**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





x
                Quarterly Report
                pursuant to Section 13 or 15(d) of the Securities Exchange Act of
                1934





For
                the quarterly period ended February 29, 2008 or





o
                Transition report
                pursuant to Section 13 or 15(d) of the Securities Exchange Act of
                1934





For
                the transition period from _____ to
                _____




Commission
      File Number: **0-9061**





**ELECTRO
      RENT CORPORATION**


Exact
      name of registrant as specified in its charter





**CALIFORNIA**
            **95-2412961**(State
                or Other Jurisdiction
            (I.R.S.
                Employerof
                Incorporation or Organization)
            Identification
                No.)





**6060
      SEPULVEDA BOULEVARD**


**VAN
      NUYS, CALIFORNIA 91411-2501**


(Address
      of Principal Executive Offices and Zip Code)





**818
      787-2100**


(Registrant's
      Telephone Number, Including Area Code)





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
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
“accelerated filer”, a “non-accelerated filer” or a “smaller reporting company”.
      See definition of “large accelerated filer” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. Check one:





Large
                accelerated filer o
            Accelerated
                Filer**x**
            Non-accelerated
                filer o





Smaller
      reporting company o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes
o  No **x**





The
      number of shares outstanding of the registrant's common stock as of March 31,
      2008 was 25,946,750.


Page
          1


**ELECTRO
      RENT CORPORATION**


**FORM
      10-Q**


**February
      29, 2008**




TABLE
                    OF CONTENTS
              PagePart
                  I: FINANCIAL INFORMATION
              3Item
                  1.     Financial Statements
              3Condensed
                  Consolidated Statements of Operations for the Three and Nine Months
                  EndedFebruary
                  29, 2008 and February 28, 2007 (Unaudited)
              3Condensed
                  Consolidated Balance Sheets at February 29, 2008 and May 31, 2007
                  (Unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for the Nine Months
                  EndedFebruary
                  29, 2008 and February 28, 2007 (Unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              6Item
                  2.     Management's Discussion and Analysis of
                  FinancialCondition
                  and Results of Operations
              15Item
                  3.     Quantitative and Qualitative Disclosures About
                  Market Risk
              21Item
                  4.     Controls and Procedures
              22Part
                  II: OTHER INFORMATION
              22Item
                  1.     Legal Proceedings
              22Item
                  1A.  Risk Factors
              22Item
                  2.      Unregistered Sales of Equity Securities
                  and Use of Proceeds
              22Item
                  3.      Defaults Upon Senior
                  Securities
              23Item
                  4.      Submission of Matters to a Vote of
                  Security Holders
              23Item
                  5.      Other Information
              23Item
                  6.      Exhibits
              23SIGNATURES
              24




Page
          2




**ELECTRO
      RENT CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)
      (000's omitted, except per share data)**




**Three
                Months Ended**
            
            
            **Nine
                Months Ended****February
                29,**
            
            
            **February
                28,**
            
            
            **February
                29,**
            
            
            **February
                28,****2008**
            
            
            **2007**
            
            
            **2008**
            
            
            **2007**Revenues:Rentals
                and leases
            
            $
            26,244
            
            $
            24,716
            
            $
            81,113
            
            $
            75,918Sales
                of equipment and other revenues
            
            
            8,973
            
            
            5,974
            
            
            23,154
            
            
            16,336Total
                revenues
            
            
            35,217
            
            
            30,690
            
            
            104,267
            
            
            92,254Operating
                expenses:Depreciation
                of rental and lease equipment
            
            
            11,265
            
            
            11,097
            
            
            33,469
            
            
            31,489Costs
                of revenues other than deprecationof
                rental and lease equipment
            
            
            6,694
            
            
            3,724
            
            
            16,746
            
            
            9,838Selling,
                general and administrative expenses
            
            
            10,329
            
            
            9,809
            
            
            31,030
            
            
            30,564Total
                operating expenses
            
            
            28,288
            
            
            24,630
            
            
            81,245
            
            
            71,891Operating
                profit
            
            
            6,929
            
            
            6,060
            
            
            23,022
            
            
            20,363Interest
                income, net
            
            
            854
            
            
            978
            
            
            2,627
            
            
            2,827Income
                from settlement
            
            
            -
            
            
            1,571
            
            
            -
            
            
            1,571Income
                before income taxes
            
            
            7,783
            
            
            8,609
            
            
            25,649
            
            
            24,761Income
                tax provision
            
            
            2,939
            
            
            3,411
            
            
            9,755
            
            
            9,880Net
                income
            
            $
            4,844
            
            $
            5,198
            
            $
            15,894
            
            $
            14,881Earnings
                per share:Basic
            
            $
            0.19
            
            $
            0.20
            
            $
            0.61
            
            $
            0.58Diluted
            
            $
            0.19
            
            $
            0.20
            
            $
            0.61
            
            $
            0.57Shares
                used in per share calculation:Basic
            
            
            25,934
            
            
            25,808
            
            
            25,897
            
            
            25,654Diluted
            
            
            26,092
            
            
            26,131
            
            
            26,070
            
            
            26,036




**See
      accompanying notes to condensed consolidated financial statements
      (unaudited).**




Page
          3


**ELECTRO
        RENT CORPORATION**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Unaudited)
        (000's omitted, except share data)**
  **February
                  29,**
              
              
              **May
                  31,****2008**
              
              
              **2007**ASSETSCash
                  and cash equivalents
              
              $
              58,307
              
              $
              57,172Investments
              
              
              23,600
              
              
              23,550Accounts
                  receivable, net of allowance for doubtful accounts of $311 and
                  $251
              
              
              20,492
              
              
              17,161Rental
                  and lease equipment, net of accumulated depreciation of $156,153
                  and
                  $140,164
              
              
              167,775
              
              
              161,806Other
                  property, net of accumulated depreciation and amortization of $14,562
                  and
                  $13,761
              
              
              14,494
              
              
              14,990Goodwill
              
              
              3,109
              
              
              2,859Intangibles,
                  net of amortization of $1,322 and $904
              
              
              1,153
              
              
              1,571Other
              
              
              5,013
              
              
              5,710$
              293,943
              
              $
              284,819LIABILITIES
                  AND SHAREHOLDERS' EQUITYLiabilities:Accounts
                  payable
              
              $
              7,437
              
              $
              10,084Accrued
                  expenses
              
              
              14,575
              
              
              11,019Deferred
                  revenue
              
              
              4,992
              
              
              5,047Deferred
                  tax liability
              
              
              15,465
              
              
              15,190Total
                  liabilities
              
              
              42,469
              
              
              41,340Commitments
                  and contingencies (Note 11)Shareholders'
                  equity:Preferred
                  stock, $1 par - shares authorized 1,000,000; none issuedCommon
                  stock, no par - shares authorized 40,000,000;issued
                  and outstanding February 29, 2008 - 25,942,391;May
                  31, 2007 - 25,812,943
              
              
              33,775
              
              
              32,212Retained
                  earnings
              
              
              217,699
              
              
              211,267Total
                  shareholders' equity
              
              
              251,474
              
              
              243,479$
              293,943
              
              $
              284,819
  **See
        accompanying notes to condensed consolidated financial statements
        (unaudited).**


Page
          4


**ELECTRO
      RENT CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)
      (000's omitted)**


**Nine
                Months Ended****February
                29,**
            
            
            **February
                28,****2008**
            
            
            **2007**Cash
                flows from operating activities:Net
                income
            
            $
            15,894
            
            $
            14,881Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                and amortization
            
            
            34,680
            
            
            32,742Remeasurement
                (gain)/loss
            
            
            (407
            )
            
            2Gain
                on sale of rental and lease equipment
            
            
            (7,682
            )
            
            (6,782
            )Income
                from settlement
            
            
            -
            
            
            (1,571
            )Deferred
                tax liability
            
            
            701
            
            
            830Stock
                compensation expense
            
            
            176
            
            
            628Provision
                for losses on accounts receivable
            
            
            283
            
            
            230Excess
                tax benefit for stock options exercised
            
            
            (149
            )
            
            (862
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (3,298
            )
            
            (434
            )Other
                assets
            
            
            700
            
            
            (1,228
            )Accounts
                payable
            
            
            64
            
            
            (503
            )Accrued
                expenses
            
            
            1,297
            
            
            (792
            )Deferred
                revenue
            
            
            (85
            )
            
            232Net
                cash provided by operating activities
            
            
            42,174
            
            
            37,373Cash
                flows from investing activities:Proceeds
                from sale of rental and lease equipment
            
            
            21,027
            
            
            13,988Cash
                paid for aquisition, net of settlements
            
            
            -
            
            
            493Payments
                for purchase of rental and lease equipment
            
            
            (55,527
            )
            
            (50,392
            )Purchases
                of investments
            
            
            (3,500
            )
            
            (700
            )Redemptions
                of investments
            
            
            3,450
            
            
            -Payments
                for purchase of other property
            
            
            (297
            )
            
            (401
            )Net
                cash used in investing activities
            
            
            (34,847
            )
            
            (37,012
            )Cash
                flows from financing activities:Proceeds
                from the exercise of common stock options
            
            
            1,240
            
            
            3,391Excess
                tax benefit for stock options exercised
            
            
            149
            
            
            862Payment
                for repurchase of common stock
            
            
            (19
            )
            
            -Payment
                of dividends
            
            
            (7,770
            )
            
            -Net
                cash (used in) provided by financing activities
            
            
            (6,400
            )
            
            4,253Net
                increase in cash and cash equivalents
            
            
            927
            
            
            4,614Effect
                of exchange rate changes on cash
            
            
            208
            
            
            7Cash
                and cash equivalents at beginning of period
            
            
            57,172
            
            
            58,748Cash
                and cash equivalents at end of period
            
            $
            58,307
            
            $
            63,369




**See
      accompanying notes to condensed consolidated financial statements
      (unaudited).**




Page
          5


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


**Note
      1: Basis of Presentation**





The
      condensed consolidated financial statements included herein have been prepared
      by Electro Rent Corporation without audit, pursuant to the rules and regulations
      of the United States Securities and Exchange Commission (the "SEC"). The
      condensed consolidated financial statements include the accounts of Electro
      Rent
      Corporation and its wholly owned subsidiaries, Genstar Rental Electronics,
      Inc.,
      ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc., and
      Electro Rent (Tianjin) Rental Co., Ltd. (collectively "we", "us", or "our"
      hereafter) as consolidated with the elimination of all intercompany
      transactions. To conform the condensed consolidated statements of cash flows
      for
      the nine months ended February 28, 2007 to the current year
      presentation, we (i) reclassified prepaid rental and lease payments in
      accounts receivable to deferred revenue, both increasing the change in accounts
      receivable and decreasing the change in deferred revenue by $282, (ii)
      separately disclosed excess tax benefits for stock options exercised of $862,
      decreasing the change in accrued expenses by the same amount, and (iii)
      separately disclosed effects of exchange rates on cash, reducing net cash
      provided by operating activities by $7.





Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been condensed or omitted pursuant to such SEC
      rules and regulations. These condensed consolidated financial statements reflect
      all adjustments and disclosures, which are, in our opinion, necessary for a
      fair
      presentation of our financial position and results of operations for the interim
      periods presented. These condensed consolidated financial statements should
      be
      read in conjunction with the audited financial statements and notes thereto
      included in our latest Annual Report on Form 10-K **.**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires us to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      as
      well as the disclosures of contingent assets and liabilities as of the date
      of
      these financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates,
      and results of operations for interim periods are not necessarily indicative
      of
      results for the full year.





New
      Accounting Pronouncements





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes* ("FIN
      48") *,* which
      supplements SFAS No. 109, *Accounting
      for Income Taxes* ,
      by
      defining the confidence level that a tax position must meet in order to be
      recognized in the financial statements. FIN 48 requires that the tax effects
      of
      a position be recognized only if it is “more-likely-than-not” to be sustained
      based solely on its technical merits as of the reporting date. The
      more-likely-than-not threshold represents a positive assertion by us that our
      company is entitled to the economic benefits of a tax position. If a tax
      position is not considered more-likely-than-not to be sustained based solely
      on
      its technical merits, no benefits of the position are to be recognized.
      Moreover, the more-likely-than-not threshold must continue to be met in each
      reporting period to support continued recognition of a benefit. At adoption,
      companies must adjust their financial statements to reflect only those tax
      positions that are more-likely-than-not to be sustained as of the adoption
      date.
      Any necessary adjustment would be recorded directly to retained earnings in
      the
      period of adoption and reported as a change in accounting principle. We adopted
      the provisions of FIN 48 on June 1, 2007. Pursuant to our adoption of FIN 48
      on
      June 1, 2007, we recorded a net decrease of $366 to retained earnings. See
      Note
      10 for more information.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, *Fair
      Value Measurements* ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
      measuring fair value and expands disclosure requirements about fair value
      measurements. This Statement is effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years. We will be
      required to adopt the provisions of SFAS 157 beginning with our first
      quarter of fiscal 2009. We are currently evaluating the impact of adopting
      SFAS 157 on our financial condition or results of operations.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ("SFAS
      159"). This Statement permits entities to choose to measure many financial
      assets and financial liabilities at fair value. Unrealized gains and losses
      on
      items for which the fair value option has been elected are reported in earnings.
      SFAS 159 is effective for fiscal years beginning after November 15, 2007. We
      will be required to adopt the provisions of SFAS 159 beginning with our
      first quarter of fiscal 2009. We do not anticipate that the adoption of SFAS
      159
      will have a material effect on our financial condition or results of
      operations.




Page
          6


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




In
      December 2007, the FASB issued SFAS No. 141(R),*Business
      Combinations*(“SFAS
      141R”). SFAS 141R replaces SFAS No. 141,*Business
      Combinations*,
      and
      provides greater consistency in the accounting and financial reporting of
      business combinations. SFAS 141R requires that the acquiring entity in a
      business combination recognize all assets acquired and liabilities assumed
      in
      the transaction, establishes the acquisition-date fair value as the measurement
      objective for all assets acquired and liabilities assumed, establishes
      principles and requirements for how an acquirer recognizes and measures any
      non-controlling interest in the acquiree and the goodwill acquired, and requires
      the acquirer to disclose the nature and financial effect of the business
      combination. Among other changes, this statement also requires that “negative
      goodwill” be recognized in earnings as a gain attributable to the acquisition,
      that acquisition-related costs are to be recognized separately from the
      acquisition and expensed as incurred and that any deferred tax benefits
      resulting from a business combination be recognized in income from continuing
      operations in the period of the combination or directly in contributed capital,
      depending on the circumstances. SFAS 141R is effective for fiscal years
      beginning on or after December 15, 2008. We will be required to adopt the
      provisions of SFAS 141R beginning with our first quarter of fiscal 2010. We
      do not anticipate that the adoption of SFAS 141R will have a material effect
      on
      our financial condition or results of operations.




In
      December 2007, the FASB issued SFAS No. 160, *Non-controlling
      Interests in Consolidated Financial Statements* (“SFAS
      160”). SFAS 160 amends Accounting Research Bulletin 51 *,
      Consolidated Financial Statements* ,
      to
      establish accounting and reporting standards for the non-controlling interest
      in
      a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
      that
      a non-controlling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. SFAS 160 also changes the way the consolidated income
      statement is presented by requiring consolidated net income to be reported
      at
      amounts that include the amounts attributable to both the parent and the
      non-controlling interest. It also requires disclosure, on the face of the
      consolidated statement of income, of the amounts of consolidated net income
      attributable to the parent and to the non-controlling interest. SFAS 160
      requires that a parent recognize a gain or loss in net income when a subsidiary
      is deconsolidated and requires expanded disclosures in the consolidated
      financial statements that clearly identify and distinguish between the interests
      of the parent owners and the interests of the non-controlling owners of a
      subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within
      those fiscal years, beginning on or after December 15, 2008. We will be required
      to adopt the provisions of SFAS 160 beginning with our first quarter of
      fiscal 2010. We do not anticipate that the adoption of SFAS No. 160 will have
      a
      material effect on our financial condition or results of operations.




**Note
      2: Cash and cash equivalents and investments**




We
      consider highly liquid investments with maturities of three months or less
      at
      the date of purchase to be cash equivalents. Cash equivalents consist primarily
      of AAA-rated money market funds in all periods presented. Investments consist
      of
      available-for-sale investment-grade debt securities that we carry at fair value.
      Except for direct obligations of the United States government, securities issued
      by agencies of the United States government, and money market or cash management
      funds, we diversify our investments by limiting our holdings with any individual
      issuer.




We
      accumulate unrealized gains and losses on our available-for-sale debt
      securities, net of tax, in accumulated other comprehensive income in the
      shareholders’ equity section of our balance sheets. Such an unrealized loss does
      not reduce net income for the applicable accounting period. There were no gross
      unrealized gains and losses on our available-for-sale debt securities at
      February 29, 2008 and May 31, 2007. We held no available-for-sale debt
      securities that were in an unrealized loss position at February 29, 2008.





We
      include realized gains and losses on our available-for-sale debt securities
      in
      interest and other income in our statements of operations. There were no gross
      realized gains and losses on our available-for-sale debt securities for the
      three and nine months ended February 29, 2008 and February 28, 2007.





At
      February 29, 2008, we held $23.6 million in auction rate securities (“ARS”),
      which we classify as investments. Our ARS are long-term debt instruments backed
      by student loans, substantially all of which are
      guaranteed by the United States government. All of our ARS have credit ratings
      of AAA or Aaa, and none are mortgage-backed debt obligations. Historically,
      our
      ARS have been highly liquid, using a
      Dutch
      auction process that resets the applicable interest rate at predetermined
      intervals, typically every 35 days, to provide liquidity at par. However,
      a s
      a
      result of liquidity issues in the global
      credit and capital markets ,
      the
      auctions for all of our ARS failed beginning in February 2008 when sell
      orders exceeded buy orders. The
      failures of these auctions do not affect the value of the collateral underlying
      the ARS, and we continue to earn and receive interest on our ARS at
      contractually set rates ( an
      average of 200 basis points higher
      than the interest rates earned prior to auction failures). Based on these
      considerations and the fair market values provided by our independent broker
      as
      of February 29, 2008, we do
      not
      believe our ARS were impaired at
      February 29, 2008 and therefore continued to carry them at par (see “Note
      12”) . However,
      we will not be able to liquidate our ARS
      until
      the issuer calls the security, a successful auction occurs, a buyer is found
      outside of the auction process or the security matures.




Page
          7


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




**Note
      3: Stock Options and Equity Incentive Plan**





We
      have
      an Equity Incentive Plan that authorizes the Board of Directors to grant
      incentive and non-statutory stock option grants, stock appreciation rights,
      restricted stock awards and performance unit per share awards covering a maximum
      of 3,004 shares of our common stock. The Equity Incentive Plan replaced our
      Stock Option Plans (those Stock Option Plans, together with the Equity Incentive
      Plan, the “Plans”) in October 2005, although incentive stock options and
      non-statutory stock options previously granted to directors, officers and
      consultants under the Stock Option Plans remain in effect according to their
      terms. Pursuant to the Plans, we have granted incentive and non-statutory
      options to directors, officers and key employees at prices not less than 100%
      of
      the fair market value on the day of grant. Options are exercisable at various
      dates over a five-year or ten-year period from the date of grant. The Plans
      provide for a variety of vesting dates with the majority of the options vesting
      at a rate of one-third per year over a period of three years or one-fourth
      per
      year over a period of four years from the date of grant.





The
      following table represents stock option activity for the nine months ended
      February 29, 2008:





Shares
            
            
            Weighted
                Average Exercise Price
            
            
            Weighted
                Average Remaining Contractual Term (in years)
            
            
            Aggregate
                Intrinsic
              ValueOutstanding
                at May 31, 2007
            
            
            663
            
            $
            9.89Granted
            
            
            -
            
            
            -Exercised
            
            
            (131
            )
            
            9.32Forfeited/Cancelled
            
            
            (5
            )
            
            13.12Outstanding
                at February 29, 2008
            
            
            527
            
            $
            9.99
            
            
            1.70
            
            $
            1,757Vested
                and expected to vest at February 29, 2008
            
            
            524
            
            $
            9.95
            
            
            1.69
            
            $
            1,757Exercisable
                at February 29, 2008
            
            
            501
            
            $
            9.62
            
            
            1.60
            
            $
            1,755




There
      were no stock option grants during the three and nine months ended February
      29,
      2008, compared to 56 stock option grants for the three and nine months ended
      February 28, 2007. The per share weighted average grant date fair value was
      $6.26 for the stock options granted during the three and nine months ended
      February 28, 2007.  The
      total
      fair value of shares vested during the three and nine months ended February
      29,
      2008 was $0 and $765, respectively, compared to $68 and $901 for the three
      and
      nine months ended February 28, 2007, respectively. The aggregate intrinsic
      value
      of options exercised is calculated as the difference between the exercise price
      of the underlying awards and the quoted price of our common stock, and was
      $86
      and $624 during the three and nine months ended February 29, 2008, respectively,
      compared to $1,709 and $2,839 for the three and nine months ended February
      28,
      2007, respectively. As of February 29, 2008 there was approximately $107 of
      total unrecognized compensation cost related to unvested share-based
      arrangements granted under our Plans. The cost is expected to be recognized
      over
      a weighted-average period of 1.28 years. Shares of newly issued common stock
      will be issued upon exercise of stock options.





Page
          8


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


*Stock-Based
      Compensation*





We
      account for stock-based compensation in accordance with SFAS No. 123R, *Share-Based
      Payment* ,
      (“SFAS
      123R”) which requires all share-based payments to employees, including grants of
      employee stock options, to be recognized as compensation expense in the
      consolidated financial statements based on their fair values. Compensation
      expense is recognized over the period that an employee provides service in
      exchange for the award.





We
      use
      the Black-Scholes option pricing model to calculate the fair-value of each
      option grant. Our computation of expected volatility is based on historical
      volatility. Our computation of expected term is determined based on historical
      experience of similar awards, giving consideration to the contractual terms
      of
      the stock-based awards, vesting schedules and expectations of future employee
      behavior. The expected term represents the period that our stock-based awards
      are expected to be outstanding and was determined based on historical experience
      of similar awards. The risk-free interest rate is based on U.S. Treasury
      zero-coupon issues with a term equal to the expected term of the option at
      the
      date of grant. Forfeitures are estimated at the date of grant based on
      historical experience.





The
      following weighted average assumptions were used for each respective period
      to
      value option grants:





Three
                Months Ended
              February
                28, 2007
            
            
            Nine
                Months Ended
              February
                28, 2007Risk-free
                interest rate
            
            
            -
            
            
            4.7
            %Expected
                life (in years)
            
            
            -
            
            
            3.5Expected
                dividend yield
            
            
            -
            
            
            -Expected
                volatility
            
            
            -
            
            
            40.2
            %





There
      were no stock options granted in the three and nine months ended February 29,
      2008.





We
      recorded $24 and $176 of stock-based compensation as part of selling, general
      and administrative expenses for the three and nine months ended February 29
      2008, respectively, compared to $217 and $628 for the three and nine months
      ended February 28, 2007, respectively. This compensation cost caused net income
      to decrease by $16 and $128 for the three and nine months ended February 29,
      2008, respectively, compared to $174 and $509 for the three and nine months
      ended February 28, 2007, respectively, and did not have a material impact on
      basic or diluted earnings per share.





We
      receive a tax deduction for certain stock option exercises during the period
      the
      options are exercised, generally for the excess of the fair value of stock
      at
      the date of exercise over the exercise price of the options. Excess tax benefits
      are realized tax benefits from tax deductions for exercised options in excess
      of
      the deferred tax asset attributable to stock compensation costs for such
      options. The total tax benefit realized from stock option exercises for the
      nine
      months ended February 29, 2008 and February 28, 2007 was $149 and $862,
      respectively. Cash received from stock option exercises was $1,240 and $3,391
      for the nine months ended February 29, 2008 and February 28, 2007,
      respectively.





**Note
      4: Acquisition**





On
      January 31, 2006, we completed the acquisition, pursuant to a Stock Purchase
      Agreement (“SPA”), of Rush Computer Rentals, Inc. ("Rush"), in order to
      facilitate the growth of our data products business. Rush was similar to our
      existing data products business, and was one of the leading providers of
      personal computers and related equipment for rent or sale in the northeastern
      United States. Before taking into account Rush's cash balance, an aggregate
      purchase price of $9,710 was paid in cash. In addition, up to $1,000 of
      contingent consideration was to be paid to the shareholders of Rush based upon
      the achievement of certain revenue objectives. $750 of this additional
      consideration was paid in the fourth quarter of fiscal 2007, and an additional
      $250 was accrued in the nine months ended February 29, 2008. The purchase price,
      subject to post-closing adjustments, was allocated to the net assets acquired
      based upon their fair values as of the date of the transaction, with the excess
      recorded as goodwill.





During
      fiscal 2007 we increased the carrying value of goodwill by $776, consisting
      of
      (i) $570 resulting from our final valuation of certain assets acquired and
      costs
      incurred to acquire Rush, including revisions to certain assumptions used to
      determine the value of the intangible assets acquired from Rush, and (ii)
      purchase price adjustments of $206. The purchase price adjustments consisted
      of
      (i) $750 of additional consideration we paid in accordance with the revenue
      earnout provisions contained in the SPA, offset by (ii) settlements received
      totaling $544. Included in the settlements were $102 in post-closing adjustments
      to the seller’s closing date balance sheet and $442 related to certain claims
      for losses due to breach of specific representations and warranties included
      in
      the SPA.




Page
          9


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


We
      increased the carrying value of goodwill by $250 in the first nine months of
      fiscal 2008 in accordance with the revenue earnout provisions contained in
      the
      SPA.





The
      results of operations of Rush have been included in our statements of income
      from the date of the acquisition.





**Note
      5: Goodwill and Intangibles**





As
      a
      result of the Rush acquisition, we recorded $2,083 of goodwill and $2,297 of
      intangibles in fiscal 2006. As of February 29, 2008, the carrying amount of
      goodwill was $3,109.





The
      changes in carrying amount of goodwill and other intangible assets for the
      nine
      months ended February 29, 2008 are as follows:





Balance
                as of June 1, 2007 (net of amortization)
            
            
            Adjustments
            
            
            Amortization
            
            
            Balance
                as of February 29, 2008Goodwill
            
            $
            2,859
            
            $
            250
            
            $
            -
            
            $
            3,109Trade
                Name
            
            
            411
            
            
            -
            
            
            -
            
            
            411Non-compete
                agreements
            
            
            533
            
            
            -
            
            
            (242
            )
            
            291Customer
                relationships
            
            
            627
            
            
            -
            
            
            (176
            )
            
            451$
            4,430
            
            $
            250
            
            $
            (418
            )
            $
            4,262





The
      goodwill and intangibles have been assigned to our computer-related data
      products (“DP”) operating segment. During fiscal 2007 and the first nine months
      of fiscal 2008, we revised the gross carrying value of goodwill and intangibles
      primarily as a result of additional purchase price consideration and final
      valuation of certain assets acquired and costs incurred to acquire Rush (see
      "Note 4"). Goodwill is not deductible for tax purposes.





We
      were
      aware of no conditions that indicated any impairment of goodwill or identifiable
      intangible assets as of February 29, 2008 or May 31, 2007. The annual impairment
      review date for goodwill and intangible assets is May 31.





Intangible
      assets with finite useful lives are amortized over their respective estimated
      useful lives. The following table provides a summary of our intangible assets:




February
                29, 2008Estimated
                Useful Life
            
            
            Gross
                Carrying Amount
            
            
            Accumulated
              Amortization
            
            
            Net
                Carrying
              AmountTrade
                name
            
            
            -
            
            $
            411
            
            $
            -
            
            $
            411Non-compete
                agreements
            
            
            2-5
                years
            
            
            1,050
            
            
            (759
            )
            
            291Customer
                relationships
            
            
            3-4
                years
            
            
            1,014
            
            
            (563
            )
            
            451$
            2,475
            
            $
            (1,322
            )
            $
            1,153




Page
          10


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




May
                31, 2007Estimated
                Useful Life
            
            
            Gross
                Carrying Amount
            
            
            Accumulated
              Amortization
            
            
            Net
                Carrying
              AmountTrade
                name
            
            
            -
            
            $
            411
            
            $
            -
            
            $
            411Non-compete
                agreements
            
            
            2-5
                years
            
            
            1,050
            
            
            (517
            )
            
            533Customer
                relationships
            
            
            3-4
                years
            
            
            1,014
            
            
            (387
            )
            
            627$
            2,475
            
            $
            (904
            )
            $
            1,571





Amortization
      expense was $125 and $418 for the three and nine months ended February 29,
      2008,
      respectively, compared to $153 and $464 for the three and nine months ended
      February 28, 2007, respectively.





Amortization
      expense for customer relationships and non-compete agreements is included in
      selling, general and administrative expenses. The following table provides
      estimated future amortization expense related to intangible assets:





Year
                ending May 31,
            
            
            Future
              Amortization2008
            
            $
            842009
            
            
            3352010
            
            
            2572011
            
            
            662012
            
            
            -$
            742





**Note
      6: Noncash Investing and Financing Activities**





We
      had
      accounts payable and other accruals related to acquired equipment totaling
      $6,100 and $8,844 as of February 29, 2008 and May 31, 2007, respectively, and
      $6,010 and $9,396 as of February 28, 2007 and May 31, 2006, respectively, which
      amounts were paid in following periods. We accrued $3,891 and $2,580 for
      dividends declared and not yet paid in accrued expenses and as a reduction
      of
      retained earnings as of February 29, 2008 and May 31, 2007, respectively, which
      amounts were paid in the following periods. There were no comparable amounts
      for
      the prior year periods.





**Note
      7: Sales-type Leases**





We
      have
      certain customer leases providing bargain purchase options, which are accounted
      for as sales-type leases. Interest income is recognized over the life of the
      lease using the effective interest method. The minimum lease payments receivable
      and the net investment included in other assets for such leases are as
      follows:





February
                29,
              2008
            
            
            May
                31,
              2007Gross
                minimum lease payments receivable
            
            $
            895
            
            $
            818Less
                - unearned interest
            
            
            (60
            )
            
            (55
            )Net
                investment in sales-type lease receivables
            
            $
            835
            
            $
            763





**Note
      8: Segment Reporting and Related Disclosures**





SFAS
      No.
      131, *Disclosure
      about Segments of an Enterprise and Related Information* (“SFAS
      131”), establishes annual and interim reporting standards for an enterprise’s
      operating segments and related disclosures about its products, services,
      geographic areas and major customers. According to SFAS 131, operating segments
      are defined as components of an enterprise for which separate financial
      information is available that is evaluated regularly by the chief operating
      decision maker in deciding how to allocate resources and in assessing
      performance. In order to determine our operating segments, we considered the
      following guidance in accordance with SFAS 131: An operating segment is a
      component of an enterprise (i) that engages in business activities from which
      it
      may earn revenues and incur expenses, (ii) whose operating results are regularly
      reviewed by the enterprise’s chief operating decision maker to make decisions
      about resources to be allocated to the segment and assess its performance,
      and
      (iii) for which discrete financial information is available. In accordance
      with
      this guidance, we have identified two operating segments: the rental, lease
      and
      sale of test and measurement (“T&M”) and DP equipment.




Page
          11


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




Although
      we have separate operating segments for T&M and DP equipment under SFAS 131,
      these two segments are aggregated into a single reportable segment because
      they
      have similar economic characteristics and qualitative factors. The T&M and
      DP segments have similar long-term average gross margins, and they both rent,
      lease and sell electronic equipment to large corporations, purchase directly
      from major manufacturers, configure and calibrate the equipment, and ship
      directly to customers.





Our
      equipment pool, based on acquisition cost, comprised $279,643 of T&M
      equipment and $44,285 of DP equipment at February 29, 2008 and
      $259,839  of
      T&M equipment and $42,131of DP equipment at May 31, 2007.





Revenues
      for these product groups were as follows for the three months ended February
      29,
      2008 and February 28, 2007.





T&M
            
            
            DP
            
            
            Total2008Rentals
                and leases
            
            $
            20,726
            
            $
            5,518
            
            $
            26,244Sales
                of equipment and other revenues
            
            
            8,288
            
            
            685
            
            
            8,973$
            29,014
            
            $
            6,203
            
            $
            35,217




2007Rentals
                and leases
            
            $
            19,165
            
            $
            5,551
            
            $
            24,716Sales
                of equipment and other revenues
            
            
            5,456
            
            
            518
            
            
            5,974$
            24,621
            
            $
            6,069
            
            $
            30,690





Revenues
      for these product groups were as follows for the nine months ended February
      29,
      2008 and February 28, 2007.





T&M
            
            
            DP
            
            
            Total2008Rentals
                and leases
            
            $
            63,492
            
            $
            17,621
            
            $
            81,113Sales
                of equipment and other revenues
            
            
            21,358
            
            
            1,796
            
            
            23,154$
            84,850
            
            $
            19,417
            
            $
            104,267




2007Rentals
                and leases
            
            $
            58,079
            
            $
            17,839
            
            $
            75,918Sales
                of equipment and other revenues
            
            
            14,309
            
            
            2,027
            
            
            16,336$
            72,388
            
            $
            19,866
            
            $
            92,254





No
      single
      customer accounted for more than 10% of total revenues during either the first
      nine months of fiscal 2008 or fiscal 2007.





Page
          12


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




Selected
      country information is presented below:





Three
                Months Ended
            
            
            Nine
                Months EndedFebruary
                29,
              2008
            
            
            February
                28,
              2007
            
            
            February
                29,
              2008
            
            
            February
                28,
              2007Revenues:
                (1)U.S.
            
            $
            30,784
            
            $
            26,920
            
            $
            88,745
            
            $
            81,696Other
                (2)
            
            
            4,433
            
            
            3,770
            
            
            15,522
            
            
            10,558Total
            
            $
            35,217
            
            $
            30,690
            
            $
            104,267
            
            $
            92,254




February
                29,
              2008
            
            
            May
                31,
              2007Net
                Long-Lived Assets: (3)U.S.
            
            
            
            
            
            
            
            $
            164,918
            
            $
            158,377Other
                (2)
            
            
            
            
            
            
            
            
            21,613
            
            
            22,849Total
            
            
            
            
            
            
            
            $
            186,531
            
            $
            181,226





(1)
      Revenues by country are based on the location of shipping destination, and
      not
      whether the order originates in the U.S. parent or a foreign
      subsidiary.





(2)
      Other
      consists of other foreign countries that each individually account for less
      that
      10% of the total revenues or assets.





(3)
      Net
      long-lived assets include rental and lease equipment, other property, goodwill
      and intangibles, net of accumulated depreciation and amortization.





**Note
      9: Computation of Earnings Per Share**





The
      following is a reconciliation of the denominator used in the computation of
      basic and diluted EPS for the three and nine months ended February 29, 2008
      and
      February 28, 2007:





Three
                Months Ended
            
            
            Nine
                Months EndedFebruary
                29, 2008
            
            
            February
                28,
              2007
            
            
            February
                29,
              2008
            
            
            February
                28,
              2007Denominator:Denominator
                for basic earnings per share - weighted average common shares outstanding
            
            
            25,934
            
            
            25,808
            
            
            25,897
            
            
            25,654Effect
                of dilutive securities-options (1)
            
            
            158
            
            
            323
            
            
            173
            
            
            38226,092
            
            
            26,131
            
            
            26,070
            
            
            26,036Net
                income
            
            $
            4,844
            
            $
            5,198
            
            $
            15,894
            
            $
            14,881Earnings
                per share:Basic
            
            $
            0.19
            
            $
            0.20
            
            $
            0.61
            
            $
            0.58Diluted
            
            $
            0.19
            
            $
            0.20
            
            $
            0.61
            
            $
            0.57





(1)
      Excludes 41 options outstanding during the three and nine months ended February
      29, 2008, respectively, and 56 options outstanding during the three and nine
      months ended February 28, 2007, respectively, for which the exercise price
      exceeded the average market price of our stock during that period.





Page
          13


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




**Note
      10: Income Taxes**





On
      June
      1, 2007, we adopted the provisions of FIN 48. FIN 48 establishes a single model
      to address the accounting for uncertain tax positions.  Specifically, FIN
      48 prescribes a recognition threshold that a tax position is required to meet
      before being recognized in the financial statements and provides guidance on
      derecognition, measurement, classification, interest and penalties, accounting
      in interim periods, disclosure and transition issues.




We
      applied FIN 48 to all open tax positions as of June 1, 2007. The total amount
      of
      unrecognized tax benefits as of the date of its adoption was $4,260. As a result
      of the implementation of FIN 48, we recognized a $3,911 increase in the
      liability for unrecognized tax benefits which was accounted for as follows:


Reduction
                  in retained earnings (cumulative effect)
              
              $
              366Additional
                  deferred tax assets
              
              
              3,545Increase
                  in liability
              
              $
              3,911





Included
      in the balance of unrecognized tax benefits at June 1, 2007, are $715 of tax
      benefits that, if recognized, would affect the effective tax rate.





We
      recognize interest and penalties accrued with respect to uncertain tax positions
      as components of our income tax provision. We had approximately $349 for the
      payment of interest and penalties as of May 31, 2007. Upon adoption of FIN
      48 on
      June 1, 2007 we increased our accrual for interest and penalties to
      $1,141.




We
      are
      subject to taxation in the U.S., various states and foreign jurisdictions.
      We
      have substantially settled all income tax matters for the United States federal
      jurisdiction for years through fiscal 2005, and we are currently under
      examination for fiscal 2006. Major state jurisdictions have been examined
      through fiscal years 2004 and 2005, and foreign jurisdictions have not been
      examined for their respective maximum statutory periods.





There
      were no additional unrecognized tax benefits for the nine months ended February
      29, 2008. We anticipate no significant increase or decrease in the total amounts
      of unrecognized tax benefits within 12 months of the date of this
      report.





**Note
      11: Commitments and Contingencies**





We
      purchase substantial amounts of rental equipment from numerous vendors. As
      a
      result, we have occasionally been included as a member of the plaintiff class
      in
      class action lawsuits related to product warranties or price adjustments.
      Settlements of such claims can result in distributions of cash or product
      coupons that can be redeemed, sold or used to purchase new equipment. We
      recognize any benefits from such settlements when all contingencies have expired
      to the extent either cash has been received and/or realization of value from
      any
      coupon is assured.




We
      are
      subject to legal proceedings and business disputes involving ordinary and
      routine claims. The ultimate legal and financial liability with respect to
      such
      matters generally cannot be estimated with certainty and requires the use of
      estimates in recording liabilities for potential litigation settlements.
      Estimates for losses from litigation are made after consultation with outside
      counsel. If estimates of potential losses increase or the related facts and
      circumstances change in the future, we may be required to record either more
      or
      less litigation expense. We are not involved in any pending or threatened legal
      proceedings, other than routine legal proceedings and claims incidental to
      our
      business, that we believe could reasonably be expected to have a material
      adverse effect on our financial condition or results of operations.





**Note
      12: Subsequent Event**





On
      April
      1, 2008, our independent broker informed us that it developed a model that
      estimated the fair market value of our ARS as of March 31, 2008 to be $0.8
      million lower than the $23.6 million we reported as of February 29, 2008,
      primarily due to their lack of liquidity. In determining a discount factor
      for
      each ARS, the model weighted various factors, including their high credit
      quality, maturity, probability to be called, lack of liquidity and comparable
      securities of the issuer, if any. Also, our broker confirmed that par prices
      reported for our ARS at February 29, 2008 are still valid. We consider declines
      in ARS fair market values due to lack of liquidity to be a temporary impairment
      that will be recorded as an unrealized loss in the shareholders’ equity section
      of our balance sheets in future periods.




Page
          14


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


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





The
      following discussion addresses our financial condition as of February 29, 2008
      and May 31, 2007 and the results of our operations for the three and nine months
      ended February 29, 2008 and February 28, 2007, and cash flows for the nine
      month
      periods ended February 29, 2008 and February 28, 2007. This discussion should
      be
      read in conjunction with the Management's Discussion and Analysis section
      included in our 2007 Annual Report on Form 10-K (pages 10-17) to which the
      reader is directed for additional information and the Risk Factors discussed
      in
      Item 1A of that Report.





**Overview**





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





For
      the
      first nine months of fiscal 2008, 78% of our rental and lease revenues were
      derived from T&M equipment. This percentage has increased from the prior
      year period primarily as a result of growth in our foreign subsidiaries which
      derive their rental and lease revenues from T&M equipment and growth in
      T&M activity in the aerospace and defense, telecommunications and
      electronics markets.





For
      the
      first nine months of fiscal 2008, rental revenues comprised 83% of our rental
      and lease revenue. That percentage has increased over the last two years due
      to
      an increase in T&M rental activity in our U.S. and foreign operations, while
      lease revenues have remained relatively unchanged.





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





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


·
              Our
                  acquisition cost;
 ·
              Our
                  estimates of current and future market demand for
                  rentals;
 ·
              Our
                  estimates of current and future supply of
                  product;
 ·
              The
                  book value of the product after depreciation and other
                  impairment;
 ·
              Our
                  estimates of the effect of interest rates on rental and leasing
                  fees as
                  well as capital financing; and
 ·
              Our
                  estimates of the potential current and future sale
                  prices.




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




Page
          15


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




When
      the
      U.S. and global economy began to rebound in fiscal 2004, we saw increased demand
      for our equipment, and were able to sell equipment that was older and more
      fully
      depreciated. Due in part to these events, we experienced greater than normal
      gross margin on equipment sales of 46% for our 2006 fiscal year and 47% for
      our
      2007 fiscal year. Based on our current equipment management strategy, we believe
      that future gross margin on sales will decline as lower margin distribution
      sales continue to grow, although the gross margin percentage will fluctuate
      on a
      quarterly basis. Our gross margin on sales for the three and nine months ended
      February 29, 2008 was 34% and 37%, respectively, compared to 47% and 49%,
      respectively, for the three and nine months ended February 28, 2007.




We
      generally measure our overall level of profitability with the following
      metrics:


·
              Net
                  income per diluted common share
                  (EPS);
 ·
              Net
                  income as a percentage of average assets;
                  and
 ·
              Net
                  income as a percentage of average
                  equity.




**STRATEGIC
      GROWTH PLANS**





In
      recent
      periods, we have seen some recovery of our business from its significant
      contraction during the early part of this decade. Although we reduced our
      expenses to maintain profitability during the contraction, we believe that
      our
      resources and financial infrastructure remain capable of handling a
      significantly greater volume of business activity without a proportionate
      increase in expenses. Based on this belief, we have been seeking ways to
      increase revenues to leverage that infrastructure. These strategies
      include:





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


·
              We
                  have entered into distribution agreements with three leading manufacturers
                  for a range of basic T&M
                  equipment.
 ·
              We
                  have re-focused our DP marketing approach to emphasize short-term,
                  event-oriented rentals in addition to our traditional
                  markets.
 ·
              We
                  have been marketing a flexible leasing program that allows customers
                  to
                  build equity that can be applied against the future purchase of
                  the test
                  equipment.




ACQUISITION
      GROWTH STRATEGIES: We are also seeking to grow through acquisitions.
      Acquisitions can permit us to rapidly add revenues, as well as to expand into
      new geographical areas and/or markets. In addition to the acquisition of the
      Belgian company mentioned below, on January 31, 2006, we completed the
      acquisition of Rush Computer Rentals, Inc., a private company with annual
      revenue of approximately $10 million from the rental and sale of a wide range
      of
      personal computers and related equipment to customers located primarily in
      the
      northeastern United States.





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


·
              Our
                  wholly owned subsidiary in Tianjin, China, commenced operations
                  in June
                  2005 after we received what we believe to be one of the first licenses
                  for
                  a wholly foreign-owned equipment rental business in
                  China.
 ·
              In
                  September 2005, we acquired a small T&M equipment rental company based
                  in Belgium, from which we service the European
                  market.




The
      financial results of our foreign operations have improved for the first nine
      months of fiscal 2008, compared to the same period in the prior year, and our
      operations in both China and Europe have contributed to the growth in our
      operating profit and net income.




Page
          16


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




Although
      our strategic initiatives have contributed to our improved operating results
      for
      the nine months ended February 29, 2008, compared to the nine months ended
      February 28, 2007, each entails risks that could impact our continuing business
      results over the long term. In addition to the risks associated with our core
      operations, there are special risks associated with international operations
      and
      with acquisitions, as well as with growth in general. Recent uncertainty in
      the
      U.S. economy as a result of more stringent credit requirements and access to
      capital may adversely affect our customers. While we have experienced improved
      results since 2004 as noted above, no assurance can be given regarding the
      length or extent of the recovery, and no assurance can be given that our rental
      and lease utilization, operating results and net income will not be adversely
      affected by the reversal of recent trends. For a more detailed summary of some
      of the risks associated with these and other factors, please see the Risk
      Factors discussed in Item 1A of our 2007 Annual Report on Form
      10-K.





**PROFITABILITY
      AND KEY BUSINESS TRENDS**





For
      the
      first nine months of fiscal 2008 compared to the prior year period, our revenues
      rose by 13% to $104.3 million, our operating profit increased by 13.1% to $23.0
      million and our net income increased by 6.8% to $15.9 million. Our revenue
      growth included growth in our base business as well as in our international
      markets in China and Europe. T&M rental and lease activity for the first
      nine months of fiscal 2008 increased compared to the prior year period,
      reflecting gains in the aerospace and defense, telecommunications and
      electronics markets, and growth in our foreign operations. While our DP rental
      and lease activity for the same period also increased, our DP rental and lease
      revenue declined slightly as a result of our decision to discontinue certain
      business with relatively low profitability, and lower rental rates in the first
      nine months of fiscal 2008. Our profitability measurements are presented in
      the
      table below for the nine months ended February 29, 2008 and February 28, 2007:


2008
              
              
              2007Net
                  income per diluted common share (EPS)
              
              $
              0.61
              
              $
              0.57Net
                  income as a percentage of average assets
              
              
              7.3
              %
              
              7.4
              %Net
                  income as a percentage of average equity
              
              
              8.7
              %
              
              8.7
              %




The
      increase in our operating profit reflects progress in improving the
      profitability of the Rush business, growing T&M rentals in the U.S., and
      leveraging the existing infrastructure in our U.S. and foreign operations,
      offset in part by growth of lower margin distribution sales.





The
      amount of our equipment on rent, based on acquisition cost, increased to $151.0
      million at February 29, 2008 from $135.5 million at February 28, 2007.
      Acquisition cost of equipment on lease decreased to $38.7 million at February
      29, 2008 from $41.7 million at February 28, 2007. Utilization for our T&M
      equipment pool, based on acquisition cost of equipment on rent and lease
      compared to the total pool, was 62.7% at February 29, 2008 compared to 66.1%
      at
      February 28, 2007. Over the same period, utilization of our DP equipment pool
      decreased to 55.1% from 56.1%.




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





Three
                Months EndedFeb
                 29, 2008
            
            
            Nov
                30, 2007
            
            
            Aug
                31, 2007
            
            
            May
                31, 2007
            
            
            Feb.
                28, 2007Rentals
                and leases
            
            $
            26,244
            
            $
            27,425
            
            $
            27,444
            
            $
            27,165
            
            $
            24,716Sales
                of equipment and other revenues
            
            
            8,973
            
            
            7,431
            
            
            6,750
            
            
            5,832
            
            
            5,974Operating
                profit
            
            
            6,929
            
            
            8,237
            
            
            7,856
            
            
            8,648
            
            
            6,060





**Critical
      Accounting Policies and Estimates**




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




Page
          17


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




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




We
      identified certain critical accounting policies which affect certain of our
      more
      significant estimates and assumptions used in preparing our consolidated
      financial statements in our Annual Report on Form 10-K for the year ended
      May 31, 2007. We have not made any material changes to these policies as
      previously disclosed.





**Results
      of Operations**





**Comparison
      of Three Months Ended February 29, 2008 and February 28,
      2007**





**Revenues**





Total
      revenues for the three months ended February 29, 2008 rose $4.5 million, or
      14.8%, to $35.2 million, compared to $30.7 million in the same period in the
      prior year. The increase in total revenues was due to a 6.2% increase in rental
      and lease revenues and a 50.2% increase in sales of equipment and other
      revenues.





Rental
      and lease revenues in the third quarter of fiscal 2008 were $26.2 million,
      compared to $24.7 million in the prior year period. This increase is the result
      of growth in our foreign operations and higher demand for T&M equipment in
      our major markets, including aerospace and defense, telecommunications and
      electronics.




Sales
      of
      equipment and other revenues increased to $9.0 million for the three months
      ended February 29, 2008 compared to $6.0 million in the prior year period.
      In
      part, this reflects the results of our strategic initiative outlined above
      relating to distribution sales. Gross margin on sales increased to $2.8 million
      in the third quarter of fiscal 2008 as compared to $2.5 million a year ago,
      while the gross margin percentage decreased to 33.7% for the third quarter
      of
      fiscal 2008 compared to 46.7% for the third quarter of fiscal 2007. As noted
      above, our gross margin percentage decreased due to an increase in our lower
      margin distribution sales.





**Operating
      Expenses**





Depreciation
      of rental and lease equipment increased to $11.3 million, or 42.9% of rental
      and
      lease revenues, in the third quarter of fiscal 2008, from $11.1 million, or
      44.9% of rental and lease revenues, in the third quarter of fiscal 2007. The
      increased depreciation expense in fiscal 2008 is due to a higher average rental
      and lease equipment pool, while the decreased depreciation ratio, as a
      percentage of rental and lease revenues, is due primarily to a non-cash
      impairment charge of $440,000 recorded to depreciation expense in the prior
      year
      period resulting from lower than projected demand for certain rental
      products.





Costs
      of
      revenues other than depreciation increased 79.8% to $6.7 million in the third
      quarter of fiscal 2008 from $3.7 million in the prior year period. Costs of
      revenues other than depreciation primarily includes the cost of equipment sales,
      which increased as a percentage of equipment sales to 66.3% in the third quarter
      of fiscal 2008 from 53.3% in the third quarter of fiscal 2007, reflecting
      increased distribution sales which carry a lower margin. As noted above, we
      expect that this number will fluctuate quarter-to-quarter, depending primarily
      on customer requirements and funding and growth in our distribution
      channel.





Selling,
      general and administrative expenses were $10.3 million in the third quarter
      of
      fiscal 2008, as compared to $9.8 million in the third quarter of fiscal 2007.
      SG&A expenses as a percentage of total revenues decreased to 29.3% in the
      third quarter of fiscal 2008 from 32.0% in the third quarter of fiscal 2007,
      as
      a result of our ability to increase revenues within our existing infrastructure.





Page
          18


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


**Interest
      Income, Net**





Net
      interest income was $0.9 million for the third quarter of fiscal 2008 compared
      to $1.0 million in the prior year period. The decrease reflects decreases in
      prevailing money-market interest rates.





**Income
      Tax Provision**





Our
      effective tax rate was 37.8% in the third quarter of fiscal 2008, compared
      to
      39.6% for the same period in fiscal 2007. The decrease is due primarily to
      the
      utilization of tax loss carryforwards for our European subsidiary and lower
      tax
      rates on earnings from our foreign subsidiaries.





**Results
      of Operations**





**Comparison
      of Nine Months Ended February 29, 2008 and February 28,
      2007**





**Revenues**





Total
      revenues for the nine months ended February 29, 2008 rose $12.0 million, or
      13.0%, to $104.3 million, compared to $92.3 million in the same period in the
      prior year. The increase in total revenues was due to a 6.8% increase in rental
      and lease revenues and a 41.7% increase in sales of equipment and other
      revenues.





Rental
      and lease revenues in the first nine months of fiscal 2008 were $81.1 million,
      compared to $75.9 million in the prior year period. This increase is the result
      of growth in our foreign operations and higher demand for T&M equipment in
      our major markets, including aerospace and defense, telecommunications and
      electronics.




Sales
      of
      equipment and other revenues increased to $23.2 million for the nine months
      ended February 29, 2008 compared to $16.3 million in the prior year period.
      In
      part, this reflects the results of our strategic initiative outlined above
      relating to distribution sales. Gross margin on sales increased to $7.7 million
      in the first nine months of fiscal 2008 as compared to $6.8 million a year
      ago,
      while the gross margin percentage decreased to 36.5% for the third quarter
      of
      fiscal 2008 compared to 48.5% for the first nine months of fiscal 2007. As
      noted
      above, our gross margin percentage decreased due to an increase in our lower
      margin distribution sales.





**Operating
      Expenses**





Depreciation
      of rental and lease equipment increased to $33.5 million, or 41.3% of rental
      and
      lease revenues, in the first nine months of fiscal 2008, compared to $31.5
      million, or 41.5% of rental and lease revenues, in the first nine months of
      fiscal 2007. The increased depreciation expense in fiscal 2008 is due to a
      higher average rental and lease equipment pool.





Costs
      of
      revenues other than depreciation increased 70.2% to $16.7 million in the first
      nine months of fiscal 2008 from $9.8 million in the prior year period. Costs
      of
      revenues other than depreciation primarily includes the cost of equipment sales,
      which increased as a percentage of equipment sales to 63.5% in the first nine
      months of fiscal 2008 from 51.5% in the first nine months of fiscal 2007,
      reflecting increased distribution sales. As noted above, we expect that this
      number will fluctuate quarter-to-quarter, depending primarily on customer
      requirements and funding and growth in our distribution channel.





Selling,
      general and administrative expenses increased slightly to $31.0 million in
      the
      first nine months of fiscal 2008, as compared to $30.6 million in the first
      nine
      months of fiscal 2007. SG&A expenses as a percentage of total revenues
      decreased to 29.8% in the first nine months of fiscal 2008 from 33.1% in the
      first nine months of fiscal 2007, as a result of our ability to increase
      revenues within our existing infrastructure.





**Interest
      Income, Net**





Net
      interest income was $2.6 million for the first nine months of fiscal 2008
      compared to $2.8 million in the prior fiscal year. The decrease reflects
      decreases in prevailing money-market interest rates.





Page
          19


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


**Income
      Tax Provision**





Our
      effective tax rate was 38.0% in the first nine months of fiscal 2008, compared
      to 39.9% for the same period in fiscal 2007. The decrease is due primarily
      to
      the utilization of tax loss carryforwards for our European subsidiary, and
      lower
      tax rates on earnings from our foreign subsidiaries.





**Liquidity
      and Capital Resources**





During
      the last three fiscal years, our primary capital requirements have been
      purchases of rental and lease equipment. We generally purchase equipment
      throughout each year to replace equipment that has been sold and to maintain
      adequate levels of rental equipment to meet existing and new customer demands.
      To meet increasing T&M rental demand, support areas of potential growth for
      both T&M and DP equipment and to keep our equipment pool technologically
      up-to-date, we made payments for the purchase of $55.5 million of rental and
      lease equipment during the first nine months of fiscal 2008. This amount was
      10.2% higher than the $50.4 million in the same period in the prior
      year.





In
      addition to increasing our rental equipment pool, we have in the past purchased
      shares of our common stock. Shares we repurchase are retired and returned to
      the
      status of authorized but unissued stock. During the nine months ended February
      29, 2008, we purchased 1,420 shares of our common stock for $19,000, at an
      average price of $13.48 per share. As of February 29, 2008, 956,000 shares
      of
      our common stock remain authorized for repurchase.





In
      July
      2007, we commenced payment of a quarterly cash dividend of $0.10 per common
      share. In January 2008, our board of directors approved an increase to $0.15
      per
      common share. For the nine months ended February 29, 2008, we paid dividends
      of
      $7.8 million. There was no dividend declared or paid in the prior year period.





On
      January 18, 2008 we declared and accrued a dividend of $0.15 per common share,
      or $3.9 million, payable on April 10, 2008. We expect to continue paying a
      quarterly dividend in future quarters, although the amount and timing of
      dividends, if any, will be made by our Board of Directors in each quarter,
      subject to compliance with applicable law.





At
      February 29, 2008, we held $23.6 million in auction rate securities (“ARS”),
      which we classify as investments. Our ARS are long-term debt instruments backed
      by student loans, substantially all of which are
      guaranteed by the United States government. All of our ARS have credit ratings
      of AAA or Aaa, and none are mortgage-backed debt obligations. Historically,
      our
      ARS have been highly liquid, using a
      Dutch
      auction process that resets the applicable interest rate at predetermined
      intervals, typically every 35 days, to provide liquidity at par. However,
      a s
      a
      result of liquidity issues in the global
      credit and capital markets ,
      the
      auctions for all of our ARS failed beginning in February 2008 when sell
      orders exceeded buy orders. The
      failures of these auctions do not affect the value of the collateral underlying
      the ARS, and we continue to earn and receive interest on our ARS at
      contractually set rates ( an
      average of 200 basis points higher
      than the interest rates earned prior to auction failures). Based on these
      considerations and the fair market values provided by our independent broker
      as
      of February 29, 2008, we do
      not
      believe our ARS were impaired at
      February 29, 2008 and therefore continued to carry them at par (see “Note
      12”) . However,
      we will not be able to liquidate our ARS
      until
      the issuer calls the security, a successful auction occurs, a buyer is found
      outside of the auction process or the security matures. In any case, given
      the approximately
      $58.3 million we hold in cash and cash equivalents, primarily U.S. Treasury
      money market funds, and our lack of bank debt, we expect to continue to finance
      our operations even if our ARS were to be illiquid for an extended period of
      time.





During
      the first nine months of fiscal 2008 and fiscal 2007, net cash provided by
      operating activities was $42.2 million and $37.4 million, respectively. The
      increase in operating cash flow was due primarily to improved operating results
      and higher depreciation and amortization for the nine months ended February
      29,
      2008 compared to the prior year period, and a $1.3 million increase in accrued
      expenses for the current fiscal period compared to a decline of $0.8 million
      in
      the prior year period. The increased operating cash flow was partially offset
      by
      an increase in accounts receivable of $3.3 million for the nine months ended
      February 29, 2008, compared to an increase of $0.4 million in the prior year
      period.





During
      the nine months ended February 29, 2008 net cash used in investing activities
      was $34.8 million, compared to $37.0 million in the same period of fiscal 2007.
      For the nine months ended February 29, 2008 payments for the purchase of rental
      and lease equipment were $55.5 million, compared to $50.4 million for the prior
      year period, partly offset by proceeds from sale of rental and lease equipment
      of $21.0 million and $14.0 million for the nine months ended February 29, 2008
      and February 28, 2007, respectively.




Page
          20


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


Net
      cash
      flows from financing activities decreased in the first nine months of fiscal
      2008 as compared to the same period of the prior year, primarily due to $7.8
      million in dividend payments to shareholders. There was no dividend paid in
      the
      prior year period.





We
      have a
      $10.0 million revolving line of credit with an institutional lender, subject
      to
      certain restrictions, to meet equipment acquisition needs as well as working
      capital and general corporate requirements. We had no bank borrowings
      outstanding or off balance sheet financing arrangements at February 29, 2008.





We
      believe that based on our current cash, cash equivalents and investment balances
      of $81.9 million at February 29, 2008 and expected operating cash flows, the
      current lack of liquidity in the global credit and capital markets will not
      have
      a material impact on our liquidity, cash flow, financial flexibility or our
      ability to fund our operations, including the dividend.





**Contractual
      Obligations**





Our
      contractual obligations have not changed materially from those included in
      our
      Annual Report on Form 10-K for the fiscal year ended May 31, 2007. The exact
      timing of reversal or settlement of our FIN 48 liabilities of $4.3 million
      could
      not be reasonably estimated at the end of the current fiscal quarter.





**SPECIAL
      NOTE ABOUT FORWARD-LOOKING STATEMENTS**




This
      report contains forward-looking statements within the meaning of
      Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934. You can find many (but not all) of these
      statements by looking for words such as “approximates,” “believes,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar
      expressions in this report. We claim the protection of the safe harbor contained
      in the Private Securities Litigation Reform Act of 1995. We caution investors
      that any forward-looking statements presented in this report, or which we may
      make orally or in writing from time to time, are based on the beliefs of,
      assumptions made by, and information currently available to us. Such statements
      are based on assumptions and the actual outcome will be affected by known and
      unknown risks, trends, uncertainties and factors that are beyond our control.
      Although we believe that our assumptions are reasonable, they are not guarantees
      of future performance and some will inevitably prove to be incorrect. As a
      result, our actual future results may differ from our expectations, and those
      differences may be material. We are not undertaking any obligation to update
      any
      forward-looking statements. Accordingly, investors should use caution in relying
      on past forward-looking statements, which are based on known results and trends
      at the time they are made, to anticipate future results or trends.




Factors
      that could cause or contribute to these differences include, among others,
      those
      risks and uncertainties discussed under the sections contained in this Form
      10-Q
      entitled "Management's Discussion and Analysis of Financial Condition and
      Results of Operations," and in “Part II. Item 1A. Risk Factors” herein and in
      "Quantitative and Qualitative Disclosure About Market Risk Related to Interest
      Rates and Currency Rates," as well as in our Annual Report on Form 10-K for
      the
      year ended May 31, 2007 (including the "Risk Factors" discussed in Item 1A
      to
      that document), and our other filings with the Securities and Exchange
      Commission. The risks included in those documents are not exhaustive, and
      additional factors could adversely affect our business and financial
      performance. We operate in a very competitive and rapidly changing environment.
      New risk factors emerge from time to time and it is not possible for us to
      predict all such risk factors, nor can we assess the impact of all such risk
      factors on our business or the extent to which any factor, or combination of
      factors, may cause actual results to differ materially from those contained
      in
      any forward-looking statements.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





During
      the first nine months of fiscal 2008, there were no material changes in the
      information regarding market risk contained in our Annual Report on Form 10-K
      for the fiscal year ended May 31, 2007, except for the following:





*Interest
      Rate and Market Risk.* At
      February 29, 2008, we held $23.6 million of auction rate securities. In February
      and March 2008, auctions failed for these securities. An auction failure means
      that the parties wishing to sell securities exceeded the available buyers.
      As a
      result of these failures, we will not be able to liquidate these securities
      until the issuer calls the security, a successful auction occurs, a buyer is
      found outside of the auction process or the security matures. Moreover, if
      the
      issuers are unable to successfully close future auctions and their credit
      ratings deteriorate, we may in the future be required to record an impairment
      charge on these investments.




Page
          21


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**


**Item
      4. Controls and Procedures**





Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end
      of
      the period covered by this report. Based on that evaluation, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures as of the end of the period covered by this report were effective
      in
      ensuring that information required to be disclosed by us in reports that we
      file
      or submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission's
      rules and forms.





There
      was
      no change in our internal control over financial reporting (as defined in Rule
      13a-15(f) of the Exchange Act) that occurred during our most recent fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**Part
      II. OTHER INFORMATION**





Item
      1.
      Legal Proceedings




In
      the
      normal course of our business, we are involved in various claims and legal
      proceedings. We are not involved in any pending or threatened legal proceedings,
      other than routine legal proceedings and claims incidental to our business,
      that
      we believe could reasonably be expected to have a material adverse effect on
      our
      financial condition or results of operations.





Item
      1A.
      Risk Factors.





In
      addition to the other information set forth in this report, you should carefully
      consider the discussion of various risks and uncertainties contained in Part
      I,
“Item 1A. Risk Factors” in our 2007 Annual Report on Form 10-K. We believe those
      risk factors are the most relevant to our business and could cause our results
      to differ materially from the forward-looking statements made by us. Please
      note, however, that those are not the only risk factors facing us. Additional
      risks that we do not consider material, or of which we are not currently aware,
      may also have an adverse impact on us. Our business, financial condition, and
      results of operations could be seriously harmed if any of these risks or
      uncertainties actually occurs or materializes. In that event, the market price
      for our common stock could decline, and our shareholders may lose all or part
      of
      their investment. During the first nine months of fiscal 2008, there were no
      material changes in the information regarding risk factors contained in our
      Annual Report on Form 10-K for the fiscal year ended May 31, 2007, except for
      the following:





***We
      may realize losses on our investments in auction rate securities and be unable
      to liquidate these investments at desired times and in desired amounts***





At
      February 29, 2008, we held $23.6 million in auction rate securities
      (“ARS”), which we classify as investments. All of our ARS had credit ratings of
      AAA or Aaa when purchased, and none are mortgage-backed debt obligations. Our
      ARS are valued at reported market prices. During February and March 2008,
      auctions failed for all $23.6 million of the ARS we held because sell
      orders exceeded buy orders. We may not be able to liquidate these investments
      unless the issuer calls the security, a successful auction occurs, a buyer
      is
      found outside of the auction process, or the security matures. We do not believe
      the carrying values of our ARS are impaired. However, if the issuers of these
      securities are unable to successfully close future auctions and their credit
      ratings are lowered, we may be required to record future impairment charges
      related to these investments, which would harm our results of operations.





Item
      2.
      Unregistered Sales of Equity Securities and Use of Proceeds.





None.





Page
          22


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**





Item
      3.
      Defaults Upon Senior Securities.





None.





Item
      4.
      Submission of Matters to a Vote of Security Holders





None.





Item
      5.
      Other Information





There
      have been no material changes to the procedures by which security holders may
      recommend nominees to our board of directors since we last provided disclosure
      in response to the requirements of Item 407(c)(2)(iv) or Item 401(c)(3) of
      Regulation S-K.





Item
      6.
      Exhibits




Exhibit#
              Description
 
 31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer
 
 31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer
 
 32.1
              Section
                  1350 Certification by Principal Executive
                  Officer
 
 32.2
              Section
                  1350 Certification by Chief Financial
                  Officer




Page
          23


**ELECTRO
        RENT CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **(in
        thousands, except per share amounts)**




SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereto
      duly authorized.




ELECTRO RENT
              CORPORATIONDATED:
                April 8, 2008/s/
              Craig R.
              JonesCraig
              R. JonesVice
                President and Chief Financial Officer
              (Principal
                Financial and Accounting Officer and duly authorized
              to
                sign this report on behalf of the company)




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          24