*Table
          of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**










**FORM
      10-****Q**





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      quarterly period ended November 30, 2007




Commission
      file number: 0-32789




**EMTEC,
      INC.**


(Exact
      name of registrant as specified in its charter)




**Delaware**
              (State
                of incorporation or organization)
            **87-0273300**
              (I.R.S.
                Employer Identification No.)




**525
                Lincoln Drive**
              **5
                Greentree Center, Suite 117**
              **Marlton,
                New Jersey 08053**
              (Address
                of principal executive offices, including zip
                code)





**(856)
      552-4204**


(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  o  Non-accelerated filer x




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




As
      of
      January 3, 2008, there were outstanding 14,839,260 shares of the registrant’s
      common stock.







*Table
        of Contents*







**EMTEC,
      INC.**


**FORM
      10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2007**




Table
      of Contents


**PART
                  I - FINANCIAL INFORMATION**Item
                  1 - Financial StatementsConsolidated
                  Balance Sheets November 30, 2007 (Unaudited) and
                  August 31, 2007
              
              
              1Consolidated
                  Statements of Income Three months ended November
                  30, 2007 (Unaudited) and 2006 (Unaudited)
              
              
              2Consolidated
                  Statements of Cash Flows Three months ended
                  November 30, 2007 (Unaudited) and 2006 (Unaudited)
              
              
              3Notes
                  to Consolidated Financial Statements
                  (Unaudited)
              
              
              4Item
                  2 - Management’s Discussion and Analysis of Financial
                  Condition and Results of Operations
              
              
              13Item
                  3 - Quantitative and Qualitative Information About
                  Market Risk
              
              
              24Item
                  4 - Controls and Procedures
              
              
              25**PART
                  II - OTHER INFORMATION**Item
                  6 - Exhibits
              
              
              26SIGNATURES
              
              
              27




*Table
          of Contents*




**PART
      I - FINANCIAL INFORMATION**




**Item
      1.****Financial
      Statements**




**EMTEC,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**November
                  30, 2007**
              
              **August
                    31, 2007****(Unaudited)****Assets**Current
                  AssetsCash
              
              $
              1,270,691
              
              $
              2,251,352Receivables:Trade,
                  less allowance for doubtful accounts
              
              
              40,480,622
              
              
              28,774,286Others
              
              
              11,133,823
              
              
              2,756,815Inventories,
                  net
              
              
              2,188,116
              
              
              5,021,516Prepaid
                  expenses
              
              
              435,982
              
              
              331,062Deferred
                  tax asset - current
              
              
              758,631
              
              
              653,820Total
                  current assets
              
              
              56,267,865
              
              
              39,788,851Property
                  and equipment, net
              
              
              1,171,006
              
              
              1,308,582Customer
                  relationships, net
              
              
              7,287,688
              
              
              7,432,776Goodwill
              
              
              8,978,788
              
              
              9,014,055Deferred
                  tax asset - long term
              
              
              147,930
              
              
              -Restricted
                  cash
              
              
              150,000
              
              
              150,000Other
                  assets
              
              
              107,522
              
              
              112,505Total
                  assets
              
              $
              74,110,799
              
              $
              57,806,769**Liabilities
                  and Stockholders' Equity**Current
                  LiabilitiesLine
                  of credit
              
              $
              9,968,623
              
              $
              5,847,494Accounts
                  payable - trade
              
              
              36,317,130
              
              
              26,578,127Current
                  portion of long term debt - related party
              
              
              1,279,148
              
              
              1,280,660Income
                  taxes payable
              
              
              540,038
              
              
              9,255Accrued
                  liabilities
              
              
              4,754,845
              
              
              4,172,008Due
                  to former stockholders
              
              
              631,415
              
              
              631,415Customer
                  deposits
              
              
              47,131
              
              
              183,220Deferred
                  revenue
              
              
              1,340,647
              
              
              1,362,333Total
                  current liabilities
              
              
              54,878,977
              
              
              40,064,512Deferred
                  tax liability
              
              
              1,678,927
              
              
              1,307,155Accrued
                  liabilities
              
              
              174,739
              
              
              -Long
                  term debt - related party
              
              
              2,507,826
              
              
              2,745,514Total
                  liabilities
              
              
              59,240,469
              
              
              44,117,181Commitments
                  and contingent liabilitiesStockholders'
                  EquityCommon
                  stock $0.01 par value; 25,000,000 shares authorized;17,703,849
                  and 17,249,875 shares issued and 14,839,260 and14,385,286
                  outstandng at November 30, 2007 and August 31,2007,
                  respectively
              
              
              177,039
              
              
              172,499Additional
                  paid-in capital
              
              
              20,411,548
              
              
              20,348,736Retained
                  earnings (accumulated deficit)
              
              
              (122,210
              )
              
              (1,235,600
              )20,466,377
              
              
              19,285,635Less:
                  treasury stock, at cost, 2,864,589 shares
              
              
              (5,596,047
              )
              
              (5,596,047
              )Total
                  stockholders' equity
              
              
              14,870,330
              
              
              13,689,588Total
                  liabilities and stockholders' equity
              
              $
              74,110,799
              
              $
              57,806,769




The
        accompanying notes are integral parts of these consolidated financial
        statements.




1
 *Table
          of Contents*




**EMTEC,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME****(Unaudited)**




**Three
                  months ended****November
                  30,****2007**
              
              
              **2006**Revenues
              
              $
              74,640,186
              
              $
              64,939,143Cost
                  of revenues
              
              
              65,995,209
              
              
              58,880,496Gross
                  profit
              
              
              8,644,977
              
              
              6,058,647Operating
                  expenses:Selling,
                  general, and administrative expenses
              
              
              5,755,443
              
              
              5,346,956Management
                  fee - related party
              
              
              -
              
              
              87,500Rent
                  expense - related party
              
              
              89,325
              
              
              89,325Depreciation
                  and amortization
              
              
              300,503
              
              
              259,251Total
                  operating expenses
              
              
              6,145,271
              
              
              5,783,032Operating
                  income
              
              
              2,499,706
              
              
              275,615Other
                  expense (income):Interest
                  income - other
              
              
              (17,775
              )
              
              (40,950
              )Interest
                  expense
              
              
              337,023
              
              
              208,718Other
              
              
              (18
              )
              
              (250
              )Income
                  before income taxes
              
              
              2,180,476
              
              
              108,097Provision
                  for income taxes
              
              
              934,274
              
              
              75,046Net
                  income
              
              $
              1,246,202
              
              $
              33,051Net
                  income per common shareBasic
                  and Diluted
              
              $
              0.09
              
              $
              0.00Weighted
                  Average Shares OutstandingBasic
              
              
              14,445,064
              
              
              14,385,286Diluted
              
              
              14,566,446
              
              
              14,386,790




The
                  accompanying notes are integral parts of these consolidated financial
                  statements.




2
 *Table
          of Contents*




**EMTEC,
                  INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****(Unaudited)**




**Three
                  months ended****November
                  30,****2007**
              
              **2006****Cash
                  Flows From Operating Activities**Net
                  income
              
              $
              1,246,202
              
              $
              33,051**Adjustments
                  to Reconcile Net Income to Net****Cash
                  Used In Operating Activities**Depreciation
                  and amortization
              
              
              300,503
              
              
              259,251Deferred
                  income tax expense (benefit)
              
              
              360,333
              
              
              (98,254
              )Stock-based
                  compensation
              
              
              67,352
              
              
              80,841**Changes
                  In Operating Assets and Liabilities**Receivables
              
              
              (19,742,179
              )
              
              (10,239,763
              )Inventories
              
              
              2,833,400
              
              
              (1,218,942
              )Prepaid
                  expenses and other assets
              
              
              (99,937
              )
              
              (85,365
              )Accounts
                  payable
              
              
              9,739,003
              
              
              3,259,232Customer
                  deposits
              
              
              (136,089
              )
              
              855,952Income
                  taxes payable
              
              
              530,783
              
              
              145,650Accrued
                  liabilities
              
              
              77,561
              
              
              708,530Deferred
                  compensation
              
              
              -
              
              
              3,565Deferred
                  revenue
              
              
              (21,686
              )
              
              20,230**Net
                  Cash Used In Operating Activities**
              
              
              **(4,844,754**
              **)**
              
              **(6,276,022**
              **)****Cash
                  Flows From Investing Activities**Purchases
                  of property and equipment
              
              
              (17,836
              )
              
              (296,985
              )**Net
                  Cash Used In Investing Activities**
              
              
              **(17,836**
              **)**
              
              **(296,985**
              **)****Cash
                  Flows From Financing Activities**Net
                  increase (decrease) in line of credit
              
              
              4,121,129
              
              
              7,489,660Repayment
                  of debt
              
              
              (239,200
              )
              
              (186,115
              )**Net
                  Cash Provided By Financing Activities**
              
              
              **3,881,929**
              
              
              **7,303,545****Net
                  (decrease) increase in Cash**
              
              
              **(980,661**
              **)**
              
              **730,538****Beginning
                  Cash**
              
              
              2,251,352
              
              
              917,683**Ending
                  Cash**
              
              **$**
              **1,270,691**
              
              **$**
              **1,648,221****Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid during the period for:Income
                  taxes
              
              $
              33,050
              
              $
              27,469Interest
              
              
              199,756
              
              
              73,737




The
                  accompanying notes are integral parts of these consolidated financial
                  statements.




3
 *Table
          of Contents*




**EMTEC,
      INC**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.**  **Basis
      of Presentation**





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X. Accordingly, they do not include all of the information and note
      disclosures required by accounting principles generally accepted in the United
      States of America for complete financial statements. In the opinion of
      management, all adjustments (consisting of normal recurring accruals) considered
      necessary for a fair presentation have been included in the accompanying
      condensed consolidated financial statements. Quarterly results are not
      necessarily indicative of results for the full year.  For
      further information, refer to the annual financial statements and notes thereto
      included in the Company's Annual Report on Form 10-K for the year ended August
      31, 2007.





**2.**  **General**





*Description
      of Business*





Emtec,
      Inc. (the “Company”) is an information technology (“IT”) company, providing
      consulting, services and products to commercial, federal, education, state
      and
      local verticals. The Company’s areas of specific practices include
      communications, data management, enterprise computing, managed services, storage
      and data center planning and development. The Company’s client base is comprised
      of departments of the United States Federal Government, U.S. state and local
      governments, schools and commercial businesses throughout the United States.
      The
      most significant portion of the Company’s revenue is derived from activities as
      a reseller of Information Technology (“IT”) products, such as workstations,
      servers, microcomputers, and application software and networking and
      communications equipment.




The
      Company considers all of its operating activity to be generated from a single
      operating segment.




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries, Emtec, Inc. a New Jersey Corporation (“Emtec NJ”),
      Emtec Viasub LLC (“Emtec LLC”), Emtec LLC’s wholly owned subsidiary Emtec
      Federal, Inc. (“Emtec Federal”), and Emtec Global Services LLC (“EGS”).
      Significant intercompany account balances and transactions have been eliminated
      in consolidation.




*Accounting
      Estimates*





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 and disclosure of contingent assets and liabilities at the date
      of
      financial statements and the reported amounts of revenues and expenses during
      the reporting period, including, but not limited to, receivable valuations,
      impairment of goodwill and other long-lived assets, and income taxes.
      Management’s estimates are based on historical experience, facts and
      circumstances available at the time, and various other assumptions that are
      believed to be reasonable under the circumstances. The Company reviews these
      matters and reflects changes in estimates as appropriate. Actual results could
      differ from those estimates.




4
 *Table
          of Contents*




*Rebates*





Rebates
      received on purchased products are recorded in the accompanying consolidated
      statements of income as a reduction of the cost of revenues, in accordance
      with
      Emerging Issues Task Force Abstract No. 02-16, Accounting by a Customer
      (Including a Reseller) for Certain Consideration Received from a Vendor (EITF
      02-16). At
      November 30, 2007 and August 31, 2007, approximately $10,494,000 and
      $2,298,000, respectively, of rebates receivable were recorded in
      "Receivable-other" in the accompanying consolidated balance sheets.





*Inventories*





Inventories
      are stated at the lower of average cost or market. Inventories consist of
      finished goods purchased for resale and consists of computer hardware, computer
      software, computer peripherals and related supplies.





*Earnings
      Per Share*





Basic
      earnings per share amounts are computed by dividing net income available to
      common stockholders (the numerator) by the weighted average shares outstanding
      (the denominator), during the period. Shares issued during the period are
      weighted for the portion of the period that they were outstanding.




Diluted
      earnings per share amounts are similar to the computation of basic earnings
      per
      share, except that the denominator is increased to include the number of
      additional common shares that would have been outstanding if dilutive options
      and warrants had been exercised. The assumed conversion of options and warrants
      resulted in 121,382 and 1,382 additional dilutive shares for the three months
      ended November 30, 2007 and 2006, respectively. Outstanding stock warrants
      to
      purchase 1,598,365 common shares as of November 30, 2007 and 2006, were not
      included in the computation of diluted earnings per share for the three months
      ended November 30, 2007 and 2006, because the exercise price was greater than
      the average market price of the Company’s common shares.




*Income
      Taxes*




On
      September 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN 48”).
      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 de-recognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition issues. FIN 48 contains
      a two-step approach to recognizing and measuring uncertain tax positions
      accounted for in accordance with FASB Statement No. 109. The first step is
      to
      evaluate the tax position for recognition by determining if the weight of
      available evidence indicates that it is more likely than not that the position
      will be sustained on audit, including resolution of related appeals or
      litigation processes, if any. The second step is to measure the tax benefit
      as
      the largest amount that is more than 50% likely of being realized upon ultimate
      settlement.




5
 *Table
          of Contents*




As
      a
      result of the implementation of FIN 48 on September 1, 2007, the Company
      recorded a liability for unrecognized tax obligations of $539,580. In accordance
      with FIN 48, the cumulative effect of the change in accounting principle is
      required to be treated as an adjustment to opening retained earnings. The
      Company’s adoption of FIN 48 resulted in a decrease in retained earnings of
      $132,812.




Subsequent
      to the initial adoption of FIN 48, our policy is to recognize interest and
      penalty expense associated with uncertain tax positions as a component of income
      tax expense in the consolidated statements of income. During the first quarter
      of fiscal 2008, we recorded interest associated with uncertain tax positions
      in
      the amount of $11,105 as an increase to current income tax expense.




The
      total
      liability for unrecognized tax benefits was $539,580 as of November 30, 2007.
      Of
      this amount, $52,234 would benefit our tax provision if realized. The remainder
      would not affect the provision, would be adjusted against either deferred tax
      assets or goodwill based on the nature of its origin.




During
      the fiscal 2006 year, Emtec Federal, formerly Westwood Computer Corporation
      (“Westwood”) was audited by the IRS. The IRS audited the two-predecessor tax
      years ended April 16, 2004. With one exception, all tax matters identified
      by
      the IRS have been settled, with appropriate adjustments recorded in the current
      tax expense for the year ended August 31, 2006. The one currently unsettled
      matter involves a disagreement with the IRS over the valuation of real property
      sold by Westwood to a related party during Westwood’s 2003 fiscal year. The IRS
      has asserted that the Company’s property valuation and resulting taxable gain
      was understated by $1.5 million, which could result in approximately $521,000
      in
      federal income tax liability plus potential interest and penalties. Discussions
      with the IRS are continuing. The Company has submitted a letter to the IRS
      objecting to the IRS’s valuation, explaining the basis for Westwood’s valuation
      of the property, and requesting a conference with the Appeals Office of IRS.
      While the Company believes that it has adequately supported the valuation of
      the
      transaction and reported the appropriate income taxes, there can be no assurance
      that its valuation will ultimately be accepted by the IRS. It is reasonably
      possible that this audit could be completed within the next twelve months with
      the Company and the IRS resolving all issues. We estimate a range of reasonably
      possible increase or decrease in total unrecognized federal and state income
      tax
      benefits of approximately $200,000 that could result from a settlement with
      IRS.




Under
      the
      provisions of the merger agreement executed in connection with its acquisition
      of Westwood, some of the potential liability recorded in connection with the
      dispute with the IRS is subject to indemnification coverage by the former owners
      of Westwood. The Company recorded a $341,165 other receivable on the balance
      sheet at November 30, 2007 to record this potential recovery under the
      indemnification provisions.




We
      conduct business nationally and, as a result, file income tax returns in the
      U.S
      federal jurisdiction and various state and local jurisdictions. With few
      exceptions, we are no longer subject to federal, state or local income tax
      examinations for tax returns filed for fiscal years 2002 and prior.





**3.
      Stock Options, Non-Vested Shares and Warrants**




Stock
      Options




The
      Company’s 2006 Stock-Based Incentive Compensation Plan (the “2006 Plan”) was
      approved by the stockholders on May 8, 2006. The 2006 Plan authorizes the
      granting of stock options to directors and eligible employees. The Company
      has
      reserved 1,400,000 shares of its common stock for issuance under the 2006 Plan
      at prices not less than 100% of the fair value of the Company’s common stock on
      the date of grant (110% in the case of stockholders owning more than 10% of
      the
      Company’s common stock). Options under the 2006 Plan have terms from 7 to 10
      years and vest immediately through 4 years.




6
 *Table
          of Contents*




The
      Company measures the fair value of options on the grant date using the
      Black-Scholes option valuation model. The Company estimated the expected
      volatility using the Company’s historical stock price data and used historical
      exercise and forfeiture behaviors to estimate the options, expected term and
      our
      forfeiture rate. The risk-free interest rate is based on the U.S. Treasury
      zero-coupon yield curve in effect on the grant date. Both expected volatility
      and the risk-free interest rate are based on a period that approximates the
      expected term.




A
      summary
      of stock options for the three months ended November 30, 2007 is as
      follows:


Weighted
                  Average
              
              Weighted
                  Average
              
              Aggregate**For
                  the Three Months Ended November 30, 2007**
              
              Shares
              
              Exercise
                  Price
              
              Remaining
                  Term
              
              Intrinsic
                  ValueOptions
                  Outstanding -September 1, 2007
              
              
              396,500
              
              $
              1.22Options
                  Granted
              
              
              20,000
              
              $
              0.65Options
                  Exercised
              
              
              -Options
                  Forfeited or Expired
              
              
              (8,000
              )
              $
              1.31Options
                  Outstanding -November 30, 2007
              
              
              408,500
              
              $
              1.19
              
              
              6.79
                  years
              
              $
              1,800Options
                  Exercisable -November 30, 2007
              
              
              90,000
              
              $
              1.10
              
              
              9.15
                  years
              
              $
              1,800




The
      following assumptions were used to value options during the quarter ended
      November 30, 2007 and 2006:




Quarter
                  Ended
              
              Quarter
                  EndedNovember
                  30, 2007
              
              November
                  30, 2006Weighted-Average
                  Fair Value
              
              $
              0.47
              
              $
              0.99*Assumptions*Expected
                  Volatility
              
              
              100
              %
              
              103
              %Expected
                  Term
              
              
              5
                  years
              
              
              5
                  yearsExpected
                  Forfeiture Rate
              
              
              0
              %
              
              0
              %Dividend
                  Yield
              
              
              0
              %
              
              0
              %Risk-Free
                  Interest Rate
              
              
              3.21
              %
              
              4.43
              %




Nonvested
      Stock (Restricted Stock)




During
      the fiscal year ended August 31, 2007, the Company granted 459,224 shares of
      nonvested (restricted) stock to certain members of senior management and
      employees. These nonvested shares vest equally over 4 years. The fair value
      of
      the nonvested shares was determined based upon the quoted closing price of
      the
      Company’s stock on the Over-the-Counter Bulletin Board on the grant
      date.




7
 *Table
          of Contents*




A
      summary
      of nonvested (restricted) shares for three months ended November 30, 2007 is
      as
      follows:




Weighted
                  AverageGrant
                  Date Fair**For
                  the Three Months Ended November 30, 2007**
              
              Shares
              
              ValueOutstanding
                  -September 1, 2007
              
              
              456,974
              
              $
              1.25Granted
              
              
              -Exercised
              
              
              -Forfeited
              
              
              (3,000
              )
              $
              1.44Outstanding
                  -November 30, 2007
              
              
              453,974
              
              $
              1.25Vested
                  -November 30, 2007
              
              
              59,778
              
              $
              1.24




Stock-Based
      Compensation - Stock Options and Nonvested (Restricted) Stock




Stock-based
      compensation costs related to the 2006 Plan totaled $67,352 and $80,841 during
      the three months ended November 30, 2007 and 2006, respectively. As of November
      30, 2007, the Company had recognized a total of $494,389 in compensation cost
      and $424,619 of total unrecognized compensation cost related to these options.
      The cost is expected to be recognized over a weighted-average period of 4
      years.




Warrants




On
      August
      5, 2005, the Company issued certain stockholders stock warrants that evidence
      the obligation of the Company to issue a variable number of shares, in the
      aggregate, equal to 10% of the total issued and outstanding shares of the
      Company’s common stock, measured on a post-exercise basis, at any date during
      the 5-year term of the warrants, which ends August 5, 2010.  The aggregate
      exercise price of these warrants is fixed at $3,695,752.  The exercise
      price per warrant will vary based upon the number of shares issuable under
      the
      warrants.  The number of shares issuable under the warrants totaled
      1,648,807 and 1,598,365 shares, with an exercise price of $2.24 and $2.31 per
      share, as of November 30, 2007 and 2006, respectively. The outstanding
      stock warrants were anti-dilutive for the three months ended November 30, 2007
      and 2006, because the exercise price was greater than the average market price
      of the Company’s common shares.




**4.
      Line of Credit**




In
      December 2006, the Company, Emtec NJ, Emtec LLC, and Emtec Federal
      (collectively, the “Borrower”), entered into a Loan and Security Agreement with
      De Lage Landen Financial Services, Inc. (the “Lender”) pursuant to which the
      Lender provides the Borrower a with a revolving credit loan and floor plan
      loan
      (the “Credit Facility”). The Credit Facility provides for aggregate borrowings
      of the lesser of $32.0 million or 85% of Borrower’s eligible accounts
      receivable, plus 100% of unsold inventory financed by the Lender, minus a $5.0
      million reserve. The floor plan loan portion of the Credit Facility is for
      the
      purchase of inventory from approved vendors and for other business purposes.
      The
      Credit Facility subjects the Borrower to mandatory repayments upon the
      occurrence of certain events as set forth in the Credit Facility.




Borrowings
      under the Credit Facility bear interest at an annual rate equal to the rate
      of
      interest published in the “Money Rates” section of the Wall Street Journal minus
      0.5% (7.00% as of November 30, 2007) for revolving credit loans. Floor plan
      loans shall not bear interest until the Borrower is in default, unless a
      floorplan loan is unsubsidized, then, such floor plan loan will accrue interest
      once made, at the rate agreed to by the parties. Interest on outstanding floor
      plan loans accrues at the rate of 2.5% per annum in excess of the interest
      rate
      published in the “Money Rates” section of the Wall Street Journal (10.00% as of
      November 30, 2007).




8
 *Table
          of Contents*




To
      secure
      the payment of the obligations under the Credit Facility, the Borrower granted
      the Lender a security interest in all of Borrower’s assets, including inventory,
      equipment, fixtures, accounts, chattel paper, instruments, deposit accounts,
      documents, general intangibles, letters of credit rights, and all judgments,
      claims and insurance policies.




On
      November 15, 2007, the Lender increased the Credit Facility from $32.0 million
      to $44.0 million. This temporary increase is available to the Company through
      January 2008.




The
      Company had balances of $9.97 million and $5.85 million outstanding under the
      revolving portion of the Credit Facility, and balances of $17.75 million and
      $2.63 million (included in the Company’s accounts payable) outstanding plus
      $782,200 and $1.80 million in open approvals under the floor plan portion of
      the
      Credit Facility with Lender at November 30, 2007 and August 31, 2007,
      respectively. Net availability of $74,145 and $8.78 million was available under
      the revolving portion of the Credit Facility, and $15.42 million and $12.95
      million was available under the floor plan portion of the Credit Facility,
      as of
      November 30, 2007 and August 31, 2007, respectively.





On
      December 6, 2007, the Lender agreed to provide 85% eligibility on certain
      rebates receivable, which amounted to additional availability of $6.50 million
      under the revolving portion of the Credit Facility.





As
      of
      November 30, 2007, the Company determined that it was in compliance with its
      financial covenants with the Lender.




**5.**  **Concentration
      of Credit Risk and Significant Clients** ****




Financial
      instruments that potentially subject the Company to a concentration of credit
      risk consist principally of accounts receivable.




The
      Company’s revenues, by client type, are comprised of the following:


***For
                  the Three Months Ended November 30,******2007***
              
              ***2006***Departments
                  of the UnitedStates
                  Government
              
              $
              48,370,513
              
              
              64.8
              %
              $
              46,161,496
              
              
              71.1
              %State
                  and Local Governments
              
              
              3,718,015
              
              
              5.0
              %
              
              3,525,285
              
              
              5.4
              %Commercial
                  Companies
              
              
              13,082,477
              
              
              17.5
              %
              
              11,112,157
              
              
              17.1
              %Education
                  and other
              
              
              9,469,181
              
              
              12.7
              %
              
              4,140,205
              
              
              6.4
              %Total
                  Revenues
              
              $
              74,640,186
              
              
              100.0
              %
              $
              64,939,143
              
              
              100.0
              %




Federal
      Bureau of Prisons, one of the departments of the United States Government
      accounted for approximately $10.2 million or 13.7% of the Company’s total
      revenues for the three months ended November 30, 2007. The same customer
      accounted for approximately $138,000 or 0.2% of the Company’s total revenues for
      the three months ended November 30, 2006.





The
      Company reviews a customer's credit history before extending credit. The Company
      does not require collateral or other security to support credit sales. The
      Company provides for an allowance for doubtful accounts based on the credit
      risk
      of specific customers, historical experience and other identified risks. Trade
      receivables are carried at original invoice less an estimate made for doubtful
      receivables, based on review by management of all outstanding amounts on a
      periodic basis. Trade receivables are considered delinquent when payment is
      not
      received within standard terms of sale, and are trade receivables charged-off
      against the allowance for doubtful accounts when management determines that
      recovery is unlikely, and the Company ceases its collection
      efforts.




9
 *Table
          of Contents*




The
      trade
      account receivables consist of the following:


November
                  30,
              
              August
                  31,2007
              
              2007Trade
                  receivables
              
              $
              40,871,759
              
              $
              29,165,423Allowance
                  for doubtful accounts
              
              $
              (391,137
              )
              $
              (391,137
              )Trade
                  receivables, net
              
              $
              40,480,622
              
              $
              28,774,286




Other
      receivables consist of the following:


November
                  30,
              
              August
                  31,2007
              
              2007Rebate
                  receivables
              
              $
              10,494,714
              
              $
              2,298,194Other
                  receivables
              
              $
              639,109
              
              $
              458,621Receivables,
                  Others
              
              $
              11,133,823
              
              $
              2,756,815




As
      of
      November 30, 2007, rebate receivables primarily consist of special pricing
      rebates approximated to $8.81 million and various volume incentives and other
      rebates approximated $1.69 million.




**6.**  **Property
      and Equipment**




Property
      and equipment consisted of the following:


Estimated
                  LifeNovember
                  30, 2007
              
              August
                  31, 2007
              
              YearsLeasehold
                  improvements
              
              $
              385,778
              
              $
              385,778
              
              
              2
                  to 5Computer
                  equipment
              
              
              1,081,615
              
              
              1,063,777
              
              
              3
                  to 5Furniture
                  and fixtures
              
              
              142,813
              
              
              142,813
              
              
              3
                  to 5Automobiles
              
              
              64,146
              
              
              64,146
              
              
              3
                  to 5Software
              
              
              732,787
              
              
              732,787
              
              
              32,407,140
              
              
              2,389,302Less
                  accumulated depreciation
              
              
              (1,236,135
              )
              
              (1,080,720
              )Property
                  and Equipment, Net
              
              $
              1,171,006
              
              $
              1,308,582




10
 *Table
          of Contents*


**7.**  **Customer
      Relationships**




Customer
      relationships represent the value ascribed to customer relationships purchased
      during the August 5, 2005 merger. The assets ascribed to customer relationships
      are being amortized on a straight-line basis over 13-15 years.


November
                  30, 2007
              
              August
                  31, 2007Customer
                  relationships
              
              $
              8,661,712
              
              $
              8,661,712Less
                  accumulated amortization
              
              
              1,374,024
              
              
              1,228,936Balance,
                  ending
              
              $
              7,287,688
              
              $
              7,432,776




Amortization
      expense was $145,088 for each of the three months ended November 30, 2007 and
      2006. Future amortization for the next 5 years ending August 31, 2008 through
      2012 will be approximately $580,000 per year.




**8.**  **Accrued
      Liabilities**




Current
      accrued liabilities consisted of the following:




November
                  30, 2007
              
              August
                  31, 2007Accrued
                  payroll
              
              $
              681,024
              
              $
              934,517Accrued
                  commissions
              
              
              734,944
              
              
              507,317Accrued
                  state sales taxes
              
              
              550,067
              
              
              286,158Accrued
                  third party service fees
              
              
              221,474
              
              
              115,776Other
                  accrued expenses
              
              
              2,567,336
              
              
              2,328,240$
              4,754,845
              
              $
              4,172,008




Long-term
      accrued liabilities consisted of $174,739 in unrecognized tax benefits recorded
      as a result of the implementation of FIN 48 on September 1, 2007.





**9.**  **Retained
      Earnings (accumulated deficit)**




RetainedEarnings(AccumulatedDeficit)Balance
                  at August 31, 2007
              
              $
              (1,235,600
              )Adoption
                  of FIN 48 -September 1, 2007
              
              
              (132,812
              )(
                  see footnote 2 Income Taxes)Net
                  income
              
              
              1,246,202Balance
                  at November 30, 2007
              
              $
              (122,210
              )


**10.**  **Related
      Party Transactions**




The
      Company recorded a monthly management fee of approximately $29,166, pursuant
      to
      the Management Services Agreement (the “Management Services Agreement”) between
      DARR Global Holdings, Inc. (“DARR Global”) and Westwood, dated April 16, 2004
      through January 31, 2007. On February 5, 2007, in connection with the issuance
      of the promissory note to DARR Global, Westwood and DARR Global terminated
      the
      Management Services Agreement. DARR Global is a management consulting company
      100% owned by the Company’s Chairman and Chief Executive Officer. For the three
      months ended November 30, 2006, the Company recorded $87,500 for this management
      fee in the accompanying consolidated statements of income.




11
 *Table
          of Contents*




One
      of
      the Company’s facilities is leased under a non-cancelable operating lease
      agreement with an entity that is owned by officers of the Company. Rent expense
      was $45,000 for each of the three months ended November 30, 2007 and 2006,
      respectively. The facilities consist of office and warehouse space totaling
      42,480 square feet, located in Springfield, New Jersey. Management believes
      the
      lease payments are at or below market rate for similar facilities.




The
      Company is occupying approximately 21,000 square feet of office and warehouse
      space in a 70,000- square-foot building in Suwannee, GA. This space is leased
      from GS&T Properties, LLC, in which certain officers of the Company are
      passive investors, owning approximately 20% of the equity interest. The lease
      term is for 5 years, with monthly base rent of $12,500. During
      each of the three months ended November 30, 2007 and 2006, the Company recorded
      expense under this lease totaling to $44,325.




12
 *Table
          of Contents*




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




The
      following discussion and analysis should be read in conjunction with, and is
      qualified in its entirety by, the unaudited financial statements, including
      the
      notes thereto, appearing elsewhere in this Quarterly Report on Form
      10-Q.




***Cautionary
      Statement Regarding Forward-Looking Statements***




You
      should carefully review the information contained in this Quarterly Report
      on
      Form 10-Q and in other reports or documents that we file from time to time
      with
      the Securities and Exchange Commission (the “SEC”). In addition to historical
      information, this Quarterly Report on Form 10-Q contains our beliefs regarding
      future events and our future financial performance. In some cases, you can
      identify those so-called “forward-looking statements” by words such as “may,”
“will,” “should,” expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” or “continue” or the negative of those words and other
      comparable words. You should be aware that those statements are only our
      predictions. Actual events or results may differ materially. We undertake no
      obligation to publicly release any revisions to forward-looking statements
      after
      the date of this report. In evaluating those statements, you should specifically
      consider various factors, including the risk factors discussed in our Annual
      Report on Form 10-K for the year ended August 31, 2007 and other reports or
      documents that we file from time to time with the SEC. All forward-looking
      statements attributable to us or a person acting on our behalf are expressly
      qualified in their entirety by this cautionary statement.




Assumptions
      relating to budgeting, marketing, and other management decisions are subjective
      in many respects and thus susceptible to interpretations and periodic revisions
      based on actual experience and business developments, the impact of which may
      cause us to alter our marketing, capital expenditure, or other budgets, which
      may in turn affect our business, financial position, results of operations,
      and
      cash flows.




***Overview
      of Emtec***




We
      are an
      information technology (“IT”) company, providing consulting, services and
      products to commercial, U.S. Federal Government, education, U.S. state and
      local
      clients. Our services and products address the technology needs of our clients
      including communications, data management, enterprise computing, managed
      services, storage and data center planning and development. Our solutions are
      crafted to enable our clients to become more efficient and effective, thereby
      making them more profitable and giving them a competitive advantage. To date,
      the most significant portion of our revenues has been derived from our
      activities as a reseller of IT products, such as workstations, servers,
      microcomputers, application software and networking and communications
      equipment. However, we are actively endeavoring to increase the portion of
      our
      revenues that are derived from IT services.




Our
      primary business objective is to become a leading single-source provider of
      high
      quality and innovative IT consulting, services and products. Through our
      strategic partners, we have an expanded array of products and technology
      solutions to offer our clients.




13
 *Table
          of Contents*




**Results
      of Operations**




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




The
      following discussion and analysis provides information that management believes
      is relevant to an assessment and understanding of our Results of Operations
      for
      each of the three months ended November 30, 2007 and 2006.


**EMTEC,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 **Three
        Months Ended November 30,**
 
 **2007**
              
              **2006**
              
              **Change**
              
              **%**Revenues
              
              $
              74,640,186
              
              $
              64,939,143
              
              $
              9,701,043
              
              
              14.9
              %Cost
                  of revenues
              
              
              65,995,209
              
              
              58,880,496
              
              
              7,114,713
              
              
              12.1
              %Gross
                  profit
              
              
              8,644,977
              
              
              6,058,647
              
              
              2,586,330
              
              
              42.7
              %Percent
                  of revenues
              
              
              11.6
              %
              
              9.3
              %Operating
                  expenses:Selling,
                  general, and administrative expenses
              
              
              5,755,443
              
              
              5,346,956
              
              
              408,487
              
              
              7.6
              %Management
                  fee - related party
              
              
              -
              
              
              87,500
              
              
              (87,500
              )
              
              -100.0
              %Rent
                  expense - related party
              
              
              89,325
              
              
              89,325
              
              
              -
              
              
              0.0
              %Depreciation
                  and amortization
              
              
              300,503
              
              
              259,251
              
              
              41,252
              
              
              15.9
              %Total
                  operating expenses
              
              
              6,145,271
              
              
              5,783,032
              
              
              362,239
              
              
              6.3
              %Pecent
                  of revenues
              
              
              8.2
              %
              
              8.9
              %Operating
                  income
              
              
              2,499,706
              
              
              275,615
              
              
              2,224,091
              
              
              807.0
              %Percent
                  of revenues
              
              
              3.3
              %
              
              0.4
              %Other
                  expense (income):Interest
                  income - other
              
              
              (17,775
              )
              
              (40,950
              )
              
              23,175
              
              
              -56.6
              %Interest
                  expense
              
              
              337,023
              
              
              208,718
              
              
              128,305
              
              
              61.5
              %Other
              
              
              (18
              )
              
              (250
              )
              
              232
              
              
              N/AIncome
                  before income taxes
              
              
              2,180,476
              
              
              108,097
              
              
              2,072,379
              
              
              1917.1
              %Provision
                  for income taxes
              
              
              934,274
              
              
              75,046
              
              
              859,228
              
              
              1144.9
              %Net
                  income
              
              $
              1,246,202
              
              $
              33,051
              
              $
              1,213,151
              
              
              3670.5
              %Percent
                  of revenues
              
              
              1.7
              %
              
              0.1
              %


14
 *Table
          of Contents*




*Total
      Revenues*




Our revenues,
      by client types, are comprised of the following:




***For
                  the Three Months Ended November
                  30,******2007***
              
              ***2006***Departments
                  of the UnitedStates
                  Government
              
              $
              48,370,513
              
              
              64.8
              %
              $
              46,161,496
              
              
              71.1
              %State
                  and Local Governments
              
              
              3,718,015
              
              
              5.0
              %
              
              3,525,285
              
              
              5.4
              %Commercial
                  Companies
              
              
              13,082,477
              
              
              17.5
              %
              
              11,112,157
              
              
              17.1
              %Education
                  and other
              
              
              9,469,181
              
              
              12.7
              %
              
              4,140,205
              
              
              6.4
              %Total
                  Revenues
              
              $
              74,640,186
              
              
              100.0
              %
              $
              64,939,143
              
              
              100.0
              %




Total
      revenues increased $9.70 million, or 14.9%, to $74.64 million for the three
      months ended November 30, 2007, compared to $64.94 million for the three months
      ended November 30, 2006. This increase is primarily attributable to an overall
      increase in our customers’ IT spending.




During
      the three months ended November 30, 2007 and 2006, U.S. governmental department
      and agency related revenues represented approximately 64.8% and 71.1% of total
      revenues, respectively. These clients include the Department of Defense,
      Department of Justice, Department of Homeland Security, Department of Health
      and
      Human Services, Department of Agriculture, Department of Commerce, and the
      General Service Administration. Revenues from various civilian and military
      U.S.
      governmental departments and agencies increased by approximately $2.2 million
      during the three months ended November 30, 2007 compared with the three months
      ended November 30, 2006. This is primarily attributable to a large computer
      hardware sale to Federal Bureau of Prisons of approximately $10.2 million during
      this period. The federal business typically experiences increased activity
      during the months of August through November.




It
      is
      expected that federal government business revenues will continue to represent
      a
      large portion of our total revenues as we continue to strive to penetrate wider
      and deeper into various civilian and military agencies. We have broadened the
      number of multi-year contracts in which we are participating, and we are one
      of
      nine awardees of a U.S. Army contract that contemplates the awardees
      participating in government purchases, which may approximate $5.0 billion over
      10 years. Additionally, we were awarded a NASA SEWP IV contract under which
      we
      will be able to participate in possible government purchases of IT products
      and
      associated services. We continue to bid on new contracts. As a result of our
      existing federal government contracts, as well as our ongoing focus on seeking
      new contracts, we believe that our total future revenues derived from the
      federal government business will be similar to prior periods although our
      business may be subject to federal government budgetary pressures and
      constraints. The federal business typically experiences increased activity
      during the months of August through November.





The
      state
      and local government business remains uncertain due to the tight budgetary
      pressures within governmental agencies in the State of New Jersey.




Revenues
      from various commercial customers increased by approximately $1.97 million
      during the three months ended November 30, 2007 compared with the three months
      ended November 30, 2006. This increase is primarily attributable to an overall
      increase in our commercial customers’ IT spending during this period. The
      commercial sector is expected to remain stable. There is a solid
      well-established client base to build upon as we expand product and service
      offerings to existing clients as well as develop new relationships in the
      sizable New Jersey/New York marketplace.




15
 *Table
          of Contents*




During
      the three months ended November 30, 2007, our education business increased
      to
      approximately $9.47 million from $4.14 million for the three months ended
      November 30, 2006. This increase was primarily attributable to various computer
      roll-out projects we began to implement in May 2007 which were completed during
      this quarter compared to a lower level of computer roll-out projects in the
      three months ended November 30, 2006.




We
      have
      historically not been adversely affected by inflation; technological advances
      and competition within the IT industry have generally caused the prices of
      the
      products we sell to decline, and product life-cycles tend to be short. These
      factors require that our growth in unit sales exceed any declines in prices
      in
      order for us to increase our net sales.




*Gross
      Profit*





Aggregate
      gross profit increased $2.59 million, or 42.7 %,
      to
      $8.64 million for the three months ended November 30, 2007 as compared to $6.06
      million for the three months ended November 30, 2006. This increase is primarily
      attributable to an increase in revenues as discussed in the Total Revenues
      section, an increase in our services gross profit attributable to various
      computer roll-out projects in our education business which we completed during
      this quarter and various volume incentive rebates and other incentives offered
      by certain manufacturers during this period under which we received
      approximately $600,000 in additional various volume incentive rebates during
      the
      three months ended November 30, 2007 compared with the three months ended
      November 30, 2006. We also received special pricing rebates from various
      manufacturers which are reflected in gross profit, but do not directly
      correlate to overall gross profit. The application of the special pricing
      rebates to gross profit is also impacted by the price to a customer, the cost
      to
      purchase the product, and the size of the applicable special pricing rebate.




Measured
      as a percentage of revenues, our gross profit margin increased to 11.6% of
      total
      revenues for the three months ended November 30, 2007 from 9.3% for the three
      months ended November 30, 2006. This increase is primarily attributable to
      pricing strategies, volume incentive rebates received, the mix of product and
      services sold, the mix of client type and higher utilization of our technical
      engineers during this period.




Factors
      that may affect gross profits in the future include changes in product margins,
      volume incentive rebates and other incentives offered by various manufacturers,
      changes in technical employee utilization rates, the mix of products and
      services sold, the mix of client type and the decision to aggressively price
      certain products and services.





*Selling,
      General and Administrative Expenses*





Selling,
      general and administrative expenses increased by $408,847, or 7.6% to $5.76
      million for the three months ended November 30, 2007, compared to $5.35 million
      for the three months ended November 30, 2006. This increase in selling, general
      and administrative expenses is mainly due to an increase in sales commission
      expense by approximately $399,000, which is directly related to the increase
      in
      our gross profit as discussed in the Gross Profit section.




16
 *Table
          of Contents*




Factors
      that may in the future have a negative impact on our selling, general and
      administrative costs include costs associated with marketing and selling
      activities, potential merger related costs, technological improvement costs,
      compliance costs associated with SEC rules and increases in our insurance
      costs.




*Management
      Fee-Related Party*





The
      Management Services Agreement was terminated on February 5, 2007. Under
      the
      terms of the agreement, DARR Global Holdings, Inc. (“DARR Global”), a related
      party, charged the Company a monthly management fee of $29,16 7 .




*Rent
      Expense-Related Party*




We
      occupy
      approximately 42,000 square feet of office and warehouse space in Springfield,
      New Jersey. This space is leased from a limited liability company owned by
      certain directors and officers and related family members of the Company. The
      lease term is through April 2009 with monthly base rent of $15,000. During
      the
      three months ended November 30, 2007 and 2006, we recorded $45,000 in expense
      under this lease.





We
      also
      occupy approximately 21,000 square feet of office and warehouse space in a
      70,000 square foot building in Suwannee, GA. This space is leased from a limited
      liability company in which certain officers of our company are passive
      investors, owning approximately a 20% equity interest. The lease term is for
      5
      years with monthly base rent of $12,500. During the three months ended November
      30, 2007 and 2006, we recorded $44,325 in expense under this lease.





Management
      believes the leases noted above are being leased at a rate consistent with
      the
      market rate.





*Depreciation
      and Amortization*





Depreciation
      and Amortization expense increased by 15.9%, or $41,252, to $300,503 for the
      three months ended November 30, 2007, compared to $259,251 for the three months
      ended November 30, 2006. This increase in depreciation expense is mainly due
      to
      the change in the estimated life of the computer equipment purchased during
      the
      fiscal year ended August 31, 2007.




Intangible
      assets at November 30, 2007 and August 31, 2007 consisted of the value ascribed
      to customer relationships of $8,661,712 less accumulated amortization of
      $1,374,024 and $1,228,936, respectively. The assets ascribed to customer
      relationships are being amortized on a straight-line basis over 13 to 15 years.
      Amortization expense was $145,089 for each of the three months ended November
      30, 2007 and 2006.




*Operating
      Income*





Operating
      income increased $2.22 million, or 807.0%, to $2.50 million for the three months
      ended November 30, 2007, compared to $275,615 for the three months ended
      November 30, 2006. This increase is attributable to increased revenues and
      gross
      profits as discussed in the Total Revenue and Gross Profit sections above.




*Interest
      expense*





Interest
      expense increased by 61.5%, or $128,305, to $337,023 for the three months ended
      November 30, 2007, compared to $208,718 for the three months ended November
      30,
      2006. This is mainly due to a higher average balance on our line of credit
      and
      revenue growth during three months ended November 30, 2007 as compared to the
      three months ended November 30, 2006.




17
 *Table
          of Contents*




*Provision
      for Income Taxes*





Income
      tax expense increased by $859,228, to $934,274 for the three months ended
      November 30, 2007, compared to $75,046 for the three months ended November
      30,
      2006. This increase is primarily attributable to $2.07 million increase in
      income before income taxes in the current quarter compared to the prior quarter.
      Income tax expense of $75,046 for the three months ended November 30, 2006
      included approximately $30,000 non-deductible permanent difference. Without
      this
      non-deductible permanent difference our effective tax rate for the three months
      ended November 30, 2006 was 41.7% compared with 42.8% for the three months
      ended
      November 30, 2007.




**Recently
      Issued Accounting Standards**




*Fair
      Value Measurements*




In
      September 2006, the Financial Accounting Standard Board (“FASB’) issued
      Statement of Financial Accounting Standard No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”). This Statement defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS No. 157 does not require any
      new
      fair value measurements, but provides enhanced guidance to other pronouncements
      that require or permit assets or liabilities to be measured at fair value.
      This
      Statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those years.
      The
      standard is effective for the Company as of the beginning of its first fiscal
      year beginning after November 15, 2007, or September 1, 2008. On November 14,
      2007, the FASB voted for a proposed deferral of a portion of SFAS No. 157.
      We
      are currently reviewing the impact, if any, of SFAS No. 157 on our financial
      statements.




*Fair
      Value Option for Financial Assets and Liabilities*




In
      February 2007, the FASB issued Statement of Financial Accounting Standard No.
      159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 115* (“SFAS
      No. 159”). SFAS No. 159 provides all entities with an option to report selected
      financial assets and liabilities at fair value. The objective of SFAS No. 159
      is
      to improve financial reporting by providing entities with the opportunity to
      mitigate volatility in earnings caused by measuring related assets and
      liabilities differently without having to apply the complex provisions of hedge
      accounting. SFAS No. 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS No. 159 does not eliminate disclosure requirements included in other
      accounting standards. The standard is effective for the Company as of the
      beginning of its first fiscal year beginning after November 15, 2007, or
      September 1, 2008. We are currently reviewing the impact of SFAS No. 159 on
      our
      financial statements.




*Noncontrolling
      Interests in Consolidated Financial Statements*





In
      December 2007, the FASB issued Statement of Financial Accounting Standard No.
      160, “Noncontrolling Interests in Consolidated Financial Statements — an
      Amendment of ARB 51, (“SFAS 160”).” This statement amends ARB 51 to establish
      accounting and reporting standards for the noncontrolling interest (minority
      interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon
      its
      adoption, effective as of the beginning of the Company’s fiscal 2010,
      noncontrolling interests will be classified as equity in the Company’s financial
      statements and income and comprehensive income attributed to the noncontrolling
      interest will be included in the Company’s income and comprehensive income. The
      provisions of this standard must be applied retrospectively upon adoption.
      We
      are currently evaluating the impact of adopting SFAS 160 on our results of
      operations and financial position.




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*Business
      Combinations*





In
      December 2007, the FASB issued Statement of Financial Accounting Standard No.
      141 (revised 2007), “ *Business
      Combinations* ”
(“SFAS
      141(R)”). SFAS 141(R) establishes principles and requirements for how an
      acquirer in a business combination recognizes and measures the assets acquired,
      liabilities assumed, and any noncontrolling interest in the acquiree. The
      provisions of SFAS 141(R) are effective for our business combinations occurring
      on or after June 1, 2009.




**Liquidity
      and Capital Resources**




Cash
      at November
      30, 2007 of $1.27 million represented a decrease of $980,661 from $2.25 million
      at August 31, 2007. We are a net borrower; consequently, we believe our cash
      balance must be viewed along with the available balance on our line of credit.
      Borrowings under our line of credit at November 30, 2007 increased to $9.97
      million from $5.85 million at August 31, 2007. This increase is line of credit
      and decrease in cash balance at November 30, 2007 are primarily attributable
      to
      revenue growth during this period. As of November 30, 2007, our net working
      capital was approximately $1.66 million higher than it was at August 31,
      200 7.  The
      increase in working capital are primarily attributable to net income of $1.24
      million for the three months ended November 30, 2007.




In
      December 2006, the Company and its subsidiaries, Emtec NJ, Emtec LLC, and Emtec
      Federal (the Company, Emtec NJ, Emtec LLC and Emtec Federal, collectively,
      the
“Borrower”), entered into a Loan and Security Agreement with De Lage Landen
      Financial Services, Inc. (the “Lender”) pursuant to which the Lender have been
      providing the Borrower a revolving credit loan and floor plan loan (the “Credit
      Facility”). The Credit Facility provides for aggregate borrowings of the lesser
      of $32.0 million or 85% of Borrower’s eligible accounts receivable, plus 100% of
      unsold inventory financed by the Lender, minus a $5.0 million reserve. The
      floor
      plan loan portion of the Credit Facility is for the purchase of inventory from
      approved vendors and for other business purposes. The Credit Facility subjects
      the Borrower to mandatory repayments upon the occurrence of certain events
      as
      set forth in the Credit Facility.




Borrowings
      under the Credit Facility will bear interest at an annual rate equal to the
      rate
      of interest published in the “Money Rates” section of the Wall Street Journal
      minus 0.5% (7.00% as of November 30, 2007) for revolving credit loans. Floor
      plan loans shall not bear interest until the Borrower is in default unless
      a
      floor plan loan is unsubsidized; then such floor plan loan will accrue interest
      once made at the rate agreed to by the parties. Interest on outstanding floor
      plan loans accrues per annum at the rate of 2.5% in excess of the interest
      rate
      published in the “Money Rates” section of the Wall Street Journal.




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To
      secure
      the payment of the obligations under the Credit Facility, the Borrower granted
      to the Lender a security interest in all of Borrower’s interests in certain of
      its assets, including inventory, equipment, fixtures, accounts, chattel paper,
      instruments, deposit accounts, documents, general intangibles, letters of credit
      rights, and all judgments, claims and insurance policies.




In
      addition, the Lender and Avnet, Inc., one of our trade creditors, entered into
      an intercreditor agreement in which the Lender agreed to give Avnet a first
      lien
      position on all future unbilled service maintenance billings and which provides
      that, as regards to Avnet, all debt obligations to the Lender are accorded
      priority.




On
      November 15, 2007, the Lender increased the Credit Facility from $32.0 million
      to $44.0 million. This temporary increase is available to us through January
      2008.




As
      of
      November 30, 2007, we had an outstanding balance of $9.97 million under the
      revolving portion of the Credit Facility and $17.75 million outstanding
      (included in the Company’s accounts payable) balances plus $782,200 in open
      approvals under the floor plan portion of the Credit Facility with Lender.
      Net
      availability of $74,145 was available under the revolving portion of the Credit
      Facility and $15.42 million was available under was available under the floor
      plan portion of the Credit Facility as of November 30, 2007.





On
      December 6, 2007, the Lender agreed to provide 85% eligibility on certain
      special pricing rebates receivables, which amounted to additional availability
      of $6.50 million under the revolving portion of the Credit Facility.





As
      of
      November 30, 2007, the Company determined that it was in compliance with its
      financial covenants with the Lender.





As
      of
      November 30, 2007, we had open term credit facilities with our primary trade
      vendors, including aggregators and manufacturers, of approximately $28.5 million
      with outstanding principal of approximately $11.90 million. Under these lines,
      we are typically obligated to pay each invoice within 30-45 days from the date
      of such invoice. These credit lines could be reduced or eliminated without
      notice and this action could have a material adverse affect on our business,
      result of operations, and financial condition.




Capital
      expenditures of $17,836 during the three months ended November 30, 2007 related
      primarily to the purchase of computer equipment for internal use. We anticipate
      our capital expenditures for our fiscal year ending August 31, 2008 will be
      approximately $600,000, of which approximately $350,000 will be for the upgrade
      of our organizational computer system and the remaining $250,000 will primarily
      be for the purchase of computer equipment for internal use and leasehold
      improvement.




We
      anticipate that our primary sources of liquidity in fiscal year 2008 will be
      cash generated from operations, trade vendor credit and cash available to us
      under our Credit Facility. Our future financial performance will depend on
      our
      ability to continue to reduce and manage operating expenses as well as our
      ability to grow revenues. Any loss of clients, whether due to price competition
      or technological advances, will have an adverse affect on our revenues. Our
      future financial performance could be negatively affected by unforeseen factors
      and unplanned expenses. See “Forward Looking Statements” and “Business - Risk
      Factors” discussed in our Annual Report on Form 10-K for the year ended August
      31, 2007.




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We
      have
      no arrangements or other relationships with unconsolidated entities or other
      persons that are reasonably likely to materially affect liquidity or the
      availability of or requirements for capital resources.




We
      believe that funds generated from operations, trade vendor credit and bank
      borrowings should be sufficient to meet our current operating cash requirements
      through the next twelve months. However, there can be no assurance that all
      of
      the aforementioned sources of cash can be realized.





***Critical
      Accounting Policies***




Our
      financial statements are prepared in accordance with accounting principles
      that
      are generally accepted in the United States. The methods, estimates, and
      judgments we use in applying our most critical accounting policies have a
      significant impact on the results we report in our financial statements. The
      SEC
      has defined critical accounting policies as policies that involve critical
      accounting estimates that require (i) management to make assumptions that are
      highly uncertain at the time the estimate is made, and (ii) different estimates
      that could have been reasonably used for the current period, or changes in
      the
      estimates that are reasonably likely to occur from period to period, which
      would
      have a material impact on the presentation of our financial condition, changes
      in financial condition or in result of operations. Based on this definition,
      our
      most critical policies include: revenue recognition, allowance for doubtful
      accounts, inventory valuation reserve, the assessment of recoverability of
      long-lived assets, the assessment of recoverability of goodwill and intangible
      assets, rebates, and income taxes.




*Revenue
      Recognition*




We
      recognize revenue from the sales of products when risk of loss and title passes
      which is upon client acceptance.




Revenue
      from the sale of warranties and support service contracts is recognized on
      a
      straight-line basis over the term of the contract, in accordance with Financial
      Accounting Standards Board Technical Bulleting No. 90-1, *Accounting
      for Separately Priced Extended Warranty and Product Maintenance
      Contracts* (“FTB
      90-1”).




We
      may
      also enter into sales arrangements with clients that contain multiple elements.
      We recognize revenue from sale arrangements that contain both products and
      manufacturer warranties in accordance with Emerging Issues Task Force (EITF)
      Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,” based on the
      relative fair value of the individual components. The relative fair value of
      individual components is based on historical sales of the components sold
      separately.




Product
      revenue represents sales of computer hardware and pre-packaged software. These
      arrangements often include software installations, configurations, and imaging,
      along with delivery and set-up of hardware. We follow the criteria contained
      in
      EITF 00-21 and Staff Accounting Bulletin 104 (“SAB 104”) in recognizing revenue
      associated with these transactions. We perform software installations,
      configurations and imaging services at our locations prior to the delivery
      of
      the product. Some client arrangements include “set-up” services performed at
      client locations where our personnel perform the routine tasks of removing
      the
      equipment from boxes, and setting up the equipment at client workstations by
      plugging in all necessary connections. This service is usually performed the
      same day as delivery. Revenue is recognized on the date of acceptance, except
      as
      follows:




·
              In
                  some instances, the “set-up” service is performed after date of delivery.
                  We recognize revenue for the “hardware” component at date of delivery when
                  the amount of revenue allocable to this component is not contingent
                  upon
                  the completion of “set-up” services and, therefore, our client has agreed
                  that the transaction is complete as to the “hardware” component. In
                  instances where our client does not accept delivery until “set-up”
                  services are completed, we defer all revenue in the transaction
                  until
                  client acceptance occurs.




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·
              There
                  are occasions when a client requests a transaction on a “bill & hold”
                  basis. We follow the SAB 104 criteria and recognize revenue from
                  these
                  sales prior to date of physical delivery only when all the criteria
                  of SAB
                  104 are met. We do not modify our normal billing and credit terms
                  for
                  these customers. The customer is invoiced at the date of revenue
                  recognition when all of the criteria have been
                  met.




We
      have
      experienced minimal customer returns. Since all eligible products must be
      returned to us within 30 days from the date of the invoice, we reduce the
      product revenue and cost of goods in each accounting period based on the actual
      returns that occurred in the next 30 days after the close of the accounting
      period.




Service
      and consulting revenue include time billings based upon billable hours charged
      to clients, fixed price short-term projects, hardware maintenance contracts,
      and
      manufacturer support service contracts. These contracts generally are task
      specific and do not involve multiple deliverables. Revenues from time billings
      are recognized as services are delivered. Revenues from short-term fixed price
      projects are recognized using the proportionate performance method by
      determining the level of service performed based upon the amount of labor cost
      incurred on the project versus the total labor costs to perform the project
      because this is the most readily reliable measure of output. Revenues from
      hardware maintenance contracts are recognized ratably over the contract period.




Revenues
      from manufacturer support service contracts where the manufacturer is
      responsible for fulfilling the service requirements of the client are recognized
      immediately on their contract sale date. Manufacturer support service contracts
      contain cancellation privileges that allow our clients to terminate a contract
      with 90 days written notice. In this event, the client is entitled to a
      pro-rated refund based on the remaining term of the contract, and we would
      owe
      the manufacturer a pro-rated refund of the cost of the contract. However, we
      have experienced no client cancellations of any significance during our most
      recent 3-year history and do not expect cancellations of any significance in
      the
      future.





*Trade
      Receivables*





We
      maintain an allowance for doubtful accounts for estimated losses resulting
      from
      the inability of our clients to make required payments. We base our estimates
      on
      the aging of our accounts receivable balances and our historical write-off
      experience, net of recoveries. If the financial condition of our clients were
      to
      deteriorate, additional allowances may be required. We believe the accounting
      estimate related to the allowance for doubtful accounts is a “critical
      accounting estimate” because changes in it can significantly affect net income.





*Inventories*




Inventory
      is stated at the lower of average cost or market. Inventory is entirely finished
      goods purchased for resale and consists of computer hardware, computer software,
      computer peripherals and related supplies. We provide an inventory reserve
      for
      products we determine are obsolete or where salability has deteriorated based
      on
      management’s review of products and sales.




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*Goodwill
      and Intangible Assets*




We
      have
      adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other
      Intangible Assets” (“SFAS 142”). As a result, amortization of goodwill was
      discontinued. Goodwill is the excess of the purchase price over the fair value
      of the net assets acquired in a business combination accounted for under the
      purchase method. We test goodwill and indefinite-lived assets for impairment
      at
      least annually (on June 1) in accordance with SFAS 142.




Intangible
      assets at August 31, 2007 and 2006 consisted of the value ascribed to customer
      relationships. The assets ascribed to customer relationships are being amortized
      on a straight-line basis over 13 to 15 years. Intangible assets are tested
      for
      recoverability whenever events or changes in circumstances indicate that their
      carrying amount may not be recoverable in accordance with Statement of Financial
      Accounting Standards No. 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets.” Recoverability of long-lived assets is assessed by a
      comparison of the carrying amount to the estimated undiscounted future net
      cash
      flows expected to result from the use of the assets and their eventual
      disposition. If estimated undiscounted future net cash flows are less than
      the
      carrying amount, the asset is considered impaired and a loss would be recognized
      based on the amount by which the carrying value exceeds the fair value of the
      asset.





*Rebates*





Rebates
      are recorded in the accompanying consolidated statements of income as a
      reduction of the cost of revenues in accordance with Emerging Issues Task Force
      Abstract No. 02-16, *Accounting
      by a Customer (Including a Reseller) for Certain Consideration Received from
      a
      Vendor* (EITF
      02-16).





*Income
      Taxes*





Income
      taxes are accounted for under an asset and liability approach that requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been recognized in our financial statements
      or
      tax returns. In estimating future tax consequences, we generally consider all
      expected future events other than the enactment of changes in tax laws or rates.
      A valuation allowance is recognized if, on weight of available evidence, it
      is
      more likely than not that some portion or all of the deferred tax assets will
      not be realized.




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          of Contents*




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




We
      do not
      engage in trading market risk sensitive instruments and do not purchase hedging
      instruments or “other than trading” instruments that are likely to expose us to
      market risk, whether interest rate, foreign currency exchange, commodity price
      or equity price risk. We have issued no debt instruments, entered into no
      forward or future contracts, purchased no options and entered into no swaps.
      Our
      primary market risk exposures are those of interest rate fluctuations. A change
      in interest rates would affect the rate at which we could borrow funds under
      our
      revolving credit facility. Our balance on the line of credit at November 30,
      2007 was approximately $9.97 million. Assuming no material increase or decrease
      in such balance, a one percent change in the interest rate would change our
      interest expense by approximately $99,700 annually.




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**Item
      4.****Controls and Procedures**




(a)
      Our
      management carried out an evaluation, with the participation of our Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of our
      disclosure controls and procedures (as defined in Rule 13a-15(e) under the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of November
      30, 2007. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective to ensure that information required to be disclosed by us in reports
      that we file or submit under the Exchange Act are recorded, processed,
      summarized and reported, within the time periods specified in the rules and
      forms of the SEC. It should be noted that the design of any system of controls
      is based in part upon certain assumptions about the likelihood of future events,
      and there can be no assurance that any design will succeed in achieving the
      stated goals under all potential future conditions, regardless of how remote.




(b)
      There
      has not been any change in our internal control over financial reporting in
      connection with the evaluation required by Rule 13a-15(d) under the Exchange
      Act
      that occurred during the quarter ended November 30, 2007 that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




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**PART
      II - OTHER INFORMATION**




**Item
      6.****Exhibits**




Exhibit
      31.1 - Rule
      13a-14(a)/15d-14(a) Certification of Dinesh R. Desai, Principal Executive
      Officer, of Emtec, Inc. dated January
      14, 2008 .




Exhibit
      31.2 - Rule
      13a-14(a)/15d-14(a) Certification of Stephen C. Donnelly, Principal Financial
      Officer, of Emtec, Inc. dated January 14, 2008.




Exhibit
      32.1 -
      Section 1350 Certificate of Dinesh R. Desai, Principal Executive Officer, of
      Emtec, Inc. dated January 14, 2008.




Exhibit
      32.2 -
      Section 1350 Certificate of Stephen C. Donnelly, Principal Financial Officer,
      of
      Emtec, Inc. dated January 14, 2008.




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          of Contents*




**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 thereunto
      duly authorized.




EMTEC,
              INC.By:
            /s/ DINESH
              R.
              DESAIDinesh
              R. DesaiChairman
              and ChiefExecutive Officer(Principal Executive
              Officer)  By:
            /s/ STEPHEN
              C. DONNELLYStephen
              C. DonnellyChief Financial Officer(Principal Financial Officer)


Date:
      January 14, 2008





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