %                   16.4 %

Depreciation and amortization expense consists of depreciation on fixed assets and rental equipment, and the amortization of service contracts. Fixed assets are recorded at cost and depreciated over their expected useful lives. Certain rental contracts are originated as a result of the renewal provisions of our lease agreements where at the end of the lease term, the customer may elect to continue to rent the leased equipment on a month-to-month basis. The rental equipment is recorded at its residual value and depreciated over a term of 12 months. This term represents the estimated life of a previously leased piece of equipment and is based upon our historical experience. In the event the contract terminates prior to the end of the 12 month period, the remaining net book value is expensed.

We have in the past offered a rental agreement, which allowed the customer, assuming the contract was current and no event of default existed, to terminate the contract at any time by returning the equipment and providing us with 30 days notice. These assets were recorded at cost and depreciated over an estimated life of 36 months. This term was based upon our historical experience. In the event that the contract terminated prior to the end of the 36 month period, the remaining net book value was expensed. We have not originated any new rental contracts since 2004.

Service contracts were recorded at cost and amortized over their estimated life of 84 months. In a typical service contract acquisition, a homeowner will purchase a home security system and simultaneously sign a contract with the security dealer for monthly monitoring of the system. The security dealer would then sell the rights to that monthly payment to us. We perform all of the processing, billing, collection and administrative work on the service contract. The estimated life is based upon the expected life of such contracts in the security monitoring industry and our historical experience. In the event the contract terminates prior to the end of the 84 month term, the remaining net book value is expensed. We have not originated any new service contracts since 2004.

Depreciation expense on rentals decreased by $280,000 or 40.3%, and amortization of service contracts decreased by $191,000 or 51.8%, for the year ended December 31, 2008, as compared to the year ended December 31, 2007. The carrying value of our rental equipment and service contracts decreased from $309,000 at December 31, 2007 to $272,000 at December 31, 2008. Depreciation on property and equipment increased by $103,000 or 36.8% for the year ended December 31, 2008, as compared to the year ended December 31, 2007.

Depreciation expense on rentals decreased by $3.4 million, or 83.1%, and amortization of service contracts decreased by $647,000, or 63.7%, for the year ended December 31, 2007, as compared to the year ended December 31, 2006. The carrying value of our rental equipment and service contracts decreased from . . .