The following discussion addresses our financial condition as of February 28, 2009 and May 31, 2008 and the results of our operations for the three and nine months ended February 28, 2009 and February 29, 2008, respectively, and cash flows for the nine month periods ended February 28, 2009 and February 29, 2008. 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 Annual Report on Form 10-K for the fiscal year ended May 31, 2008, 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 nine months of fiscal 2009, 78% of our rental and lease revenues were derived from T&M equipment. This percentage has remained unchanged from the prior year period as both our T&M and DP rental and lease revenues have declined. While our T&M rental activity has remained relatively flat, we have experienced a decline in rental rates, reflecting competitive pressures and the recession in the United States and the international markets that we serve, resulting in a decline in rental revenues.

For the first nine months of fiscal 2009, rental revenues were 85% of our rental and lease revenue. That percentage has increased over the last two years due to an increase in T&M rental activity in our U.S. and European operations, 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 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 provide 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.

Several years, ago, we put in place internal and external growth strategies, including creating a new distribution channel by entering into distribution agreements with three leading manufacturers, developing vendor leasing programs that provide customers with flexible financing alternatives and expanding our rental and leasing services globally through our operations in Europe and China. While our results improved from 2004 through 2007, and were flat in fiscal 2008, our financial results for the first nine months of fiscal 2009 were impacted by competitive pressure on rental rates and lower utilization rates due in large part to the recession in the U.S. and our major international markets. The recession in the U.S. and global economy, resulting in more stringent credit requirements and reduced access to capital, is adversely affecting our customers and competitors. Consequently, while we continue to work at initiatives to expand revenue, we must also focus on remaining profitable in the current conditions, as well as being prepared for the possibility that the recession may deepen and continue in future periods.

Profitability and Key Business Trends

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).

For the first nine months of fiscal 2009, compared to the same period in fiscal 2008, our revenues decreased by 4.9% to $100.5 million, our operating profit decreased by 39.7% to $13.9 million and our net income decreased by 38.7% to $9.7 million. The revenue decrease reflects lower demand in our DP business and foreign operations, with the exception of our European operation which grew during the period. Furthermore, while our T&M rental activity was relatively flat for the nine months ended February 28, 2009, compared to the nine months ended February 29, 2008, T&M rental and lease revenues declined, reflecting the global recession and competitive pressure on rental rates. Our profitability measurements are presented in the table below for the nine months ended February 28, 2009 and February 29, 2008:

                                                                    2009          2008
Net income per diluted common share (EPS)                      $    0.39     $    0.61
Net income as a percentage of average assets (annualized)            4.6 %         7.3 %
Net income as a percentage of average tangible equity
(annualized)                                                         5.4 %         8.7 %

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 growth strategies, and foreign currency losses of $862 for the nine months ended February 28, 2009, compared to a foreign currency gain of $407 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, decreased 0.9% to $149.6 million at February 28, 2009 from $151.0 million at February 29, 2008. Acquisition cost of equipment on lease decreased 25.8% to $28.7 million at February 28, 2009 from $38.7 million at February 29, 2008. Average rental and lease rates for our T&M and DP segments declined by 12.4% and 1.5%, respectively, from February 29, 2008 to February 28, 2009. Utilization for our T&M equipment pool, based on acquisition cost of equipment on rent and lease compared to the total pool was 55.1% at February 28, 2009, compared to 62.7% at February 29, 2008. Over the same period, utilization of our DP equipment pool decreased to 44.9% from 55.1%.

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

                                                         Three Months Ended
                                    Feb 28,       Nov 30,       Aug 31,       May 31,       Feb 29,
                                       2009          2008          2008          2008          2008
Rentals and leases                $  22,491     $  26,155     $  27,234     $  27,648     $  26,244
Sales of equipment and other
revenues                              7,568         9,278         7,752        11,253         9,419
Operating profit                      3,047         4,839         5,986         7,673         6,929

Results of Operations

Comparison of Three Months Ended February 28, 2009 and February 29, 2008

Revenues

Total revenues for the three months ended February 28, 2009 and February 29, 2008 were $30.1 million and $35.7 million, respectively. The decrease in total revenues was due to a 14.3% decrease in rental and lease revenues and a 19.7% decrease in sales of equipment and other revenues.

Rental and lease revenues in the third quarter of fiscal 2009 were $22.5 million, compared to $26.2 million in the prior year period. This reflects a decline in our T&M and DP lease revenues, primarily due to lower demand, and a decrease in T&M and DP rental revenues, reflecting lower rental rates due to competitive pressures and the global recession.

Sales of equipment and other revenues decreased to $7.6 million for the three months ended February 28, 2009, compared to $9.4 million in the prior year period. This decrease is primarily due to declines in our used equipment and distribution sales, reflecting lower customer demand. These declines were partially offset by growth in finance leases, reflecting one of our growth strategies outlined above.

Operating Expenses

Depreciation of rental and lease equipment increased to $11.6 million, or 51.4% of rental and lease revenues, in the third quarter of fiscal 2009, from $11.3 million, or 42.9% of rental and lease revenues, in the third 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 a decline in our rental and lease revenues, reflecting lower rental rates and lower demand for leases, as well as lower utilization rates.

Costs of revenues other than depreciation decreased 23.0% to $5.2 million in the third quarter of fiscal 2009 from $6.7 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 68.0% in the third quarter of fiscal 2009 from 66.3% in the third quarter of fiscal 2008; this increase reflects a decline in our higher-margin used equipment sales due to lower customer demand, reflecting competitive pressures and the global recession, and increased finance leases, which carry a lower margin. Our cost of revenues other than depreciation decreased primarily due to a decline in our used equipment sales. 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 represent an increased portion of our equipment sales, although the gross margin percentage will fluctuate on a quarterly basis, depending primarily on customer requirements and funding and growth in our distribution channel and finance leases.

Selling, general and administrative expenses were $10.3 million in the third quarter of fiscal 2009, compared to $10.8 million in the third quarter of fiscal 2008. Selling, general and administrative expenses as a percentage of total revenues increased to 34.3% in the third quarter of fiscal 2009 from 30.2% in the third quarter of fiscal 2008, due to a decline in revenue. Our selling, general and administrative expenses decreased due to a decline in certain employee benefit and selling costs, partially offset by a foreign currency loss of $25 for the three months ended February 28, 2009, compared to a foreign currency gain of $204 for the three months ended February 29, 2008, as a result of a strengthening of the U.S. dollar against key currencies.

Interest Income, Net

Interest income, net, was $0.1 million for the third quarter of fiscal 2009 compared to $0.9 million in the prior year period. The decrease reflects decreases in prevailing interest rates and a lower cash balance. Interest income, net, includes $2.0 million of unrealized losses on our put option. In addition, interest income, net, includes $2.0 million of unrealized gains on our investments, trading.

Income Tax Provision

Our effective tax rate was 41.0% in the third quarter of fiscal 2009, compared to 37.8% for the same period in fiscal 2008. The increase is due primarily to a decline in the proportion of foreign subsidiary income, which is subject to lower tax rates, to total income, and disallowance of tax benefits on certain foreign currency losses.

Comparison of Nine Months Ended February 28, 2009 and February 29, 2008

Revenues

Total revenues for the nine months ended February 28, 2009 declined $5.1 million, or 4.9%, to $100.5 million, compared to $105.6 million in the same period in the prior year. The decrease in total revenues was due to a 6.5% decrease in rental and lease revenues, offset by an increase in sales of equipment and other revenues of 0.3%.

Rental and lease revenues in the first nine months of fiscal 2009 were $75.9 million, compared to $81.1 million in the prior year period. This decrease reflects a decline in our T&M and DP lease revenues, primarily due to lower demand, and a decrease in T&M and DP rental revenues, reflecting lower rental rates due to competitive pressures and the global recession.

Sales of equipment and other revenues increased to $24.6 million for the nine months ended February 28, 2009, compared to $24.5 million in the prior year period. Our used equipment sales have declined, reflecting lower customer demand; however this decline has been offset by an increase in distribution sales and increased finance lease activity, as a result of our growth strategies outlined above.

Operating Expenses

Depreciation of rental and lease equipment increased to $34.7 million, or 45.7% of rental and lease revenues, in the first nine months of fiscal 2009, from $33.5 million, or 41.3% of rental and lease revenues, in the first nine 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 a decline in our rental and lease revenues, reflecting lower rental rates and lower demand for leases, as well as lower utilization rates.

Costs of revenues other than depreciation increased 4.6% to $17.5 million in the first nine months of fiscal 2009 from $16.7 million in the prior year period. Costs of revenues other than depreciation primarily includes the cost of equipment sales, which increased to 68.7% of equipment sales in the first nine months of fiscal 2009 from 63.5% in the first nine months of fiscal 2008; this increase reflects a decline in our higher margin used equipment sales and increased finance leases and distribution sales which carry a lower margin. Our cost of revenues other than depreciation increased primarily due to growth in our finance leases and distribution sales.

Selling, general and administrative expenses were $34.4 million in the first nine months of fiscal 2009, compared to $32.4 million in the first nine months of fiscal 2008. Selling, general and administrative expenses as a percentage of total revenues increased to 34.2% in the first nine months of fiscal 2009 from 30.7% in the first nine months of fiscal 2008, due in part to a decline in revenue. Our selling, general and administrative expenses increased due to higher personnel and benefit costs to support our current operations and develop our growth strategies, and a foreign currency loss of $862 for the nine months ended February 28, 2009, compared to a foreign currency gain of $407 for the nine months ended February 29, 2008, as a result of a strengthening of the U.S. dollar against key currencies.

Interest Income, Net

Interest income, net, was $1.4 million for the first nine months of fiscal 2009 compared to $2.6 million in the prior year period. The decrease reflects decreases in prevailing interest rates and a lower cash balance. Interest income, net, includes $1.1 million of unrealized gain on our put option. In addition, interest income, net, includes $1.1 million of unrealized losses on our investments, trading.

Income Tax Provision

Our effective tax rate was 36.0% in the first nine months of fiscal 2009, compared to 38.0% for the same period in fiscal 2008. The decrease is due primarily to changes in estimated tax exposures, partially offset by reduced foreign subsidiary earnings subject to lower tax rates, and disallowance of tax benefits on certain foreign currency losses.

Liquidity and Capital Resources

Our primary capital requirements are purchases of rental and lease equipment. We generally purchase equipment throughout the year to replace equipment that has been sold and to maintain adequate levels of rental equipment to meet existing and expected 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 $42.1 million of rental and lease equipment during the first nine months of fiscal 2009. This amount was 24.1% lower than the $55.5 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 nine months ended February 28, 2009, we purchased 1,841,165 shares of our common stock for $20.4 million, at an average price of $11.08 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 nine months ended February 28, 2009 and February 29, 2008, we paid dividends of $11.4 million and $7.8 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 February 28, 2009, we held $21.6 million, at cost, in auction rate securities ("ARS"), which we classify as investments, trading. The fair value of our ARS at February 28, 2009 was $20.5 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, UBS AG ("UBS"), which are derived from UBS's 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 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 right 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 term of the ARS if the auction process fails. In addition, UBS Bank USA has established a credit line for us in an amount up to 75% of the market value of the ARS that we pledge as collateral.

Given the approximately $47.4 million we hold in cash and cash equivalents, primarily U.S. Treasury money market funds, and our lack of bank debt, we expect to be able to continue to finance our operations even if our ARS were to be illiquid for an extended period of time.

During the first nine months of fiscal 2009 and fiscal 2008, net cash provided by operating activities was $46.8 million and $42.2 million, respectively. The increase in operating cash flow was due primarily to: a $5.3 million decrease in accounts receivable for the nine months ended February 28, 2009, compared to an increase of $3.3 million in the prior year period; an increase in deferred tax liability of $3.4 million for the nine months ended February 29, 2009, compared to an increase of $701 for the prior year period; and a remeasurement loss of $471 for the nine months ended February 28, 2009, compared to a gain of $407 in the prior year period. This increase was offset by a decline in net income of $6.1 million for the nine months ended February 28, 2009, compared to the nine months ended February 29, 2008.

During the nine months ended February 28, 2009 net cash used in investing activities was $19.4 million, compared to $34.8 million in the same period of fiscal 2008. The decline in net cash used in investing activities is mainly due to a decrease in payments for the purchase of rental and lease equipment to $42.1 million for the nine months ended February 28, 2009, compared to $55.5 million for the nine months ended February 29, 2008.

Net cash used in financing activities increased to $30.5 million from $6.4 million for the nine months ended February 28, 2009 and February 29, 2008, respectively, due to an increase in payments for the repurchase of common stock to $20.4 million for the current fiscal period, compared to $19 for the prior year period, and an increase in dividends paid to $11.4 million for the nine months ended February 28, 2009, compared to $7.8 million for the nine months ended February 29, 2008.

We have a $10.0 million revolving line of credit with an institutional lender, subject to certain restrictions, to meet equipment acquisition needs as well as working capital and general corporate requirements. We had no bank borrowings outstanding or off balance sheet financing arrangements at February 28, 2009.

We believe that based on our current cash and cash equivalents balance of $47.4 million at February 28, 2009 and expected operating cash flows, the current lack of liquidity in the global credit and capital markets will not have a material impact on our liquidity, cash flows, or financial flexibility or our ability to fund our operations, including our dividends.

Contractual Obligations

We do not believe that our contractual obligations have changed materially from those included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2008. The exact timing of reversal or settlement of our FIN 48 liabilities of $4.9 million could not be reasonably estimated at the end of the current fiscal quarter.

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 that 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 fiscal year ended May 31, 2008. We have not made any material changes to these policies as previously disclosed.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the . . .