SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1998
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number: 000-23309
                               LINC CAPITAL, INC.
             (Exact name of registrant as specified in its charter)

                   Delaware                         06-0850149
          (State or other jurisdiction of         (I.R.S. Employer
          incorporation or organization)         Identification No.)

         303 East Wacker Drive, Suite 1000,
                 Chicago, Illinois                      60601
       (Address of principal executive offices)      (Zip Code)

                                 (312) 946-1000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:


                                 Title of class
                                 --------------
                          Common Stock, $.001 par value



<PAGE>


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

     The  aggregate  market  value of voting  stock  held by  nonaffiliates  was
approximately  $19,558,824  million  based upon the sale  price of  registrant's
Common Stock as of March 12, 1999.  For  purposes of the  foregoing  calculation
only, each of the issuer's officers and directors is deemed an affiliate.

     At March 12, 1999,  5,235,674 shares of the Registrant's  Common Stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of LINC  Capital,  Inc.'s  definitive  Proxy  Statement  for the Annual
Meeting of  Stockholders  to be held May 26, 1999 to be filed within 120 days of
fiscal year end are incorporated by reference into Part III.




<PAGE>


                               LINC CAPITAL, INC.

                                TABLE OF CONTENTS

                                                                            Page

PART I.

        Item 1.    Business ...............................................    1
        Item 2.    Properties..............................................   17
        Item 3.    Legal Proceedings.......................................   17
        Item 4.    Submission of Matters to Vote of Security Holders.......   17

PART II.

         Item 5.   Market for the Registrant's Common Equity and
                       Related Stockholder Matters.........................   18
         Item 6.   Selected Financial Data.................................   19
         Item 7.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations.....................   22
         Item 7A.  Quantitative and Qualitative Disclosures
                   About Market Risk.......................................   30
         Item 8.   Financial Statements and Supplementary Data.............   33
         Item 9.   Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure.....................   33

PART III.

         Item 10.  Directors and Executive Officers of the Registrant......   34
         Item 11.  Executive Compensation..................................   34
         Item 12.  Security Ownership of Certain Beneficial Owners
                   and Management..........................................   34
         Item 13.  Certain Relationships and Related Transactions..........   34

PART IV.

         Item 14.  Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K.....................................   34

SIGNATURES.................................................................   38


<PAGE>


                                     Part I

Item 1.  Business

     General

     LINC Capital,  Inc. (the  "Company")  is a specialty  finance  company that
provides leasing,  asset-based financing,  and equipment rental and distribution
services to growing  businesses.  Through the following four business units, the
Company  provides  specialized  financing  services,  including  the  leasing of
equipment  and  other  asset  based  financing  to  emerging  growth  companies,
customized leasing and rental programs to vendors and distributors of analytical
instruments and other equipment.

o    Select Growth Finance (or "Select Growth")  directly  originates  equipment
     leases  and  other  asset-based  financing  to  emerging  growth  companies
     primarily in the  healthcare and  information  technology  industries.  The
     Company frequently receives warrants or other equity  participation  rights
     in the  lessee in  addition  to its  rights as an  equipment  lessor in the
     residual value of the equipment.

o    Portfolio   Finance  purchases  or finances  leases  originated  by smaller
     companies within the highly fragmented  leasing industry thru warehouse and
     portfolio purchase programs.  Since its re-entry into the Portfolio Finance
     business in October 1997, the Company has formed lease and lease  portfolio
     purchase  relationships  with over 20 lessors  and has  financed  over $155
     million in leases.  By  financing  the  business  generated  by this target
     market,  the Company  provides  such  companies  with access to the capital
     markets and back office services.

o    Rental  and  Distribution   facilitates  the  short-term  trial,  use,  and
     acquisition of analytical instruments and related equipment by companies in
     the environmental and biotechnology industries through rentals, leasing and
     distribution of  such equipment.  The Company is a  distributor for some of
     the most significant  manufacturers of these types of equipment,  including
     Hewlett-Packard,  The Perkin-Elmer  Corporation and Varian  Associates Inc.

o    Vendor Finance assists the sales efforts of manufacturers  and distributors
     by  developing  leasing  programs  for the users of  equipment  sold by the
     manufacturers  and  distributors.  Since the beginning of 1998, the Company
     has made four acquisitions of smaller leasing companies having  significant
     levels of vendor relationships.

     The Company  primarily conducts its business  throughout the United States.
California  and  Texas  each  account  for  approximately  15% of the  Company's
revenues.  Otherwise,  no  state  accounts  for more  than 10% of the  Company's
revenues.  The Company  believes,  based on its own  research  and  management's
extensive knowledge of and experience in the equipment leasing industry, that it
is a leading  provider of equipment  leasing,  rental and other  services in its
specialized markets and its position as such provides significant  opportunities
for  internal and  external  growth.  The Company  believes  that its  extensive
experience in these markets and its  flexibility in structuring  transactions to
meet the  needs of both its  leasing  and  rental  customers  provide  it with a
potential  competitive  advantage  over  other  sources  of such  services.  For
information  regarding  segment  reporting,  see  note  15 to  the  Consolidated
Financial Statements.
<PAGE>

  Background

     The Company's  predecessor was organized in 1975 and, from its organization
through  September  1994,  focused its  activities  primarily  in the leasing of
equipment to businesses engaged in the healthcare industry. The Company believes
that through  internal growth and its acquisition of Scientific  Leasing Inc. in
1988, it became the largest  independent  lessor of healthcare  equipment in the
United  States with over $500 million in assets owned or managed in 1993.  Based
on   statements   made  to  the  Company  by   individuals   familiar  with  the
securitization  industry as well as its own research,  the Company believes that
it was the first equipment lessor in the U.S. to securitize healthcare equipment
leases and related residual values.

     The Company commenced its Select Growth Finance  operations in 1986 through
its  sponsorship  and  management  of limited  partnerships,  a portion of whose
business was providing  equipment lease  financing to emerging growth  companies
primarily in the healthcare and information technology industries.  Beginning in
1992, the Company focused Select Growth Finance on leasing  essential  operating
equipment to such emerging companies for its own account. The Company originated
over $52 million in new leases through its Select Growth  Finance  activities in
1998 and has originated over $138 million in such leases since 1993.

     The Company first entered the  Portfolio  Finance  business in 1988 through
the  acquisition  of  Scientific  Leasing  Inc.,  the  majority of whose  assets
consisted of a portfolio of leases of healthcare equipment. In 1994, the Company
sold its healthcare  equipment  leasing and portfolio  acquisition and servicing
business to LINC Anthem  Corporation  ("LINC  Anthem"),  a subsidiary  of Anthem
Insurance Companies,  Inc. In connection with the sale, the Company entered into
a  non-competition  agreement  that  effectively  restricted  the  Company  from
participating in Portfolio Finance  activities and from originating leases other
than to  emerging  growth  companies  until  September  1997  (the  "Non-Compete
Agreement"). The Company's Chief Executive Officer, Mr. Zimmerman, and Executive
Vice President and Chief  Financial  Officer,  Mr. Palles,  participated  in the
management  of LINC Anthem  until it was sold in 1996 to an  affiliate  Newcourt
Credit Group (USA), Inc. From 1988 through the end of 1996, the Company and LINC
Anthem  Corporation purchased or financed over $600 million in leases originated
by other smaller lessors. After the sale, Messrs.  Zimmerman and Palles returned
to the Company on a full-time basis to pursue opportunities in its Select Growth
Finance  and Rental and  Distribution  activities.  Upon the  expiration  of the
Non-Compete Agreement, the Company reinitiated its Portfolio Finance operations.
In 1998 Portfolio Finance originated lease volume in excess of $146 million.

     The Company's Rental and Distribution activities were developed through the
acquisition  in 1991 of a business  founded by Robert E.  Laing,  the  Company's
President  and  Chief  Operating  Officer,  and the  acquisition  in 1992 of the
analytical  instruments business of AT&T Capital  Corporation.  During 1997, the
Company  purchased  the  minority  interest  in  its  subsidiary,  LINC  Quantum
Analytics,   Inc.,   which  conducts  the  Company's   Rental  and  Distribution
activities, from certain officers of the Company including Mr. Laing.

<PAGE>

     The  expiration  of  the  Non-Compete  Agreement  allowed  the  Company  to
reinitiate  its Portfolio  Finance  business and to establish its Vendor Finance
business unit in 1998.  The Company  believes  that its Select  Growth  Finance,
Portfolio Finance, and Instrument Rental and Distribution units assist the sales
efforts of  equipment  manufacturers  and  distributors.  Therefore,  management
believes that Vendor Finance  represents a  complementary  strategic focus, and,
given  the  highly  fragmented  nature  of  the  equipment  leasing  market,  an
opportunity  exists to acquire and consolidate  smaller  leasing  companies with
significant vendor  relationships.  Since the beginning of 1998, the Company has
developed  its Vendor  Finance  business  unit  through the  acquisition  of the
following companies.

o    Comstock  Leasing  Inc.,  acquired by the Company in  February  1998,  with
     offices  in  Minneapolis   and  San   Francisco,   specializes  in  leasing
     office-based information technology equipment.
o    Monex Leasing, Ltd.,  acquired by the Company in March 1998,  headquartered
     in Houston, is a lessor of telecommunications and business equipment.
o    Spectra  Precision  Credit Corp.,  acquired by the Company in June 1998 and
     based in Dayton,  Ohio,  was  formerly  the finance  subsidiary of  Spectra
     Precision  Group,  an  international manufacturer  of laser-based leveling,
     alignment and surveying instruments and software.
o    Connor Capital  Corporation,  acquired by the Company in January 1999, is a
     Chicago area lessor that  specializes  in developing  finance  programs for
     equipment vendors.

     As a result of these  acquisitions,  the Company now has relationships with
nearly 200 vendors and distributors.

     In November  1997,  the Company  completed its initial  public  offering of
2,300,000  shares of common stock.  The initial public offering gave the Company
the additional  equity capital required for future internal and external growth.
The  Company  used a  combination  of  equity  and  debt  to  finance  the  1998
acquisitions and develop its Vendor Finance business unit.

     Equipment Leasing Industry

     The U.S. leasing  industry has expanded at a compounded  annual growth rate
of 15% since 1988,  according  to data  supplied by the Monitor.  The  Equipment
Leasing  Association of America (the "ELA") notes that  approximately 80% of all
U.S.  businesses  use  leasing  to  acquire  some of their  assets.  Leasing  is
advantageous  since it enables a company to obtain the  equipment it needs while
preserving  cash flow,  and may offer  favorable  accounting  and tax treatment.
These factors, in management's  opinion,  are contributing to greater acceptance
of  leasing  as  a  major  financing  component  of  equipment  investment.   In
particular, the emergence of small, growth and technology-oriented businesses in
the U.S. economy continues to broaden the market for leasing companies. In fact,
industry  penetration - based on the percentage of all U.S. business investments
that are derived  from leases - has  increased  from 15% in 1978 to 31% in 1998.
Recent  trends  indicate  that  approximately  30% to 35% of all  U.S.  business
investments in equipment is financed through leasing transactions. Specifically,
the ELA notes  that  leasing  financed  approximately  $180  billion of the $582
billion spent by the U.S. economy on productive assets in 1997.

<PAGE>

     The highly fragmented leasing industry is dominated by small companies; 59%
of leasing  companies  in the U.S.  have lease  origination  volume of under $50
million.  This statistic implies that many companies in the leasing industry can
be  characterized  as  small  and  perhaps  thinly  capitalized.  Many of  these
companies fill the important  industry  niche of "small ticket" (under  $250,000
size)  transactions.  Based  on  these  statistics,   management  believes  that
opportunities  exist for the  Company to acquire  leasing  companies  or finance
their lease portfolios.

     Management believes consolidation in the leasing industry will be driven by
(1) basic economies of scale, (2)  specialization  factors,  and (3) the capital
constraints of small companies.

     Economies  of  scale  exist  in  operational  and  back  office  functions,
especially those that relate to technological platforms. The increasing level of
automation often allows companies to increasingly  rely on technology to perform
tasks  previously  performed  by  individuals.   Thus,  more  efficient  leasing
companies can acquire less efficient  leasing  companies and spread the costs of
technology over larger lease portfolios.

     Specialization  will also drive  consolidation,  as smaller players will be
disadvantaged  relative to their larger peers who often have better  resources -
including the skill set and customer service  capabilities  necessary to attract
meaningful  partnerships with  manufacturers.  Consequently,  management expects
competitive  pressures from the larger  independent  leasing  companies to drive
smaller companies to seek strategic merger partners.

     Capital  availability  is primary to the success of any financial  services
company. The larger leasing companies again have the advantages of lower cost of
funds and diversification of funding sources relative to smaller players who can
face capital constraints, especially during periods of tight credit.  Therefore,
larger lessors can acquire  smaller  companies that benefit from a lower cost of
capital.

     Select Growth Finance

     General.  The Company's Select Growth Finance  activities consist primarily
of the  direct  origination  of  non-cancelable,  full-payout  leases  and other
asset-based   financing  (primarily  accounts  receivable)  to  emerging  growth
companies  in  the  healthcare  and  information  technology  industries.   Such
companies  include  device   manufacturers,   specialized   healthcare   service
companies,   extended   care   providers,   manufacturers   and   developers  of
technological products, software developers,  information service providers, and
Internet and telecommunications  service companies.  Since 1993, the Company has
provided  leasing  to over 125  companies  including  Bridge  Data  Corporation,
Cardiac Pathways Corporation,  Earthlink Network,  Inc., Interlink  Electronics,
Inc.,   ProBusiness,   Inc.,   Transitional   Health   Services,   and   WinStar
Communications,  Inc. A majority of the Company's  Select Growth Leasing clients
are supported by institutional  private equity investors,  which provide capital
and  management  resources  to such  customers.  Such private  equity  investors
include Essex Venture Partners, Oak Investment Partners, Menlo Ventures,  Weiss,
Peck & Greer, and Welsh Carson Anderson & Stowe.

<PAGE>

Leases to individual  customers  typically  include items with an aggregate cost
ranging from  $250,000 to $3.0 million and cover a broad  variety of  equipment,
each with original  purchase  prices which are generally  less than $100,000 per
item. These leases are generally for essential  operating  equipment,  including
data processing  equipment,  production  equipment,  analytical  instruments and
medical  equipment.  For 1998  compared to 1997,  Select  Growth  Finance  lease
fundings increased to $52.4 million from $32.6 million.

     The Company believes that regulatory  reform,  consolidations,  outsourcing
and other  fundamental  changes in the  healthcare  industry,  expansion  of the
information  technology  industry  and  development  of  new  technologies  have
promoted  the  formation  and growth of new  companies of the type served by its
Select Growth Finance  activities.  Such companies typically have limited access
to  financing  from  commercial   banks,   diversified   finance  companies  and
traditional  leasing  companies.   The  Company's   experience  in  serving  the
healthcare  and  information  technology  industries  enables  it to  serve  the
specific  needs of its customer base more  effectively  than its  competitors by
providing  a  variety  of  financing   alternatives,   such  as  flexible  lease
structures,  asset-based  financing,  sale-leaseback  transactions  and  secured
credit lines, while maintaining  credit quality.  In a significant number of its
Select  Growth  Finance  transactions,  the Company  receives  warrants or other
equity   participation   rights  that  provide   additional   opportunities  for
profitability upon the sale of such rights.

     Sales and Marketing.  Leases are originated by  representatives  located in
Chicago,  San  Francisco,   Boston  and  Austin,  often  through  a  network  of
independent  lease  brokers and  referrals  from  institutional  private  equity
investors.  The Company has been able to identify  prospective  clients  through
marketing personnel having investment  banking,  financial analysis and industry
specific  experience;  attention  to  selective  information  regarding  venture
capital  investments in the healthcare and  information  technology  industries;
direct mail advertising and representation at major venture capital  conferences
and symposia.

     To insure prompt customer response,  the Company's marketing personnel have
direct access to the Company's customer information data bases which assist them
in responding to sales leads,  preparing  lease  proposals  and  monitoring  the
progress of a transaction  through the underwriting  process.  In addition,  the
Company's  sales  personnel are trained in  structuring  Select  Growth  Finance
transactions.

     Underwriting.  The Company  has  adopted  Credit  Policies  and  Procedures
applicable to each of its business units that are  periodically  reviewed by the
Credit Policy Committee of its Board of Directors.  In addition, the Company has
established  a  Commitments  Committee,  the  senior  members  of which  are the
Company's  Chairman  and CEO, its  President  and its Chief  Financial  Officer.
Because of the nature of its Select Growth Finance  activities the preponderance
of the  transactions  originated by its Select Growth Finance  business unit are
reviewed prior to approval by the Company's Commitment's Committee. Based on its
12 years of experience in serving  emerging  growth  companies  primarily in the
healthcare and information technology  industries,  as well as its over 23 years
in the equipment  leasing industry,  the Company has developed  underwriting and
operations  criteria,  including a  specialized  credit rating  system,  for its
Select  Growth  Finance  business  that have been  effective in the selection of
lessees and in controlling the Company's  exposure to loss. The Company's Select
Growth  Finance  underwriting  process  is based on due  diligence  regarding  a
potential customer's business, management, product, cash flows and institutional
investors, as well as the type of equipment to be leased.
<PAGE>

Portfolio Finance

     General.  The Company reinitiated its Portfolio Finance activities upon the
expiration of the  Non-Compete  Agreement on September  29, 1997.  The Portfolio
Finance division  finances the leases generated by other equipment  lessors.  In
1998, its first full year of operations  since the expiration of the Non-Compete
Agreement,  the  Portfolio  Finance  division  originated  over $146  million of
leasing volume.  The Company has portfolio finance  relationships with more than
20 companies and a total portfolio of over 60,000 leases.

     The Company  believes  there are  substantial  opportunities  in  Portfolio
Finance due to the fragmented nature of the leasing  industry,  the inability of
small  equipment  leasing  companies to access the  cost-efficient  asset-backed
securities markets to finance their portfolios, and the cost of implementing new
technologies  to remain  competitive.  The Company  finances  leasing  companies
characterized  by:  (i)  strong  customer  or vendor  relationships;  (ii) lease
transactions  which  range in size from  $1,000  to  $250,000;  (iii)  needs for
committed financing and servicing  relationships;  and (iv) a focus on customers
which are not effectively served by more traditional funding sources.

     Sales and Marketing.  In connection  with the  acquisition and financing of
lease  portfolios,  the Company  offers two distinct  programs to its customers.
Under its  Warehouse  Line  Programs,  the Company  provides  limited  warehouse
facilities  to lessors on a recourse  basis.  Following a warehouse  period that
typically will not exceed six months,  the Company purchases the related pool of
warehoused  leases from the lessor on either a partial  recourse or  nonrecourse
basis.  Under its Portfolio  Finance Programs,  the Company acquires  portfolios
originated over a specified period of time by an unrelated lessor.  The purchase
is  usually  credit  enhanced  by  either  a  holdback  reserve  and/or,  if the
creditworthiness of the originating lessor is acceptable,  a recourse obligation
of the originating  lessor. Such credit enhancement is intended to reduce losses
under this  program.  Substantially  all of the leases the Company  acquires are
non-cancelable, full-payout leases. The Company expanded its sales and marketing
organization in this segment during 1998.

     Underwriting.  The Company has developed established underwriting processes
for the  management  of its  Portfolio  Finance  activities  based on the  prior
experience  of its  management.  The Company  performs a detailed due  diligence
review of each  potential  customer  prior to approval  of a  Warehouse  Line or
Portfolio  Finance  Program.  The due diligence  process includes site visits, a
review of the potential  customer's  documentation  standards,  credit policies,
customer base, management team, equipment focus and servicing  capabilities.  In
connection  with  a  Warehouse  Line  Program,   the  Company   utilizes  credit
applications  and credit scoring  systems to underwrite  each  transaction to be
financed or purchased.  In  connection  with  Portfolio  Finance  Programs,  the
Company  re-underwrites the transactions in each portfolio  utilizing its credit
scoring systems.

<PAGE>

     Rental and Distribution Activities

     General. The Company's Rental and Distribution activities consist primarily
of the rental and distribution of analytical instruments, such as gas and liquid
chromatographs,   mass  spectrometers  and  atomic  absorption   systems.   Such
instruments  typically  cost  between  $15,000 and $60,000  each and are used by
companies serving the environmental,  chemical, pharmaceutical and biotechnology
industries to measure the chemical composition of a variety of substances.

     Certain segments of the market for analytical  instruments have undergone a
fundamental change over the past several years in that vendors have increasingly
relied upon independent  companies,  such as the Company, to take responsibility
for the  distribution  and rental of such  equipment.  This is consistent with a
trend toward  outsourcing among providers of a variety of products and services.
These vendors have increasingly focused on the manufacture of such equipment and
allowed  independent  companies  to  focus on other  functions  such as  rental,
inventory  management and distribution.  The Company believes that its expertise
has allowed it to become a leading  independent  distribution and rental company
in the analytical instrument market.

     The Company is a distributor for most of the significant  manufacturers  of
this type of equipment, including Hewlett-Packard,  The Perkin-Elmer Corporation
and Varian Associates Inc. The Company is a designated "Premier Channel Partner"
for  Hewlett-Packard  and believes,  based on its own  research,  that it is the
largest independent source of analytical instruments in the U.S. As an outgrowth
of  its  relationship  with  Hewlett-Packard,   the  Company,  in  concert  with
Hewlett-Packard,  has  extended  its  sales  and  rental  programs  in Europe to
accommodate  U.S.-based and new European customers.  The Company's position as a
distributor  of certain types of equipment  allows it to purchase such equipment
at a discount, which varies, from manufacturer to manufacturer.

     Sales and Marketing. The Company provides analytical instruments, which are
customized,  calibrated  and made  ready  for use by the  Company.  The  Company
typically delivers  equipment from its centralized  warehouse within 24 hours of
receipt of an order.  The  Company  services  over 2,500  analytical  instrument
customers through its sales force of product  specialists and orders directed to
the  Company by its  vendors.  The  Company's  customers  include  environmental
testing   laboratories,    pharmaceutical   and   chemical   manufacturers   and
biotechnology  companies.  The Company's  five largest  Rental and  Distribution
customers are New York City Medical Examiner, Quanterrra Environmental Services,
Inc.,  State of Minnesota,  Commonwealth of Virginia,  and Catalytica,  Inc. The
Company will seek  opportunities  to capitalize on its  distribution  and rental
expertise and its knowledge of the healthcare market by developing relationships
with vendors of medical  equipment and acquiring  other  established  rental and
distribution companies.

     The Company  offers its Rental and  Distribution  customers generally three
types  of rental  and leasing  arrangements:  (i) short-term rentals  with terms
ranging from as short as two weeks to one year; (ii) operating leases with terms
ranging from 12 to 48 months;  and (iii)  full-payout  leases with terms ranging
from 36 to 60 months.  Customers under rental  arrangements and operating leases
are also offered incentives to purchase the related analytical instrument either
during the term of the lease or at the end of the lease by applying a portion of
the rental payments made by the customer to the purchase price of the equipment.
The Company believes that its ability to provide a wide range of rental, leasing
and  purchase  options  provides  it with a  competitive  advantage  over  other
providers of analytical instruments.

<PAGE>

     To further promote awareness of its Rental and Distribution activities, the
Company  advertises in trade  publications  targeted at key customer  groups and
participates in numerous trade shows  worldwide.  In addition,  specific mailing
lists targeting selected market segments are purchased from specialized database
providers. Product-specific marketing literature is mailed on a regular basis to
target segments of the Company's over  15,000-account  mailing list. Direct mail
targeted  at  prospective  users of  analytical  equipment  has  proven  to be a
cost-effective  way to attract  rent,  lease and sale  customers and to increase
awareness and stimulate demand.

     Operations.  When  the  Company  sells  new  analytical  instruments,   the
equipment is subject to a manufacturer's  warranty.  When the Company sells used
analytical  instruments,  it typically reconditions the equipment and provides a
90-day  warranty.  When the Company  rents such  instruments,  it exchanges  any
instruments  requiring  service  with units from its  centralized  inventory  or
provides for on-site  service from the  manufacturer  or an independent  service
organization.   The  Company  maintains  its  rental  inventory  and  customizes
analytical  instruments to meet its customers'  needs through a complete  repair
and reconditioning facility.

         The Company utilizes a combination of proprietary software and software
licensed to it by a third party in its rental and distribution  activities.  All
items  in  the  Company's  Rental  and  Distribution  inventory  are  separately
bar-coded and tracked. Its systems permit users to access information  regarding
account  history,   current   activity,   status  of  items  in  its  inventory,
utilization, pricing, billing and collections on-line. The Company believes that
the  long-term  experience of it and its  management in utilizing  these systems
provides it with the ability to rapidly respond to customer inquiries and a high
level of control over its rental inventory.

Vendor Finance

     General.  As  part of the  sale of its  healthcare  equipment  leasing  and
portfolio  acquisition  and servicing  businesses  in October 1994,  the Company
entered into the Non-Compete  Agreement that effectively  restricted the Company
from originating  leases other than to emerging growth companies until September
1997. On September 29, 1997 this Non-Compete  Agreement  expired and the Company
began to  develop  a Vendor  Finance  business  unit  that  management  believes
strategically  complements the Select Growth  Finance,  Portfolio  Finance,  and
Rental and Distribution business units. Because of the high fragmentation of the
equipment  leasing industry,  management  believes that the Company can grow its
Vendor  Finance  business  through  selecting  acquisitions  of smaller  leasing
companies  with  significant  vendor  relationships  and through their  internal
growth.

     Acquisitions.  The Company focuses on acquiring  smaller leasing  companies
that have  potential to grow  significantly  with access to the Company's  lower
cost  of  capital  and  established  infrastructure.   In  addition,   potential
acquisitions  must have strong  management that has  demonstrated its ability to
develop and execute  attractive  business plans. These acquisitions are intended
to give the  Company  significant  vendor  relationships  that the  Company  can
leverage  in  its  other  three  business  segments.  Management  believes  that
acquisitions  should  increase  the  institutional  knowledge  of the Company by
adding equipment and marketing  expertise and diversifying the Company's leasing
portfolio. The Company has begun to execute this strategy in 1998 and expects to
continue to pursue acquisitions of companies meeting these criteria which can be
integrated into the Company's  organizational  structure and which can recognize
synergies from the Company's operating systems and geographic presence.

<PAGE>

     Since the expiration of the Non-Compete  Agreement the Company has acquired
four leasing  companies  which fit the parameters of its  acquisition  strategy.
These  acquisitions  compliment the Company's core  competencies  in customizing
lease  financing  arrangements  to respond to the needs of vendors and equipment
end-users,  and in training the vendor's staff in the use of the Company's lease
financing   products  to  provide  an  additional  flow  of  financing   volume.
Acquisition  synergies include allowing  management of the acquired companies to
focus their activities on marketing, providing a lower cost of funds, permitting
products  offered to vendors to include rentals and financing to emerging growth
companies and providing  access to sophisticated  lease  servicing.  The Company
expects to continue to expand its Vendor Finance business through  expansion and
integration  of  these  acquired  businesses,  as  well  as  through  additional
acquisitions.

     Comstock  Leasing  Inc. In  February  1998 the  Company  acquired  Comstock
Leasing  Corporation  ("LINC Comstock"),  a small-ticket  lessor with offices in
Minneapolis  and San Francisco.  LINC Comstock  supports  vendors as a lessor of
office-based  information  technology.  As part of the acquisition,  the Company
acquired the $7.9 million  leasing  portfolio of LINC  Comstock.  LINC  Comstock
originates its leasing volume through  approximately 12 vendor  relationships in
the  information  technology  industry.  The  majority  of its  lease  volume is
concentrated  in Minnesota and California.  The average lease transaction has an
original equipment cost of $25,000.

     Monex Leasing,  Ltd. In March of 1998, the Company  acquired Monex Leasing,
Ltd. ("LINC Monex"), a vendor-driven  equipment lessor headquartered in Houston,
Texas.  LINC Monex works with  distributors  and vendors of  telecommunications,
business and medical  equipment,  primarily in the Texas market.  As part of the
acquisition,  the Company  acquired the $20.6  million  lease  portfolio of LINC
Monex.

     LINC Monex originates leasing volume through its direct  relationships with
vendors and  distributors.  Vendors are motivated to promote  leasing since LINC
Monex will pay the vendor  immediately  for the  equipment  and then service the
lease with the end user,  alleviating the vendor's  concerns  regarding  payment
from the  end-user.  The  vendor's  salespeople  often find that  monthly  lease
payments over time are less daunting to a customer than paying the full purchase
price up front and therefore  rely on leasing to increase  their sales  volumes.
The average lease has an original equipment cost of $25,000.

     Spectra  Precision Credit Corp. The Company acquired  substantially  all of
the assets and business of Spectra Precision Credit Corp.  ("Spectra Credit") in
June  1998,   including  its  $34.7  million  lease  portfolio.   Prior  to  the
acquisition,  Spectra  Credit was the finance  subsidiary of Spectra  Precision,
Inc. ("Spectra Precision"),  a division of Sweden-based Spectra Precision Group,
an international  manufacturer of laser-based leveling,  alignment and surveying
instruments and software used in the  construction,  agricultural  and surveying
markets.  As part of the acquisition,  the Company and Spectra Precision entered
into a seven-year  vendor  agreement  in which the Company  will have  exclusive
rights to  provide  financing  services  to Spectra  Precision's  clients in the
United States, Canada, and Europe.

     The acquisition of Spectra Credit which has become the LINC Vendor Services
Division of the Company ("LINC Vendor Services") expanded the  Company's  vendor
financing  business,  introduced  the  Company  to new  equipment  and  end-user
markets,  and  provided an  international  presence  with LINC Vendor  Service's
office  in the  United  Kingdom.  Through  its  formal  agreement  with  Spectra
Precision,  LINC  Vendor  Services  provides  a  sophisticated  array of leasing
options,  progress payment programs, floor plan financing and rental services to
24  direct  sales  offices  and more  than 140  dealer/distributors  of  Spectra
Precision's  products throughout the world. The leases originated by LINC Vendor
Services have an average original equipment cost of $18,000.

     LINC  Vendor  Services  believes  that it can  significantly  increase  its
leasing volume by setting up additional  leasing  programs with  distributors in
other niche  industries such as medical and dental  equipment,  broadcasting and
telecommunications,  and materials handling.  The company targets  middle-market
manufacturers  that do not have existing  finance  programs and works with these
companies in developing strategies that will increase unit sales and margins. As
part of these efforts,  LINC Vendor  Services  provides the  manufacturers  with
inventory  management  assistance  that  focuses  on  business  growth and sales
seminars aimed at developing  more effective  salespeople  through reduced sales
cycles, increased selling efficiencies, and wider margins.

     Connor Capital  Corporation.  In January 1999, the Company  acquired Connor
Capital Corporation ("LINC Connor"), located in suburban Chicago. LINC Connor is
an equipment leasing company specializing in captive vendor finance programs. At
the time of its acquisition by the Company, LINC Connor had an approximately $10
million leasing portfolio.

     LINC Connor focuses on developing  captive  finance  programs for equipment
vendors. The strategy of LINC Connor is to create a virtual company that acts as
a leasing arm for its equipment vendors. The virtual company responds to leasing
inquiries  generated by the vendors and allows each vendor to represent  that it
has a captive finance  subsidiary.  Management believes that the virtual company
concept,  combined with a vendor revenue sharing program, has created demand for
LINC Connor's services.

     During 1998,  following  their acquisition  by the Company these businesses
collectively generated new equipment leases of $48.0 million.

Lease Portfolio Composition

     Equipment Type. The following table sets forth the Company's  percentage of
net  investment  in direct  finance  leases  and loans and the net book value of
operating  leases,  including  leases  securitized,  as of December 31, 1998, by
equipment type:
<TABLE>
<CAPTION>

                                                                                                          % Of 
Equipment Type                                             Examples                                     Portfolio
--------------                                             --------                                     ---------
<S>                          <C>                                                                        <C>  
Point-of-Sale Devices        Credit card verification equipment                                             27.3%
Information Systems          Personal computers, area networks and workstations                             14.9
Laser Surveying              Laser-based leveling and alignment instruments, machine control
                                systems, and surveying instruments                                          11.8
Production                   Pharmaceutical manufacturing, labeling and dispensing equipment                 9.7
Analytical Instruments       Gas and liquid chromatographs and mass spectrometers                            9.2
Telecommunications           Microwave transmitters, multiplexing equipment and telephone
                                systems                                                                      7.1
Medical                      X-ray machines, infusion pumps and surgical equipment                           6.9
Furniture and Fixtures       Medical and other office furniture                                              5.0
Miscellaneous                Various equipment accessories and other                                         8.1
                                                                                                         -------
                                  Total                                                                    100.0%
</TABLE>

     Terms of Equipment Leases. Substantially all equipment leases originated by
the Company are net leases with  specified  non-cancelable  terms  ranging  from
three to six years.  The essential  terms and conditions of all of the Company's
leases are substantially  similar.  In most cases, the lessees are contractually
required to: (i) maintain,  service and operate the equipment in accordance with
the manufacturer's and government-mandated procedures; (ii) insure the equipment
against  property and casualty  loss;  (iii) pay all taxes  associated  with the
equipment;  and (iv) make all  scheduled  contract  payments  regardless  of the
performance  of the  equipment.  The Company's  standard forms of leases provide
that in the event of a default by the lessee, the Company can require payment of
liquidated  damages and can seize and remove the equipment for subsequent  sale,
refinancing or other disposal at its discretion. Any additions, modifications or
upgrades to the  equipment,  regardless of the source of payment,  are typically
automatically incorporated into and deemed a part of the equipment financed.

     Residual Values.  Residual  equipment values on the Company's balance sheet
as of December 31, 1998  totaled  approximately  $15.5  million.  The  Company's
experience in remarketing  equipment and conservative policies toward estimating
residual values has resulted in the Company  consistently  recognizing  gains on
the remarketing of leased equipment on a historical basis.

     Equity  Participation  Rights Held in Select  Growth  Finance  Lessees. The
Company frequently receives warrants or other equity  participation  rights from
Select  Growth  Finance  clients in  connection  with its  leases to them.  Such
warrants or rights entitle the Company to purchase  common stock or other equity
securities  of the client at a price  generally  based on the most recent  price
paid by the client's private equity investors. The Company typically obtains the
rights to have such  shares  included  in  registered  public  offerings  of the
client's  stock.   At  the  time  of  receipt,   the  warrant  or  other  equity
participation right is recorded as an investment. The Company does not recognize
gain or loss on such  securities  until they are sold. The Company  periodically
evaluates its portfolio of equity  participation  rights and expects to sell its
equity  participation  rights as its  portfolio  companies  mature  based on its
evaluation of the market trends for the related clients' equity  securities.  As
of December  31,  1998,  the  Company  held  equity  participation  rights in 55
companies, nine of which were publicly traded. During 1998, the Company realized
an  aggregate  of $3.8  million  in gain from the sale of  equity  participation
rights in three publicly traded companies,  approximately  $3.4 million of which
related to one such  company.  These  results  may not be  indicative  of future
performance.  At December 31, 1998, the estimated fair value of these securities
was $1.1 million inclusive of gross unrealized gains of $0.1 million.  Potential
gains on both residual  values and sale of equity  participation  rights provide
additional sources of revenue to offset the possibility of losses,  which may be
incurred on Select Growth Finance lessees.

     Loss Experience.  The following table sets forth the amount of deliquencies
as a percentage of Gross  Contract  Balance of leases  included in the Company's
owned  and  securitized  lease  portfolio  as of the  period  indicated  and net
charge-offs as a percentage of the Company's  remaining net investment in direct
finance  leases and loans as of the end of the period  indicated.  Additionally,
the  table  sets  forth the loss  reserves  provided  for on the Gross  Contract
Balance as well as holdback reserves on portfolio  acquisitions as of the end of
the period indicated.

<PAGE>
<TABLE>
<CAPTION>

                                                         Year ended December 31,
                                                  --------------------------------------
                                                     1998         1997          1996
                                                  -----------  -----------   -----------
                                                            (Dollars in thousands)
<S>                                                 <C>           <C>           <C>

Select Growth Finance:

       Gross Contract Balance                        $75,882      $56,654       $30,095

       31 - 60 days past due                            3.07%       11.31%         1.05%
       61 - 90 days past due                            0.07%           -             -
       Over 90 days past due                            1.52%           -             -

Portfolio Finance:

       Gross Contract Balance                       $175,885      $31,630        $2,791

       31 - 60 days past due                            2.13%        0.39%            -
       61 - 90 days past due                            1.27%        0.18%            -
       Over 90 days past due                            0.20%        0.02%            -

Rental and Distribution:

       Gross Contract Balance                        $10,064       $9,352       $10,282

       31 - 60 days past due                            8.88%       11.70%         5.50%
       61 - 90 days past due                               -         5.76%         0.78%
       Over 90 days past due                               -         9.98%         1.94%

Vendor Finance:

       Gross Contract Balance                        $92,478       $    -        $    -

       31 - 60 days past due                            3.37%           -             -
       61 - 90 days past due                            0.61%           -             -
       Over 90 days past due                            1.16%           -             -

Totals:

       Gross Contract Balance                       $354,309      $97,636       $43,168

       31 - 60 days past due                            2.85%        7.81%         2.04%
       61 - 90 days past due                            0.81%        0.61%         0.19%
       Over 90 days past due                            0.73%        0.96%         0.46%

Average net investment in leases and
  loans owned and managed                           $242,757      $61,069       $27,407

Net charge-offs                                        3,116          171           433
Net charge-off percentage                               1.28%        0.28%         1.58%

Allowance for Doubtful receivables included in:
  Net investment in direct finance leases
  and loans                                           $3,791       $2,173        $1,294

  Securitization residual interest                     1,808          328             -

Holdback reserves on portfolio acquisitions            6,104          603             -
                                                  -----------  -----------   -----------
Total allowance and holdbacks                        $11,703       $3,104        $1,294
                                                  ===========  ===========   ===========
</TABLE>

<PAGE>

Rental Inventory Composition

     Equipment  Type.  As of December 31, 1998 and 1997,  the Company  owned and
managed an inventory of analytical  instruments having an original cost of $26.0
million and $21.7 million, respectively. The Company's inventory of equipment at
December 31, 1998  includes  over 4,000 items  representing  more than 500 model
types and has an average age of approximately 21 months.

     The following  table sets forth the  composition  of the  Company's  rental
inventory by equipment type as of December 31, 1998:
<TABLE>
<CAPTION>

                                                                                                                 % of
Equipment Type                                        Use                              Price Range             Inventory
--------------                                        ---                              -----------             ---------
<S>                              <C>                                               <C>             <C>            <C>

Gas Chromatographs               Analysis of evaporated organic compounds          $15,000         $20,000         51.7%
Mass Spectrometers               Separation and analysis of organic compounds       50,000          60,000         15.4
Liquid Chromatographs            Analysis of dissolved organic compounds            15,000          50,000         12.8
Atomic Absorption Systems        Analysis of metals                                 25,000         125,000          5.3
Portable Test Units              Analysis of organic vapor                           5,000          60,000          3.3
Accessories                      Accessories and automatic samplers                  8,000          12,000         11.5
                                                                                                                  -----
       Total                                                                                                      100.0%
                                                                                                                  ===== 
</TABLE>

     Customers.  The following table sets forth the Company's percentage of 1998
revenues  from  the  rental  and  sale of  analytical  instruments  by  customer
industry:

                    Type Of Customer                        % of Revenue
                    Environmental                                   39.7%
                    Biotechnology                                   17.4
                    Manufacturing                                   11.1
                    Government                                      11.1
                    Chemical                                         9.6
                    Pharmaceutical                                   5.0
                    Other                                            6.1
                                                                     ---
                         Total                                     100.0%
                                                                   ===== 


     Terms of Equipment  Rental  Agreements.  The terms and conditions of all of
the Company's rental agreements are substantially similar.  Substantially all of
the rental  agreements have terms ranging from two weeks to one year. Unlike the
Company's  typical  lease,  the rental  agreements  require  the Company to: (i)
maintain,   service  and  operate  the   equipment   in   accordance   with  the
manufacturer's  and  government-mandated  procedures;  (ii) insure the equipment
against  property and casualty loss; and (iii) pay all taxes associated with the
equipment.

     Remarketing.  Analytical  instruments rented by the Company have relatively
long economic lives and have not been subject to rapid obsolescence. The Company
generally  depreciates  its rental  inventory  over a seven-year  period to zero
salvage value.  The Company has realized gains from the sale of used  analytical
instruments in each year since the inception of this business.

     Capital Resources and Securitizations

     The Company funds its  activities  through a secured  warehouse,  revolving
credit and term loan  facility  provided to it by a syndicate of banks under its
Senior Credit Facility,  as well as recourse and non-recourse  loans provided by
various financial institutions and a securitization facility. As of December 31,
1998,  the Company had $155.0 million  available for borrowing  under the Senior
Credit  Facility,  of which the  Company had  borrowed  $91.7  million,  and the
weighted-average  interest rate on borrowings  under the Senior Credit  Facility
was 6.58%.

     Upon  achieving  a  sufficient  portfolio  size of lease  receivables,  the
Company  sells or  finances  a portion  of such  receivables  in the  public and
private markets, largely through securitizations (in which receivables are first
sold to a special  purpose entity which then sells or pledges the receivables to
the  financing  parties  on  a  limited  recourse  basis)  or  other  structured
financings  (in  which  the  receivables  are sold or  pledged  directly  to the
financing  party on a limited  recourse  basis).  In December  1997, the Company
entered into a Securitization  Facility in an initial amount of $60 million. The
facility was increased to $100 million,  $150 million, and $225 million,  during
the  second,  third,  and  fourth  quarters  of 1998,  respectively.  Under  the
Securitization  Facility,  the Company  securitized  leases during 1998 and 1997
with a book value of $200.2 million and $15.2 million, respectively. At December
31, 1998, $170.7 million of the facility was utilized.

     The  Company's  financing  objective is to maximize the spread  between the
yield received on its leases and its cost of funds by obtaining  favorable terms
on its various financing transactions.  As a result of the Company's established
track record in the specialty finance industry,  the Company believes that terms
of its Senior  Credit  Facility  and  Securitization  Facility  are  superior or
comparable to the terms  obtained by other  companies in its industry of similar
size and credit characteristics.  Additionally, during 1999, the Company expects
to supplement  existing  capital  resources  through  raising debt and or/equity
financing from other providers.

<PAGE>

     Competition

     The Company  competes in the  equipment  financing  market with a number of
national,  regional and local  finance  companies.  In addition,  the  Company's
competitors include those equipment manufacturers that finance the sale or lease
of their products  themselves and other traditional types of financial  services
companies,  such as commercial banks and savings and loan  associations,  all of
which provide financing for the purchase of equipment. The Company's competitors
include many larger, more established  companies that may have access to capital
markets and to other funding  sources which may not be available to the Company.
Many  of  the  Company's   competitors  have  substantially  greater  financial,
marketing and  operational  resources and longer  operating  histories  than the
Company.

     Employees

     As of March 12, 1999, the Company employed 172 people on a full-time basis.
Sixty-four personnel were involved in marketing and sales, 103 were in lease and
rental processing,  servicing and administrative support and five were corporate
executive  employees.  No  employees of the Company are  represented  by a labor
union. The Company believes that its relations with its employees are good.

Executive Officers of the Registrant

         The executive officers of the Company and their ages as of December 31,
1998 are as follows:

   Name                Age                    Position
  ------               ---                   ----------
Martin E. Zimmerman    60     Chairman of the Board and Chief Executive Officer
Robert E. Laing        53     President, Chief Operating Officer and Director
Allen P. Palles        57     Executive Vice President, Chief Financial Officer
                              and Director
William F. DeMars      49     Senior Vice President--Select Growth Finance
William J. Erbes       48     Senior Vice President--Vendor Finance
Gerard M. Farren       57     Senior Vice President--Rental and Distribution
Mark A. Arvin          51     Senior Vice President, Finance

         Martin E. Zimmerman serves as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Zimmerman founded the Company in 1975 and has served
as Chairman of the Board and Chief Executive  Officer since the formation of the
Company.  From October 1994 until  October 1996, he also served as President and
Chief  Executive  Officer of LINC Anthem  and,  after the sale of LINC Anthem to
Newcourt,  its subsidiary Newcourt LINC Financial Inc. ("Newcourt LINC"). Before
founding  the  Company,  Mr.  Zimmerman  founded  and served for seven  years as
President of Telco Marketing Services,  Inc., a leader in the hospital equipment
leasing field and the first independent  dealer in used medical  equipment.  Mr.
Zimmerman earned a B.S. degree in electrical engineering from M.I.T. in 1959 and
an M.B.A. in finance from Columbia University Graduate School of Business; where
he was a Kennecott Copper Fellow and McKinsey Scholar in 1961.

     Robert E. Laing serves as President and Director of the Company.  Mr. Laing
joined the Company in 1991 when it acquired his  analytical  instruments  rental
and distribution  business and has served as President,  Chief Operating Officer
and Director of the Company since 1994. Prior to founding such business in 1989,
he was employed for 17 years by U.S.  Leasing in various  capacities,  including

<PAGE>

Executive Vice President and Group  Executive,  Retail Group,  President of U.S.
Instrument  Rental and Distribution,  Chief Executive Officer of U.S.  Portfolio
Leasing and Chief Operating Officer of U.S. Fleet Leasing.  Previously,  he held
marketing positions with Data Action Corporation and IBM Corporation.

     Allen P. Palles serves as Executive Vice President, Chief Financial Officer
and  Director  of the  Company.  Mr.  Palles  joined the Company in 1983 and has
served as Chief Financial Officer and a Director of the Company since 1984. From
October 1994 until December 1996, he also served as Chief  Financial  Officer of
LINC Anthem and Newcourt LINC.  Before joining the Company,  he was Treasurer of
The Marmon Group,  Inc. and held various  senior  financial and tax positions at
Pullman,  Inc.  Mr.  Palles is a certified  public  accountant  and attorney and
specializes in lease securitization.

         William  F.  DeMars  serves as  Senior  Vice  President--Select  Growth
Finance of the  Company.  Mr.  DeMars  joined the Company in April 1998.  Before
joining the Company,  Mr. DeMars spent six years as Executive Vice President and
Chief  Operating  Officer of a  manufacturing  company.  From 1973 to 1991,  Mr.
DeMars held various  positions with Marine Midland Bank, most recently as senior
vice president.

     William J. Erbes  serves as Senior  Vice  President--Vendor  Finance of the
Company.  Mr.  Erbes  joined  the  Company  in 1993 and  served as  Senior  Vice
President--Business  Development  from  1995 to  1998.  In  January  1999 he was
promoted to his current position.  Before joining the Company,  he was President
of Narco  Medical  Services,  Inc. and Senior Vice  President of Medirec Inc., a
leading medical equipment rental company.

     Gerard M.  Farren  serves as Senior Vice  President--Instrument  Rental and
Distribution  of the  Company.  Dr.  Farren  joined the Company in 1991 when the
Company acquired its analytical  instrument rental and distribution business and
has served in his current  position since that time.  Previously,  he was Senior
Vice  President  and General  Manager of U.S.  Analytical  Instruments,  Inc., a
division  of U.S.  Leasing,  and worked  with The  Perkin-Elmer  Corporation  in
product development and sales management.  Dr. Farren earned a Ph.D. in physical
chemistry from Ireland's Northern University.

     Mark A. Arvin serves as Senior Vice President,  Finance of the Company. Mr.
Arvin joined the Company in December 1998. Before joining the Company,  over the
prior six years Mr.  Arvin was a  co-founder  and  co-owner  of three  companies
specializing  in  leasing  and  equipment  finance.  From  1988 to 1992,  he was
Executive  Vice  President  and Chief  Financial  Officer  of  Meridian  Leasing
Corporation.  Prior to 1988,  he was a Partner with the public  accounting  firm
KPMG Peat Marwick.

Forward-Looking Statements and Associated Risks

     This Form 10-K contains  certain  forward-looking  statements  that involve
substantial risks and uncertainties.  When used in this Form 10-K, the words and
phrases "expects",  "intends",  "believes",  "will seek", and "will realize" and
similar expressions as they relate to the Company or its management are intended
to identify  such  forward-looking  statements.  The Company's  actual  results,
performance  or   achievements   could  differ   materially  from  the  results,

<PAGE>

performance or achievements  expressed in, or implied by, these  forward-looking
statements.  Factors that could cause or contribute to such differences include,
but are not limited to, the Company's ability to identify  suitable  acquisition
candidates or to complete  acquisitions  on acceptable  terms and assimilate the
operations,  services,  products,  and  personnel  of  acquired  companies,  the
Company's ability to attract, evaluate,  finance, acquire and service increasing
volumes  of leases of  suitable  yield and  credit  quality,  and the  Company's
dependence to a significant  degree upon the continued  contributions of members
of its senior management.  These and other risks are more fully described in the
"Risk Factors" section of the Company's  registration  statement  (333-34729) on
Form S-1 filed by the Company with the  Securities  and Exchange  Commission  on
August 29, 1997, as amended.  In light of these risks and  uncertainties,  there
can  be no  assurance  that  the  performance  and  results  referred  to in the
forward-looking statements contained herein will in fact occur.

Item 2.  Properties

     The Company's principal executive offices and its Select Growth Finance and
Portfolio  Finance  activities  are located at 303 East Wacker  Drive,  Chicago,
Illinois  60601 and occupy  approximately  26,000  square feet of office  space.
Although the lease for the facility  expires on September 30, 1999,  the Company
has  committed  to  enter  into a new  lease  expiring  on  June  30,  2006  for
approximately  44,000  square feet of office space that includes the majority of
the  current  office  space  as well as  additional  office  space  at the  same
location.  An unrelated  third party has committed to sublease 8,200 square feet
of this space  through  June 30, 2006.  The  Company's  Rental and  Distribution
activities  are  located in Foster  City,  California  and occupy  approximately
23,500  square feet of  warehouse,  laboratory  and office  space under a lease,
which expires on May 31, 2002. The Company's Vendor Finance  activities  operate
out of four full service offices (where  marketing,  credit analysis,  and other
functions are performed)  located in  Minneapolis,  Minnesota;  Houston,  Texas,
Dayton, Ohio; and Wheeling, Illinois, each of which occupies approximately 2,000
to 9,000  square feet of office space and are leased under leases that expire at
various dates  through  August 31, 2003.  The Company  believes that its current
facilities  are  adequate for its existing  needs and that  additional  suitable
space will be available as required.


Item 3.  Legal Proceedings

     There are no  material  pending  legal  proceedings,  other  than  ordinary
routine litigation  incidental to its business,  to which the Company is a party
or of which any of its property is the subject.

Item 4.  Submission of Matters to Vote of Security Holders

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of the year ended December 31, 1998.

                                     Part II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters
<PAGE>

     Price Range of Common Stock

     The  Company's  Common Stock  commenced  trading on November 9, 1997 and is
traded on the Nasdaq  National  Market under the symbol  "LNCC".  The  following
table sets forth for the periods  indicated the high and low sale prices for the
Company's Common Stock as reported by the Nasdaq National Market.


                                                    High             Low
                                                    ----             ---

                      1998
                      ----

    First Quarter                                  $18.75          $16.50

    Second Quarter                                 $20.50          $16.25

    Third Quarter                                  $18.75           $8.00

    Fourth Quarter                                  $9.63           $6.00

                      1997
                      ----

    Fourth Quarter (Nov. 9 - Dec. 31)              $20.50           $6.50

     At March 12,  1999,  there were  approximately  30 holders of record of the
Common Stock.   The Company believes that the beneficial ownership of the Common
Stock is substantially greater than the number of holders of record.

     Dividend Policy

     The Company did not pay any dividends in 1998 or 1997.  The Company intends
to retain any earnings for use in the  operation  and  expansion of its business
and  therefore  does  not  anticipate   declaring  any  cash  dividends  in  the
foreseeable  future.  The  payment  of  dividends,  if any,  will be made at the
discretion of the Company's Board of Directors and will depend upon, among other
things,  the Company's future  earnings,  operations,  capital  requirements and
financial  condition,  as well as general business conditions and other factors.
The Senior  Credit  Facility  also  contains  provisions  limiting the Company's
ability to pay dividends.

     Recent Sales of Unregistered Securities

     On March 31, 1998, the Company issued 50,000 shares of Common Stock, valued
at $14.50 per share,  to the former owner of Monex Leasing,  Ltd. as part of the
consideration  for the acquisition  of Monex Leasing Ltd,  which was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(z).

Item 6.  Selected Financial Data

     The selected  financial  data set forth below should be read in conjunction
with the Company's Financial Statements and related notes thereto and with "Item
7.  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations."

<PAGE>
<TABLE>
<CAPTION>

                                                                         Years Ended December 31,
                                                ---------------------------------------------------------------------------
                                                    1998           1997            1996            1995           1994
                                                -------------  -------------   -------------   -------------  -------------
                                                                  (In thousands, except per share data)
<S>                                             <C>            <C>             <C>             <C>            <C>

Statement of Operations Data:
Revenues:
     Sales of equipment                              $32,929        $23,131         $22,595         $13,852        $15,836
     Direct finance lease income                      12,300          5,981           3,055           1,467            339
     Interest income                                   2,194            877             283              47            --
     Rental and operating lease revenue                9,412          7,492           7,034           9,043          8,531
     Fee income                                        2,360          1,360           1,869           2,378            580
     Gain on sale of lease receivables                 6,839            880             --              --             --
     Gain on equipment residual values                 1,752            860             450              44              5
     Gain on equity participation rights               3,824            430             263             --             --
     Other income                                      1,432            666             507             790            352
                                                -------------  -------------   -------------   -------------  -------------

     Total revenues                                   73,042         41,677          36,056          27,621         25,643
                                                -------------  -------------   -------------   -------------  -------------

Expenses:
     Cost of equipment sold                           26,789         18,549          18,242          11,477         13,312
     Selling, general and administrative              17,824          8,973           8,008           7,524          6,842
     Interest                                          9,172          4,511           2,771           1,962          1,138
     Depreciation of equipment                         6,073          4,226           3,647           4,054          3,512
     Goodwill amortization                               286             67             --              --             --
     Provision for credit losses                       5,280          1,253             749           1,060            247
                                                -------------  -------------   -------------   -------------  -------------

     Total expenses                                   65,424         37,579          33,417          26,077         25,051
                                                -------------  -------------   -------------   -------------  -------------

Net earnings from continuing operations
     before provision for income taxes and
     minority interest                                 7,618          4,098           2,639           1,544            592
Income tax expense                                     3,024          1,627           1,084             747            257
                                                -------------  -------------   -------------   -------------  -------------

Net earnings from continuing operations
     before minority interest                          4,594          2,471           1,555             797            335
Minority interest                                         --            (13)           (120)             34             80
                                                -------------  -------------   -------------   -------------  -------------
Net earnings from continuing operations         $      4,594        $ 2,458         $ 1,435    $        763   $        255
                                                ============   =============   =============   =============  =============

Net earnings from continuing operations
 per common share:
     Basic                                      $        .89    $       .73    $        .48    $       0.25   $       0.08
     Diluted                                             .86            .72             .45            0.25           0.08
Shares used in computing net income
 per common share:
     Basic                                             5,171          3,372           2,991           3,006          3,104
     Diluted                                           5,347          3,397           3,162           3,103          3,113

Dividends declared per common share                      --        --          $        .26             --             -- 
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
                                                ---------------------------------------------------------------------------
                                                    1998           1997            1996            1995           1994
                                                -------------  -------------   -------------   -------------  -------------
                                                                              (In thousands)
<S>                                             <C>            <C>             <C>             <C>            <C>
Operating Data:
Leasing:
     Lease fundings:
        Select Growth Finance                        $52,405        $32,568         $16,604         $16,320        $14,900
        Portfolio Finance                            146,051         39,671           1,795           --             --
        Rental and Distribution                        6,916          7,001           5,674           4,159          6,742
        Vendor Finance (1)                            48,012          --              --              --             --
                                                -------------  -------------   -------------   -------------  -------------
     Total fundings (1)                              253,384         79,240          24,073          20,479         21,642

     Backlog of unfunded leases (2)                   48,426         31,170           5,864           8,609          8,351
     Net investment in direct finance leases                                                                   
        and loans (2)                                163,966         67,264          34,554          17,861          8,296
     Unearned lease income, net (2)                   31,847         13,276           6,820           4,333          2,016
     Leases and loans owned and
        managed (2)                                  307,843         84,127          34,554          17,861          8,296
     Net charge-off percentage (3)                       1.3%           0.3%            1.6%            0.8%           0.1%
Rental and Distribution:
     Net margin on sales of equipment                   18.6%          19.8%           19.3%           17.1%          15.9%
     Equipment held for rental and
          operating leases, net (2)                  $30,659        $22,007         $15,048         $18,500        $15,780
</TABLE>


<TABLE>
<CAPTION>

                                                                            As of December 31,
                                                ---------------------------------------------------------------------------
                                                    1998           1997            1996            1995           1994
                                                -------------  -------------   -------------   -------------  -------------
                                                                              (In thousands)
<S>                                             <C>            <C>             <C>             <C>             <C>
Balance Sheet Data:
Net investment in direct finance leases and
    loans                                           $163,966        $67,264         $34,554         $17,861        $ 8,296
Equipment held for rental and operating
    leases, net                                       30,659         22,007          15,048          18,500         15,780
Securitization retained interest                      17,026          3,017            --              --             --  
Total assets                                         248,884        108,977          67,200          58,604         41,386
Senior credit facility and other senior
     notes payable                                    96,646         38,117          29,605          31,914         19,400
Recourse debt                                          8,017          2,955           3,361             882           --  
Nonrecourse debt                                      68,616         17,951           8,276           4,997           --  
Subordinated debentures                                5,694          5,386           5,127           4,953          4,767
Total liabilities                                    207,443         72,273          53,258          46,411         30,097
Stockholders' equity                                 $41,441        $36,704         $13,942         $12,193        $11,289
--------------------
(1) Excludes lease portfolios acquired in connection with company acquistions totaling $55.7 Million.
(2) At period end.
(3) As a percentage of net  investment in direct  finance leases and loans owned
    and managed before allowance for doubtful accounts.
</TABLE>


<PAGE>


     Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

         The  information  contained in this section,  which relates only to the
Company's  continuing  operations,  should  be  read  in  conjunction  with  the
Consolidated Financial Statements and notes thereto.

         Introduction

         The  Company's  Select  Growth  Finance,  Portfolio  Finance and Vendor
Finance  activities  consist  largely of direct  finance  leases and loans.  The
Company  funds  these  leases  and  loans  through  its  revolving   credit  and
securitization facilities and other recourse and nonrecourse debt. In its Rental
and Distribution  activities,  the Company rents,  leases and sells new and used
analytical   instruments  and  related  equipment  and  funds  these  activities
primarily through its revolving credit facility. The following briefly describes
some of the principal accounting practices applicable to the Company's business.

         Direct Finance Leases. Direct finance leases transfer substantially all
benefits  and risks of equipment  ownership to the lessee.  A lease is accounted
for as a  direct  finance  lease if the  collectibility  of  lease  payments  is
reasonably  certain and it meets one of the  following  criteria:  (i) the lease
transfers ownership of the equipment to the lessee by the end of the lease term;
(ii) the lease  contains  a bargain  purchase  option;  (iii) the lease  term at
inception  is at  least  75% of  the  estimated  economic  life  of  the  leased
equipment;  or (iv) the present value of the minimum lease  payments is at least
90% of the fair value of the leased  equipment at  inception  of the lease.  The
present value of the future lease payments and the present value of the residual
value are  recorded as the  initial  investment  in such  leases.  This  initial
investment  generally  represents the cost of leased  equipment.  Unearned lease
income is equal to the  difference  between (i) the future  lease  payments  and
residual  value and (ii) their  corresponding  present  values.  Unearned  lease
income  is  amortized  and  recorded  as  revenue  over the term of the lease by
applying a constant  periodic rate of return to the  declining  net  investment.
Initial  direct  costs  incurred in  originating  leases,  such as salaries  for
marketing  personnel  and  commissions,  are  capitalized  as  part  of the  net
investment and amortized over the lease term. The Company records direct finance
leases as "Net investment in direct finance leases and loans." At the end of the
lease, a remarketing gain or loss is recorded to the extent the proceeds of sale
or re-leasing of the equipment exceed or are less than the originally  estimated
residual value. When the Company leases analytical instruments,  such leases are
accounted for similarly to direct finance leases except that the Company records
the sales value of the  instruments as revenue and the carrying value as cost of
equipment sold, thus recognizing its distribution margin ("sales type leases").

          Secured  Loans.  Loans  made by the  Company,  which  are  secured  by
equipment or other assets of the borrowers,  are recorded as "Net  investment in
direct  finance  leases  and  loans" at the  present  value of the  future  note
payments.  Initial direct costs incurred in originating loans are capitalized as
part of the net  investment  and amortized  over the term.  Income is recognized
over the term of the note by applying a constant  periodic rate of return to the
declining note balance and is recorded as "Interest income".


<PAGE>

         Rentals and Operating  Leases.  All rental and lease  contracts that do
not meet the criteria of direct  finance  leases are  accounted for as operating
leases. Terms on rental contracts are shorter than twelve months, while terms on
operating  leases are longer.  Rental and lease payments are recorded as "Rental
and operating  lease  revenue."  Related  equipment is recorded at the Company's
cost as "Equipment  held for rental and operating  leases" and  depreciated on a
straight-line  basis.  The Company  depreciates  analytical  instruments  over a
seven-year life,  assuming no salvage or residual value at the end of this life.
The Company has realized gains from the sale of used analytical instruments each
year since the inception of its Rental and Distribution activities. Other leased
equipment  is  depreciated  over its  estimated  useful  life to its  salvage or
residual value.

         Equity  Participation  Rights. The Company frequently receives warrants
or other equity  participation rights in connection with leases to Select Growth
Finance clients.  Such warrants or rights entitle the Company to purchase common
stock or other equity securities of the client at a price generally based on the
most recent price paid by the client's  private  equity  investors.  The Company
typically  obtains the right to have such shares  included in registered  public
offerings of the client's  stock.  At the time of receipt,  the warrant or other
equity  participation  right is recorded as an investment  at cost.  The Company
does not  recognize  gain or loss on such  securities  until they are sold.  The
Company  periodically reviews its portfolio of equity participation rights based
on its  evaluation  of  the  market  trends  for  the  related  clients'  equity
securities.  The Company expects to sell its equity  participation rights as its
portfolio companies mature.

         Realization of Residual  Values.  Residual  values are estimated at the
inception of a lease and reviewed  periodically  over the lease term.  Estimated
residual  values  of  leased  equipment  may be  subsequently  reduced,  but not
increased.  Reductions in estimated residual values are made as the need becomes
apparent  and are  reflected  by increased  depreciation  expense for  operating
leases or by  decreased  earned  lease income for direct  finance  leases.  When
equipment is sold, the net proceeds realized in excess of the estimated residual
value are  recorded as a "Gain on equipment  residual  values," or the amount by
which the  estimated  residual  value  exceeds the net proceeds is recorded as a
loss. The Company has not had a net loss from the realization of residual values
for any quarterly period.

         Servicing  Fees.  The Company  realizes  revenue for lease  receivables
serviced  under  the terms of its  securitization  facility.  Additionally,  the
Company  engages in the business of servicing  lease  portfolios  originated  by
third  parties but has not entered into a new  agreement  to service  leases for
third parties since December 1994. Revenues from these activities are classified
as "Fee income."

         Securitizations of Lease Portfolios.  In a securitization  transaction,
the Company  sells a pool of leases to a  wholly-owned  special  purpose  entity
which then transfers or pledges the leases to the lender.  The Company generally
retains  the right to receive  any  excess  cash  flows of the  special  purpose
entity.  Until  October 1, 1998,  the Company  recognized  a gain on the sale of
leases in securitizations equal to the excess of the net proceeds from the sale,
after  deducting  issuance  expenses,  over the cost basis of the  leases  sold.
Effective  October 1, 1998, the Company  eliminated  gain-on-sale  treatment for
securitized  leases by modifying  the structure of its  securitization  facility
such that it is  considered  a  non-recourse  debt  instrument  under  generally
accepted  accounting  principles.


<PAGE>

     Accordingly,  no  gain  on  sale of  lease  receivables  in  securitization
transactions was recorded during the fourth quarter of 1998.

         Provision for Credit Losses. Each of the Company's  activities involves
risk of credit loss.  Management  evaluates the  collectibility of the Company's
leases and loans based on the creditworthiness of the related lessee or obligor,
delinquency statistics,  historical loss experience, current economic conditions
and other relevant factors.  The Company provides a reserve for credit losses at
the time that the lease or loan commences and periodically evaluates the reserve
based on current delinquency  experience and the financial status of its lessees
or obligors.

         Results of Operations

         1998 Compared to 1997

         Net earnings from  continuing  operations ("net earnings") for the year
ended  December 31, 1998 was $4.6 million,  or $0.86 per  diluted  common share,
compared to $2.5 million,  or $0.72 per diluted  common share for the year ended
December 31, 1997.  The increase in net earnings for 1998  compared to the prior
year is primarily  due to gains  recognized  during the first nine months of the
year on the securitization of lease receivables, gains recognized on the sale of
equity  participation  rights,  and increased  earnings  contributions  from the
Company's Rental and Distribution  activities.  New lease originations grew from
$79.2 million in 1997 to $309.0 million  (including  leases funded in connection
with  acquisitions)  in 1998.  Interest  expense  increased  as a  result  of an
increase in borrowings to fund new lease  originations.  Selling,  general,  and
administrative  expenses  increased  as a result of three  acquisitions  and the
building of the Company's sales and operations organizations.  Additionally, the
provision  for  doubtful  accounts  increased  from $1.3 million in 1997 to $5.3
million in 1998,  in  proportion  to the  increase in the size of the  Company's
lease portfolio.  Earnings per diluted common share for 1998 was impacted by the
Company's  issuance of 2.3 million  common  shares in November  1997,  which has
increased the average weighted number of shares outstanding in 1998.

         Sales of equipment  increased  from $23.1  million to $32.9 million and
costs of  analytical  instruments  sold  increased  from $18.5  million to $26.8
million,  due to an  increase  in volume.  Net  margins  on sales of  analytical
instruments  declined  from 19.8% to 18.6%  primarily as a result of lower gross
margins on sales type leases originated in the Company's Rental and Distribution
segment during the first half of 1998.

         Direct  finance  lease  income more than  doubled  from $6.0 million to
$12.3  million as a result of a  substantially  higher  level of  finance  lease
receivables  outstanding,  coming  from  acquisitions  and from  internal  lease
originations Average finance lease receivables outstanding increased 134%.

         Interest income increased from $0.9 million to $2.2 million,  primarily
due to an increase in interest-bearing notes receivable and equipment loans held
by the Company, as well as the income recognized on the Company's securitization
retained interest.


<PAGE>

         Rental and operating lease revenue  increased from $7.5 million to $9.4
million primarily due to acquisitions of portfolios of operating leases upon the
Company's  re-entry in the Portfolio  Finance  segment after the expiration of a
non-compete agreement in September 1997.

         Fee  income  increased  from  $1.4  million  to  $2.4  million,  due to
increases in servicing fees relating to a third party lease  portfolio  serviced
by the Company and an increase in fees  received in  connection  with  servicing
securitized  leases.  This increase was  partially  offset by the decline in the
number of leases serviced by the Company for unrelated parties.

         During 1998 and 1997, the Company  securitized leases with a book value
of $200.2 million and $15.2 million,  respectively, net of bad debt reserves and
customer  holdbacks of $7.7 million and $ 0.3 million.  In connection with these
securitizations,  the Company realized gains on the sale of lease receivables of
$6.8 million and $0.9 million in 1998 and 1997, respectively.  Effective October
1, 1998, the Company eliminated gain-on-sale treatment for securitized leases by
modifying  the  structure  of  its  securitization  facility  such  that  it  is
considered  nonrecourse  debt under generally  accepted  accounting  principles.
Accordingly, no gain on sale of lease receivables was recorded during the fourth
quarter of 1998.

     Gains from sale and  re-leasing  of leased  equipment  increased  from $0.9
million to $1.8  million.  The  increase  was the result of a greater  number of
leases maturing in 1998.

         During 1998, the Company experienced  increases in the value of certain
equity participation rights held by the Company and consequently elected to sell
a portion of these rights,  realizing a gain of $3.8 million.  During 1997,  the
Company  sold  certain  equity  participation  rights,  realizing a gain of $0.4
million.

         Other income,  which  consists  primarily of interim rents  received by
Select  Growth  Finance  and late  fees,  increased  from $0.7  million  to $1.4
million,  primarily due to the increase in the volume of Select  Growth  Finance
leases originated and late fees collected by Vendor Finance.

         Selling,  general  and  administrative  expenses  increased  from  $9.0
million to $17.8 million, net of initial direct costs capitalized.  The increase
resulted  primarily from  additional  operations,  marketing and sales personnel
associated with the Company's re-entry into Portfolio Finance, senior and middle
management  personnel added to support the Company's growth,  three acquisitions
completed  in 1998,  and  increased  activity in the  Company's  other  business
segments.  The  number of people  employed,  including  employees  of  companies
acquired, increased 75% to 147 during1998.

         Interest  expense  increased  from $4.5  million to $9.2  million,  due
primarily  to increased  lease  originations,  lease  portfolios  acquired,  and
retention  of more  leases on the  balance  sheet  following  discontinuance  of
gain-on-sale  accounting,  with the  resulting  increase  in  borrowings.  Lease
originations,  including  portfolios of acquired companies,  increased 290% over
the prior year.

         Depreciation of equipment  increased from $4.2 million to $6.1 million,
which was  attributable  to an increase in equipment held for operating  leases.
The average net book value of  equipment  held for rental and  operating  leases
increased approximately 42% over the prior year.


<PAGE>

         Goodwill  amortization  of  $0.3 million  increased from less than $0.1
 million in 1997, due to three acquisitions completed in the first half of 1998.

         The  provision for credit  losses  increased  from $1.3 million to $5.3
million,  due to a  substantially  higher  volume of new leases  originated  and
re-evaluation  of reserves.  Lease fundings,  excluding  portfolios  acquired in
connection with the Company's acquisitions, increased 220% over the prior year.

         The Company's effective tax rate was 39.7% for 1998 and 1997.

         1997 Compared to 1996

         Net earnings  for the year ended  December  31, 1997 was $2.5  million,
or $0.72 per diluted common share compared to $1.4 million, or $0.45 per diluted
common share for the year ended  December 31, 1996. The increase in net earnings
in 1997 compared to 1996 is primarily a result of a  substantially  higher level
of finance lease  receivables  and the completion of a  securitization  in 1997,
offset  somewhat  by a higher  level of average  borrowings  and an  increase in
selling,  general and  administrative  expense in the  Company's  Select  Growth
Finance and Portfolio Finance  activities and increased  earnings  contributions
from the Company's Rental and Distribution activities.

         Sales of equipment  increased  from $22.6  million to $23.1 million and
costs of  analytical  instruments  sold  increased  from $18.2  million to $18.5
million due to an  increase  in market  penetration  in the  pharmaceutical  and
biotechnology  industries,  offset  by the  consolidation  in the  environmental
testing  industry.  Net margin on sales of analytical  instruments  was 19.3% in
1996 and 19.8% in 1997.

         Direct finance lease income increased from $3.1 million to $6.0 million
as a result  of a  substantially  higher  level  of  finance  lease  receivables
outstanding.  Net investment in direct  finance leases and loans  increased from
$34.6  million  to  $67.3  million  due  to  increased   marketing  and  selling
activities. New lease origination's increased 229% period to period.

         Interest income  increased from $0.3 million to $0.9 million  primarily
due to an increase in interest-bearing notes receivable held by the Company.

         Rental and operating lease revenue  increased from $7.0 million to $7.5
million.  The increase in operating  lease  revenue is primarily a result of the
Company  re-entering the portfolio finance and lease  acquisition  business upon
the expiration of a non-compete agreement in September 1997.

         As a  consequence  of the  continuing  decline  in the number of leases
serviced by the Company for  unrelated  parties,  fee income  declined from $1.9
million to $1.4 million.

         During 1997, the Company  securitized leases with a book value of $15.2
million,  net of bad debt  reserves  of $0.3  million.  In  connection  with the
securitization,  the Company realized a gain on the sale of lease receivables of
$0.9 million. No securitization occurred in 1996.


<PAGE>

     Gains from sale and  re-leasing  of leased  equipment  increased  from $0.5
million to $0.9 million. The increase in gains from 1996 resulted from increased
lease maturities in 1997.

     The Company  sold  certain of its equity  participation  rights,  realizing
gains of $0.3 million and $0.4 million in 1996 and 1997, respectively.

         Other income,  which  consists  primarily of interim rents received and
fees earned in connection with Select Growth Finance commitments, increased from
$0.5  million to $0.7  million,  primarily  due to the increase in the volume of
Select Growth Finance leases originated by the Company in 1997.

         Selling,  general  and  administrative  expenses  increased  from  $8.0
million to $9.0 million. This increase is primarily attributable to increases in
operations,  marketing and sales personnel  associated with the Company's Select
Growth Finance activities and the re-initiation of Portfolio Finance activities,
as well as increases in information systems expenditures,  partially offset by a
decrease in expenses of Rental and Distribution activities.

         Interest  expense  increased  from $2.8  million to $4.5  million,  due
primarily  to an  increase  in  average  borrowings.  The  increase  in  average
borrowings  resulted from increased direct finance lease  originations by Select
Growth Finance as well as leases added by Portfolio Finance.  Average borrowings
for 1997  benefited  somewhat  from the  utilization  of the  proceeds  from the
offering in November 1997 to reduce borrowings under the senior credit facility.

         Depreciation  of equipment  increased from $3.6 million to $4.2 million
as a result of the increase in  equipment  under  rental  agreements  related to
Rental and  Distribution  activities and an increase in operating  leases as the
result of Portfolio Finance activities.

         Goodwill amortization increased to $0.1 million, due to the purchase of
the minority interest in a subsidiary of the Company in 1997.

         The  provision for credit  losses  increased  from $0.7 million to $1.3
million,  due to the volume of new leases originated.  However,  such provisions
declined from 2.3% to 2.1% of direct finance lease receivables at the end of the
respective  periods,  as a result of the lower  loss  provisions  related to the
Company's  Portfolio  Finance  activities.

         The  Company's  effective  tax rate  decreased  from  41.1%  to  39.7%,
resulting  from  a  reduction  in  state  income  tax  rates  in  1997  and  the
corresponding reduction in deferred taxes for prior periods.


<PAGE>

         Liquidity and Capital Resources

         General

         The Company's  activities  are capital  intensive and require access to
substantial  amounts of credit to fund new  equipment  leases.  The  Company has
financed its  operations to date  primarily  through cash flow from  operations,
through  borrowings  under  its  senior  credit  facility,   its  securitization
facility,  and other  non-recourse  and  recourse  loans and through the sale of
equity.  The Company will continue to require access to large amounts of capital
to acquire  equipment  for lease and  rental,  as well as to fund its  Portfolio
Finance activities. The Company expects that its current sources of capital will
continue to be available,  and anticipates  raising debt and/or equity financing
from other providers during 1999 to supplement existing capital sources.

         Cash Flow

         Cash  flows from  operating  and  financing  activities  are  generated
primarily  from  receipts on direct  finance  leases and  rentals of  analytical
instruments, gross profit on the sale of analytical instruments,  realization of
equipment residual values,  and financing of new lease  origination's and rental
inventory  through  credit  facilities  and  securitizations.  Cash  flows  from
operating and financing  activities for 1998, 1997 and 1996 were $326.1 million,
$79.8 million and $21.5 million,  respectively.  The period to period  increases
result primarily from securitizations  completed in 1997 and 1998 and additional
borrowings under the Company's credit facilities.

         Credit Facilities

         The Company utilizes secured  revolving credit and term loan facilities
provided by a syndicate  of banks to fund the  acquisition  and  origination  of
leases and the purchase of analytical instruments.  As of December 31, 1998, the
Company  had a maximum  of $155  million  available  for  borrowing  under  this
facility,  of which the Company had borrowed $91.7 million. The facility matures
October  31, 1999 at which time the  remaining  balance of the  facility  may be
converted to a term loan maturing October 31, 2002. The Company  typically seeks
to renew this facility prior to maturity.

         Securitization Facility

         In 1997,  the  Company  entered  into a  securitization  facility in an
initial amount of $60 million. The facility was increased to $100 million,  $150
million,  and $225 million,  during the second,  third,  and fourth  quarters of
1998,  respectively.  At December 31, 1998,  $170.7  million of the facility was
utilized.  The terms of the facility permit the  securitization of substantially
all of the leases originated in the Company's Portfolio Finance, Vendor Finance,
and Rental and  Distribution  activities  as well as the  majority of the leases
originated in the Company's  Select Growth  Finance  activities.  At the time of
placing leases in the securitization  facility, the Company enters into interest
rate cap and interest rate swap agreements to manage interest rate risk.


<PAGE>

         Other

         Recent Accounting Pronouncements

         Statement of Financial  Accounting  Standards No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities"  establishes  accounting  and
reporting standards for derivative  instruments and requires  recognition of all
derivatives as assets or liabilities in the statement of financial  position and
measurement of those  instruments at fair value.  The statement is effective for
fiscal years  beginning after June 15, 1999. The Company will adopt the standard
no  later  than  the  first  quarter  of  year  2000  and is in the  process  of
determining  the impact that  adoption will have on its  consolidated  financial
statements.

         Year 2000 Compliance

         Year 2000  compliance  refers to the ability of computer  hardware  and
software to respond to the  problems  posed by the fact that  computer  programs
have  traditionally been written using two digits rather than four to define the
applicable year. As a consequence, unless modified, computer systems will not be
able to  differentiate  between the year 2000 and 1900.  Failure to address this
problem could result in system  failures and the  generation of erroneous  data.
The Company's lease tracking information  technology systems have been certified
or contractually  guaranteed to be year 2000 compliant by the software  vendors.
The Company's  financial and accounts payable  information systems are year 2000
compliant  except for certain of the systems of the companies  acquired in 1998.
As part of its  integration  strategy,  the Company is currently  converting the
information on the non-compliant  systems of the acquired companies onto its own
systems.  The Company also has several other systems,  including  voice mail and
phone  systems,  which use dates  electronically  that are  being  reviewed  for
compliance.  The Company  expects to have all systems year 2000 compliant by the
end of the first  quarter  of 1999 and  plans to  complete  comprehensive,  full
system testing in the second quarter of 1999. The Company is making inquiries of
significant  third  parties,  with  which  the  Company  conducts  business,  to
determine  their year 2000  readiness.  Based on responses to date,  the Company
believes that these third  parties,  including  parties to the Company's  credit
facilities  and its  significant  Portfolio  Finance  customers,  are year  2000
compliant or will be year 2000 compliant by the end of the third quarter.

         Based on  information  available at this time,  including the year 2000
compliance status of information  technology  systems as well as the anticipated
replacement  costs  for  non-compliant systems,  the  Company has concluded that
the  costs  for the  correction  of year 2000  issues  will not have a  material
adverse  effect on the Company's  results of operations or financial  condition.
However,  there can be no assurance of  unforeseen  problems in its own computer
systems or computer  systems of third  parties  with which the Company  conducts
business.  Such problems,  depending on the extent and nature,  could materially
and adversely affect the Company's operations and financial condition.  Based on
its  assessment of the year 2000 issue to date,  the Company has not developed a
contingency plan for its own systems.  However, as part of the Company's routine
back up servicing  capabilities,  the Company has a contingency  plan for system
failures for its significant  Portfolio Finance customers.  The Company believes
it could provide servicing of the lease portfolios purchased by the Company from
its significant Portfolio Finance customers on its own lease tracking systems if
their  systems fail to meet the  requirements  of year 2000.  Additionally,  the
Company  continues  to assess the impact of year 2000  issues on its own systems
and those of significant  third parties with which the Company conducts business
and will create additional contingency plans if considered warranted.

<PAGE>

Item 7A.          Quantitative and Qualitative Disclosures About Market Risk

         The  Company's  primary  market risk  exposure  is interest  rate risk,
largely  related to the  Company's  senior  credit  facility and  securitization
retained  interest.  Otherwise,  the Company is able to mitigate  the effects of
changes in interest rates through  financing leases or loans on a nonrecourse or
partial  recourse basis at fixed interest  rates,  which maintains the spread on
lease or loan  transactions  over their terms. In addition,  the Company manages
exposure to fluctuations in interest rates by establishing  fixed interest rates
on  the  lease  portfolios  in the  Company's  securitization  facility  through
interest rate  swap  and cap  agreements.  Interest  rates  associated  with new
originations of leases or loans can be adjusted to compensate for changes in the
interest  rate  environment.  The  Company  does  not use  derivative  financial
instruments for trading purposes.

         The Company is exposed to adverse  fluctuations  in  interest  rates as
they relate to the Company's  securitization retained interest and to leases and
loans funded under its senior credit facility.  Additionally,  the Company could
be  negatively  impacted by the early  termination  of its interest rate swap or
interest  rate  cap  agreements  based on the  fair  value  of these  derivative
financial  instruments  on the  date  of  termination.  At  December  31,  1998,
termination  of the interest  rate swap and interest rate cap  agreements  would
have resulted in a charge to earnings of $1.1 million.

         The  Company's  securitization  retained  interest is  classified  as a
trading investment, and consequently, is recorded on the balance sheet at market
value,  net of an allowance for doubtful  receivables,  with unrealized gains or
losses  reported in the statement of earnings.  Fluctuations  in interest  rates
affect the market  value of the  investment  since the market value is estimated
based on a discounted  cash flow  approach  using the interest  rate the Company
would expect to apply in a sale of the investment at period end. Changes in loss
expectancy  arising  from  defaults  could  also  affect  the  market  value and
ultimately the  recoverability  of the  securitization  retained  interest.  The
Company  continuously  monitors  loss  expectancy  and would  record a charge to
earnings  for  any  material  decrease  in the  expected  recoverability  of the
securitization  retained interest in the period in which such event occurred. At
December 31, 1998,  the net effect of a 100 basis point  decrease or increase in
three-year  treasury  rates over a  twelve-month  period  would result in a $0.3
million unrealized gain or loss reported in the statement of earnings.

         The  Company  funds a portion of its lease  portfolio  under its senior
credit facility.  The senior credit facility provides for interest at LIBOR plus
1.25% to 1.75% or, at the  Company's  option,  prime  plus up to 0.25% or the CD
rate or the Fed Funds rate plus 1.30% to 1.80%,  with the precise rate dependent
on certain  leverage  tests.  An increase in these  interest rates would cause a
decrease in the spread  between the yield on the lease or loan  contract and the
Company's  borrowing  costs. At December 31, 1998, the net effect of a 100 basis
point decrease or increase in LIBOR over a twelve-month period would result in a
$0.9 million decrease or increase in interest expense for the period.

         If actual  interest  rates are  different  from those  estimated by the
Company,  the net impact of interest rate risk on the Company's  earnings may be
materially different than disclosed above.

         The Company is also subject to foreign currency rate risk relating to a
limited number of leases denominated in Canadian dollars and British pounds. The
Company has  determined  that hedging of these assets is not cost  effective and
instead  attempts to minimize  currency  exposure risk through  working  capital
management. The Company does not believe that any foreseeable change in currency
rates  would  have a material  effect on its  financial  position  or results of
operations.
<PAGE>

         The table  below  presents  the  principal  (or  notional)  amounts and
related weighted average interest rates of the Company's securitization retained
interest,  debt obligations,  and derivative  financial  instruments by expected
year of maturity.


<TABLE>
<CAPTION>

                            1999      2000      2001      2002      2003      Thereafter   Total
                          --------- ---------  --------  --------  --------  ------------ -------
                                                  (In thousands)
<S>                        <C>       <C>       <C>        <C>       <C>           <C>    <C>
Assets:

Securitization retained
interest                   $ 6,603   $ 5,981   $ 4,502    $1,548    $  199        $-      $18,834
    Weighted average
         interest rate                                                                     7.25%


Liabilities:

   Senior credit facility  $91,700        $-        $-        $-        $-         $-     $91,700
     Variable rate           6.58%         -         -         -         -          -       6.58%

   Other notes payable     $ 1,499   $ 2,178   $   769    $  500         -          -      $4,946
     Weighted average
      interest rate          8.31%     8.46%    10.00%    10.00%         -          -       8.81%

   Recourse  and 
   nonrecourse debt        $26,142   $22,683   $16,396    $9,153    $2,258          -     $76,632
     Weighted average
      interest rate          8.37%     8.34%     8.31%     8.17%     8.08%          -       8.32%

    Subordinated debt            -         -         -    $1,581    $6,178          -      $7,759
      Weighted average
       interest rate             -         -         -     8.25%     8.25%          -       8.25%

Off-balance sheet financial instruments:

     Interest rate swaps   $25,798   $50,028   $43,558   $32,129   $11,791    $ 2,272    $165,576
      Weighted average fixed
          interest rate      5.67%     5.57%     5.55%     5.55%     5.52%      5.21%       5.62%
                                                                        
      Interest rate caps    $2,579    $5,003    $4,356    $3,213    $1,179       $227     $16,557
      Weighted average fixed
         interest rate       5.67%     5.57%     5.55%     5.55%     5.52%      5.21%       5.62%
</TABLE>

         The  table  above  reflects  the  expected  maturity  of the  Company's
retained interest, debt obligations,  and derivative financial instruments as of
December  31,  1998 and does not reflect  changes  which could arise  after that
time.  Additionally,  because the Company's  lease portfolio is not presented in
the table above, the information presented therein has limited predictive value.
As a result,  the  Company's  ultimate  realized  gain or loss with  respect  to
interest  rate  fluctuations  will  depend on  exposures  that arise  during the
respective  period,  the Company's  hedging  strategies at the time,  and actual
interest  rates.   For  information   regarding  the  fair  value  of  financial
instruments, see note 9 to the Consolidated Financial Statements.


Item 8.  Financial Statements and Supplementary Data

         The financial statements begin on page F-1.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         None.




<PAGE>


                                    Part III

Item 10. Directors and Executive Officers of the Registrant


         The information  required by this Item with respect to the identity and
business  experience of the Company's executive officers is set forth in Part I,
Item  1  under  the  caption  "Executive  Officers  of  the  Registrant."  Other
information  required  by  Item  10  will be  contained  in a  definitive  proxy
statement which the Registrant  anticipates will be filed no later than 120 days
subsequent to the Company's fiscal year end, and thus this part has been omitted
in accordance with General Instruction G(3) to Form 10-K.

Items 11, 12 and 13. Executive Compensation, Security Ownership of Certain
                     Beneficial Owners and Management and Certain Relationships
                     and Related Transactions

         The  information  required  by Item  11,  Item  12 and  Item 13 will be
contained in a definitive proxy statement which the Registrant  anticipates will
be filed no later than 120 days subsequent to the Company's fiscal year end, and
thus has been omitted in accordance with General Instruction G(3) to Form 10-K.


                                     Part IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         (a)      (1) Financial Statements

         See Index to Financial Statements at page F-1.

                  (2) Financial Statement Schedules

         Schedule II  Valuation  and  Qualifying  Accounts  is at page S-2.  All
schedules,  other than those included  herein,  are omitted because they are not
applicable or the required  information is shown in the financial  statements or
notes.

<PAGE>

                  (3) Exhibits

         Exhibit
         Number                      Document Description
         ------                      --------------------

           3.1        Form  of  Restated  Certificate  of  Incorporation  of the
                      Company  (incorporated  by reference to Exhibit 3.1 to the
                      Company's Registration Statement on Form S-1 (Registration
                      No. 333-34729) ("Registration Statement 333-34729")

           3.2        Form  of Restated Bylaws of the  Company  (incorporated by
                      reference   to  Exhibit  3.2  on  Registration   Statement
                      333-34729

           4.1        Form of certificate  representing  shares of Common Stock,
                      $0.001 par value per share  (incorporated  by reference to
                      Exhibit 4.1 on Registration Statement 333-34729)

           10.1(a)    Third  Amended  and  Restated  Loan  Agreement,  among the
                      Company,  the various lending  institutions  named therein
                      and Fleet Bank, N.A., as Agent  (incorporated by reference
                      to Exhibit 10.1(a) on Registration Statement 333-34729)

           10.1(b)    Amendment  No.  1  to  Third  Amended  and  Restated  Loan
                      Agreement,   among  the  Company,   the  various   lending
                      institutions  named therein and Fleet Bank, N.A., as Agent
                      (incorporated   by   reference   to  Exhibit   10.1(b)  on
                      Registration Statement 333-34729)

           10.1(c)    Amendment  No.  5  to  Third  Amended  and  Restated  Loan
                      Agreement,   among  the  Company,   and  various   lending
                      institutions  named therein and Fleet Bank, N.A., as Agent
                      (incorporated  by reference to the Company's Form 10-Q for
                      the quarterly period ended September 30, 1998)

           10.2       Agreement between the Company and LINC Finance Corporation
                      ("LFC")  regarding  distribution of LFC shares and related
                      matters  (incorporated  by  reference  to Exhibit  10.2 on
                      Registration Statement 333-34729)

           10.3       Employment  Agreement for  Mr. Zimmerman  (incorporated by
                      reference   to  Exhibit  10.3  on  Registration  Statement
                      333-34729)

           10.4       Form  of Employment Agreements for Messrs. Palles,  Laing,
                      Erbes and Dr. Farren (incorporated by reference to Exhibit
                      10.4 on Registration Statement 333-34729)

           10.5       Non-Employee   Director  Option   Plan   (incorporated  by
                      reference  to  Exhibit  10.5  on  Registration   Statement
                      333-34729)

           10.6       Executive  Incentive  Compensation Plan  (incorporated  by
                      reference   to  Exhibit  10.6  on  Registration  Statement
                      333-34729)

           10.7       1994  Stock  Option  Plan  (incorporated  by  reference to
                      Exhibit 10.7 on Registration Statement 333-34729)

           10.8       1997  Stock  Incentive  Plan (incorporated by reference to
                      Exhibit 10.8 on Registration Statement 333-34729)

           10.9       Consulting  Agreement  for  Mr.  Quinn   (incorporated  by
                      reference to Exhibit 10.9 on Registration Statement
                      333-34729)

           10.10      Form  of   Indemnification   Agreement  for   Non-Employee
                      Directors  (incorporated  by reference to Exhibit 10.10 on
                      Registration Statement 333-34729)

          10.11(a)    Receivables  Purchase Agreement,  among the Company,  LINC
                      Receivables Corporation, Blue Keel Funding, LLC, and Fleet
                      Bank,  N.A.,  as agent  (incorporated  by reference to the
                      Company's  Form  10-Q  for  the  quarterly   period  ended
                      September 30, 1998)

          10.11(b)    Second Amendment to Receivables Purchase Agreement,  among
                      the  Company,  LINC  Receivables  Corporation,  Blue  Keel
                      Funding, LLC, and Fleet Bank, N.A., as agent (incorporated
                      by reference to the Company's  Form 10-Q for the quarterly
                      period ended September 30, 1998)

          10.11(c)    Fourth Amendment to Receivables Purchase Agreement,  among
                      the  Company,   LINC  Receivables  Corporation,  Blue Keel
                      Funding, LLC, and Fleet Bank, N.A., as agent

           10.12      Asset Purchase Agreement by and among LINC Capital,  Inc.,
                      Spectra Precision Credit Corp.,  Spectra Precision Funding
                      Corporation,  and Spectra  Precision,  Inc. dated June 30,
                      1998  (incorporated by reference to the Company's Form 8-K
                      dated June 30, 1998)

           21.1       Subsidiaries of the Company  (incorporated by reference to
                      Exhibit 21.1 on Registration Statement 333-34729)

           27.1       Financial Data Schedule




<PAGE>


         (b)      Reports on Form 8-K

         The  Company  did not file any  reports  on Form  8-K  during  the last
         quarter of the fiscal year ended December 31, 1998.

<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             LINC CAPITAL, INC.
Dated: March 30, 1999

                                  By:    /s/ Martin E. Zimmerman
                                     --------------------------------
                                     Martin E. Zimmerman
                                     Chairman of the Board and Chief
                                     Executive Officer

         Pursuant to the  requirements of the Securities  Exchange of 1934, this
report has been signed  below on March 30,  1999,  by the  following  persons on
behalf of the Registrant and in the capacities indicated.

         Signature                                   Capacity
         ---------                                   --------

  /s/ Martin E. Zimmerman
  -----------------------
    Martin E. Zimmerman        Chairman of the Board and Chief Executive Officer
                                         (principal executive officer)

  /s/ Allen P. Palles
  -------------------
     Allen P. Palles                   Chief Financial Officer and Director
                                         (principal financial officer)

  /s/ Robert E. Laing
  -------------------
    Robert E. Laing                                 Director


  /s/ Charles J. Aschauer
  -----------------------
     Charles J. Aschauer                            Director


  /s/ Stanley Green
  -----------------------
      Stanley Green                                 Director


  /s/ Terrence J. Quinn
  ---------------------
    Terrence J. Quinn                               Director


  /s/ Curtis S. Lane
  ------------------
    Curtis S. Lane                                  Director

  /s/ Mark A. Arvin
  -----------------
    Mark A. Arvin                        Senior Vice President, Finance
                                         (principal accounting officer)
<PAGE>




                       LINC CAPITAL, INC. AND SUBSIDIARIES
                                    Index to
                        Consolidated Financial Statements

                                                                       Page
                                                                       ----
Independent Auditors' Report.........................................   F-2 


Consolidated Balance Sheets, December 31, 1998 and 1997..............   F-3


Consolidated Statements of Earnings, years ended 
 December 31, 1998, 1997, and 1996...................................   F-4


Consolidated Statements of Stockholders' Equity, years ended
 December 31, 1998, 1997, and 1996...................................   F-5


Consolidated Statements of Cash Flows, years ended
 December 31, 1998, 1997 and 1996....................................   F-6


Notes to Consolidated Financial Statements...........................   F-8


<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
LINC Capital, Inc.:

     We have  audited  the  accompanying  consolidated  balance  sheets  of LINC
Capital, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated  statements of earnings,  stockholders'  equity, and cash flows for
each of the years in the  three-year  period  ended  December  31,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position  of LINC
Capital, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted  accounting
principles.



                                  /S/ KPMG LLP

Chicago, Illinois
February 17, 1999


<PAGE>


                                      
                       LINC CAPITAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                  (Dollars in thousands, except per share data)

                                                                December 31,
                                                             -------------------
                      ASSETS                                   1998       1997  
                                                             --------  ---------
Net investment in direct finance leases and loans......      $163,966   $67,264
Equipment held for rental and operating leases, net....        30,659    22,007
Accounts receivable....................................         7,593     6,741
Securitization retained interest.......................        17,026     3,017
Other assets...........................................        17,474     8,052
Goodwill ..............................................        10,738     1,896
Cash and cash equivalents..............................         1,428     --   
                                                             --------  ---------
      Total assets.....................................      $248,884  $108,977
                                                             ========  =========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Senior credit facility and other senior notes payable..       $96,646    38,117
Recourse debt..........................................         8,017     2,955
Nonrecourse debt.......................................        68,616    17,951
Accounts payable.......................................         7,443     2,985
Accrued expenses.......................................         8,775     2,905
Customer holdbacks.....................................        10,328     1,738
Subordinated debentures................................         5,694     5,386
Deferred income taxes..................................         1,924       236
                                                             --------   --------
       Total liabilities...............................      $207,443   $72,273
                                                             ========   ========
Stockholders' equity:
   Common stock, $0.001 par value, 15,000,000 shares...
    authorized;5,249,591 and 5,199,591 shares issued;..
    5,183,688 and 5,133,688 shares outstanding.........             5         5 
   Additional paid-in capital..........................        29,567    28,840 
   Deferred compensation from issuance of options......         (124)      (171)
   Stock note receivable...............................         (182)      (511)
   Treasury stock, at cost; 65,903 shares..............         (287)      (287)
   Accumulated other comprehensive income (loss).......          (34)       926 
   Retained earnings...................................        12,496     7,902 
                                                             ---------  --------
      Total stockholders' equity.......................        41,441    36,704 
                                                             --------- ---------
      Total liabilities and stockholders' equity.......      $248,884  $108,977 
                                                             ========= =========

          See accompanying notes to consolidated financial statements.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF EARNINGS

                  (Dollars in thousands, except per share data)
                                                       Year ended December 31,  
                                                    ----------------------------
                                                      1998      1997      1996  
                                                    --------  --------  --------

Revenues:
   Sales of equipment..........................       $32,929  $23,131  $22,595 
   Direct finance lease income.................        12,300    5,981    3,055 
   Interest income.............................         2,194      877      283 
   Rental and operating lease revenue..........         9,412    7,492    7,034 
   Fee income..................................         2,360    1,360    1,869 
   Gain on sale of lease receivables...........         6,839      880     --   
   Gain on equipment residual values...........         1,752      860      450 
   Gain on equity participation rights.........         3,824      430      263 
   Other income................................         1,432      666      507 
                                                     --------  --------  -------
      Total revenues...........................        73,042   41,677   36,056 
                                                     --------  --------  -------
Expenses:
   Cost of equipment sold......................        26,789   18,549   18,242 
   Selling, general and administrative.........        17,824    8,973    8,008 
   Interest  ..................................         9,172    4,511    2,771 
   Depreciation of equipment under rental 
     agreements and operating leases...........         6,073    4,226    3,647 
   Goodwill amortization.......................           286       67    --    
   Provision for credit losses.................         5,280    1,253      749 
                                                     --------  --------  -------
      Total expenses...........................        65,424   37,579   33,417 
                                                     --------  --------  -------
Earnings from continuing operations before
 income taxes and minority interest............         7,618    4,098    2,639 
Income tax expense.............................         3,024    1,627    1,084 
                                                       -------  -------   ------
Earnings from continuing operations before              4,594    2,471    1,555 
 minority interest.............................
Minority interest..............................          --        (13)    (120)
                                                     --------  --------- -------
Net earnings from continuing operations........         4,594    2,458    1,435
Discontinued operations:
   Loss from discontinued operations, net of
    income tax benefit for the years ended 1997
    and 1996 of $258 and $479, respectively....          --       (402)    (706)
   Net gain from disposal of discontinued
    operations, net of income taxes of $1,009..          --       --      1,513 
                                                    ---------  --------- -------
Net earnings...................................        $4,594   $2,056   $2,242 
                                                    =========  ========= =======
Per common share:
    Net earnings from continuing operations
      Basic....................................        $ .89    $  .73   $   .48
      Diluted..................................          .86       .72       .45
    Net earnings
     Basic.....................................          .89       .61       .75
     Diluted...................................          .86       .61       .71

           See accompanying notes to consolidated financial statements



<PAGE>

<TABLE>
<CAPTION>
                                                           LINC CAPITAL, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                     Years ended December 31, 1998, 1997, and 1996
                                                     (Dollars in thousands, except per share data)

                                                                                                                  Accumulated
                                            Additional          Stock    Treasury Stock,                           Other
                         Common Stock   Paid-in   Deferred       Note    at cost        Comprehensive Retained  Comprehensive
                        Shares  Amount  Capital Compensation  Receivable Shares  Amount Income(Loss)  Earnings  Income(Loss)  Total
                        ------- ------  ------- ------------  ---------- ------- ------ ------------  --------  ------------ -------
<S>                   <C>           <C> <C>         <C>           <C>    <C>     <C>        <C>       <C>           <C>     <C>

Balance at 
December 31, 1995     3,012,757     $3     $978     $   -         $(199)    -     $-                  $11,411       $  -    $12,193
Comprehensive income:
   Net income                                                                               $  2,242    2,242          -      2,242
   Other comprehensive
    income:
     Unrealized gains
      on securities         -        -      -           -           -       -      -             348      -            348      348
                                                                                             -------
Comprehensive income        -        -      -           -           -       -      -         $ 2,590      -            -
                                                                                             =======
Purchase and sale of                                                                                                              
stock, net                  -        -      -           -           -    61,999   (270)                   -            -       (270)
Common stock dividends,
   $.26 per share           -        -      -           -           -       -      -                     (770)         -       (770)
Payment on note             -        -      -           -           199     -      -                      -            -        199
                      --------- ------  ------- ------------  ---------- -------  -----               --------  ------------ -------
Balance at
December 31,1996      3,012,757      3      978         -           -    61,999   (270)                12,883          348   13,942
                      --------- ------  ------- ------------  ---------- -------  -----               --------  ------------ -------

Comprehensive income:
   Net income              -         -      -           -                                    $ 2,056    2,056                 2,056
   Other comprehensive
    income:
     Unrealized gains
      on securities        -         -      -           -           -       -      -             578      -            578      578
                                                                                             --------
Comprehensive income       -         -      -           -           -       -      -         $ 2,634      -            -
                                                                                             ========
Purchase and sale of                                                                                                               
stock, net            2,669,626      2   27,672         -          (511)  3,904    (17)                   -            -     27,146
Distribution of LFC                                                                                                                
Capital, Inc.          (482,792)     -      (81)        -           -       -      -                   (7,037)         -     (7,118)
Income tax benefit
 from stock options
 exercised                  -        -       50         -           -       -      -                      -            -         50
Deferred compensation
 from issuance of
 stock options              -        -      221        (171)                                              -                      50
                      ---------- -----  -------- ------------  --------- -------  -----               --------  ------------ -------
Balance at
December 31, 1997     5,199,591      5   28,840        (171)       (511) 65,903   (287)                 7,902          926   36,704
                      ---------- -----  -------- ------------ ---------- -------  -----               --------  ------------ -------

Comprehensive income:
   Net income               -       -       -           -           -       -      -         $ 4,594    4,594          -      4,594
                                                                                             -------
   Other comprehensive
    income:
    Unrealized loss
     on securities          -       -       -           -           -       -      -            (862)     -            -
    Translation                                                                                                               
     adjustment             -       -       -           -           -       -      -             (98)     -            -
                                                                                             --------
   Other comprehensive
    loss                    -       -       -           -           -       -      -            (960)     -           (960)    (960)
                                                                                             --------
Comprehensive income        -       -       -           -           -       -      -         $ 3,634      -            -
                                                                                             ========
Purchase and sale of                                                                                                                
stock, net               50,000     -       727                                                           -            -        727
Payment received on note    -       -       -           -           329     -      -                      -            -        329
Deferred compensation
 from issuance of
 stock options              -       -       -            47         -       -      -                      -            -         47
                      ---------- -----  -------- ------------ ---------- -------  -----               --------  ------------ -------
Balance at
 December 31, 1998    5,249,591    $5   $29,567       $(124)      $(182) 65,903  $(287)               $12,496         $(34) $41,441
                      ========== =====  ======== ============ ========== ======= ======               ========  =========== ========
</TABLE>

           See accompanying notes to consolidated financial statements

<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars in thousands)

                                                      Year ended December 31,
                                                   -----------------------------
                                                      1998      1997      1996  
                                                    --------  --------  --------
Cash flows from operating activities:
  Net earnings                                       $4,594    $2,056    $2,242 
   Adjustments to reconcile net earnings to net
     cash provided by continuing operations:
      Net(earnings)loss from discontinued
        operations.............................      --           402      (807)
      Depreciation and amortization............       6,904     4,665     3,739 
      Direct finance lease income..............     (12,300)   (5,981)   (3,055)
      Payments on direct finance leases........      66,961    27,148    17,682 
      Deferred income taxes....................       2,269     1,194       763 
      Provision for credit losses..............       5,280     1,253       749 
      Gain on sale of lease receivables........      (6,839)     (880)     --   
      Gain on equity participation rights......      (3,824)     (430)     (263)
      Amortization of discount.................         308       259       174 
      Deferred compensation....................          47        50      --   
      Minority interest........................                    13       498 
   Changes in assets and liabilities:
      Decrease(increase) in receivables........          44    (4,688)   (2,064)
      Decrease(increase) in other assets.......      (9,371)   (4,818)    1,205 
      Increase(decrease) in accounts payable...       1,334      (119)    2,837 
      Increase in accrued expenses.............       2,855       843       190 
      Increase in customer deposits............       6,993       417      --   
                                                   ---------  --------  --------
Cash provided by continuing operations.........      65,255    21,384    23,890 
   Cash flows from discontinued operations.....       ---      10,198    15,052 
                                                     --------  --------  -------
Cash provided by operating activities...........      65,255    31,582    38,942
                                                    ---------  --------  -------
Cash flows from investing activities:
   Cost of equipment acquired for lease
   and rental..................................    (274,304)  (78,366)  (31,496)
   Cash  used in acquisitions, net of cash
   acquired....................................     (39,180)    --        --    
   Funding of securitization retained 
   interest....................................     (20,077)   (3,381)    --    
   Receipts on securitization retained
   interest....................................       6,121     --        --    
   Fixed assets purchased......................      (1,092)     (753)     (252)
   Proceeds from disposal of discontinues
     operation.................................        --       2,265     8,327 
   Proceeds from sale of investments...........       3,824       430       263 
                                                     --------  --------  -------
      Net cash used in investing activities....    (324,708)  (79,805)  (23,158)
                                                   ---------  --------  --------

           See accompanying notes to consolidated financial statements.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

                             (Dollars in thousands)

                                                     Years ended December 31,
                                                --------------------------------
                                                      1998       1997     1996  
                                                    --------  --------  ------- 
Cash flows from financing activities:
   Net increase in notes payable...............     55,850     8,512        232 
   Proceeds from recourse and nonrecourse
    debt.......................................     63,214    17,285      9,966 
   Repayment of recourse and nonrecourse
    debt.......................................    (23,507)   (8,016)    (4,366)
   Proceeds from sale of lease receivables.....    164,995    16,822       --   
   Proceeds from stock notes receivables.......        329      --         --   
   Purchase of stock...........................      --          (38)      (312)
   Sale of stock...............................      --       27,184        241 
   Common stock dividends......................      --          --        (770)
   Proceeds from notes of discontinued
    operations.................................      --         --        3,146 
   Payment of notes from discontinued
    operations.................................      --      (13,526)   (25,589)
                                                  ---------  --------   --------
       Net cash provided by (used in) financing
          activities...........................    260,881    48,223    (17,452)
                                                  ---------  --------   --------
Net increase(decrease) in cash.................      1,428      --       (1,668)
Cash at beginning of year......................       --        --        1,668 
                                                  ---------  --------   --------
Cash at end of year............................     $1,428     $--        $--   
                                                  =========  ========   ========

Supplemental disclosures of cash flow information:
   Interest paid...............................     $8,542    $4,644     $2,771 
   Income taxes paid...........................        898       275        325 

          See accompanying notes to consolidated financial statements.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1997 and 1998


(1)   Summary of Significant Accounting Policies

  Nature of Business and Basis of Presentation

   LINC  Capital,  Inc.  (the  "Company")  is a specialty  finance  company that
provides leasing,  asset-based financing,  and equipment rental and distribution
services to growing businesses.  The Company's principal  businesses are (i) the
direct  origination  of leases and accounts  receivable  and other  asset-backed
financing to middle and late stage emerging growth companies  primarily  serving
healthcare and information technology industries ("Select Growth Finance"), (ii)
the  financing of leases  generated  by smaller  equipment  lessors  ("Portfolio
Finance"),  (iii) the rental, leasing and distribution of analytical instruments
and related equipment to companies serving the environmental, pharmaceutical and
biotechnology industries ("Rental and Distribution"), and (iv) the establishment
of leasing programs for manufacturers and distributors ("Vendor Finance").

   The accompanying  consolidated financial statements include the operations of
the Company and all of its subsidiaries.  All material intercompany accounts and
transactions have been eliminated in consolidation.

  Use of Estimates

   The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of  assets  and  liabilities  at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

  Direct Finance Leases

   For direct finance leases, the present value of the future lease payments and
the present value of the residual  value are recorded as the initial  investment
in such leases. This initial investment  generally represents the cost of leased
equipment.  Unearned  lease  income is equal to the  difference  between (i) the
future lease  payments and residual value and (ii) their  corresponding  present
values. Unearned lease income is amortized and recorded as revenue over the term
of the lease by applying a constant periodic rate of return to the declining net
investment.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Operating Leases

   Rental  income from  operating  leases with terms of twelve months or greater
and short  term  rentals  of less than  twelve  months  is  recognized  as lease
payments  become due.  Such rentals are  included in rental and operating  lease
revenue in the consolidated statement of earnings.

  Depreciation

   Equipment  under  operating  leases is recorded at cost and  depreciated on a
straight-line basis to its estimated salvage value at the end of the lease term.
The majority of rental equipment is fully depreciated over seven years.

  Initial Direct Costs

   Initial direct costs  incurred by the Company in  originating  direct finance
and  operating  leases are  capitalized  at lease  commencement.  Such costs for
direct  finance  leases are  amortized  over the term of the lease by applying a
constant periodic rate of return to  the declining net investment in each lease.
Such  costs  for  operating  leases  are  amortized  over  the  lease  term on a
straight-line method.

  Securitization retained interest

   Securitization  retained interest  represents  amounts receivable from assets
securitized. Income from the securitization retained interest is recognized over
the life of the securitized leases using the interest method.

   Through  September 30, 1998,  the Company  recognized a gain upon the sale of
leases in securitizations equal to the excess of the net proceeds from the sale,
after deducting issuance expenses, over the cost basis of the leases.  Effective
October 1, 1998, the Company eliminated  gain-on-sale  treatment for securitized
leases by modifying the structure of its securitization facility such that it is
considered nonrecourse debt under generally accepted accounting principles.

  Earnings Per Share

   Basic  earnings per share is computed  using the weighted  average  number of
common  shares  outstanding  during the periods.  Diluted  earnings per share is
computed  using  the  weighted  average  number of common  and  dilutive  common
equivalent shares outstanding during the periods.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Goodwill

   Goodwill is amortized using the straight-line method over 20 years.

  Income Taxes

   Deferred  tax  assets  and  liabilities  are  recognized  for the  future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

  Statement of Cash Flows

   For  purposes of the  statement  of cash flows,  the  Company  considers  all
short-term  investments  with a maturity date of three months or less at date of
purchase to be cash equivalents.

  Investments

   The  Company  has   classified   its  entire   portfolio  of   securities  as
available-for-sale.  Available-for-sale securities are stated at fair value with
unrealized gains and losses included in stockholders'  equity. Fair value of the
securities is determined based on market prices. Securities for which no readily
determinable  market price is available are recorded at cost. Realized gains and
losses  are  included  in gain  on  equity  participation  rights.  The  cost of
securities sold is based on the specific  identification method. At December 31,
1998, the Company held available-for-sale  securities with estimated fair values
of $1,087,000,  consisting of gross unrealized gains on warrants or common stock
of $107,000,  and a cost basis of  $980,000.  Cash  proceeds  received and gross
realized gains on the sale of investments for the years ended December 31, 1998,
1997 and 1996 were $3,824,000, $430,000, and $263,000, respectively.
Available-for-sale securities are included in other assets.

  Stock-based Compensation

   The Company  utilizes the intrinsic  value based method of accounting for its
stock-based compensation arrangements.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Impairment of Assets

   The Company  recognizes  impairment  losses on equipment  held for rental and
operating  leases and residual values of direct finance leases when the expected
future cash flows are less than the asset's  carrying  value,  in which case the
asset is written  down to its  estimated  recoverable  value.  The Company  also
recognizes  impairment  losses on goodwill when expected  future cash flows from
the related  operations  are less than the carrying  value.  The Company has not
recorded an impairment loss during any of the operating periods presented in the
accompanying financial statements.

  Derivative Financial Instruments

    The Company uses  interest  rate swap and  interest  rate cap  agreements to
establish fixed interest rates on securitized  leases to reduce  its exposure to
adverse fluctuations in interest rates. Gains or losses resulting from the early
termination of  off-balance  sheet interest rate swaps or caps would be included
in the statement of earnings in the period of termination.

  Reclassifications

    Certain  reclassifications  have  been  made in the 1997 and 1996  financial
statements to conform to the 1998 presentation.

(2)   Acquisitions

    Effective  January 31, 1998,  the Company  purchased all of the  outstanding
common stock of Comstock Leasing,  Inc., a small-ticket  lessor  specializing in
office-based information technology equipment. Additionally, effective March 31,
1998,  the Company  acquired the assets of Monex  Leasing,  Ltd., a  Texas-based
lessor of  telecommunications,  business,  and other  equipment.  The  aggregate
consideration for these two acquisitions  included  $2,699,000 in cash payments,
net of cash  acquired,  $2,678,000 in  installment  notes,  50,000 shares of the
Company's common stock valued at approximately  $725,000,  and future contingent
payments of up to $3,900,000  in cash and 48,528 shares of the Company's  common
stock.  The fair  value of  assets  purchased  and  liabilities  assumed  in the
acquisitions were $30,389,000 and $25,864,000,  respectively.  Both acquisitions
have been accounted for using the purchase  method of accounting and the results
of operations of the acquired  businesses have been included in the consolidated
financial statements since the dates of acquisition.



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


    Effective  June 30,  1998,  the Company  acquired the assets and business of
Spectra Precision Credit Corp.  ("Spectra"),  the finance  subsidiary of Spectra
Precision,  Inc. Spectra  Precision,  Inc. is an  international  manufacturer of
laser-based  leveling  and  alignment  instruments,   machine  control  systems,
surveying  instruments and software.  Spectra provides leasing,  financing,  and
rental  service  to direct  sales  offices  and  dealer/distributors  of Spectra
Precision's  products.  The  consideration  paid  was  $39,939,000,  net of cash
acquired, including the assumption of $3,458,000 of Spectra's liabilities,  plus
future  contingent  consideration of up to $3,500,000.  The fair value of assets
purchased in the acquisition was $35,829,000. The acquisition has been accounted
for using the purchase method of accounting and the results of operations of the
acquired  business has been included in the  consolidated  financial  statements
since the date of acquisition.

    The following unaudited pro forma consolidated results of operations for the
year  ended  December  31,  1998  and  1997  are  presented  as if  the  Spectra
acquisition  had  been  made at the  beginning  of each  period  presented.  The
unaudited  pro forma  information  is not  necessarily  indicative of either the
results of operations that would have occurred had the purchase been made during
the periods presented or the future results of the combined operations.

                                                           Pro forma            
                                                     Year ended December 31,    
                                                             1998        1997   
                                                           --------    -------- 
                                         (In thousands, except per share amount)

         Pro forma revenues......................            $75,618     $46,347
         Pro forma net earnings from continuing
          operations.............................              4,359       2,730
         Pro forma net earnings from continuing
          operations per common share............
                  Basic..........................               0.81        0.84
                  Diluted........................               0.80        0.82



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(3)   Net Investment in Direct Finance Leases and Loans

    Net investment in direct finance leases and loans is as follows:

                                                                  December 31,  
                                                               1998      1997  
                                                             --------  --------
                                                                (In thousands)  
      Lease and loan contracts receivable 
       in installments..........................            $191,278    $78,036 
      Estimated residual value of leased 
       equipment................................               8,326      4,677 
      Initial direct costs......................               2,447      1,071 
      Unearned lease income.....................             (34,294)   (14,347)
      Allowance for doubtful receivables........              (3,791)    (2,173)
                                                           ----------  --------
      Net investment............................            $163,966    $67,264 
                                                           ==========  ========

   At December 31, 1998 future  payments to be received on direct finance leases
and loans are as follows:

                                                       Amount
                                                    -----------
                                                   (In thousands)

        Year Ending December 31,
            1999................................       $ 67,322
            2000................................         52,906
            2001................................         40,065
            2002................................         21,610
            2003 and thereafter.................          9,375
                                                    -----------
        Future payments.........................      $ 191,278
                                                    ===========

   At  December  31, 1998  certain  future  lease  contract  payments  have been
assigned to financial institutions (note 8).



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(4)   Equipment Held for Rental and Operating Leases, Net

   The net book value of equipment  held for rental and  operating  leases is as
follows:

                                                                  December 31,  
                                                             -------------------
                                                               1998       1997  
                                                             -------    --------
                                                                (In thousands)  

    Equipment under operating leases.................        $13,905     $ 8,783
    Equipment under rental agreements................         16,754      13,224
                                                             --------   --------
    Net book value...................................        $30,659     $22,007
                                                             ========   ========

     The book values  presented  above are net of  accumulated  depreciation  of
$8,058,000,and $7,067,000 at December 31,1998 and 1997, respectively.  Equipment
under rental agreements is comprised primarily of analytical instruments.

   At December  31, 1998 future  contract  payments to be received on  operating
leases are as follows:

                                                                   Amount
                                                                -----------
                                                              (In thousands)

        Year Ending December 31,
            1999.........................................           $ 4,447
            2000.........................................             3,127
            2001.........................................             1,309
            2002.........................................               452
            2003 and thereafter..........................                --
                                                                   ---------
        Future contract lease payments...................           $ 9,335
                                                                   =========

   At December 31, 1998 certain future  contract  payments have been assigned to
financial institutions (note 8).



<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(5)   Estimated Net Book Value of Equipment at Lease Termination

      The following  table  represents  the  Company's  estimated net book value
(residual value) of equipment at lease  termination.  The residual values in the
following  table are recorded as components  of the Company's net  investment in
direct  finance  leases and loans of $8,326,000 and equipment held for operating
leases of $7,123,000 in the consolidated balance sheet at December 31, 1998.

           Year of                                            Estimated net
           expected                                           book value at
          termination                                          termination
          -----------                                         -------------
                                                               (In thousands)

            1999.........................................         $ 3,090
            2000.........................................           3,470
            2001.........................................           4,963
            2002.........................................           2,118
            2003 and thereafter..........................           1,808
                                                                -----------
        Future contract lease payments to be received....         $ 15,449
                                                                ===========

(6)   Other Assets

      Other assets are as follows:
                                                                December 31,
                                                            --------------------
                                                               1998        1997
                                                            ---------    -------
                                                                (In thousands)

   Inventory........................................          $4,392      $ --
   Restricted cash  ................................           3,935       2,481
   Deposits on equipment ...........................           3,082         712
   Property and equipment, net......................           1,555         756
   Holdback on lease fundings.......................           1,349         311
   Available-for-sale securities....................           1,087       2,353
   Prepaid expenses and miscellaneous...............           2,074       1,439
                                                            ---------    -------
                         Total......................         $17,474      $8,052
                                                            =========    =======



<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7)   Securitization Facility

   The  Company  has a  securitization  facility  providing  for  funding  up to
$225,000,000.  At  December  31,  1998,  $170,712,000  was  utilized.  Under the
Company's  securitization  facility, the Company transfers a pool of leases to a
wholly-owned,  bankruptcy remote, special purpose subsidiary established for the
purpose  of  purchasing   the  Company's   leases.   This   subsidiary  in  turn
simultaneously  transfers its interest in the leases to a bank conduit facility,
which issues  securities to investors.  The securities are  collateralized by an
undivided interest in the leases,  the leased equipment,  and certain collateral
accounts.  A  portion  of the  proceeds  from the  securitization  of  leases is
required  to be held in a  separate  restricted  account as  collateral  for the
leases transferred.  This amount is recorded as restricted cash (note 6).

   Through  September 30, 1998,  the Company  recognized a gain upon the sale of
leases in securitizations equal to the excess of the net proceeds from the sale,
after deducting issuance expenses, over the cost basis of the leases.  Effective
October 1, 1998, the Company eliminated  gain-on-sale  treatment for securitized
leases by modifying the structure of its securitization facility such that it is
considered nonrecourse debt under generally accepted accounting principles.

   During  1998 and 1997,  the Company  securitized  leases with a book value of
$200,166,000  and $15,209,000,  respectively.  These amounts are net of bad debt
reserves and customer  holdbacks of  $7,686,000  and $328,000 for 1998 and 1997,
respectively. Under gain-on-sale treatment in effect through September 30, 1998,
the Company reflected the difference between the aggregate  principal balance of
the leases  securitized  and the  proceeds  received,  net of an  allowance  for
doubtful  receivables,  as the  securitization  retained interest on the balance
sheet. At December 31, 1998, the securitization retained interest of $17,026,000
was  recorded at the  Company's  estimate of its market value using a discounted
cash flow approach.  It included customer holdbacks of $3,934,000 and was net of
an allowance for doubtful  receivables of $1,808,000.  Subsequent to eliminating
gain-on-sale treatment,  the Company recorded nonrecourse debt equal to the cash
received of  $44,676,000  from the  securitization  of leases  during the fourth
quarter of 1998 (note 8).

<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   In connection with the  securitizations,  the Company entered into amortizing
interest rate cap  agreements  and interest rate swap  agreements  for aggregate
notional  amounts,  equal to the  initial  aggregate  principal  balances of the
leases  securitized,  of  $16,559,000  and  $165,586,00,   respectively.   These
agreements  effectively  established  fixed interest rates ranging from 4.98% to
6.03% on all of the  Company's  off-balance  sheet debt to limit its exposure to
adverse  fluctuations  in interest  rates. In February 1999, the Company entered
into an amortizing  interest rate cap agreement and interest rate swap agreement
for aggregate notional amounts of $6,835,000 and $68,354,000,  respectively,  to
establish  a fixed  interest  rate of 5.32% on the  Company's  nonrecourse  debt
recorded in  connection  with the  securitizations  completed  during the fourth
quarter of 1998 and January 1999.

 (8)  Debt

  Notes Payable

   Notes payable to banks and others were as follows:
                                                   December 31,
                                                ------------------
                                                  1998      1997
                                                -------   -------
                                                  (In thousands)

   Senior credit facility.............          $91,700   $35,850
   Other..............................            4,946     2,267
                                                -------   -------
       Total..........................          $96,646   $38,117
                                                =======   =======

     At December 31, 1998 and 1997,  the Company had  available a senior  credit
facility in the amount of $155,000,000, and $100,000,000,  respectively of which
$91,700,000, and $35,850,000 at December 31, 1998 and 1997, was outstanding. The
weighted-average  interest  rate on the senior  credit  facility at December 31,
1998 and 1997 was 6.58%,  and 7.32%,  respectively.  The  facility,  as amended,
provides for interest at LIBOR plus 1.25% to 1.75% or, at the Company's  option,
prime  plus up to 0.25% or the CD or Fed Funds rate plus 1.30% to 1.80% with the
precise rate dependent on certain  leverage  tests.  Additionally,  the facility
calls for the Company to pay  quarterly a per annum  commitment  fee of 0.25% on
the unused daily balance below 25% of the facility and 0.50% on the unused daily
balance above 25%. The facility is secured by substantially all of the assets of
the Company and is used by the Company to finance the  acquisition  of equipment
pending  completion  of  permanent  financing  and for  normal  working  capital
purposes.  The  facility  matures  October 31, 1999 at which time the  remaining
balance of the facility may be  converted  to a term loan  maturing  October 31,
2002.

<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In connection with the acquisition of Monex Leasing, Ltd., the Company issued
a $2,679,000  note  payable to the former owner of the company.  Such note bears
interest at 8% with principal payments over a three-year  period.  Additionally,
the Company has notes  payable to a third party at an interest  rate of 10% with
various payment terms and maturity dates.

  Recourse and Nonrecourse Debt

   The Company  permanently  finances  leases with  financial  institutions,  on
either a nonrecourse  and/or partial  recourse  basis.  In connection with these
financings, the Company receives a cash payment equal to the discounted value of
the future  rentals less, in certain cases, a holdback or cash reserve (note 6).
In the event of default by a lessee  under a lease which has been  assigned to a
lender under these financings,  the lender has recourse to the lessee and to the
underlying  leased equipment but no recourse to the Company except to the extent
of the  recourse  portion  of the  financing,  including  any  holdback  or cash
reserve.  Proceeds from the  financing of leases are recorded as debt.  Interest
rates in connection with these loans ranged from 6.97% to 10.19% at December 31,
1998.

   In addition, at December 31, 1998, the Company had $44,676,000 of nonrecourse
debt at an interest rate of 5.63% under its securitization facility (note 7).

    At  December  31,  1998 the future  principal  maturities  of  recourse  and
nonrecourse debt are as follows:


                                               Amount
                                             -----------
                                            (In thousands)
    Year Ending December 31,
        1999..............................    $ 26,142
        2000..............................      22,683
        2001..............................      16,397
        2002..............................       9,153
        2003 and thereafter...............       2,258
                                            -----------
     Total recourse and nonrecourse
       discounted lease rentals...........    $ 76,633
                                            ===========



<PAGE>



                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Subordinated Debentures

    Subordinated  debentures  of the Company,  which bear  interest at 8.25% per
annum,  are due June 15, 2003.  Interest is payable  semiannually in June and in
December.  Mandatory  sinking fund payments of $1,875,000 are required  annually
since June 15, 1993.  Sinking fund requirements have been satisfied through June
15, 2001. The 8.25% Subordinated Debentures are subordinated in right of payment
to all existing and future senior indebtedness of the Company.  The subordinated
debentures are convertible  prior to maturity into the right to receive $377.30,
in cash, per $1,000 face value of debentures.  The remaining  principal balances
of the debentures at December 31, 1998 and 1997 are as follows:

                                           December 31,
                                      ---------------------
                                         1998        1997
                                      ---------    --------
                                         (In thousands)

  Subordinated debentures...........    $7,759     $ 7,759
  Less discount.....................    (2,065)     (2,373)
                                      ---------    --------
      Total.........................    $5,694     $ 5,386 
                                      =========    ========


  Covenants and Restrictions

   The Company's  various debt agreements  contain  restrictions on, among other
things, the payment of dividends,  capital  expenditures,  repurchase of capital
stock,  and  the  amount  of  recourse   indebtedness   that  can  be  incurred.
Furthermore, the Company is required to maintain a minimum adjusted tangible net
worth (as  defined),  and the Company may not exceed a specified  ratio of total
recourse liabilities (as defined) to adjusted tangible net worth and is required
to maintain minimum debt service coverage ratios (as defined). The Company is in
compliance with these covenants.



<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(9)   Fair Value of Financial Instruments

   The Company has determined the estimated fair value of financial  instruments
using appropriate valuation  methodologies or available market information.  The
carrying  values  of  accounts  receivable,  securitization  retained  interest,
restricted  cash,  available-for-sale  securities,  cash and  cash  equivalents,
borrowings under the senior credit facility,  and subordinated  debt approximate
fair values at December  31, 1998 and 1997 due to the short  maturities,  quoted
market  prices,  or  the  discounted  expected  cash  flows  of  such  financial
instruments.

   The fair values of recourse and nonrecourse  debt and other notes payable has
been  estimated by discounting  future cash flows using rates  available at each
respective year end for debt with similar terms and remaining maturities.

                                                     December 31,
                                       ---------------------------------------
                                              1998                 1997
                                       -------------------  ------------------
                                                    (in thousands)
                                       Carrying    Fair     Carrying   Fair
                                        Amount     Value     Amount    Value
                                       --------- ---------  -------- ---------
Liabilities
    Other notes payable                 $ 4,946  $ 5,362    $ 2,267   $ 2,346
    Recourse and nonrecourse debt        76,633   76,769     20,906    20,775
    

   The prior table excludes the notional  amount  outstanding and estimated fair
value of off-balance sheet financial instruments, which were as follows:


                                                    December 31,
                                      --------------------------------------
                                             1998                 1997
                                      ------------------  ------------------
                                                  (in thousands)
                                       Notional   Fair     Notional   Fair
                                        Amount    Value     Amount    Value
                                      --------- --------  --------- --------
Off-balance sheet financial instruments
    Interest rate swap agreements      $165,576 $(1,135)    $15,326     $--
    Interest rate cap agreements         16,557      50       1,533      --


   The fair values of off-balance  sheet  financial  instruments  were estimated
based on their termination values.
<PAGE>

(10)  Stockholders' Equity

   Preferred Stock

   During 1997, 1,000,000 shares of $0.01 par value preferred stock were
authorized.  At December 31, 1998 no shares are outstanding.

   Other Comprehensive Income

    The  changes in the  components  of other  comprehensive  income  (loss) are
reported net of income taxes, as follows:

                                              Pre-Tax   Tax Expense/  Net-of-Tax
                                               Amount    (Benefit)     Amount
                                             -----------------------------------
                                                       (in thousands)
Year ended December 31, 1998
   Unrealized gain (loss) on securities:
     Unrealized holding gains                    $2,395       $951       $1,444
     Reclassification adjustment
      for gains realized in net                  (3,824)    (1,518)      (2,306)
                                              ----------------------------------
     Net unrealized loss                         (1,429)      (567)        (862)
   Foreign currency translation adjustments        (163)       (65)         (98)
                                              ----------------------------------
   Other comprehensive loss                      (1,592)      (632)        (960)
                                              ==================================

Year ended December 31, 1997
   Unrealized gain on securities:
     Unrealized holding gains                    $1,389       $552         $837
     Reclassification adjustment
      for gains realized in net earnings           (430)      (171)        (259)
                                              ----------------------------------
   Net unrealized gains                             959        381          578
   Foreign currency translation adjustments          -          -            - 
                                              ----------------------------------
   Other comprehensive income                       959        381          578
                                              ==================================
                                     
Year ended December 31, 1996
  Unrealized gain (loss) on securities:
    Unrealized holding gains                       $854       $351         $503
    Reclassification adjustment  
     for gains realized in net earnings            (263)      (108)        (155)
                                              ----------------------------------
  Net unrealized gains                              591        243          348
  Foreign currency translation adjustments           -          -            -
                                              ----------------------------------
 Other comprehensive income                         591        243          348
                                              ==================================
<PAGE>

                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

    Accumulated other  comprehensive  income (loss), net of tax, at December 31,
1998,  1997,  and 1996  consists of  unrealized  gains on securities of $64,000,
$926,000,   and  $348,000  and  accumulated  foreign  currency   adjustments  of
$(98,000), $0, and $0, respectively.

(11)  Stock Options

   The  Company  has four  non-qualified  stock  option  plans -- the 1988 Stock
Option Plan ("1988 Plan"),  the 1994 Stock Option Plan ("1994  Plan"),  the 1997
Stock  Incentive Plan, and the  Non-Employee  Director Option Plan. The 1988 and
1994 Plans have been  terminated  and no further  options will be granted  under
those plans.  However,  166,304 options remain  outstanding  under the 1994 Plan
with exercise  prices  ranging from $1.51 per share to $2.69 per share.  Options
granted  under the 1994 Plan vest over  various  periods,  but must be exercised
within 10 years after the grant date.

   During  1997,  the  Company  adopted  the 1997 Stock  Incentive  Plan and the
Non-Employee  Director Option Plan  (collectively,  the "1997 Plans").  The 1997
Stock Incentive Plan permits the grant of options and other equity-based  awards
with  respect  to  375,000  shares  of  the  Company's   common  stock  and  the
Non-Employee  Director  Option Plan permits the grant of options with respect to
100,000 shares of the Company's  common stock. The 1997 Plans provide for grants
of options to employees and directors to purchase shares of the Company's common
stock  at  terms  established  by the  Board of  Directors  or the  Compensation
Committee.  Options  granted  under the 1997 Plans were  granted at an  exercise
price  equal to the fair  value at the date of grant  with  ten-year  terms  and
vesting  periods up to 4 years.  In December 1998, the Company  amended the 1997
Stock  Incentive  Plan to reduce the per share  exercise  price of 257,196 stock
options granted to employees,  other than senior management  officers,  to $7.06
per share  from the  original  grant  price.  The  revised  option  grant  price
represented  the average  fair value of the  Company's  common  stock during the
twenty-day  period prior to re-pricing.  Additionally,  the 1997 Stock Incentive
Plan was amended to reduce the per share  exercise price of 30,000 stock options
granted  to  certain  senior  management  officers  to the  lesser of either the
original  grant price of $13.00 per share.  The  re-pricing of the stock options
has been  presented in the table below as if the stock options were canceled and
an equal number of new options were granted.



<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following  table  summarizes the activity under the Plans during the year
ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>

                                                    1998             1997             1996
                                                    ----             ----             ----
                                                Weighted                   Weighted                  Weighted-
                                                Average                    Average                    Average
                                   Number       Exercise       Number      Exercise      Number      Exercise
                                  of shares      Price       of Shares      Price       of Shares       Price
                                  ---------      -----       ---------      -----       ---------       -----
<S>                               <C>            <C>           <C>           <C>          <C>          <C>
Outstanding at the 
beginning of the year              376,482       $ 8.21         504,704      $ 1.77       272,598      $ 1.39
   Granted.............            585,901        11.06         241,412       11.67       241,476        2.23
   Exercised...........                 --           --        (369,634)       1.67        (9,370)       2.68
   Forfeited...........            (24,719)        9.69              --          --            --          --
   Canceled............           (287,196)       15.08              --          --            --          --
                                  --------        -----         -------        ----       -------        ----
Outstanding at the end  
of year................            650,468         7.70         376,482        8.21       504,704        1.77
                                   -------         ----         -------        ----       -------        ----
Options exercisable at
year-end...............            202,981       $ 7.29              --         $--       312,755      $ 1.67
                                   -------       ------             ---         ---       -------      ------
</TABLE>

   The following table summarizes  information  about stock options  outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>

                                   Options Outstanding              Options Exercisable
                                ---------------------------        ---------------------
                                          Weighted-
                                           Average     Weighted-               Weighted-
                               Number     Remaining     Average      Number     Average
                                 of      Contractual    Exercise       of       Exercise
Range of exercise prices       Shares       Life         Price       Shares      Price
------------------------       ------       -----        -----       ------      -----
<S>                           <C>             <C>        <C>         <C>          <C>
$1.51 to 2.22                 134,659         9.6        $2.09        62,121      $1.96
$2.69                          23,426         8.5         2.69            -          -
$6.88 to 7.94                 334,051         9.4         7.24        94,192       7.72
$13.00                        128,332         9.0        13.00        42,918      13.00
$19.25                         30,000         9.4        19.25         3,750      19.25
                               ------         ---        -----         -----      -----
                              650,468         8.9        $7.70       202,981      $7.29
-------------------------------------------------------------------- ------------------
</TABLE>


<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The  Company  applies  APB  Opinion  No. 25 and  related  Interpretations  in
accounting for its plans.  Accordingly,  compensation  cost for stock options is
measured as the  excess,  if any, of the quoted  market  price of the  Company's
stock at the date of the grant over the exercise price.  During 1998,  1997, and
1996,  the  Company  recognized  $47,000,  $50,000,  and  $0,  respectively,  in
compensation  cost. Had  compensation  cost for the Company's stock option plans
been determined  consisted with FASB Statement No. 123, the Company's net income
from continuing operations and earnings per share would have been reduced to the
pro forma amounts indicated below:


                                                    Years Ended December 31,
                                                  ------------------------------
                                                    1998       1997        1996
                                                  -------    --------    -------
                                                          (In thousands)
  Net earnings from continuing operations
      As reported............................      $4,594      $2,458     $1,435
      Pro forma .............................       4,131       2,366      1,409
  Net earnings from continuing operations per
    Common share--as reported:
      Basic .................................        $.89        $.73       $.48
      Diluted ...............................         .86         .72        .45
  Net earnings from continuing operations per
      Common share--pro forma:
      Basic .................................        $.80        $.70       $.47
      Diluted ...............................         .77         .70        .45


   For  purposes of  calculating  the  compensation  cost  consistent  with FASB
Statement  No. 123, the fair value of each grant is estimated on the date of the
grant. For options granted under the 1988 Plan and the 1994 Plan, the fair value
of each options grant was calculated using the minimum value method specified by
FASB Statement No. 123 with the following  assumptions:  risk-free interest rate
of 6.0%,  expected lives ranging from 3 to 9 years, and expected  volatility and
dividend rate of 0%. For options granted under the 1997 Plans, the fair value of
each  option  grant in 1998 and 1997,  respectively,  was  calculated  using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:  risk-free  interest rates of 5.3% and 5.8%,  expected lives of 4.7
and 4.4 years, expected volatility of 35%, and a dividend rate of 0%.


<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The weighted  average fair value of options granted during 1998 was $4.18 per
share.  During 1997,  31,234  options were granted at an exercise price of $2.69
per share with a  weighted  average  fair  value of $1.17 per share and  210,178
options  were  granted at an exercise  price of $13.00 per share with a weighted
average  fair  value of $4.93 per  share.  The  weighted  average  fair value of
options granted during 1996 was $.43 per share.


(12)  Earnings per share

    The following table sets forth the computation of basic and diluted earnings
per share from continuing operations.

<TABLE>
<CAPTION>

                                                                       Years ended December 31,       
                                                          -----------------------------------------------
                                                              1998              1997             1996 
                                                          -------------    -------------    -------------
                                                               (In thousands, except per share data)
<S>                                                       <C>              <C>                  <C>
Numerator for basic and diluted earnings
      per share from continuing operations
         Net earnings from continuing operations          $      4,594     $      2,458     $      1,435
                                                          -------------    -------------    -------------
Denominator for basic earnings per share
         Weighted average shares                             5,171,359        3,371,527        2,990,997
         Effect of dilutive stock options                      175,222           25,811          170,554
                                                          -------------    -------------     ------------
Denominator for diluted earnings per share
         Adjusted weighted average shares                    5,346,581        3,397,338        3,161,551
                                                          -------------    -------------     ------------
Net earnings from continuing operations:
         Basic earnings per share                         $        .89     $        .73     $        .48
                                                          =============    =============    =============
         Diluted earnings per share                       $        .86     $        .72     $        .45
                                                          =============    =============    =============
</TABLE>

    Contingent  shares  issuable in connection  with the  acquisition  of  Monex
Leasing, Ltd. and stock options that could potentially dilute basic earnings per
share in the  future  that  were not  included  in the  computation  of  diluted
earnings per share because to do so would have been  antidilutive were 78,528 0,
and 0, for the year ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(13)  Income Taxes

    The  provisions  for income  tax  expense  for  continuing  operations  were
comprised of the following:

                                        Years Ended December 31,
                                      ------------------------------
                                        1998       1997        1996
                                      --------   --------    -------
                                              (In thousands)
    Current:
       Federal...................        $318       $367        $276
       State.....................         437         66          43
    Deferred:
       Federal...................       2,318        852         562
       State.....................         (49)       342         203
                                      --------   --------    -------
        Total income tax expense.      $3,024     $1,627      $1,084
                                      ========   ========    =======


   Deferred tax expense  relates  principally to the difference in the method of
recognizing revenue and expense on direct finance leases for financial reporting
purposes  versus tax  purposes.  The provision for income taxes differs from the
expected income tax provision (computed by applying the Federal tax rate of 35%)
for the following reasons.

                                                   Years Ended December 31,
                                                -----------------------------
                                                  1998       1997       1996
                                                -------   ---------   -------
                                                        (In thousands)
  Expected tax provision...................      $2,666     $1,434       $924
  State taxes, net of Federal tax benefit..         252        265        132
  Other....................................         106        (72)        28
                                                -------   ---------    -------
         Income tax expense................      $3,024     $1,627     $1,084
                                                =======   =========    =======



<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The tax  effects  of  temporary  differences  that give  rise to  significant
portions of the deferred tax assets and deferred tax  liabilities  are presented
below.

                                                            December 31,
                                                  ------------------------------
                                                   1998        1997        1996 
                                                 --------    --------    -------
                                                           (In thousands)
Deferred tax assets:
  Net operating loss carry forwards........        $1,350      $5,159    $6,709
  Investment tax credit carryforwards......         2,409       2,741     2,741
  Alternative minimum tax credit 
   carryforwards...........................           944         671       445
                                                   ------     -------     ------
     Total gross deferred tax assets.......         4,703       8,571     9,895
  Less valuation allowance.................        (3,632)     (4,319)   (4,319)
                                                   -------      ------   -------
     Net deferred tax assets...............         1,071       4,252     5,576
                                                   -------     ------     ------
Deferred tax liabilities:
  Investment in leased equipment...........        (2,955)     (3,873)   (4,008)
  Unrealized gain on securities............           (40)       (615)     (258)
                                                   ------    --------    -------
     Total gross deferred tax liabilities..        (2,995)     (4,488)   (4,266)
                                                   ------    --------    -------
     Net deferred tax asset (liability)....       $(1,924)      $(236)   $1,310
                                                 ========    =========   =======

   For income tax  purposes,  the Company has an available  net  operating  loss
carryforward of approximately  $3,857,000,  which expires beginning in 2007. The
Company also has unused  investment tax credit  carryforwards  of  approximately
$2,409,000  available to offset future taxes  payable which expire  beginning in
1999.


<PAGE>



                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(14)  Other Commitments

   The  Company   leases  several   offices  and  a  warehouse   facility  under
noncancelable operating leases.  Additionally,  the Company entered into a lease
commitment for additional office space at its corporate headquarters. The future
minimum  rental  payments  due  under  these  leases  and  the  Company's  lease
commitment for additional office space are as follows:


                                                  Amount
                                               -------------
                                               (In thousands)
      Year Ending December 31,
          1999..............................    $1,854,000
          2000..............................     1,879,000
          2001..............................     1,809,000
          2002..............................     1,594,000
          2003 and thereafter...............     4,685,000
                                               ------------
            Total...........................   $11,821,000
                                               ============

   The Company's  total  obligation  for rent was  $1,438,000,  $1,042,000,  and
$697,000 for 1998,  1997,  and 1996,  respectively.  A portion of the  Company's
obligation  for  rent,  set forth  above,  during  1998,  1997 and 1996 has been
allocated and charged to LFC Capital, Inc., a related party (note 16).

     The Company's  corporate  headquarters  and its Select  Growth  Finance and
Portfolio  Finance  activities  are  located  in  Chicago,  Illinois  and occupy
approximately  29,000  square feet of office  space.  Although the lease for the
facility  expires on September 30, 1999, the Company has committed to enter into
a new lease  expiring  on June 30,  2006 for 44,000  square  feet of office that
includes the majority of the current  office space as well as additional  office
space at the same location.  The Company's Rental & Distribution  activities are
located in Foster City,  California and occupy  approximately 23,500 square feet
of office space. This space is occupied under a lease,  which expires on May 31,
2002.  The  Company's  Vendor  Finance  activities  operate out of four  offices
located in Minneapolis,  Minnesota;  Houston, Texas, Dayton, Ohio; and Wheeling,
Illinois,  each of which  occupies  approximately  2,000 to 9,000 square feet of
office space and are leased under  leases that expire at various  dates  through
August 31, 2003.


<PAGE>



                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   An unrelated third party has committed to sublease approximately 8,000 square
feet of the office space at the Company's  corporate  headquarters  through June
30, 2006 at $150,000  per annum.  The  Company  also  subleases a portion of the
facility of its Rental and Distribution activities under an annual sublease that
expires in April 1999 and a portion of its other  office space under a  sublease
agreement  that  expires in  October  2000.  Rent  received  under the  sublease
agreements  for  1998,  1997 and  1996 was  $204,000,  $191,000,  and  $177,000,
respectively.

(15)  Segment Information

   The Company has four reportable  segments:  Select Growth Finance,  Portfolio
Finance, Rental and Distribution,  and Vendor Finance. The Select Growth Finance
segment   directly   originates   leases  and  accounts   receivable  and  other
asset-backed  financing  to middle and late  stage  emerging  growth  companies,
primarily  serving the healthcare and  information  technology  industries.  The
Portfolio  Finance  segment  finances  leases  generated  by  smaller  equipment
lessors.  The Rental and Distribution  segment engages in rental,  leasing,  and
distribution  of  analytical  instruments  and related  equipment  to  companies
serving the  environmental,  pharmaceutical  and biotechnology  industries.  The
Vendor  Finance  segment  establishes  leasing  programs for  manufacturers  and
distributors.  The Company's  reportable  segments are strategic  business units
that serve different  markets and offer different  products and services,  which
complement each other. They are managed  separately since each business requires
different pricing and marketing  strategies.  Each segment  primarily  generates
business in the U.S. The amount of revenues generated and assets held outside of
the U.S. are impracticable to disclose.  Each segment's  customer base is highly
diversified, with no significant customer concentrations.

   The  accounting  policies of the segments are the same as those  described in
the  summary  of  significant  accounting  policies.  There are no  intersegment
transactions.  The  Company  evaluates  performance  of each  segment  based  on
earnings from continuing  operations before income taxes and minority  interest.
Additionally,  the  Company  evaluates  performance  of Select  Growth  Finance,
Portfolio Finance, and Vendor Finance based on lease fundings.




<PAGE>



                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The  corporate  component of earnings  from  continuing  operations  before
income taxes and minority interest  represents  corporate  selling,  general and
administrative   expenses  for  activities  such  as  acquisition  searches  not
allocable to a segment.  Certain selling,  general and administrative  expenses,
including  depreciation  expense  on  corporate  property  and  equipment,   are
allocated to each segment based on employee  headcount or a combination of lease
and  loan  receivables  and  the  number  of  contracts  serviced.  In the  1998
presentation,  the  results of Rental and  Distribution  have been  restated  to
includes  its' direct  finance  leasing  activity  and conform to the  Company's
selling, general, and administrative expense allocation policy. Corporate assets
consist of cash, including  restricted cash; certain  investments,  property and
equipment, and other assets not identifiable with any particular segment; and in
1996, net assets of discontinued operations.
<TABLE>
<CAPTION>

                                 Select                     Rental
                                 Growth       Portfolio      and           Vendor
     (Dollars in thousands)      Finance      Finance     Distribution     Finance     Corporate     Consolidated
     ----------------------      -------      -------     ------------     -------     ---------     ------------
<S>                              <C>           <C>             <C>         <C>             <C>           <C>
Year end December 31, 1998
  Total revenues                 $13,036        $11,059        $40,249      $8,698           $--          $73,042
  Depreciation and
   amortization expense              330          1,563          4,237         229            --            6,359
  Interest expense                 3,276          2,330          1,079       2,487            --            9,172
  Earnings (loss) from
   continuing operations before
   income taxes and minority
   interest                        4,038          1,615          1,681       1,193          (909)           7,618
  Total assets                    72,757         82,911         30,725      56,622         5,869          248,884
  Lease fundings                 $52,405       $146,051         $6,916     $48,012           $--         $253,384
                               ----------------------------------------------------------------------------------

Year ended December 31, 1997
  Total revenues                  $8,450         $2,847        $30,380         $--           $--          $41,677
  Depreciation and
   amortization expense              314            388          3,591          --            --            4,293
  Interest expense                 2,449            819          1,243          --            --            4,511
  Earnings (loss) from
   continuing operations before
   income taxes and minority
   interest                        2,547            466          1,461          --          (376)           4,098
  Total assets                    45,530         36,548         23,432          --         3,467          108,977
  Lease fundings                 $32,568        $39,671         $7,001         $--           $--          $79,240
                               ----------------------------------------------------------------------------------

Year ended December 31, 1996
  Total revenues                  $4,885         $1,364        $29,807         $--           $--          $36,056
  Depreciation and
   amortization expense              193             --          3,454          --            --            3,647
  Interest expense                 1,442            105          1,224          --            --            2,771
  Earnings (loss) from
   continuing operations before
   income taxes and minority
   interest                        1,357            368          1,114          --          (200)           2,639
  Total assets                    26,461          3,062         28,437          --         9,240           67,200
  Lease fundings                 $16,604         $1,795         $5,674         $--           $--          $24,073
                               -----------------------------------------------------------------------------------
</TABLE>


<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(16)  Distributions to Certain Shareholders and Discontinued Operations

   In 1997, the Company transferred to its wholly owned subsidiary, LFC Capital,
Inc.  (formerly known as LINC Finance  Corporation),  certain assets and related
liabilities  not used in the Company's  continuing  businesses and the preferred
stock issued by the  Company's  subsidiary,  LINC Quantum  Analytics,  Inc. (the
"Subsidiary Preferred Stock").

   Promptly  following  the  transfer,  the  stock  of  LFC  Capital,  Inc.  was
distributed  to certain of the Company's  shareholders  in redemption of 482,792
shares of the Common Stock of the Company.  Simultaneously with the distribution
of the stock of LFC  Capital,  Inc.,  (i) LFC  Capital,  Inc.  agreed to pay the
Company an  aggregate  of  $2,508,000  until  maturity  of  the  Company's 8.25%
Subordinated Debentures due 2003 (the principal balance of such Debentures shown
in the Company's  financial  statements herein is net of such amount);  (ii) LFC
Capital,  Inc.  repaid a loan from the Company to it; and the Company caused the
Subsidiary Preferred Stock to be redeemed for $4,681,000 plus accrued dividends.
In connection with the distribution of the stock of LFC Capital,  Inc., retained
earnings was reduced by $7,037,000, the Company's net investment in LFC Capital,
Inc. at the date of  distribution.  No gain or loss was recognized in connection
with  such  distribution,  as the fair  market  value of the net  assets  of LFC
Capital, Inc. at such date was approximately equal to their net book value.

   As a result of the  distribution,  the results of  operation  of LFC Capital,
Inc. and certain related businesses, including those related businesses disposed
of in prior  years,  have been  classified  as  discontinued  operations  in the
accompanying financial statements.  Revenues of such discontinued operations for
the years ended  December 31, 1997 and  1996 were  $7,405,000  and  $24,450,000,
respectively.  The principal  assets of discontinued  operations  consisted of a
portfolio of leased diagnostic medical imaging equipment and an art collection.

     The  Company  has  agreed  to  provide   certain  limited  lease  servicing
activities to LFC Capital,  Inc.,  including billing,  collection and invoicing,
for the remaining portfolio of leases owned by LFC Capital,  Inc. until December
31, 1999. The Company received $270,000 and $83,000 for such services  performed
in 1998 and 1997, respectively.  The Company has agreed to provide such services
to LFC Capital, Inc. for  $156,000  in 1999.  Additionally,  LFC  Capital,  Inc.
subleased from the Company, approximately 2,500 square feet of space adjacent to
the  Company's  executive  offices for  approximately  $68,000 in 1998 and 1997,
which was equal to the Company's cost for such space. In 1999, LFC Capital, Inc.
will sublease from the Company approximately 1,000 square feet for $27,000

<PAGE>


                       LINC CAPITAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The  agreements  relating  to the net assets of the  discontinued  operations
prohibits LFC Capital,  Inc. from  competing  with the Company for the longer of
three years or the period of time during which certain  officers are employed by
the Company plus one year.  Such agreements  require LFC Capital,  Inc. to refer
all lease  origination  opportunities  that its  employees  may encounter to the
Company.

(17)  Related Party Transaction

    A member of the Company's  Board of Directors  who is also  president of LFC
Capital,  Inc.  served as a  consultant  to the Company  with respect to various
aspects of the Company's business and strategic issues. Fees paid by the Company
for  such  services,  including  a  referral  fee  paid in  connection  with the
acquisition of Comstock Leasing, Inc., during the years ended December 31, 1998,
1997, and 1996 were $188,000, $119,000, and $25,000, respectively.

(18)  Subsequent Event

    Effective  January 1, 1999,  the Company  purchased  all of the  outstanding
common stock of Connor Capital Corporation. The acquisition, to be accounted for
under the  purchase  method,  included a cash payment of  $1,472,000  and future
contingent payments of up to $5,500,000.


<PAGE>


 [KPMG Peat Marwick LLP Letterhead]


                          Independent Auditors' Report



The Board of Directors and Stockholders
LINC Capital, Inc.:

Under date of February 17, 1999, we reported on the consolidated  balance sheets
of LINC Capital, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the years in the three-year period ended December 31, 1998, as
contained  in the annual  report on Form 10-K for the year 1998.  In  connection
with our audits of the aforementioned financial statements,  we also audited the
related financial  statement  schedule.  The financial statement schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial statement schedule based on our audits.

In our opinion, the financial statement schedule, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information set forth therein.


                                  /s/ KPMG LLP

Chicago, Illinois
February 17, 1999


                                                        S-2

<PAGE>



Schedule II - Valuation and Qualifying Accounts

For the three years ended, December 31, 1998
(in thousands)
<TABLE>
<CAPTION>

                                                             Additions
                                             Balance at      charged to                                       Balance at
                                            beginning of      costs and       Recoveries                         end
              Description                      period         expenses        and other      Charge offs      of period
----------------------------------------   ---------------  --------------  --------------- --------------  ---------------
<S>                                                <C>           <C>               <C>            <C>               <C>
Allowances for Doubtful Accounts

     Year ended December 31, 1996                  $1,104            $749             $130         $(689)           $1,294
     Year ended December 31, 1997                   1,294           1,253              203          (198)            2,552
     Year ended December 31, 1998                   2,552           5,280            1,079        (3,312)            5,599

Inventory Reserve

     Year ended December 31, 1996                    $589        $      -          $     -          $(37)             $552
     Year ended December 31, 1997                     552             123                -          (105)              570
     Year ended December 31, 1998                     570             106                -           (58)              618
</TABLE>