The following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes.

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written or oral forward-looking statements may be made by Newtek from time to time in filings with the Securities and Exchange Commission or otherwise. The words "believe," "expect," "seek," and "intend" and similar expressions identify forward-looking statements, which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of income or loss, expenditures, acquisitions, plans for future operations, financing needs or plans relating to our services, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

Newtek does not undertake, and specifically disclaims, any obligation to publicly release the results of revisions which may be made to forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after such statements.

We also need to point out that our Capcos operate under a different set of rules in each of the 8 jurisdictions and that these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana, we don't control the equity or management of a qualified business but that cannot always be presented orally or in written presentations.

We are a direct distributor of business services to the small and medium-sized business market through our wholly and majority owned subsidiaries. Our target market represents a very significant marketplace in the United States gross domestic product or GDP. According to statistics published by the U.S. Small Business Administration, approximately 51% of the GDP in the United States comes from small-to medium-size businesses and 99% of businesses in the United States which have one or more employees fit into this market segment. As of September 30, 2007, we had over 84,000 business accounts. We use state of the art Web-based proprietary technology to be a low cost acquirer and provider of products and services to our small and medium- size business clients. We partner with AIG, Merrill Lynch, Morgan Stanley, UBS, IntegraSys-a Fiserv Company, the Credit Union National Association with its 8,700 credit unions and 80 million members, the Navy Federal Credit Union with 2.7 million members, PSCU Financial Services, Inc., the nation's largest credit union service organization, General Motors Minority Dealers Association and Daimler Chrysler Minority Dealers Association, all of whom have elected to offer certain of our business services and financial products rather than provide some or all of them directly for their customers. We have deemphasized our Capco business in favor of growing our operating businesses and do not anticipate creating any new Capcos in the foreseeable future.

The Company's reportable business segments are:

Electronic Payment Processing: Marketing, credit card processing and check approval services.

Web Hosting: CrystalTech Web Hosting, Inc., which offers shared and dedicated web hosting and related services.

SBA Lending: Newtek Small Business Finance, Inc. ("NSBF"), a nationally licensed, U.S. Small Business Administration ("SBA") lender that originates, sells and services loans to qualifying small businesses, which are partially guaranteed by the SBA.

All Other: Includes results from businesses formed from Investments in Qualified Businesses made through Capco programs which cannot be aggregated with other operating segments.

Corporate Activities: Revenue and expenses not allocated to other segments, including interest income, Capco management fee income and corporate expenses.

Capcos: Fifteen certified capital companies which invest in small and medium-sized businesses. They generate non-cash income from tax credits and non-cash interest and insurance expenses.

Comparison of the three months ended September 30, 2007 and September 30, 2006

Revenue and expenses which are specific to a segment are discussed in Segment Results, which follows. Electronic payment processing revenue and electronic payment processing costs are included in the Electronic payment processing segment. Web hosting revenue is included in the Web hosting segment. Premium income revenue, servicing fee revenue and provision for loan losses expense are included in the SBA lending segment. Income from tax credits revenue is included in the Capco segment.

Total revenues increased by $1,575,000, or 7%, to $23,067,000 for the three months ended September 30, 2007, from $21,492,000 for the three months ended September 30, 2006 primarily due to the increase in revenues in the Electronic payment processing and Web hosting segments of $2,775,000 and $692,000, respectively, offset by a decrease in the revenues of the SBA lending, Capcos, All Other and Corporate activities segments.

Interest income increased by $61,000, or 5%, to $1,291,000 for the three months ended September 30, 2007 from $1,230,000 for the three months ended September 30, 2006. NSBF (SBA Lender) interest income represents earnings on SBA loan receivables. Other interest income consists of investment income on money market accounts, U.S. treasury notes, non-cash accretions of structured products and interest income on qualified investments.

Other income decreased by $1,752,000, or 65%, to $951,000 for the three months ended September 30, 2007 from $2,703,000 for the three months ended September 30, 2006 primarily due to a one time gain on the sale of a qualified investment of $1,706,000 and the recovery of an investment in qualified businesses of $161,000 during the three months ended September 30, 2006, offset by an increase in other income from the consolidation of CDS Business Services, Inc. as of January 2007, which produced $420,000 in revenue for the three months ended September 30, 2007. Other income generally represents revenues from entities that cannot be aggregated into any of our other major operating segments.

Consulting, payroll and benefits increased by $1,454,000, or 34%, to $5,775,000 for the three months ended September 30, 2007 from $4,321,000 for the three months ended September 30, 2006 primarily due to the increasing employee headcount and the consolidation of CDS Business Services, Inc. as of January 2007.

Interest expense decreased by $177,000, or 5%, to $3,385,000 for the three months ended September 30, 2007 from $3,562,000 for the three months ended September 30, 2006. The decrease in Capco interest expense relates to the decrease in the principal outstanding on the notes payable to AI Credit from $7,312,000 as of September 30, 2006, to $1,019,000 as of September 30, 2007. The decrease in SBA interest expense is attributable to a decrease in the average outstanding balance under the Company's credit facility. The average outstanding balance in the three month period ended September 30, 2007 was $16,961,000 as compared with $19,904,000 in the same period in the prior year. The decrease in other interest expense is primarily attributable the decrease in principal outstanding on the note payable to TICC.

Professional fees decreased by $293,000, or 14%, to $1,826,000 for the three months ended September 30, 2007 from $2,119,000 for the three months ended September 30, 2006 primarily due to a decrease in audit and consulting fees, offset by increased residual payments to independent sales agents and offices.

Depreciation and amortization expense increased by $295,000, or 18%, to $1,939,000 for the three months ended September 30, 2007 from $1,644,000 for the three months ended September 30, 2006. This is due to the purchase of $3,038,000 of fixed assets during the twelve months ended June 30, 2007.

Other general and administrative costs (consisting of occupancy, selling, general and administrative) increased by $597,000, or 22%, to $3,355,000 for the three months ended September 30, 2007 from $2,758,000 for the three months ended September 30, 2006. The increase in overall other general and administrative costs relates to additional expenses incurred in connection with the growth of our business and employee head count.

The effective tax benefit for the three months ended September 30, 2007 and 2006 was 14% and 37%, respectively. The Company did not record a tax benefit for the losses of NSBF (in both 2007 and 2006) and CDS Business Services, Inc. (2007 only), as those subsidiaries are not included in the consolidated tax group. In addition the Company recorded a current tax provision for the first time this quarter which further reduced the tax benefit. The current tax provision is a result of certain of the Company's subsidiaries producing taxable income that could not be offset with NOLs and suspended losses from other entities. There were no material permanent differences in either year.

Net loss increased by $2,913,000 or 276%, to $3,967,000 for the three months ended September 30, 2007 from $1,054,000 for the three months ended September 30, 2006, due to an increase in total expenses of $4,627,000, offset by the increase in revenue of $1,575,000, an increase in minority interest of $33,000, an increase in the tax benefit of $74,000, and an increase in discontinued operations of $32,000.

Comparison of the nine months ended September 30, 2007 and September 30, 2006

Revenue and expenses which are specific to a segment are discussed in Segment Results, which follows. Electronic payment processing revenue and electronic payment processing costs are included in the Electronic Payment Processing segment. Web hosting revenue is included in the Web hosting segment. Premium income revenue, servicing fee revenue and provision for loan losses expense are included in the SBA Lending segment. Income from tax credits revenue is included in the Capco segment.

Total revenues increased by $10,223,000, or 18%, to $68,287,000 for the nine months ended September 30, 2007, from $58,064,000 for the nine months ended September 30, 2006 primarily due to the increase in revenues in the Electronic payment processing, Web hosting and All Other segments of $8,365,000, $2,010,000 and $804,000, respectively.

Interest income is generated from SBA lending activities, excess cash balances that are invested in money market accounts, U.S. Treasury notes, federal government backed securities mutual funds, etc., non-cash accretions of structured insurance product and on held to maturity investments. The following table details the changes in these different forms of interest:

                  (In thousands)           2007      2006     Change
                  SBA lending             $ 2,767   $ 2,831   $   (64 )
                  Other interest income     1,562     1,735      (173 )

                                          $ 4,329   $ 4,566   $  (237 )

Other income increased by $816,000, or 24%, to $4,264,000 for the nine months ended September 30, 2007 from $3,448,000 for the nine months ended September 30, 2006. In 2007 other income primarily consisted of a gain on the sale/recoveries of an investment in qualified businesses of $1,073,000, equity earnings on an investment of $329,000, NSBF recoveries of $132,000 and the consolidation of CDS Business Services, Inc., which produced revenues of $1,435,000 during 2007. In 2006, other income consisted of a gain on the sale/recoveries of investments in a qualified businesses of $1,840,000, equity earnings of $96,000 and NSBF recoveries of $345,000. Other income generally represents revenues from entities that cannot be aggregated into any of our other major operating segments.

Consulting, payroll and benefits increased by $4,070,000, or 33%, to $16,512,000 for the nine months ended September 30, 2007 from $12,442,000 for the nine months ended September 30, 2006 primarily due to an increased employee headcount and the consolidation of CDS Business Services, Inc. as of January 2007.

Changes in interest expense by segment are summarized as follows for the nine months ended September 30:

                (In thousands)             2007       2006      Change
                Capco interest expense   $  9,011   $  9,845   $   (834 )
                SBA lending                 1,332      1,618       (286 )
                Other interest expense        378        984       (606 )

                                         $ 10,721   $ 12,447   $ (1,726 )

The decrease in Capco interest expense relates to the decrease in the principal outstanding on the notes payable to AI Credit from $7,312,000 as of September 30, 2006, to $1,019,000 as of September 30, 2007. The decrease in SBA interest expense is attributable to a decrease in the average outstanding balance under the Company's credit facility. The average outstanding balance in the nine month period ended September 30, 2007 was $19,151,000 as compared with $22,978,000 in the same period in the prior year. The decrease in other interest expense is primarily attributable the decrease in principal outstanding on the note payable to TICC.

Professional fees decreased by $219,000, or 4%, to $5,828,000 for the nine months ended September 30, 2007 from $6,047,000 for the nine months ended September 30, 2006 primarily due to a decrease in audit and consulting fees, offset by increased residual payments to independent sales agents and offices.

Depreciation and amortization expense increased by $944,000, or 21%, to $5,470,000 for the nine months ended September 30, 2007 from $4,526,000 for the nine months ended September 30, 2006. This is due to the purchase of $3,038,000 of fixed assets during the twelve months ended June 30, 2007.

Other general and administrative costs (consisting of occupancy, selling, general and administrative) increased by $1,934,000, or 26%, to $9,351,000 for the nine months ended September 30, 2007 from $7,417,000 for the nine months ended September 30, 2006. The increase in overall other general and administrative costs relates to additional expenses incurred in connection with the growth of our business and employee head count.

The effective tax benefit for the nine months ended September 30, 2007 and 2006 was 24% and 34%, respectively. The Company did not record a tax benefit for the losses of NSBF (in both 2007 and 2006) and CDS Business Services, Inc. (2007 only), as those subsidiaries are not included in the consolidated tax group. In addition, the Company recorded a current tax provision for the first time this quarter which further reduced the tax benefit. The current tax provision is a result of certain of the Company's subsidiaries producing taxable income that could not be offset with NOLs and suspended losses from other entities. There were no material permanent differences in either year.

Net loss increased by $3,184,000, or 52%, to $9,253,000 for the nine months ended September 30, 2007 from $6,069,000 for the nine months ended September 30, 2006, due an increase in total expenses of $11,917,000, a decrease in minority interest of $117,000, a decrease in the tax benefit of $558,000 and a decrease in discontinued operations of $815,000, offset by an increase in revenue of $10,223,000.

The results of the Company's reportable segments for the three and nine months ended September 30, 2007 as compared to the three and nine months ended September 30, 2006 are discussed below.

Electronic Payment Processing

For the three months ended September 30, 2007 and 2006:



(In thousands):                                2007            2006          $ Change        % Change
Revenue                                      $  14,011       $  11,236       $   2,775             25 %
Expenses                                       (13,143 )       (10,291 )        (2,852 )          (28 )%

Income from continuing operations before
minority interest, benefit for income
taxes and discontinued operations                  868             945             (77 )           (8 )%

Minority interest                                   -              (10 )            10             -

Income from continuing operations before
benefit for income taxes and
discontinued operations                      $     868       $     935       $     (67 )           (7 )%

Revenues increased by $2,775,000, or 25%, to $14,011,000 due to a $2,828,000 increase in electronic payment processing revenue, offset by a $53,000 decrease in interest and other income. The increase in electronic payment processing revenue was primarily due to organic sales growth. Gross total processing volume increased 21% to $647,520,000 for the three months ended September 30, 2007, from $535,892,000 for the three months ended September 30, 2006.

Expenses increased by $2,852,000, or 28%, to $13,143,000 due primarily to a $2,433,000 increase in electronic payment processing costs, a $242,000 increase in professional fees, which consist principally of residual payments to independent sales agents and offices, and a $121,000 increase in depreciation and amortization. The Company estimated and recorded $300,000 in additional chargeback expense which is included in electronic payment processing costs for the three months ended September 30, 2007 (see Note 9). The increase in electronic payment processing costs, excluding the $300,000 additional chargeback expense, approximated the increase in revenue between periods. Excluding the $300,000 additional chargeback expense, an increase in higher volume customers which generate higher direct processing costs as a percentage of revenue between periods was substantially offset by a lower rate of increase in other costs.

For the nine months ended September 30, 2007 and 2006:

(In thousands):                                2007            2006          $ Change        % Change
Revenue                                      $  39,638       $  31,273       $   8,365             27 %
Expenses                                       (37,066 )       (29,191 )        (7,875 )          (27 )%

Income from continuing operations before
minority interest, benefit for income
taxes and discontinued operations                2,572           2,082             490             24 %

Minority interest                                   -              (10 )            10             -

Income from continuing operations before
benefit for income taxes and
discontinued operations                      $   2,572       $   2,072       $     500             24 %

Revenues increased by $8,365,000, or 27%, to $39,638,000 due to a $8,416,000 increase in electronic payment processing revenue and a $51,000 decrease in interest and other income. The $8,416,000 increase in electronic payment processing revenue was almost entirely due to an increase in organic sales growth. Gross total processing volume increased by 26% to $1,861,426,000 for the nine months ended September 30, 2007, from $1,480,980,000 for the nine months ended September 30, 2006.

Expenses increased by $7,875,000, or 27%, to $37,066,000 due primarily to a $6,548,000 increase in electronic payment processing costs, a $784,000 increase in professional fees, which consist principally of residual payments to independent sales agents and offices, a $372,000 increase in depreciation and amortization, and a $51,000 increase in consulting, payroll and benefits. The Company estimated and recorded $300,000 in additional chargeback expense which is included in electronic payment processing costs for the nine months ended September 30, 2007 (see Note 9). The rate of increase in electronic payment processing costs, excluding the $300,000 additional chargeback expense, was less than the rate of growth in revenues despite an increase in higher volume customers which generate higher direct processing costs as a percentage of revenue due to other costs increasing at a slower rate of increase between years.

Web Hosting

For the three months ended September 30, 2007 and 2006:



(In thousands):                                 2007           2006         $ Change        % Change
Revenue                                       $  4,173       $  3,481       $     692             20 %
Expenses                                        (3,733 )       (2,485 )        (1,248 )          (50 )%

Income from continuing operations before
benefit for income taxes and discontinued
operations                                    $    440       $    996       $    (556 )          (56 )%

Revenue is derived primarily from monthly recurring fees from hosting dedicated and shared websites.

Revenues increased by $692,000, or 20%, to $4,173,000 for the three months ended September 30, 2007 from $3,481,000 for the three months ended September 30, 2006 due to a $685,000 increase in web hosting revenue and $7,000 increase in interest income. The increase in web hosting revenue is due to the overall growth in the number of customers the Company provided services to and an increase in dedicated hosting customers which generate higher revenue per customer, than shared website customers.

The average number of total websites for the three months ended September 30, 2007 increased 18% to 65,000 from 55,000 for the three months ended September 30, 2006. The average number of dedicated websites, which generate a higher monthly fee, increased 25% to 2,000 in 2007, from 1,600 in 2006. The average number of shared websites increased 17% to 63,000, per month in 2007, from 54,000, in 2006.

The $1,248,000, or 50% increase in expenses in 2007 compared with 2006 was primarily due to a $143,000 increase in consulting, payroll and benefits, a $218,000 increase in depreciation and amortization, and a $953,000 increase in other expenses, offset, in part, by a $90,000 decrease in interest expense due to lower borrowings from TICC during 2007. Consulting, payroll and benefits increased due to additional personnel added to service the increased customer base and to extend the hours of operation in customer service. Depreciation and amortization increased due to additional capital expenditures of $2,167,000 over the past twelve months primarily for additional servers. Other expenses increased primarily due to $222,000 in additional software licenses required for additional servers, a $648,000 increase in rent and utilities related to a new space, and a $90,000 increase in internet and telephone costs due to the growth of the company and the acquisition of additional space.

For the nine months ended September 30, 2007 and 2006:

(In thousands):                                2007           2006         $ Change        % Change
Revenue                                      $ 12,011       $ 10,001       $   2,010             20 %
Expenses                                       (9,548 )       (6,954 )        (2,594 )          (37 )%

Income from continuing operations before
benefit for income taxes and
discontinued operations                      $  2,463       $  3,047       $    (584 )          (19 )%

Revenue is derived primarily from monthly recurring fees from hosting dedicated and shared websites.

Revenue increased by $2,010,000, or 20%, to $12,011,000 for the nine months ended September 30, 2007 from $10,001,000 for the nine months ended September 30, 2006 due to a $2,030,000 increase in web hosting revenue offset by a $20,000 decrease in interest income and other revenue. The increase in web hosting revenue is due to the overall growth in the number of customers the Company provided services to and an increase in dedicated hosting customers which generate higher revenue per customer.

The average number of total websites increased 21% to 63,000 in 2007, from 52,000 in 2006. The average number of dedicated websites, which generate a higher monthly fee, increased 43%, to 2,000 per month in 2007, from 1,400 in 2006. The average number of shared websites increased 20% to 61,000, per month in 2007, from 51,000, in 2006.

The $2,594,000, or 37% increase in expenses for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 was primarily due to a $655,000 increase in consulting, payroll and benefits, a $601,000 increase in depreciation and amortization, and a $1,810,000 increase in other expenses, offset, in part, by a $352,000 decrease in interest expense due to lower principal outstanding on the TICC debt during 2007. Consulting, payroll and benefits increased due to additional personnel added to service the increased customer base and to extend the hours of operation in customer service. Depreciation and amortization increased due to additional capital expenditures of $2,167,000 over the past twelve months primarily for additional servers. Other expenses increased primarily due to $665,000 in additional software licenses required for additional servers, an $812,000 increase in rent and utilities, a $44,000 increase in marketing costs, and a $146,000 increase in internet and telephone costs due to the growth of the company and the acquisition of additional space.

SBA Lending

For the three months ended September 30, 2007 and 2006:



(In thousands):                                 2007           2006          $ Change        % Change
Revenue                                       $  2,157       $  2,783       $     (626 )          (22 )%
Expenses                                        (2,174 )       (2,273 )             99              4 %

Income (loss) from continuing operations
before benefit, provision for income
taxes and discontinued operations             $    (17 )     $    510       $     (527 )         (103 )%

Revenue is derived primarily from premium income generated by the sale of the guaranteed and unguaranteed portions of SBA loans, interest income on SBA loans and servicing fee income on SBA loans previously sold.

Total revenues decreased by $626,000, or 22%, primarily due to a decrease in premium and interest income.

Premium income related to SBA loans decreased by $387,000 to $684,000 for the three months ended September 30, 2007 from $1,071,000 for the three months ended September 30, 2006. The decrease in premium income was primarily attributable to the decrease in the sale of loans previously classified as held for investment and the discount recognized thereon. In the three months ended September 30, 2007, NSBF did not sell any loans previously classified as held for investment. In the three months ended September 30, 2006, NSBF sold $4,510,000 of loans previously classified as held for investment, for aggregate proceeds of . . .