**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 August 31, 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 oSmaller 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
oNo
      x





The
      number of shares outstanding of the registrant's common stock as of September
      26, 2008 was 25,864,601.







**ELECTRO
      RENT CORPORATION**


**FORM
      10-Q**


**August
      31, 2008**




TABLE
                  OF CONTENTS
              PagePart
                  I: FINANCIAL INFORMATION
              3Item
                  1.
              Financial
                  Statements
              3Condensed
                  Consolidated Statements of Operations for the Three Months
                  EndedAugust
                  31, 2008 and 2007 (Unaudited)
              3Condensed
                  Consolidated Balance Sheets at August 31, 2008 and May 31, 2008
                  (Unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for Three Months
                  EndedAugust
                  31, 2008 and 2007 (Unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              6Item
                  2.
              Management's
                  Discussion and Analysis of FinancialCondition
                  and Results of Operations
              17Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              23Item
                  4.
              Controls
                  and Procedures
              23Part
                  II: OTHER INFORMATION
              24Item
                  1.
              Legal
                  Proceedings
              24Item
                  1A.
              Risk
                  Factors
              24Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              24Item
                  3.
              Defaults
                  Upon Senior Securities
              24Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              24Item
                  5.
              Other
                  Information
              24Item
                  6.
              Exhibits
              24SIGNATURES
              
              25




Page
          2





**Part
        I. FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **ELECTRO
        RENT CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)
        (000's omitted, except per share data)**
 **Three
                    Months Ended****August
                    31,****2008**
                
                **2007**Revenues:Rentals
                    and leases
                
                $
                27,234
                
                $
                27,444Sales
                    of equipment and other revenues
                
                
                7,752
                
                
                7,165Total
                    revenues
                
                
                34,986
                
                
                34,609Operating
                    expenses:Depreciation
                    of rental and lease equipment
                
                
                11,584
                
                
                10,993Costs
                    of revenues other than deprecation of rental and lease
                    equipment
                
                
                5,366
                
                
                4,863Selling,
                    general and administrative expenses
                
                
                12,050
                
                
                10,897Total
                    operating expenses
                
                
                29,000
                
                
                26,753Operating
                    profit
                
                
                5,986
                
                
                7,856Interest
                    income, net
                
                
                591
                
                
                872Income
                    before income taxes
                
                
                6,577
                
                
                8,728Income
                    tax provision
                
                
                2,206
                
                
                3,414Net
                    income
                
                $
                4,371
                
                $
                5,314Earnings
                    per share:Basic
                
                $
                0.17
                
                $
                0.21Diluted
                
                $
                0.17
                
                $
                0.20Shares
                    used in per share calculation:Basic
                
                
                25,873
                
                
                25,839Diluted
                
                
                26,003
                
                
                26,037


**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)**
  **August
                      31,**
                  
                  **May
                      31,****2008**
                  
                  **2008**ASSETSCash
                      and cash equivalents
                  
                  $
                  54,063
                  
                  $
                  50,964Investments
                      available-for-sale, at fair value (cost of $23,600)
                  
                  
                  22,644
                  
                  
                  22,601Accounts
                      receivable, net of allowance for doubtful accounts of $327
                      and
                      $359
                  
                  
                  20,109
                  
                  
                  23,128Rental
                      and lease equipment, net of accumulated depreciation of $167,920
                      and
                      $161,187
                  
                  
                  173,955
                  
                  
                  172,468Other
                      property, net of accumulated depreciation and amortization
                      of $14,635 and
                      $14,427
                  
                  
                  14,195
                  
                  
                  14,341Goodwill
                  
                  
                  3,109
                  
                  
                  3,109Intangibles,
                      net of amortization of $1,490 and $1,406
                  
                  
                  985
                  
                  
                  1,069Other
                  
                  
                  5,863
                  
                  
                  5,402$
                  294,923
                  
                  $
                  293,082LIABILITIES
                      AND SHAREHOLDERS' EQUITYLiabilities:Accounts
                      payable
                  
                  $
                  6,329
                  
                  $
                  4,562Accrued
                      expenses
                  
                  
                  13,329
                  
                  
                  12,565Deferred
                      revenue
                  
                  
                  5,045
                  
                  
                  4,943Deferred
                      tax liability
                  
                  
                  15,619
                  
                  
                  14,904Total
                      liabilities
                  
                  
                  40,322
                  
                  
                  36,974Commitments
                      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 August 31, 2008 - 25,794,426;May
                      31, 2008 - 25,945,283
                  
                  
                  34,256
                  
                  
                  33,938Accumulated
                      other comprehensive loss, net of tax
                  
                  
                  (593
                  )
                  
                  (619
                  )Retained
                      earnings
                  
                  
                  220,938
                  
                  
                  222,789Total
                      shareholders' equity
                  
                  
                  254,601
                  
                  
                  256,108$
                  294,923
                  
                  $
                  293,082


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




Page
          4


**ELECTRO
        RENT CORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)
        (000's omitted)**
 **Three
                    Months Ended****August
                    31,****2008**
                
                **2007**Cash
                    flows from operating activities:Net
                    income
                
                $
                4,371
                
                $
                5,314Adjustments
                    to reconcile net income to net cash provided
                    by operating activities:Depreciation
                    and amortization
                
                
                11,876
                
                
                11,401Remeasurement
                    loss (gain)
                
                
                476
                
                
                (16
                )Gain
                    on sale of rental and lease equipment
                
                
                (2,242
                )
                
                (2,379
                )Deferred
                    tax liability
                
                
                700
                
                
                341Stock
                    compensation expense
                
                
                50
                
                
                124Provision
                    for losses on accounts receivable
                
                
                106
                
                
                37Excess
                    tax benefit for stock options exercised
                
                
                (28
                )
                
                (82
                )Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                2,744
                
                
                (2,159
                )Other
                    assets
                
                
                (461
                )
                
                118Accounts
                    payable
                
                
                186
                
                
                (182
                )Accrued
                    expenses
                
                
                806
                
                
                2,404Deferred
                    revenue
                
                
                112
                
                
                (37
                )Net
                    cash provided by operating activities
                
                
                18,696
                
                
                14,884Cash
                    flows from investing activities:Proceeds
                    from sale of rental and lease equipment
                
                
                6,435
                
                
                5,893Payments
                    for purchase of rental and lease equipment
                
                
                (15,695
                )
                
                (20,643
                )Purchases
                    of investments
                
                
                -
                
                
                (400
                )Payments
                    for purchase of other property
                
                
                (62
                )
                
                (144
                )Net
                    cash used in investing activities
                
                
                (9,322
                )
                
                (15,294
                )Cash
                    flows from financing activities:Proceeds
                    from the exercise of common stock options
                
                
                520
                
                
                866Excess
                    tax benefit for stock options exercised
                
                
                28
                
                
                82Payment
                    for repurchase of common stock
                
                
                (2,609
                )
                
                (19
                )Payment
                    of dividends
                
                
                (3,893
                )
                
                (2,583
                )Net
                    cash used in financing activities
                
                
                (5,954
                )
                
                (1,654
                )Net
                    increase (decrease) in cash and cash equivalents
                
                
                3,420
                
                
                (2,064
                )Effect
                    of exchange rate changes on cash
                
                
                (321
                )
                
                (16
                )Cash
                    and cash equivalents at beginning of period
                
                
                50,964
                
                
                57,172Cash
                    and cash equivalents at end of period
                
                $
                54,063
                
                $
                55,092




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.





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.





Revenue
      recognition: In accordance with EITF 00-10, *Accounting
      for Shipping and Handling Fees and Costs* ,
      delivery and handling revenue are recorded as revenues and the related expenses
      are recorded in selling, general and administrative expenses. An amount of
      $415
      for the first quarter of fiscal 2008 has been corrected to properly state sales
      of equipment and other revenues and selling, general and administrative expenses
      in accordance with this policy. Management believes the correction to be
      immaterial to the consolidated statements of operations.





Statements
      of cash flow: **** In
      the
      first quarter of fiscal 2009 we separately disclosed effects of exchange rates
      on cash. The first quarter of fiscal 2008 has been revised, accordingly,
      increasing net cash provided by operating activities by $16.





Adopted
      Accounting Pronouncements





Effective
      June 1, 2008, we adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 157, *Fair
      Value Measurements* (“SFAS
      157”) as amended by Financial Accounting Standards Board (“FASB”) Staff Position
      SFAS 157-1, *Application
      of FASB Statement No. 157 to FASB Statement No. 13 and Other
      Accounting Pronouncements That Address Fair Value Measurements for Purposes
      of
      Lease Classification or Measurement under Statement 13* (“FSP
      SFAS 157-1”) and FASB Staff Position SFAS 157-2, *Effective
      Date of FASB Statement No. 157* (“FSP
      SFAS 157-2”). SFAS 157 defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles and provides for expanded
      disclosure about fair value measurements. SFAS 157 applies prospectively to
      all
      other accounting pronouncements that require or permit fair value measurements.
      FSP SFAS 157-1 amends SFAS 157 to exclude from the scope of SFAS 157 certain
      leasing transactions accounted for under SFAS No. 13, *Accounting
      for Leases.* FSP SFAS
      157-2 amends SFAS 157 to defer the effective date of SFAS 157 for all
      non-financial assets and non-financial liabilities except those that are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis to fiscal years beginning after November 15, 2008, and interim
      periods within those fiscal years. We will adopt FSP SFAS 157-2 with our first
      quarter of fiscal 2010.




Page
          6




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




The
      adoption of SFAS 157 did not have a material impact on our financial condition,
      results of operations, or cash flows. Management is evaluating the impact that
      SFAS 157 will have on its non-financial assets and non-financial liabilities
      since the application of SFAS 157 for such items was deferred to June 1, 2010.
      We believe that the impact of these items will not be material to our financial
      condition, results of operations, or cash flows. Assets and liabilities
      typically recorded at fair value on a non-recurring basis to which we have
      not
      yet applied SFAS 157 due to the deferral of SFAS 157 for such items include:




•
            
            Non-financial
                assets and liabilities initially measured at fair value in an acquisition
                or business combination, and




•
            
            Long-lived
                assets measured at fair value due to an impairment assessment under
                SFAS
                No. 144,*Accounting
                for the Impairment or Disposal of Long-Lived Assets*.




Effective
      June 1, 2008, we adopted SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities* (“SFAS
      159”). SFAS 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value. The objective of the guidance is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. The adoption of SFAS 159 did not have a material impact on our
      financial condition, results of operations, or cash flows since we did not
      elect
      to apply the fair value option for any of our eligible financial instruments
      or
      other items on the June 1, 2008 effective date.





New
      Accounting Pronouncements





In
      June
      2008, the FASB issued FSP Emerging Issues Task Force (“EITF”), Issue No. 03-6-1, *Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities* (“FSP
      EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted by an
      entity in share-based payment transactions should be considered as participating
      securities prior to vesting and, therefore, should be included in the earnings
      allocation in computing earnings per share under the two-class method described
      in paragraphs 60 and 61 of FASB Statement No. 128, *Earnings
      per Share.* FSP
      EITF
      03-6-1 clarifies that instruments granted in share-based payment transactions
      can be participating securities prior to vesting (that is, awards for which
      the
      requisite service had not yet been rendered). Unvested share-based payment
      awards that contain nonforfeitable rights to dividends or dividend equivalents
      (whether paid or unpaid) are participating securities and shall be included
      in
      the computation of earnings per share pursuant to the two-class method. FSP
      EITF
      03-6-1 requires us to retrospectively adjust our earnings per share data
      (including any amounts related to interim periods, summaries of earnings and
      selected financial data) to conform to the provisions of FSP EITF 03-6-1. FSP
      EITF 03-6-1 is effective for financial statements issued for fiscal years and
      interim periods beginning after December 15, 2008. Early adoption is prohibited.
      We will adopt FSP EITF 03-6-1 beginning with our first quarter of fiscal 2010.
      We do not anticipate that the adoption of FSP EITF 03-6-1 will have a material
      impact on our financial condition, results of operations, or cash flows.





In
      April
      2008, the FASB issued FSP SFAS No. 142-3, *Determination
      of the Useful Life of Intangible Assets* (“FSP
      SFAS 142-3”). FSP SFAS 142-3 is intended to improve the consistency between the
      useful life of recognized intangible assets under SFAS No. 142, *Goodwill
      and Other Intangible Assets,* or
      SFAS
      No. 142, and the period of expected cash flows used to measure the fair value
      of
      the assets under SFAS No. 141(R), *Business Combinations* (“SFAS
      141R”). FSP SFAS 142-3 amends the factors an entity should consider in
      developing renewal or extension assumptions in determining the useful life
      of
      recognized intangible assets. FSP SFAS 142-3 requires an entity to consider
      its
      own historical experience in renewing or extending similar arrangements, or
      to
      consider market participant assumptions consistent with the highest and best
      use
      of the assets if relevant historical experience does not exist. In addition
      to
      the required disclosures under SFAS No. 142, FSP SFAS 142-3 requires disclosure
      of the entity’s accounting policy regarding costs incurred to renew or extend
      the term of recognized intangible assets, the weighted average period to the
      next renewal or extension, and the total amount of capitalized costs incurred
      to
      renew or extend the term of recognized intangible assets. FSP SFAS 142-3 is
      effective for financial statements issued for fiscal years and interim periods
      beginning after December 15, 2008. While the standard for determining the useful
      life of recognized intangible assets is to be applied prospectively only to
      intangible assets acquired after the effective date, the disclosure requirements
      shall be applied prospectively to all recognized intangible assets as of, and
      subsequent to, the effective date. Early adoption is prohibited. We will adopt
      FSP SFAS 142-3 beginning with our first quarter of fiscal 2010. We do not
      anticipate that the adoption of FSP SFAS 142-3 will have a material impact
      on
      our financial condition, results of operations, or cash flows.




Page
          7


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




In
      December 2007, the FASB issued SFAS No. 141R. SFAS 141R replaces SFAS
      No. 141,*Business
      Combinations*,
      to
      provide 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, results of operations, or cash flows.




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, results of operations, or cash
      flows.




Page
          8




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




**Note
      2: Cash and cash equivalents and investments
      available-for-sale**




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 Auction Rate Securities (“ARS”) 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.




When
      made, our investments are intended to establish a high-quality portfolio that
      preserves principal, meets liquidity needs, avoids inappropriate concentrations
      and delivers an appropriate yield in relationship to our investment guidelines
      and market conditions. The following is a summary of available-for-sale
      securities:





August
                31, 2008Available-for-sale
                SecuritiesGross
            
            GrossUnrealized
            
            Unrealized
            
            EstimatedCost
            
            Gains
            
            Losses
            
            Fair
                ValueAuction
                rate securities
            
            $
            23,600
            
            $
            -
            
            $
            (956
            )
            $
            22,644$
            23,600
            
            $
            -
            
            $
            (956
            )
            $
            22,644May
                31, 2008Available-for-sale
                SecuritiesGross
            
            
            GrossUnrealized
            
            
            Unrealized
            
            
            EstimatedCost
            
            
            Gains
            
            
            Losses
            
            
            Fair
                ValueAuction
                rate securities
            
            $
            23,600
            
            $
            -
            
            $
            (999
            )
            $
            22,601$
            23,600
            
            $
            -
            
            $
            (999
            )
            $
            22,601





We
      record
      unrealized gains and losses on our available-for-sale debt securities, net
      of a
      tax benefit, 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. The gross unrealized losses
      on
      our available-for-sale debt securities at August 31, 2008 were $956, compared
      to
      $999 at May 31, 2008. Our available-for-sale securities have been in a
      continuous unrealized loss position for less than twelve months as of August
      31,
      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 months ended August 31, 2008 and 2007.





Our
      ARS
      are long-term debt instruments backed by student loans, a substantial portion
      of
      which are guaranteed by the United States government. All of our ARS have credit
      ratings of AAA or AA, and none are mortgage-backed debt obligations.
      Historically, our ARS were highly liquid, using a Dutch auction process that
      resets the applicable interest rate at predetermined intervals, typically every
      35 days, to provide liquidity at par. However, as a result of liquidity
      issues in the global credit and capital markets, the auctions for all of our
      ARS
      failed beginning in February 2008 when sell orders exceeded buy orders. The
      failures of these auctions do not affect the value of the collateral underlying
      the ARS, and we continue to earn and receive interest on our ARS at a
      pre-determined formula with spreads tied to particular interest rate indexes.
      We
      value the ARS from quotes received from our broker which are derived from their
      internally developed model. In determining a discount factor for each ARS,
      the
      model weights various factors, including assessments of credit quality,
      duration, insurance wraps, portfolio composition, discount rates, overall
      capital market liquidity and comparable securities, if any. We consider declines
      in ARS fair market values due to lack of liquidity to be a temporary impairment
      that is recorded as an unrealized loss in the shareholders’ equity section of
      our balance sheet.




Page
          9


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




We
      continue to monitor the market for ARS and consider its impact (if any) on
      the
      fair market value of our investments.  If the market conditions deteriorate
      further, we may be required to record additional unrealized losses in other
      comprehensive income or other than temporary impairment charges.  We intend
      and have the ability to hold our ARS until the market recovers as we do not
      anticipate having to sell these securities to fund the operations of our
      business.  We believe that, based on our current cash and cash equivalents
      balance, the current lack of liquidity in the credit and capital markets will
      not have a material impact on our liquidity, cash flow or ability to fund our
      operations.





On
      August
      8, 2008, our broker announced publicly a settlement in principle with the
      Securities and Exchange Commission to purchase ARS from its customers, at full
      value, during a two-year time period beginning on June 30, 2010. If the proposed
      settlement becomes final, we would have the right to sell our ARS to our broker
      at par plus accrued interest during this timeframe.





The
      cost
      and estimated fair value of the available-for-sale securities at August 31,
      2008, by maturity, are shown below. Expected maturities can differ from
      contractual maturities because the issuers of the securities may have the right
      to prepay obligations without prepayment penalties. To provide more immediate
      relief, our broker is offering its investors access to liquidity through an
      ARS
      100% Loan to Par Value program prior to the timeframe in which our broker will
      purchase the ARS. Interest will be charged at the same rate as the yields earned
      on the underlying ARS that serve as collateral for the loan. We have not
      borrowed any funds under this program as of August 31, 2008.





Cost
            
            Gross
                Unrealized Gains
            
            Gross
                Unrealized Losses
            
            Estimated
                Fair ValueAvailable-for-saleDue
                in one year or less
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Due
                after one year and through five years
            
            
            1,700
            
            
            -
            
            
            (64
            )
            
            1,636Due
                after five years and through ten years
            
            
            -
            
            
            -
            
            
            -
            
            
            -Due
                after ten years
            
            
            21,900
            
            
            -
            
            
            (892
            )
            
            21,008$
            23,600
            
            $
            -
            
            $
            (956
            )
            $
            22,644




**Note
      3: Fair Value Measurements**





As
      described in Note 1, we adopted SFAS No. 157 on June 1, 2008. SFAS
      No. 157, among other things, defines fair value, establishes a consistent
      framework for measuring fair value and expands disclosure for each major asset
      and liability category measured at fair value on either a recurring or
      nonrecurring basis. SFAS No. 157 clarifies that fair value is an exit
      price, representing the amount that would be received to sell an asset or paid
      to transfer a liability in an orderly transaction between market participants.
      As such, fair value is a market-based measurement that should be determined
      based on assumptions that market participants would use in pricing an asset
      or
      liability. As a basis for considering such assumptions, SFAS No. 157
      establishes a three-tier fair value hierarchy, which prioritizes the inputs
      used
      in measuring fair value as follows:





Level
      1 -
      Observable inputs, such as quoted prices in active markets for identical assets
      or liabilities;





Level
      2 -
      Inputs, other than the quoted prices in active markets, that are observable
      either directly or through corroboration with observable market data;
      and





Level
      3 -
      Unobservable inputs, for which there is little or no market data for the assets
      or liabilities, such as internally-developed valuation models.




Page
          10





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


Assets
      and liabilities measured at fair value on a recurring basis at August 31, 2008
      are as follows:





Quoted
                Prices in Active Markets for Identical Instruments
              (Level
                1)
            
            Significant
              Other
              Observable
              Inputs
              (Level
                2)
            
            Significant
              Unobservable
              Inputs
              (Level
                3)
            
            Total
              BalanceMoney
                Market Funds
            
            $
            45,312
            
            $
            -
            
            $
            -
            
            $
            45,312Auction
                Rate Securities
            
            
            -
            
            
            -
            
            
            22,644
            
            
            22,644Total
                assets measured at fair value
            
            $
            45,312
            
            $
            -
            
            $
            22,644
            
            $
            67,956





We
      value
      the ARS from quotes received from our broker which are derived from their
      internally developed model. In determining a discount factor for each ARS,
      the
      model weights various factors, including assessments of credit quality,
      duration, insurance wraps, portfolio composition, discount rates, overall
      capital market liquidity and comparable securities, if any. See Note 2 for
      further discussion of our investments in ARS.





The
      following table presents a reconciliation for all assets and liabilities
      measured at fair value on a recurring basis, excluding accrued interest
      components, using significant unobservable inputs (Level 3) for the three months
      ended August 31, 2008:





Investments
                in Auction Rate SecuritiesBalance
                at June 1, 2008
            
            $
            22,601Unrealized
                gains recorded to other comprehensive income
            
            
            43Balance
                at August 31, 2008
            
            $
            22,644





**Note
      4: 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 1,000 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 399 options to purchase our common
      stock for previously granted incentive stock options and non-statutory stock
      options granted to directors, officers and consultants under our 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.




Page
          11




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




The
      following table represents stock option activity for the three months ended
      August 31, 2008:




Shares
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Contractual Term (in years)
            
            Aggregate
                Intrinsic
              ValueOutstanding
                at June 1, 2008
            
            
            512
            
            $
            10.02Granted
            
            
            -
            
            
            -Exercised
            
            
            (56
            )
            
            9.27Forfeited/Cancelled
            
            
            (1
            )
            
            17.69Outstanding
                at August 31, 2008
            
            
            455
            
            $
            10.10
            
            
            1.21
            
            $
            1,757Vested
                and expected to vest at August 31, 2008
            
            
            452
            
            $
            10.04
            
            
            1.20
            
            $
            1,757Exercisable
                at August 31, 2008
            
            
            430
            
            $
            9.69
            
            
            1.11
            
            $
            1,753




There
      were no stock option grants during the three months ended August 31, 2008 and
      2007.  The
      total
      fair value of shares vested during the three months ended August 31, 2008 and
      2007 was $0 and $625, 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 $174 and
      $401 during the three months ended August 31, 2008 and 2007, respectively.
      As of
      August 31, 2008 there was approximately $59 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 1.02 years.
      Shares of newly issued common stock will be issued upon exercise of stock
      options.





*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.





We
      recorded $50 and $124 of stock-based compensation for employee stock options
      and
      restricted stock, as part of selling, general and administrative expenses for
      the three months ended August 31, 2008 and 2007, respectively. This compensation
      cost caused net income to decrease by $32 and $94 for the three months ended
      August 31, 2008 and 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
      three months ended August 31, 2008 and 2007 was $28 and $82, respectively.
      Cash
      received from stock option exercises was $520 and $866 for the three months
      ended August 31, 2008 and 2007, respectively.




Page
          12





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


*Restricted
      Stock*





Compensation
      expense resulting from restricted stock awards is measured at fair value on
      the
      date of grant and is recognized in selling, general and administrative expenses
      over a one-year vesting period. We recognized approximately $25 of related
      compensation expense in the three months ended August 31, 2008 related to
      restricted stock awards. There were no restricted stock award grants for the
      three months ended August 31, 2007. As of August 31, 2008, we have unrecognized
      share-based compensation cost of approximately $67 associated with these awards.
      This cost is expected to be recognized over a weighted-average period of
      approximately 0.75 years.





Restricted
      stock activity for the three months ended August 31, 2008 is set forth
      below:





Shares
            
            Weighted
                -
              Average
              Grant
              Date
              Fair
                ValueNonvested
                at June 1, 2008
            
            
            -
            
            $
            -Granted
            
            
            7
            
            
            14.12Vested
            
            
            (2
            )
            
            (14.12
            )Canceled
            
            
            (1
            )
            
            (14.12
            )Nonvested
                at August 31, 2008
            
            
            4
            
            $
            14.12





**Note
      5: Goodwill and Intangibles**





Goodwill
      represents the excess of the purchase price over the fair value of the net
      tangible and identifiable intangible assets acquired in a business combination.
      Intangible assets resulting from the acquisitions of entities accounted for
      using the purchase method of accounting are recorded at the estimated fair
      value
      of the assets acquired. Identifiable intangible assets are comprised of
      purchased customer relationships, trademarks and trade names, developed
      technologies and other intangible assets.





Our
      goodwill and intangibles at August 31, 2008 are the result of the acquisition
      of
      Rush Computer Rentals, Inc. on January 31, 2006.




The
      changes in carrying amount of goodwill and other intangible assets for the
      three
      months ended August 31, 2008 are as follows:





Balance
                as of
              June
                1, 2008 (net of amortization)
            
            Adjustments
            
            Amortization
            
            Balance
                as of
              August
                31, 2008Goodwill
            
            $
            3,109
            
            $
            -
            
            $
            -
            
            $
            3,109Trade
                Name
            
            
            411
            
            
            -
            
            
            -
            
            
            411Non-compete
                agreements
            
            
            266
            
            
            -
            
            
            (25
            )
            
            241Customer
                relationships
            
            
            392
            
            
            -
            
            
            (59
            )
            
            333$
            4,178
            
            $
            -
            
            $
            (84
            )
            $
            4,094





The
      goodwill and intangibles have been assigned to our computer-related data
      products (“DP”) operating segment. 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 August 31, 2008 or May 31, 2008. The annual impairment
      review date for goodwill and intangible assets is May 31.




Page
          13




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


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




August
                31, 2008Estimated
                Useful Life
            
            Gross
                Carrying Amount
            
            Accumulated
              Amortization
            
            Net
                Carrying
              AmountTrade
                name
            
            
            -
            
            $
            411
            
            $
            -
            
            $
            411Non-compete
                agreements
            
            
            2-5
                years
            
            
            1,050
            
            
            (809
            )
            
            241Customer
                relationships
            
            
            3-4
                years
            
            
            1,014
            
            
            (681
            )
            
            333$
            2,475
            
            $
            (1,490
            )
            $
            985




May
                31, 2008Estimated
                Useful Life
            
            Gross
                Carrying Amount
            
            Accumulated
              Amortization
            
            Net
                Carrying
              AmountTrade
                name
            
            
            -
            
            $
            411
            
            $
            -
            
            $
            411Non-compete
                agreements
            
            
            2-5
                years
            
            
            1,050
            
            
            (784
            )
            
            266Customer
                relationships
            
            
            3-4
                years
            
            
            1,014
            
            
            (622
            )
            
            392$
            2,475
            
            $
            (1,406
            )
            $
            1,069





Amortization
      expense was $84 and $146 for the three months ended August 31, 2008 and 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
              Amortization2009
            
            $
            2512010
            
            
            2572011
            
            
            662012
            
            
            02013
            
            
            0$
            574





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





We
      had
      accounts payable and other accruals related to acquired equipment totaling
      $5,393 and $3,824 as of August 31, 2008 and May 31, 2008, respectively, and
      $4,295 and $8,844 as of August 31 2007 and May 31, 2007, respectively, which
      amounts were paid in following periods. We increased shareholders’ equity by
      $26, net of tax expense of $17, as of August 31, 2008 as a result of unrealized
      gains on investments. There were no comparable amounts for the prior year
      period.





**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:





August
                31,
              2008
            
            May
                31,
              2008Gross
                minimum lease payments receivable
            
            $
            1,572
            
            $
            1,392Less
                - unearned interest
            
            
            (118
            )
            
            (112
            )Net
                investment in sales-type lease receivables
            
            $
            1,454
            
            $
            1,280




Page
          14


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




**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 T&M and DP equipment.





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 $296,251 of T&M
      equipment and $45,624 of DP equipment at August 31, 2008 and $289,061 of T&M
      equipment and $44,594 of DP equipment at May 31, 2008.





Revenues
      for these product groups were as follows for the three months ended August
      31,
      2008 and 2007.








T&M
            
            DP
            
            Total2008Rentals
                and leases
            
            $
            20,669
            
            $
            6,565
            
            $
            27,234Sales
                of equipment and other revenues
            
            
            6,826
            
            
            926
            
            
            7,752$
            27,495
            
            $
            7,491
            
            $
            34,9862007Rentals
                and leases
            
            $
            21,331
            
            $
            6,113
            
            $
            27,444Sales
                of equipment and other revenues
            
            
            6,423
            
            
            742
            
            
            7,165$
            27,754
            
            $
            6,855
            
            $
            34,609





No
      single
      customer accounted for more than 10% of total revenues during either the first
      three months of fiscal 2009 or fiscal 2008.




Page
          15





**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
              August
                31,2008
            
            2007Revenues:
                (1)U.S.
            
            $
            29,833
            
            $
            29,211Other
                (2)
            
            
            5,153
            
            
            5,398Total
            
            $
            34,986
            
            $
            34,609August
                31,
              2008
            
            
            May
                31,
              2008Net
                Long-Lived Assets: (3)U.S.
            
            $
            164,524
            
            $
            165,984Other
                (2)
            
            
            27,720
            
            
            25,003Total
            
            $
            192,244
            
            $
            190,987





(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 than 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 months ended August 31, 2008 and
      2007:





Three
                Months Ended
              August
                31,2008
            
            2007Denominator:Denominator
                for basic earnings per share - weighted average common shares outstanding
            
            
            25,873
            
            
            25,839Effect
                of dilutive securities-options (1)
            
            
            130
            
            
            19826,003
            
            
            26,037Net
                income
            
            $
            4,371
            
            $
            5,314Earnings
                per share:Basic
            
            $
            0.17
            
            $
            0.21Diluted
            
            $
            0.17
            
            $
            0.20





(1)
      Excludes 38 and 41 options outstanding during the three months ended August
      31,
      2008 and 2007, respectively, for which the exercise price exceeded the average
      market price of our stock during that period.





**Note
      10: Income Taxes**





At
      May
      31, 2008, we had unrecognized tax benefits of $3,693. Unrecognized tax benefits
      increased by $29 in the three months ended August 31, 2008.




Page
          16


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




The
      unrecognized tax benefit at August 31, 2008, if recognized, would have no impact
      on the effective tax rate. However, the derecognition of $1,165 related to
      the
      associated interest and penalties at August 31, 2008 would decrease 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 $1,753 for
      the
      payment of interest and penalties as of August 31, 2008.




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 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 three months ended August
      31, 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, results of operations, or cash flows.




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





The
      following discussion addresses our financial condition as of August 31, 2008
      and
      May 31, 2008 and the results of our operations for the three months ended August
      31, 2008 and 2007, respectively, and cash flows for the three month periods
      ended August 31, 2008 and 2007. This discussion should be read in conjunction
      with the Management's Discussion and Analysis section included on pages 10-18
      and the Risk Factors discussed in Item 1A, of our 2008 Annual Report on From
      10-K to which the reader is directed for additional information.





**Overview**





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





For
      the
      first three months of fiscal 2009, 76% of our rental and lease revenues were
      derived from T&M equipment. This percentage has decreased slightly from the
      prior year period due to an increase in our DP revenues, while T&M revenues
      have remained relatively flat. While we have experienced increased rental
      activity for our T&M equipment, it has been offset by a decline in rental
      rates, reflecting competitive pressures.





For
      the
      first three months of fiscal 2009, rental revenues comprised 85% of our rental
      and lease revenue. That percentage has increased over the last two years due
      to
      an increase in T&M and DP rental activity in our U.S. and foreign
      operations, while lease revenues have declined.




Page
          17




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





We
      sell
      used equipment in the normal course of business based on customer requirements.
      Our sale of used equipment allows us to maintain our inventory with equipment
      that meets current technological standards. In fiscal 2007, we entered into
      distribution agreements with three leading manufacturers to sell basic T&M
      equipment to current and prospective customers through our new distribution
      channel.





The
      profitability of our business depends in part on controlling the timing, pricing
      and mix of purchases and sales of equipment. We seek to acquire new and used
      equipment at attractive prices for the purpose of deriving a profit from a
      combination of renting and/or selling such equipment. The sale of equipment,
      either after acquisition or after it has been rented, can 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.





During
      the early part of the decade, our business significantly contracted due to
      a
      slow-down in the U.S. economy. 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
      47% for our 2007 fiscal year. As we anticipated, our gross margin on sales
      in
      fiscal 2008 declined to 35%, reflecting increases in lower margin sales under
      our arrangements to act as a distributor of new T&M equipment for certain
      manufacturers and a large buyout of used equipment at lower than normal margins.
      Based on our current equipment management strategy, we anticipate that future
      gross margin on sales will stay in this range 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 months ended August
      31,
      2008 and 2007, respectively, was 35% and 40%.





The
      economy in the United States and, to a certain degree the other markets in
      which
      we operate, has been slowing, which has impacted our current profitability,
      and
      may impact our prospects for growth and profitability in future periods.





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




·
            Net
                income per diluted common share
                (EPS);


·
            Net
                income as a percentage of average assets (annualized);
                and


·
            Net
                income as a percentage of average tangible equity
                (annualized).




Page
          18





**STRATEGIC
      GROWTH PLANS**





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 foster internal growth by building upon our
      vendor and customer relationships and expanding the types of services and
      equipment we provide. Thus, for example,





·
            We
                created a new distribution channel by entering 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.


·
            We
                are developing vendor leasing programs that provide customers with
                flexible financing alternatives.





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.





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 European operation improved during the first three
      months of fiscal 2009, compared to the same period in fiscal 2008, while our
      other foreign operations declined slightly.





Although
      our strategic initiatives have contributed to our revenue growth, our operating
      results declined for the three months ended August 31, 2008, compared to the
      three months ended August 31, 2007. Each of our strategic initiatives 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. and global economy as
      a
      result of more stringent credit requirements and access to capital may adversely
      affect our customers. While we experienced improved results from 2004 through
      2008, our financial results for the first quarter of fiscal 2009 were impacted
      by competitive pressure on rental rates and lower utilization rates due in
      part
      to the economic slow-down in the U.S. and our major international markets.
      Furthermore, as our foreign operations continue to grow, fluctuations in
      currency exchange rates will result in additional gains and losses which are
      difficult to predict. As noted above, our rental and lease utilization rates,
      operating results and net income could continue to be adversely affected by
      recent economic 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 2008 Annual Report on Form 10-K.




Page
          19





**PROFITABILITY
      AND KEY BUSINESS TRENDS**





For
      the
      first three months of fiscal 2009 compared to the same period in fiscal 2008,
      our revenues rose by 1.1% to $35.0 million, our operating profit decreased
      by
      23.8% to $6.0 million and our net income decreased by 17.7% to $4.4 million.
      Our
      revenue growth included growth in our DP business in our North American and
      European operation, and in our distribution channel. Our T&M rental and
      lease activity increased for the three months ended August 31, 2008 compared
      to
      the three months ended August 31, 2007. However, T&M revenues were
      relatively flat, due primarily to competitive pressure on rental rates. Our
      profitability measurements are presented in the table below for the three months
      ended August 31, 2008 and 2007:




2008
            
            2007Net
                income per diluted common share (EPS)
            
            $
            0.17
            
            $
            0.20Net
                income as a percentage of average assets (annualized)
            
            
            5.9
            %
            
            7.4
            %Net
                income as a percentage of average tangible equity
                (annualized)
            
            
            7.0
            %
            
            8.8
            %





The
      decrease in our operating profit primarily reflects competitive pressures on
      rental rates and lower equipment utilization rates. In addition, our selling,
      general and administrative expenses have increased due to higher personnel
      and
      benefit costs to support our current operations and develop our strategic
      initiatives, and foreign currency losses of $476,000 for the three months ended
      August 31, 2008, compared to a foreign currency gain of $16,000 for the prior
      year period, as a result of a strengthening of the dollar against key
      currencies.





The
      amount of our equipment on rent, based on acquisition cost, increased to $164.2
      million at August 31, 2008 from $143.8 million at August 31, 2007. Acquisition
      cost of equipment on lease decreased to $33.1 million at August 31, 2008 from
      $39.7 million at August 31, 2007. Utilization for our T&M equipment pool,
      based on acquisition cost of equipment on rent and lease compared to the total
      pool, was 61.4% at August 31, 2008 compared to 65.0% at August 31, 2007. Over
      the same period, utilization of our DP equipment pool increased to 55.9% from
      54.2%.





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





Three
                Months EndedAug
                31,
              2008
            
            May
                31,
              2008
            
            Feb
                29,
              2008
            
            Nov
                30,
              2007
            
            Aug
                31,
              2007Rentals
                and leases
            
            $
            27,234
            
            $
            27,648
            
            $
            26,244
            
            $
            27,425
            
            $
            27,444Sales
                of equipment and other revenues
            
            
            7,752
            
            
            11,253
            
            
            9,419
            
            
            7,938
            
            
            7,165Operating
                profit
            
            
            5,986
            
            
            7,673
            
            
            6,929
            
            
            8,237
            
            
            7,856





**Critical
      Accounting Policies and Estimates**





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





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





We
      identified certain critical accounting policies 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, 2008. We have not made any material changes to these policies as
      previously disclosed.





**Results
      of Operations**





**Comparison
      of Three Months Ended August 31, 2008 and August 31, 2007**





**Revenues**





Total
      revenues for the three months ended August 31, 2008 rose $0.4 million, or 1.1%,
      to $35.0 million, compared to $34.6 million in the same period in the prior
      year. The increase in total revenues was due to an 8.2% increase in sales of
      equipment and other revenues offset by a decline in rental and lease revenues
      of
      0.8%.




Page
          20





Rental
      and lease revenues in the first quarter of fiscal 2009 were $27.2 million,
      compared to $27.4 million in the prior year period. This reflects a decline
      in
      our T&M lease revenues, while our T&M rental revenues remained
      relatively flat, with an increase in T&M rental activity offset by a decline
      in rental rates due to competitive pressure. The decline was offset in part
      by
      higher demand for our DP equipment.




Sales
      of
      equipment and other revenues increased to $7.8 million for the three months
      ended August 31, 2008 compared to $7.2 million in the prior year period. In
      part, this increase reflects the results of our strategic initiative outlined
      above relating to distribution sales. Gross margin on sales decreased to $2.2
      million in the first quarter of fiscal 2009 as compared to $2.4 million a year
      ago, while the gross margin percentage decreased to 34.8% for the first quarter
      of fiscal 2009 compared to 40.4% for the first quarter of fiscal 2008. 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 $11.6 million, or 42.5% of rental
      and
      lease revenues, in the first quarter of fiscal 2009, from $11.0 million, or
      40.1% of rental and lease revenues, in the first quarter of fiscal 2008. The
      increased depreciation expense in fiscal 2009 was due to a higher average rental
      and lease equipment pool, while the increased depreciation ratio, as a
      percentage of rental and lease revenues, was due primarily to lower rental
      and
      utilization rates.





Costs
      of
      revenues other than depreciation increased 10.3% to $5.4 million in the first
      quarter of fiscal 2009 from $4.9 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 65.2% in the first quarter
      of fiscal 2009 from 59.6% in the first quarter of fiscal 2008, reflecting
      increased distribution sales which carry a lower margin. Our cost of revenues
      other than depreciation increased primarily due to an increase in our
      distribution sales. As noted above in the “overview section”, 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 $12.1 million in the first quarter
      of
      fiscal 2009, as compared to $10.9 million in the first quarter of fiscal 2008.
      Selling, general and administrative expenses as a percentage of total revenues
      increased to 34.4% in the first quarter of fiscal 2009 from 31.5% in the first
      quarter of fiscal 2008. Our selling, general and administrative expenses
      increased due to higher personnel and benefit costs to support our current
      operations and develop our strategic initiatives, and a foreign currency loss
      of
      $476 for the three months ended August 31, 2008, compared to a foreign currency
      gain of $16 for the three months ended August 31, 2007, as a result of a
      strengthening of the dollar against key currencies.





**Interest
      Income, Net**





Net
      interest income was $0.6 million for the first quarter of fiscal 2009 compared
      to $0.9 million in the prior year period. The decrease reflects decreases in
      prevailing money-market interest rates.





**Income
      Tax Provision**





Our
      effective tax rate was 33.5% in the first quarter of fiscal 2009, compared
      to
      39.1% for the same period in fiscal 2008. The decrease is due primarily to
      changes in estimated tax exposures.





**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 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 $15.7 million of rental and
      lease equipment during the first three months of fiscal 2009. This amount was
      24.0% lower than the $20.6 million in the same period for fiscal
      2008.





In
      addition to increasing our rental equipment pool, we periodically repurchase
      shares of our common stock under an authorization from our board of directors.
      Shares we repurchase are retired and returned to the status of authorized but
      unissued stock. During the three months ended August 31, 2008, we purchased
      208,756 shares of our common stock for $2.6 million, at an average price of
      $12.50 per share. As of August 31, 2008, 737,000 shares of our common stock
      remain authorized for repurchase.




Page
          21





In
      April 2007, our board of directors authorized a regular quarterly cash
      dividend of $0.10 per common share. We commenced payment of our quarterly cash
      dividend in July 2007. In January 2008, our board of directors
      approved an increase to $0.15 per common share. For the three months ended
      August 31, 2008 and 2007, we paid dividends of $3.9 million and $2.6 million,
      respectively.





We
      expect
      to continue paying a quarterly dividend in future quarters, although the amount
      and timing of dividends, if any, will be made at the discretion of our board
      of
      directors in each quarter, subject to compliance with applicable law.





At
      August
      31, 2008, we held $23.6 million, at cost, in auction rate securities (“ARS”),
      which we classify as investments available-for-sale. 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 AA, and none are mortgage-backed debt obligations. Historically,
      our
      ARS have been highly liquid, using a
      Dutch
      auction process that resets the applicable interest rate at predetermined
      intervals, typically every 35 days, to provide liquidity at par. However,
      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 a
      predetermined formula with spreads tied to particular interest rate indexes.
      We
      value the ARS from quotes received from our broker which are derived from their
      internally developed model. In determining a discount factor for each ARS,
      the
      model weights various factors, including assessments of credit quality,
      duration, insurance wraps, portfolio composition, discount rates, overall
      capital market liquidity and comparable securities, if any. We consider declines
      in ARS fair market values due to lack of liquidity to be a temporary impairment
      that is recorded as an unrealized loss in the shareholders’ equity section of
      our balance sheet. 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 $54.1 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.





On
      August
      8, 2008, our broker announced publicly a settlement in principle with the
      Securities and Exchange Commission to purchase ARS from its customers, at full
      value, during a two-year time period beginning on June 30, 2010. If the proposed
      settlement becomes final, we would have the right to sell our ARS to our broker
      at par plus accrued interest during this timeframe. To provide more immediate
      relief, our broker is offering access to liquidity through an ARS 100% Loan
      to
      Par Value program prior to the timeframe in which our broker will purchase
      the
      ARS. Interest will be charged at the same rate as the yields earned on the
      underlying ARS that serve as collateral for the loan. We have not borrowed
      any
      funds under this program as of August 31, 2008.





During
      the first three months of fiscal 2009 and fiscal 2008, net cash provided by
      operating activities was $18.7 million and $14.9 million, respectively. The
      increase in operating cash flow was due primarily to a $2.7 million decrease
      in
      accounts receivable for the three months ended August 31, 2008 compared to
      an
      increase of $2.2 in the prior year period. This increase was offset by a $0.8
      million increase in accrued expenses for the three months ended August 31,
      2008
      compared to an increase of $2.4 million for the three months ended August 31,
      2007 and an overall decline in net income of $0.9 million for the three months
      ended August 31, 2008 compared to the three months ended August 31,
      2007.





During
      the three months ended August 31, 2008 net cash used in investing activities
      was
      $9.3 million, compared to $15.3 million in the same period of fiscal 2008.
      The
      decline in net cash used in investing activities is due to a decrease in
      payments for the purchase of rental and lease equipment to $15.7 million for
      the
      three months ended August 31, 2008 compared to $20.6 million for the three
      months ended August 31, 2007.





Net
      cash
      used in financing activities increased to $6.0 million from $1.7 million for
      the
      three months ended August 31, 2008 and 2007, respectively, due to an increase
      in
      payments for the repurchase of common stock to $2.6 million for the current
      fiscal period compared to $0 for the prior year period, and an increase in
      dividends paid to $3.9 million for the three months ended August 31, 2008
      compared to $2.6 million for the three months ended August 31, 2007.





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 August 31, 2008.





We
      believe that based on our current cash, cash equivalents and investment balances
      of $54.1 million at August 31, 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, or financial flexibility or
      our
      ability to fund our operations, including the dividend.




Page
          22





**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, 2008. The exact
      timing of reversal or settlement of our FIN 48 liabilities of $5.5 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” 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, 2008 (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 three months of fiscal 2009, 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, 2008.





**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 of 1934) 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.




Page
          23




**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, results of operations, or cash flows.





**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 2008 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 three months of fiscal 2009, 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, 2008.





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





None.





**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
          24




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 CORPORATION





DATED:
      October 8, 2008








/s/
      Craig R. Jones


Craig
      R.
      Jones


Vice
      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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          25