**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 November 30, 2007 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
              of
                Incorporation or Organization)
            
            (I.R.S.
                Employer
              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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:





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





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





Yes
o
      No x





The
      number of shares outstanding of the registrant's common stock as of December
      17,
      2007 was 25,924,635.







**ELECTRO
      RENT CORPORATION**


**FORM
      10-Q**


**November
      30, 2007**




TABLE
              OF CONTENTS
            PagePart
                I: FINANCIAL INFORMATION
            3Item
                1. Financial Statements
            3Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                November 30, 2007 and 2006 (Unaudited)
            3Condensed
                Consolidated Balance Sheets at November 30, 2007 and May 31, 2007
                (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended November
                30, 2007 and 2006 (Unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            6Item
                2. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            13Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            20Item
                4. Controls and Procedures
            20Part
                II: OTHER INFORMATION
            20Item
                1. Legal Proceedings
            20Item
                1A. Risk Factors
            20Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            20Item
                3. Defaults Upon Senior Securities
            20Item
                4. Submission of Matters to a Vote of Security Holders
            21Item
                5. Other Information
            21Item
                6. Exhibits
            21SIGNATURES
            22




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**
              **November 30,**
            
            **Six Months Ended**
              **November 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenues:Rentals
                and leases
            
            $
            27,425
            
            $
            25,754
            
            $
            54,869
            
            $
            51,202Sales
                of equipment and other revenues
            
            
            7,431
            
            
            5,786
            
            
            14,181
            
            
            10,362Total
                revenues
            
            
            34,856
            
            
            31,540
            
            
            69,050
            
            
            61,564Operating
                expenses:Depreciation
                of rental and lease equipment
            
            
            11,211
            
            
            10,510
            
            
            22,204
            
            
            20,392Costs
                of revenues other than deprecation of rental and lease
                equipment
            
            
            5,189
            
            
            3,498
            
            
            10,052
            
            
            6,114Selling,
                general and administrative expenses
            
            
            10,219
            
            
            10,177
            
            
            20,701
            
            
            20,755Total
                operating expenses
            
            
            26,619
            
            
            24,185
            
            
            52,957
            
            
            47,261Operating
                profit
            
            
            8,237
            
            
            7,355
            
            
            16,093
            
            
            14,303Interest
                income, net
            
            
            901
            
            
            910
            
            
            1,773
            
            
            1,849Income
                before income taxes
            
            
            9,138
            
            
            8,265
            
            
            17,866
            
            
            16,152Income
                tax provision
            
            
            3,402
            
            
            3,341
            
            
            6,816
            
            
            6,469Net
                income
            
            $
            5,736
            
            $
            4,924
            
            $
            11,050
            
            $
            9,683Earnings
                per share:Basic
            
            $
            0.22
            
            $
            0.19
            
            $
            0.43
            
            $
            0.38Diluted
            
            $
            0.22
            
            $
            0.19
            
            $
            0.42
            
            $
            0.37Shares
                used in per share calculation:Basic
            
            
            25,919
            
            
            25,610
            
            
            25,879
            
            
            25,580Diluted
            
            
            26,089
            
            
            26,028
            
            
            26,061
            
            
            25,987








**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)**





**November 30,**
              **2007**
            
            **May 31,**
              **2007**ASSETSCash
                and cash equivalents
            
            $
            56,884
            
            $
            57,172Marketable
                securities
            
            
            24,100
            
            
            23,550Accounts
                receivable, net of allowance for doubtful accounts of $293 and
                $251
            
            
            20,043
            
            
            17,161Rental
                and lease equipment, net of accumulated depreciation of $152,007
                and
                $140,164
            
            
            164,728
            
            
            161,806Other
                property, net of accumulated depreciation and amortization of $14,297
                and
                $13,761
            
            
            14,710
            
            
            14,990Goodwill
            
            
            2,984
            
            
            2,859Intangibles,
                net of amortization of $1,197 and $904
            
            
            1,278
            
            
            1,571Other
            
            
            5,807
            
            
            5,710$
            290,534
            
            $
            284,819LIABILITIES
                AND SHAREHOLDERS' EQUITYLiabilities:Accounts
                payable
            
            $
            6,008
            
            $
            10,084Accrued
                expenses
            
            
            11,043
            
            
            11,019Deferred
                revenue
            
            
            5,125
            
            
            5,047Deferred
                tax liability
            
            
            15,465
            
            
            15,190Total
                liabilities
            
            
            37,641
            
            
            41,340Commitments
                and contingencies (Note 10)Shareholders'
                equity:Preferred
                stock, $1 par - shares authorized 1,000,000; none issuedCommon
                stock, no par - shares authorized 40,000,000;  issued and outstanding
                November 30, 2007 - 25,924,635; May 31, 2007 -
                25,812,943
            
            
            33,554
            
            
            32,212Retained
                earnings
            
            
            219,339
            
            
            211,267Total
                shareholders' equity
            
            
            252,893
            
            
            243,479$
            290,534
            
            $
            284,819





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




Page
          4





**ELECTRO
      RENT CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


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





**Six Months Ended****November 30,****2007**
            
            **2006**Cash
                flows from operating activities:Net
                income
            
            $
            11,050
            
            $
            9,683Adjustments
                to reconcile net income to net cashprovided by operating activities:Depreciation
                and amortization
            
            
            23,032
            
            
            21,233Remeasurement
                gain
            
            
            (203
            )
            
            (34
            )Gain
                on sale of rental and lease equipment
            
            
            (4,872
            )
            
            (4,309
            )Deferred
                tax liability
            
            
            701
            
            
            770Stock
                compensation expense
            
            
            152
            
            
            411Provision
                for losses on accounts receivable
            
            
            176
            
            
            193Excess
                tax benefit for stock options exercised
            
            
            (128
            )
            
            (369
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (2,946
            )
            
            (1,153
            )Other
                assets
            
            
            (93
            )
            
            64Accounts
                payable
            
            
            206
            
            
            (915
            )Accrued
                expenses
            
            
            1,798
            
            
            (1,169
            )Deferred
                revenue
            
            
            68
            
            
            (45
            )Net
                cash provided by operating activities
            
            
            28,941
            
            
            24,360Cash
                flows from investing activities:Proceeds
                from sale of rental and lease equipment
            
            
            12,681
            
            
            8,691Cash
                paid for acquisition
            
            
            -
            
            
            (51
            )Payments
                for purchase of rental and lease equipment
            
            
            (37,228
            )
            
            (37,195
            )Purchases
                of marketable securities
            
            
            (1,800
            )
            
            (450
            )Redemptions
                of marketable securities
            
            
            1,250
            
            
            50Payments
                for purchase of other property
            
            
            (255
            )
            
            (310
            )Net
                cash used in investing activities
            
            
            (25,352
            )
            
            (29,265
            )Cash
                flows from financing activities:Proceeds
                from the exercise of common stock options
            
            
            1,064
            
            
            1,366Excess
                tax benefit for stock options exercised
            
            
            128
            
            
            369Payment
                for repurchase of common stock
            
            
            (19
            )
            
            -Payment
                of dividends
            
            
            (5,175
            )
            
            -Net
                cash (used in) provided by financing activities
            
            
            (4,002
            )
            
            1,735Net
                decrease in cash and cash equivalents
            
            
            (413
            )
            
            (3,170
            )Effect
                of exchange rate changes on cash
            
            
            125
            
            
            43Cash
                and cash equivalents at beginning of period
            
            
            57,172
            
            
            58,748Cash
                and cash equivalents at end of period
            
            $
            56,884
            
            $
            55,621





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




Page
          5





**ELECTRO
      RENT CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**(in
      thousands, except per share amounts)**





Note
      1:
      Basis of Presentation





The
      condensed consolidated financial statements included herein have been prepared
      by Electro Rent Corporation without audit, pursuant to the rules and regulations
      of the United States Securities and Exchange Commission (the "SEC"). The
      condensed consolidated financial statements include the accounts of Electro
      Rent
      Corporation and its wholly owned subsidiaries, Genstar Rental Electronics,
      Inc.,
      ER International, Inc., Electro Rent Europe NV, Electro Rent Asia, Inc., and
      Electro Rent (Tianjin) Rental Co., Ltd. (collectively "we", "us", or "our"
      hereafter) as consolidated with the elimination of all intercompany
      transactions. To conform the condensed consolidated statements of cash flows
      for
      the six months ended November 30, 2006 to the current year presentation, we
      reclassified prepaid rental and lease payments in accounts receivable to
      deferred revenue, both increasing the change in accounts receivable and
      decreasing the change in deferred revenue by $28, we separately disclosed excess
      tax benefits for stock options exercised of $369, decreasing the change in
      accrued expenses by the same amount, and we separately disclosed effects of
      exchange rates on cash, reducing net cash provided by operating activities
      by
      $43.





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 the opinion of management,
      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 management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities as well as the disclosures of contingent assets and liabilities
      as
      of the date of these financial statements and the reported amounts of revenues
      and expenses during the reporting period. Actual results could differ from
      those
      estimates, and results of operations for interim periods are not necessarily
      indicative of results for the full year.





New
      Accounting Pronouncements





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





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





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




Page
          6





In
      December 2007, the FASB issued SFAS No. 141(R),*Business
      Combinations*(“SFAS
      141R”). SFAS 141R retains the fundamental requirements in SFAS 141 that the
      acquisition method of accounting (which SFAS 141 called the*purchase
      method*)
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. SFAS 141R also establishes principles and requirements
      for
      how the acquirer: (a) recognizes and measures in its financial statements
      the identifiable assets acquired, the liabilities assumed, and any
      non-controlling interest in the acquiree; (b) recognizes and measures the
      goodwill acquired in the business combination or a gain from a bargain purchase;
      and (c) determines what information to disclose to enable users of the
      financial statements to evaluate the nature and financial effects of the
      business combination. SFAS 141R applies prospectively to business combinations
      for which the acquisition date is on or after the beginning of the first annual
      reporting period 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 have not yet determined the impact, if any, that
      SFAS
      141R will have on our financial condition or results of
      operations.





In
      December 2007, the FASB issued SFAS No. 160, *Non-controlling
      Interests in Consolidated Financial Statements* (“SFAS
      160”). SFAS 160 amends ARB 51 to establish accounting and reporting standards
      for the non-controlling (minority) interest in a subsidiary and for the
      deconsolidation of a subsidiary. It 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 and establishes
      a
      single method of accounting for changes in a parent’s ownership interest in a
      subsidiary that does not result in deconsolidation. SFAS 160 is effective for
      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
      have
      not yet determined the impact, if any, that SFAS 160 will have on our financial
      statements.





Note
      2:
      Stock Options and Equity Incentive Plan





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





The
      following table represents stock option activity for the six months ended
      November 30, 2007:





Shares
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Term
                (in
              years)
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at May 31, 2007
            
            
            663
            
            $
            9.89Granted
            
            
            -
            
            
            -Exercised
            
            
            (113
            )
            
            9.41Forfeited/Cancelled
            
            
            -
            
            
            -Outstanding
                at November 30, 2007
            
            
            550
            
            $
            9.99
            
            
            1.91
            
            $
            2,187Vested
                and expected to vest at November 30, 2007
            
            
            547
            
            $
            9.95
            
            
            1.90
            
            $
            2,187Exercisable
                at November 30, 2007
            
            
            524
            
            $
            9.63
            
            
            1.81
            
            $
            2,183




Page
          7




There
      were no stock option grants during the three and six months ended November
      30,
      2007, compared to 56 stock option grants for the three and six months ended
      November 30, 2006. The per share weighted average grant date fair value was
      $6.26 for the stock options granted during the three and six months ended
      November 30, 2006.  The
      total
      fair value of shares vested during the three and six months ended November
      30,
      2007 was $139 and $765, respectively, compared to $89 and $833 for the three
      and
      six months ended November 30, 2006, respectively. The aggregate intrinsic value
      is calculated as the difference between the exercise price of the underlying
      awards and the quoted price of our common stock. The aggregate intrinsic value
      of options exercised during the three and six months ended November 30, 2007
      was
      $138 and $539, respectively, compared to $1,055 and $1,129 for the three and
      six
      months ended November 30, 2006, respectively. As of November 30, 2007 there
      was
      approximately $132 of total unrecognized compensation cost related to unvested
      share-based arrangements granted under our Stock Option Plans and Equity
      Incentive Plan. The cost is expected to be recognized over a weighted-average
      period of 1.31 years. Shares of newly issued common stock will be issued upon
      exercise of stock options.





*Fair
      Value Disclosure*





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 assumed
      at the date of grant. Forfeitures are estimated at the date of grant based
      on
      historical experience.





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





Three Months
              Ended
              November 30,
              2006
            
            Six Months
              Ended
              November 30,
              2006Risk-free
                interest rate
            
            
            4.7
            %
            
            4.7
            %Expected
                life (in years)
            
            
            3.5
            
            
            3.5Expected
                dividend yield
            
            
            -
            
            
            -Expected
                volatility
            
            
            40.2
            
            
            40.2





There
      were no stock options granted in the three and six months ended November 30,
      2007.





*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
      recorded $28 and $152 of stock-based compensation as part of selling, general
      and administrative expenses in the accompanying condensed consolidated
      statements of operations for the three and six months ended November 30, 2007,
      respectively, compared to $217 and $411 for the three and six months ended
      November 30, 2006, respectively. This compensation cost caused net income to
      decrease by $18 and $112 for the three and six months ended November 30, 2007,
      respectively, compared to $177 and $335 for the three and six months ended
      November 30, 2006, 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
      six
      months ended November 30, 2007 and 2006 was $128 and $369, respectively. Cash
      received from stock option exercises was $1,064 and $1,366 for the six months
      ended November 30, 2007 and 2006, respectively.




Page
          8




Note
      3:
      Acquisition





On
      January 31, 2006, we completed the acquisition, pursuant to a Stock Purchase
      Agreement (“SPA”), of Rush Computer Rentals, Inc. ("Rush"), in order to
      facilitate the growth of our data products business. Rush is similar to our
      existing data products business, and is one of the leading providers of personal
      computers and related equipment for rent or sale in the northeastern United
      States. Before taking into account Rush's cash balance, an aggregate purchase
      price of $9,710 was paid in cash. In addition, up to $1,000 of contingent
      consideration may be paid to the shareholders of Rush based upon the achievement
      of certain revenue objectives through February 2008. $750 of this additional
      consideration was paid in the fourth quarter of fiscal 2007, and an additional
      $125 was accrued in the second quarter of fiscal 2008. The purchase price,
      subject to post-closing adjustments, was allocated to the net assets acquired
      based upon their fair values as of the date of the transaction, with the excess
      recorded as goodwill.





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





We
      increased the carrying value of goodwill by $125 in the second quarter of fiscal
      2008, consisting of additional consideration accrued in accordance with the
      revenue earnout provisions contained in the SPA.





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





Note
      4:
      Goodwill and Intangibles





As
      a
      result of the Rush acquisition, we recorded $2,083 of goodwill and $2,297 of
      intangibles in fiscal 2006. As of November 30, 2007, the carrying amount of
      goodwill was $2,984.





The
      changes in carrying amount of goodwill and other intangible assets for the
      six
      months ended November 30, 2007 are as follows (in thousands):





Balance as of
              June 1, 2007 (net
              of amortization)
            
            Adjustments
            
            Amortization
            
            Balance as of
                November 30,
              2007Goodwill
            
            $
            2,859
            
            $
            125
            
            $
            -
            
            $
            2,984Trade
                Name
            
            
            411
            
            
            -
            
            
            -
            
            
            411Non-compete
                agreements
            
            
            533
            
            
            -
            
            
            (175
            )
            
            358Customer
                relationships
            
            
            627
            
            
            -
            
            
            (118
            )
            
            509$
            4,430
            
            $
            125
            
            $
            (293
            )
            $
            4,262





The
      goodwill and intangibles have been assigned to our computer-related data
      products (“DP”) operating segment. During fiscal 2007 and the first six months
      of fiscal 2008, we revised the gross carrying value of goodwill and intangibles
      primarily as a result of additional purchase price consideration and final
      valuation of certain assets acquired and costs incurred to acquire Rush (see
      "Note 3"). 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 November 30 and May 31, 2007. The annual impairment
      review date for goodwill is May 31.





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







November
                30, 2007Estimated
              Useful
                Life
            
            Gross Carrying
                Amount
            
            Accumulated
              Amortization
            
            Net Carrying
              AmountTrade
                name
            
            
            -
            
            $
            411
            
            $
            -
            
            $
            411Non-compete
                agreements
            
            
            2-5
                years
            
            
            1,050
            
            
            (692
            )
            
            358Customer
                relationships
            
            
            3-4
                years
            
            
            1,014
            
            
            (505
            )
            
            509$
            2,475
            
            $
            (1,197
            )
            $
            1,278




Page
          9







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





Amortization
      expense was $147 and $293 for the three and six months ended November 30, 2007,
      respectively, compared to $152 and $311 for the three and six months ended
      November 30, 2006, respectively.





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





Year
                ending May 31,
            
            Future
              Amortization2008
            
            $
            2092009
            
            
            3352010
            
            
            2572011
            
            
            662012
            
            
            -$
            867





Note
      5:
      Noncash Investing and Financing Activities





We
      had
      accounts payable and other accruals related to acquired equipment totaling
      $4,551 and $8,844 as of November 30, 2007 and May 31, 2007, respectively, and
      $7,850 and $9,396 as of November 30, 2006 and May 31, 2006, respectively, which
      amounts were paid in following periods. We recorded $0 and $2,580 for dividends
      declared and not yet paid in accrued expenses and as a reduction of retained
      earnings as of November 30, 2007 and May 31, 2007, respectively, which amounts
      were paid in the following periods. There were no comparable amounts for the
      prior year periods.





Note
      6:
      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:





November
                30,
              2007
            
            May
                31,
              2007Gross
                minimum lease payments receivable
            
            $
            870
            
            $
            818Less
                - unearned interest
            
            
            (58
            )
            
            (55
            )Net
                investment in sales-type lease receivables
            
            $
            812
            
            $
            763





Note
      7:
      Segment Reporting and Related Disclosures





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




Page
          10





Although
      we have separate operating segments for T&M and DP 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 $272,030 of T&M
      equipment and $44,705 of DP equipment at November 30, 2007 and
      $259,839  of
      T&M equipment and $42,131  of
      DP
      equipment at May 31, 2007.





Revenues
      for these product groups were as follows for the three months ended November
      30:





T&M
            
            DP
            
            Total2007Rentals
                and leases
            
            $
            21,435
            
            $
            5,990
            
            $
            27,425Sales
                of equipment and other revenues
            
            
            6,850
            
            
            581
            
            
            7,431$
            28,285
            
            $
            6,571
            
            $
            34,8562006Rentals
                and leases
            
            $
            19,832
            
            $
            5,922
            
            $
            25,754Sales
                of equipment and other revenues
            
            
            4,941
            
            
            845
            
            
            5,786$
            24,773
            
            $
            6,767
            
            $
            31,540





Revenues
      for these product groups were as follows for the six months ended November
      30:





T&M
            
            DP
            
            Total2007Rentals
                and leases
            
            $
            42,766
            
            $
            12,103
            
            $
            54,869Sales
                of equipment and other revenues
            
            
            13,070
            
            
            1,111
            
            
            14,181$
            55,836
            
            $
            13,214
            
            $
            69,0502006Rentals
                and leases
            
            $
            38,914
            
            $
            12,288
            
            $
            51,202Sales
                of equipment and other revenues
            
            
            8,853
            
            
            1,509
            
            
            10,362$
            47,767
            
            $
            13,797
            
            $
            61,564





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





Page
          11




Selected
      country information is presented below:





Three
                Months Ended
              November
                30,
            
            Six
                Months Ended
              November
                30,2007
            
            2006
            
            2007
            
            2006Revenues:
                (1)U.S.
            
            $
            28,750
            
            $
            27,919
            
            $
            57,961
            
            $
            54,776Other
                (2)
            
            
            6,106
            
            
            3,621
            
            
            11,089
            
            
            6,788Total
            
            $
            34,856
            
            $
            31,540
            
            $
            69,050
            
            $
            61,564November
                30,
              2007
            
            
            May
                31,
              2007Net
                Long-Lived Assets: (3)U.S.
            
            
            
            
            
            
            
            $
            162,705
            
            $
            158,377Other
                (2)
            
            
            
            
            
            
            
            
            20,995
            
            
            22,849Total
            
            
            
            
            
            
            
            $
            183,700
            
            $
            181,226





(1)
            Revenues
                by country are based on the location of shipping destination, whether
                the
                order originates in the U.S. parent or a foreign
                subsidiary.




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




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





Note
      8:
      Computation of Earnings Per Share





Following
      is a reconciliation of the denominator used in the computation of basic and
      diluted EPS for the three and six months ended November 30, 2007 and
      2006:





Three
                Months Ended
              November
                30,
            
            Six
                Months Ended
              November
                30,2007
            
            2006
            
            2007
            
            2006Denominator:Denominator
                for basic earnings per share - weighted average common shares outstanding
            
            
            25,919
            
            
            25,610
            
            
            25,879
            
            
            25,580Effect
                of dilutive securities-options (1)
            
            
            170
            
            
            418
            
            
            182
            
            
            40726,089
            
            
            26,028
            
            
            26,061
            
            
            25,987Net
                income
            
            $
            5,736
            
            $
            4,924
            
            $
            11,050
            
            $
            9,683Earnings
                per share:Basic
            
            $
            0.22
            
            $
            0.19
            
            $
            0.43
            
            $
            0.38Diluted
            
            $
            0.22
            
            $
            0.19
            
            $
            0.42
            
            $
            0.37





(1)
      Excludes 41 options outstanding during the three and six months ended November
      30, 2007, respectively, and 56 options outstanding during the three and six
      months ended November 30, 2006, respectively, for which the exercise price
      exceeded the average market price of our stock during that period.





Note
      9:
      Income Taxes





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




Page
          12





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




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





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





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




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





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
      10:
      Commitments and Contingencies





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




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





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





The
      following discussion addresses our financial condition as of November 30, 2007
      and May 31, 2007 and the results of our operations for the three and six months
      ended November 30, 2007 and 2006, and cash flows for the six month periods
      ended
      November 30, 2007 and 2006. This discussion should be read in conjunction with
      the Management's Discussion and Analysis section included in our 2007 Annual
      Report on Form 10-K (pages 10-17) to which the reader is directed for additional
      information and the Risk Factors discussed in Item 1A of that
      Report.





**Overview**





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





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




Page
          13




For
      the
      first six months of fiscal 2008, rental revenues comprised 83% of our rental
      and
      lease revenue. That percentage has increased over the last two years due to
      an
      increase in T&M rental activity that began in fiscal 2005, increased rental
      activity in our foreign operations, and the Rush acquisition.





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





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





·
            Our
                acquisition cost;


·
            Our
                estimates of current and future market demand for
                rentals;


·
            Our
                estimates of current and future supply of
                product;


·
            The
                book value of the product after depreciation and other
                impairment;


·
            Our
                estimates of the effect of interest rates on rental and leasing fees
                as
                well as capital financing; and


·
            Our
                estimates of the potential current and future sale
                prices.





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





When
      the
      U.S. and global economy began to rebound in fiscal 2004, we saw increased demand
      for our equipment, and were able to sell equipment that was older and more
      fully
      depreciated. Due in part to these events, we experienced greater than normal
      gross margin on equipment sales of 46% for our 2006 fiscal year and 47% for
      our
      2007 fiscal year. Based on our current equipment management strategy, we believe
      that gross margin on sales will be lower as older and previously impaired
      equipment constitute a smaller percentage of sales and lower margin distribution
      sales continue to grow, although the gross margin percentage will fluctuate
      on a
      quarterly basis. Our gross margin on sales for the three and six months ended
      November 30, 2007 was 37% and 38%, respectively, compared to 47% and 50%,
      respectively, for the three and six months ended November 30, 2006.





Our
      results are subject to unanticipated events, as in the case of unusual
      opportunities for sales and early termination of equipment leases. Revenues
      from
      early termination of equipment leases are included in sales of equipment and
      other revenues. Such early terminations can (i) result in sales proceeds to
      the
      extent that the customer decides to purchase the equipment involved, (ii)
      accelerate lease payments to the extent of lease termination fees, and/or (iii)
      to the extent the customer does not purchase the equipment, increase the pool
      of
      equipment available for lease by us, which would adversely affect future
      utilization unless we can rent, lease or sell that equipment to another
      party.





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





·
            Net
                income per diluted common share
                (EPS);


·
            Net
                income as a percentage of average assets;
                and


·
            Net
                income as a percentage of average
                equity.




Page
          14




**STRATEGIC
      GROWTH PLANS**





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





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





·
            We
                have entered into distribution agreements with three leading manufacturers
                for a range of basic T&M
                equipment.


·
            We
                have re-focused our DP marketing approach to emphasize short-term,
                event-oriented rentals in addition to our traditional
                markets.


·
            We
                have been marketing a flexible leasing program that allows customers
                to
                build equity that can be applied against the future purchase of the
                test
                equipment.


·
            We
                have implemented an expanded customer communication program to identify
                used equipment re-marketing
                opportunities.





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





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





·
            Our
                wholly owned subsidiary in Tianjin, China, commenced operations in
                June
                2005 after we received what we believe to be one of the first licenses
                for
                a wholly foreign-owned equipment rental business in
                China.


·
            In
                September 2005, we acquired a small T&M equipment rental company based
                in Belgium, from which we service the European
                market.





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





Although
      our strategic initiatives have contributed to our improved operating results
      for
      the six months ended November 30, 2007, compared to the six months ended
      November 30, 2006, each entails risks that could impact our continuing business
      results over the long term. In addition to the risks associated with our core
      operations, there are special risks associated with international operations
      and
      with acquisitions, as well as with growth in general. Recent uncertainty in
      the
      U.S. economy as a result of more stringent credit requirements and access to
      capital may adversely affect our customers. While we have experienced improved
      results since 2004 as noted above, no assurance can be given regarding the
      length or extent of the recovery, and no assurance can be given that our rental
      and lease utilization, operating results and net income will not be adversely
      affected by the reversal of recent trends. For a more detailed summary of some
      of the risks associated with these and other factors, please see the Risk
      Factors discussed in Item 1A of our 2007 Annual Report on Form
      10-K.




Page
          15





**PROFITABILITY
      AND KEY BUSINESS TRENDS**





For
      the
      first six months of fiscal 2008 compared to the prior year period, revenues
      rose
      by 12.2% to $69.1 million, operating profit increased by 12.5% to $16.1 million
      and net income increased by 14.1% to $11.1 million. Our revenue growth included
      growth in our base business as well as our international markets in China and
      Europe. T&M rental and lease activity for the first six months of fiscal
      2008 increased compared to the prior year period, reflecting the strengthening
      global economy, gains in the aerospace/defense, semiconductor manufacturing
      and
      telecommunications manufacturing segments, and growth in our foreign operations.
      DP rental and lease activity for the same period began to increase. However,
      as
      a result of our decision to not continue to do certain business with relatively
      low profitability, and lower rental rates in the first half of fiscal 2008,
      DP
      rental and lease revenue declined slightly. Our profitability measurements
      are
      presented in the table below for the six months ended November 30, 2007 and
      2006:




2007
            
            2006Net
                income per diluted common share (EPS)
            
            $
            0.42
            
            $
            0.37Net
                income as a percentage of average assets
            
            
            7.7
            %
            
            7.3
            %Net
                income as a percentage of average equity
            
            
            9.1
            %
            
            8.7
            %





The
      increase in our operating profit reflects progress in certain programs
      associated with improving the profitability of the Rush business, growing
      T&M rentals in the U.S., and leveraging the existing infrastructure in our
      U.S. and foreign operations, offset in part by lower gross margins on sales
      as
      older and previously impaired equipment constitute a smaller percentage of
      sales
      and growth of lower margin distribution sales.





The
      amount of equipment on rent, based on acquisition cost, increased to $148.8
      million at November 30, 2007 from $129.7 million at November 30, 2006.
      Acquisition cost of equipment on lease decreased to $38.7 million at November
      30, 2007 from $40.7 million at November 30, 2006. Utilization for our T&M
      equipment pool, based on acquisition cost of equipment on rent and lease
      compared to the total pool, was 63.7% at November 30, 2007 compared to 64.5%
      at
      November 30, 2006. Over the same period, utilization of our DP equipment pool
      increased to 57.2% from 56.5%, primarily due to strengthening demand in the
      second quarter of fiscal 2008.





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





Three
                Months EndedNov
                30,
              2007
            
            Aug
                31,
              2007
            
            May
                31,
              2007
            
            Feb.
                28,
              2007
            
            Nov.
                30,
              2006Rentals
                and leases
            
            $
            27,425
            
            $
            27,444
            
            $
            27,165
            
            $
            24,716
            
            $
            25,754Sales
                of equipment and other revenues
            
            
            7,431
            
            
            6,750
            
            
            5,832
            
            
            5,974
            
            
            5,786Operating
                profit
            
            
            8,237
            
            
            7,856
            
            
            8,648
            
            
            6,060
            
            
            7,355





**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, 2007. We have not made any material changes to these policies as
      previously disclosed.




Page
          16





**Results
      of Operations**





**Comparison
      of Three Months Ended November 30, 2007 and November 30,
      2006**





**Revenues**





Total
      revenues for the three months ended November 30, 2007 rose $3.4 million, or
      10.5%, to $34.9 million, compared to $31.5 million in the same period in the
      prior year. The increase in total revenues was due to a 6.5% increase in rental
      and lease revenues and a 28.4% increase in sales of equipment and other
      revenues.





Rental
      and lease revenues in the second quarter of fiscal 2008 were $27.4 million,
      compared to $25.8 million in the prior year period. This increase is the result
      of growth in our foreign operations and higher demand for T&M equipment in
      our major market segments which we believe stems from general economic
      expansion.




We
      sell
      used equipment as a normal part of our rental business and new equipment as
      part
      of our distribution channel. However, these sales can fluctuate from quarter
      to
      quarter and year to year depending on equipment availability and customer
      requirements and funding. Sales of equipment and other revenues increased to
      $7.4 million for the three months ended November 30, 2007 compared to $5.8
      million in the prior year period. In part, this reflects the results of our
      strategic initiative outlined above relating to distribution sales. Gross margin
      on sales increased to $2.5 million in the second quarter of fiscal 2008 as
      compared to $2.4 million a year ago, while the gross margin percentage decreased
      to 36.7% for the second quarter of fiscal 2008 compared to 47.2% for the second
      quarter of fiscal 2007. As noted above, our gross margin percentage decreased
      primarily due to an increase in our lower margin distribution
      sales.





**Operating
      Expenses**





Depreciation
      of rental and lease equipment increased to $11.2 million, or 40.9% of rental
      and
      lease revenues, in the second quarter of fiscal 2008, from $10.5 million, or
      40.8% of rental and lease revenues, in the second quarter of fiscal 2007. The
      increased depreciation expense in fiscal 2008 is due to a higher average rental
      and lease equipment pool, while the increased depreciation ratio, as a
      percentage of rental and lease revenues, is due primarily to lower rental rates
      in the current year quarter.





Costs
      of
      revenues other than depreciation increased 48.3% to $5.2 million in the second
      quarter of fiscal 2008 from $3.5 million in the prior year period. Costs of
      revenues other than depreciation primarily includes the cost of equipment sales,
      which increased as a percentage of equipment sales to 63.3% in the second
      quarter of fiscal 2008 from 52.8% in the second quarter of fiscal 2007,
      reflecting increased distribution sales. As noted above, we expect that this
      number will fluctuate quarter-to-quarter, depending primarily on customer
      requirements and funding and growth in our distribution channel.





Selling,
      general and administrative expenses were $10.2 million in both the second
      quarter of fiscal 2008 and 2007. SG&A expenses as a percentage of total
      revenues decreased to 29.3% in the second quarter of fiscal 2008 from 32.3%
      in
      the second quarter of fiscal 2007, as a result of our ability to increase
      revenues within our existing infrastructure.





**Interest
      Income, Net**





Net
      interest income was $0.9 million for the second quarter of fiscal 2008 and
      2007.





**Income
      Tax Provision**





Our
      effective tax rate was 37.2% in the second quarter of fiscal 2008, compared
      to
      40.4% for the same period in fiscal 2007. The decrease is due primarily to
      the
      utilization of tax loss carryforwards for our European subsidiary and lower
      tax
      rates on earnings from our foreign subsidiaries.




Page
          17





**Results
      of Operations**





**Comparison
      of Six Months Ended November 30, 2007 and November 30,
      2006**





**Revenues**





Total
      revenues for the six months ended November 30, 2007 rose $7.5 million, or 12.2%,
      to $69.1 million, compared to $61.6 million in the same period in the prior
      year. The increase in total revenues was due to a 7.2% increase in rental and
      lease revenues and a 36.9% increase in sales of equipment and other
      revenues.





Rental
      and lease revenues in the six months ended November 30, 2007 were $54.9 million,
      compared to $51.2 million in the prior year period. This increase is the result
      of growth in our foreign operations and higher demand for T&M equipment in
      our major market segments which we believe stems from general economic
      expansion.




We
      sell
      used equipment as a normal part of our rental business and new equipment as
      part
      of our distribution channel. However, these sales can fluctuate from quarter
      to
      quarter and year to year depending on equipment availability and customer
      requirements and funding. Sales of equipment and other revenues increased to
      $14.2 million for the six months ended November 30, 2007 compared to $10.4
      million in the prior year period. In part, this reflects the results of our
      strategic initiative outlined above relating to distribution sales. Gross margin
      on sales increased to $4.9 million for the first six months of fiscal 2008
      as
      compared to $4.3 million a year ago, while the gross margin percentage decreased
      to 38.4% for the six months ended November 30, 2007 compared to 49.6% for the
      first six months of fiscal 2007. As noted above, our gross margin percentage
      decreased primarily due to an increase in our lower margin distribution
      sales.





**Operating
      Expenses**





Depreciation
      of rental and lease equipment increased to $22.2 million, or 40.5% of rental
      and
      lease revenues, for the six months ended November 30, 2007, compared to $20.4
      million, or 39.8% of rental and lease revenues, in the fist six months of fiscal
      2007. The increased depreciation expense in fiscal 2008 is due to a higher
      average rental and lease equipment pool, while the increased depreciation ratio,
      as a percentage of rental and lease revenues, is due primarily to lower rental
      rates in the current year quarter.





Costs
      of
      revenues other than depreciation increased 64.4% to $10.1 million in the first
      six months of fiscal 2008 from $6.1 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 61.6% in the first six
      months of fiscal 2008 from 50.4% in the first six months of fiscal 2007,
      reflecting increased distribution sales. As noted above, we expect that this
      number will fluctuate quarter-to-quarter, depending primarily on customer
      requirements and funding and growth in our distribution channel.





Selling,
      general and administrative expenses declined slightly to $20.7 million in the
      first half of fiscal 2008, as compared to $20.8 million in the first half of
      fiscal 2007. SG&A expenses as a percentage of total revenues decreased to
      30.0% in the first half of fiscal 2008 from 33.7% in the first half of fiscal
      2007, as a result of our ability to increase revenues within our existing
      infrastructure.





**Interest
      Income, Net**





Net
      interest income was $1.8 million for the first half of fiscal 2008 and
      2007.





**Income
      Tax Provision**





Our
      effective tax rate was 38.2% in the first half of fiscal 2008, compared to
      40.1%
      for the same period in fiscal 2007. The decrease is due primarily to the
      utilization of tax loss carryforwards for our European subsidiary, and lower
      tax
      rates on earnings from our foreign subsidiaries.





**Liquidity
      and Capital Resources**





During
      the last three fiscal years, our primary capital requirements have been
      purchases of rental and lease equipment. We generally purchase equipment
      throughout each year to replace equipment that has been sold and to maintain
      adequate levels of rental equipment to meet existing and new customer demands.
      To meet increasing T&M rental demand, support areas of potential growth for
      both T&M and DP equipment and to keep our equipment pool technologically
      up-to-date, we made payments for the purchase of $37.2 million of rental and
      lease equipment during the first six months of fiscal 2008 and 2007.




Page
          18





In
      addition to increasing our rental equipment, we have in the past purchased
      shares of our common stock under an authorization from our board of directors.
      Shares repurchased by us are retired and returned to the status of authorized
      but unissued stock. During the six months ended November 30, 2007, we purchased
      1,420 shares of our common stock for $19,000, at an average price of $13.48
      per
      share. As of November 30, 2007, 956,000 shares of our common stock remain
      authorized for repurchase.





In
      July
      2007, we commenced payment of a quarterly cash dividend of $0.10 per common
      share. For the six months ended November 30, 2007, we paid dividends of $5.2
      million. There was no dividend declared or paid in the prior year period.





On
      December 5, 2007 we declared a dividend of $0.10 per common share, payable
      on
      January 10, 2008. We expect to continue paying a quarterly dividend in future
      quarters, although the actual decision to do so will be made by our board of
      directors in each quarter.





During
      the first six months of fiscal 2008 and fiscal 2007 net cash provided by
      operating activities was $28.9 million and $24.4 million, respectively. The
      increase in operating cash flow is due primarily to improved operating results
      and higher depreciation and amortization for the six months ended November
      30,
      2007, compared to the prior year period, and a $1.8 million increase in accrued
      expenses for the current fiscal period, compared to a decline of $1.2 million
      in
      the prior year period. The increased operating cash flow was partially offset
      by
      an increase in accounts receivable of $2.9 million for the six months ended
      November 30, 2007, compared to an increase of $1.2 million in the prior year
      period.





During
      the six months ended November 30, 2007 net cash used in investing activities
      was
      $25.4 million, compared to $29.3 million in the same period of fiscal 2007.
      For
      the six months ended November 30, 2007 and 2006, payments for the purchase
      of
      rental and lease equipment were $37.2 million, respectively, offset by proceeds
      from sale of rental and lease equipment of $12.7 and $8.7 million for the six
      months ended November 30, 2007 and 2006, respectively.





Net
      cash
      flows from financing activities decreased in the first six months of fiscal
      2008
      as compared to the same period of the prior year primarily due to $5.2 million
      in dividend payments to shareholders. There was no dividend paid in the prior
      year period.





We
      have a
      $10.0 million revolving line of credit with an institutional lender, subject
      to
      certain restrictions, to meet equipment acquisition needs as well as working
      capital and general corporate requirements. We had no bank borrowings
      outstanding or off balance sheet financing arrangements at November 30, 2007.





**Contractual
      Obligations**





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




Page
          19




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 "Quantitative and Qualitative Disclosure About
      Market Risk Related to Interest Rates and Currency Rates," as well as in our
      Annual Report on Form 10-K for the year ended May 31, 2007 (including the "Risk
      Factors" discussed in Item 1A to that document), our Proxy Statement for our
      2007 Annual Meeting of Shareholders 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 six months of fiscal 2008, there were no material changes in the
      information regarding market risk contained in our Annual Report on Form 10-K
      for the fiscal year ended May 31, 2007.





**Item
      4. Controls and Procedures**





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





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





**Part
      II. OTHER INFORMATION**





Item
      1.
      Legal Proceedings




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





Item
      1A.
      Risk Factors.





In
      addition to the other information set forth in this report, you should carefully
      consider the discussion of various risks and uncertainties contained in Part
      I,
“Item 1A. Risk Factors” in our 2007 Annual Report on Form 10-K. We believe those
      risk factors are the most relevant to our business and could cause our results
      to differ materially from the forward-looking statements made by us. Please
      note, however, that those are not the only risk factors facing us. Additional
      risks that we do not consider material, or of which we are not currently aware,
      may also have an adverse impact on us. Our business, financial condition, and
      results of operations could be seriously harmed if any of these risks or
      uncertainties actually occurs or materializes. In that event, the market price
      for our common stock could decline, and our shareholders may lose all or part
      of
      their investment.





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





None.





Item
      3.
      Defaults Upon Senior Securities.




None.




Page
          20





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





(a)
      On
      October 18, 2007, we held our 2007 Annual Meeting of Shareholders. We solicited
      proxies in connection with the meeting pursuant to Regulation 14A. 25,100,851
      shares were present in person or by proxy out of a total of 25,887,243 shares
      issued and outstanding and eligible to vote on the record date.





(b)
      At
      the meeting the following directors were elected by the number of affirmative
      votes set opposite their respective names:





Name
            
            Number
                of
              Shares
                For
            
            Number
                of
              Shares
                WithheldGerald
                D. Barrone
            
            24,725,982
            
            374,869Nancy
                Y. Bekavac
            
            24,726,282
            
            374,569Karen
                J. Curtin
            
            24,942,529
            
            158,322Daniel
                Greenberg
            
            24,748,329
            
            352,522Joseph
                J. Kearns
            
            24,726,282
            
            374,569S.
                Lee Kling
            
            24,725,982
            
            374,869James
                S. Pignatelli
            
            24,942,529
            
            158,322





(c)
      Other
      matters submitted to a vote of security holders:





The
      shareholders ratified the appointment of Deloitte & Touche LLP as the
      registrant's independent public accountants for the current year. 25,066,670
      shares were voted for, 18,436 shares were voted against, and 15,745 shares
      abstained from voting.





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**





(a)


Exhibit#
            
            Description31(A)
            
            Rule
                13a-14(a)/15d-14(a) Certification by Principal Executive
                Officer31(B)
            
            Rule
                13a-14(a)/15d-14(a) Certification by Principal Financial
                Officer32(A)
            
            Section
                1350 Certification by Principal Executive Officer32(B)
            
            Section
                1350 Certification by Principal Financial
                Officer




Page
          21





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:
      December 21, 2007




/s/
                Craig R. JonesCraig
                R. JonesVice
                President and Chief Financial Officer(Principal
                Financial Officer and duly authorizedto
                sign this report on behalf of the
                company)


Page
            22