**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 February 29, 2008




Commission
      file number: 0-32789




**EMTEC,
      INC.**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            **87-0273300**(State
                of incorporation or organization)
            (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, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer o
            
            Accelerated fileroNon-accelerated filer o
            (Do
              not check if a smaller reporting company)
            Smaller reporting company 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
      April 10, 2008, there were outstanding 14,849,591 shares of the registrant’s
      common stock.










**EMTEC,
      INC.**


**FORM
      10-Q FOR THE QUARTER ENDED FEBRUARY 29, 2008**




Table
      of
      Contents




**PART
                I – FINANCIAL INFORMATION**Item
                1 - Financial StatementsCondensed
                Consolidated Balance Sheets
            1Condensed
                Consolidated Statements of Operations
            2Condensed
                Consolidated Statements of Cash Flows
            3Notes
                to Condensed Consolidated Financial Statements
            4Item
                2 - Management’s Discussion and Analysis of Financial Condition and
                Results of Operations
            12Item
                3 – Quantitative and Qualitative Information About Market Risk
            29Item
                4T – Controls and Procedures
            30**PART
                II**–**OTHER INFORMATION**Item
                4 – Submission of Matters to a Vote by Securities Holders
            31Item
                6 – Exhibits
            32SIGNATURES
            33









**PART
        I – FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **EMTEC,
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 
 **February 29, 2008**
                **(Unaudited)**
              
              **August 31, 2007****Assets**Current
                  AssetsCash
              
              $
              863,830
              
              $
              2,251,352Receivables:Trade,
                  less allowance for doubtful accounts
              
              
              26,704,561
              
              
              28,774,286Others
              
              
              4,018,483
              
              
              2,756,815Inventories,
                  net
              
              
              812,674
              
              
              5,021,516Prepaid
                  expenses
              
              
              428,940
              
              
              331,062Deferred
                  tax asset - current
              
              
              813,789
              
              
              653,820Total
                  current assets
              
              
              33,642,277
              
              
              39,788,851Property
                  and equipment, net
              
              
              1,048,119
              
              
              1,308,582Customer
                  relationships, net
              
              
              7,142,601
              
              
              7,432,776Goodwill
              
              
              8,978,788
              
              
              9,014,055Deferred
                  tax asset - long term
              
              
              147,930
              
              
              -Restricted
                  cash
              
              
              150,000
              
              
              150,000Other
                  assets
              
              
              161,375
              
              
              112,505Total
                  assets
              
              $
              51,271,090
              
              $
              57,806,769**Liabilities
                  and Stockholders' Equity**Current
                  LiabilitiesLine
                  of credit
              
              $
              1,001,287
              
              $
              5,847,494Accounts
                  payable
              
              
              24,527,183
              
              
              26,578,127Current
                  portion of long term debt - related party
              
              
              1,276,880
              
              
              1,280,660Income
                  taxes payable
              
              
              7,635
              
              
              9,255Accrued
                  liabilities
              
              
              3,710,575
              
              
              4,172,008Due
                  to former stockholders
              
              
              631,415
              
              
              631,415Customer
                  deposits
              
              
              47,131
              
              
              183,220Deferred
                  revenue
              
              
              1,192,318
              
              
              1,362,333Total
                  current liabilities
              
              
              32,394,424
              
              
              40,064,512Deferred
                  tax liability
              
              
              1,873,358
              
              
              1,307,155Accrued
                  liabilities
              
              
              174,739
              
              
              -Long
                  term debt - related party
              
              
              2,270,894
              
              
              2,745,514Total
                  liabilities
              
              
              36,713,415
              
              
              44,117,181Commitments
                  and contingent liabilitiesStockholders'
                  EquityCommon
                  stock $0.01 par value; 25,000,000 shares authorized; 17,714,180
                  and
                  17,249,875 shares issued and 14,849,591 and 14,385,286, outstanding
                  at
                  February 29, 2008 and August 31, 2007, respectively
              
              
              177,142
              
              
              172,499Additional
                  paid-in capital
              
              
              20,490,168
              
              
              20,348,736Accumulated
                  deficit
              
              
              (513,588
              )
              
              (1,235,600
              )20,153,722
              
              
              19,285,635Less:
                  treasury stock, at cost, 2,864,589 shares
              
              
              (5,596,047
              )
              
              (5,596,047
              )Total
                  stockholders' equity
              
              
              14,557,675
              
              
              13,689,588Total
                  liabilities and stockholders' equity
              
              $
              51,271,090
              
              $
              57,806,769
  The
        accompanying notes are integral parts of these consolidated financial
        statements.
  1
  **EMTEC,
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)**
  **Three months ended**
                
                **Six month ended****February 29, 2008**
                
                **February 28, 2007**
                
                **February 29, 2008**
                
                **February 28, 2007**Revenues
                
                $
                44,068,502
                
                $
                41,154,373
                
                $
                118,708,688
                
                $
                106,093,516Cost
                    of revenues
                
                
                39,097,259
                
                
                36,802,405
                
                
                105,092,468
                
                
                95,682,901Gross
                    profit
                
                
                4,971,243
                
                
                4,351,968
                
                
                13,616,220
                
                
                10,410,615Operating
                    expenses:Selling,
                    general, and administrative expenses
                
                
                4,920,946
                
                
                5,755,872
                
                
                10,676,389
                
                
                11,102,828Management
                    fee – related party
                
                
                -
                
                
                58,334
                
                
                -
                
                
                145,834Amended
                    employment agreements and management agreement charges
                
                
                -
                
                
                2,329,800
                
                
                -
                
                
                2,329,800Rent
                    expense – related party
                
                
                89,325
                
                
                89,325
                
                
                178,650
                
                
                178,650Depreciation
                    and amortization
                
                
                307,511
                
                
                291,485
                
                
                608,014
                
                
                550,736Total
                    operating expenses
                
                
                5,317,782
                
                
                8,524,816
                
                
                11,463,053
                
                
                14,307,848Operating
                    income (loss)
                
                
                (346,539
                )
                
                (4,172,848
                )
                
                2,153,167
                
                
                (3,897,233
                )Other
                    expense (income):Interest
                    income – other
                
                
                (48,888
                )
                
                (16,965
                )
                
                (66,663
                )
                
                (57,915
                )Interest
                    expense
                
                
                315,720
                
                
                354,880
                
                
                652,743
                
                
                563,598Other
                
                
                -
                
                
                (163
                )
                
                (18
                )
                
                (413
                )Income
                    (loss) before income taxes
                
                
                (613,371
                )
                
                (4,510,600
                )
                
                1,567,105
                
                
                (4,402,503
                )Provision
                    (benefit) for income taxes
                
                
                (221,993
                )
                
                (1,814,856
                )
                
                712,281
                
                $
                (1,739,810
                )Net
                    income (loss)
                
                $
                (391,378
                )
                $
                (2,695,744
                )
                $
                854,824
                
                
                (2,662,693
                )Net
                    (loss) income per common shareBasic
                    and Diluted
                
                $
                (0.03
                )
                $
                (0.19
                )
                $
                0.06
                
                $
                (0.19
                )Weighted
                    Average Shares OutstandingBasic
                
                
                14,519,049
                
                
                14,385,286
                
                
                14,519,049
                
                
                14,385,286Diluted
                
                
                14,519,049
                
                
                14,385,286
                
                
                14,594,685
                
                
                14,385,286
  The
          accompanying notes are integral parts of these consolidated financial
          statements.
  2




**EMTEC,
      INC. AND SUBSIDIARIES**


**CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**


**Six months ended****February 29, 2008**
              
              **February 28, 2007****Cash
                  Flows From Operating Activities**Net
                  income (loss)
              
              $
              854,824
              
              $
              (2,662,693
              )**Adjustments
                  to Reconcile Net Income (loss) to Net Cash Provided By (Used In)
                  Operating
                  Activities**Depreciation
                  and amortization
              
              
              608,014
              
              
              550,736Deferred
                  income tax expense (benefit)
              
              
              499,606
              
              
              (1,752,717
              )Stock-based
                  compensation
              
              
              146,075
              
              
              190,122Amended
                  employment agreements and management agreement charges
              
              
              -
              
              
              2,329,800**Changes
                  In Operating Assets and Liabilities**Receivables
              
              
              1,149,222
              
              
              2,225,793Inventories
              
              
              4,208,842
              
              
              (692,887
              )Prepaid
                  expenses and other assets
              
              
              (146,748
              )
              
              (262,169
              )Accounts
                  payable
              
              
              (2,050,944
              )
              
              (4,383,950
              )Deferred
                  revenue
              
              
              (170,015
              )
              
              (84,806
              )Customer
                  deposits
              
              
              (136,089
              )
              
              (637,498
              )Income
                  taxes payable
              
              
              (1,620
              )
              
              (15,267
              )Accrued
                  liabilities
              
              
              (966,709
              )
              
              (759,015
              )Deferred
                  compensation
              
              
              -
              
              
              (272,332
              )**Net
                  Cash Provided By (Used In) Operating Activities**
              
              
              **3,994,458**
              
              
              **(6,226,883**
              **)****Cash
                  Flows From Investing Activities**Purchases
                  of property and equipment
              
              
              (57,373
              )
              
              (438,095
              )**Net
                  Cash Used In Investing Activities**
              
              
              **(57,373**
              **)**
              
              **(438,095**
              **)****Cash
                  Flows From Financing Activities**Net
                  increase (decrease) in line of credit
              
              
              (4,846,207
              )
              
              7,505,597Repayment
                  of debt
              
              
              (478,400
              )
              
              (640,961
              )**Net
                  Cash (Used In) Provided By Financing Activities**
              
              
              **(5,324,607**
              **)**
              
              **6,864,636****Net
                  (decrease) increase in Cash**
              
              
              **(1,387,522**
              **)**
              
              **199,658****Beginning
                  Cash**
              
              
              2,251,352
              
              
              917,683**Ending
                  Cash**
              
              **$**
              **863,830**
              
              **$**
              **1,117,341****Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid during the period for:Income
                  taxes
              
              $
              922,050
              
              $
              35,349Interest
              
              
              511,552
              
              
              372,414




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




3


**EMTEC,
      INC**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





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





The
      accompanying unaudited condensed 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 clients. 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 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. The accounts of the Company’s wholly owned subsidiary Luceo,
      Inc. (“Luceo”) are not included in the consolidated financial statements because
      the Company acquired all of the outstanding stock of Luceo after the end of
      the
      period covered by this report.





*Reclassifications*





Certain
      reclassifications have been made to prior year balances in order to conform
      to
      current presentations.


4


*Earnings
      Per Share*





Basic
      earnings (loss) per share amounts are computed by dividing net income (loss)
      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,
      restricted stock awards and warrants had been exercised as of the end of the
      period. The assumed conversion of options and warrants resulted in 75,636
      additional dilutive shares for the six months ended February 29, 2008. Diluted
      shares consisting of stock options, restricted stock awards and warrants
      totaling to 122,944, 20,789 and 45,792 shares were not included in the
      calculation of diluted net loss per share for the three months ended February
      29, 2008, February 28, 2007 and six months ended February 28, 2007,
      respectively. In addition, outstanding stock warrants to purchase 1,649,955
      and
      1,598,365 common shares as of and for the periods ended February 29, 2008 and
      February 28, 2007, respectively, were also not included in the computation
      of
      diluted earnings per share because the exercise price was greater than the
      average market price of the Company’s common shares over those
      periods.





*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.




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 was
      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 three and
      six
      months ended February 29, 2008, the Company recorded interest associated with
      uncertain tax positions in the amount of $13,074 and $24,179, respectively,
      as
      an increase to current income tax expense.




The
      total
      liability for unrecognized tax obligations was $539,580 as of February 29,
      2008
      and, as noted below, primarily related uncertain tax obligations related to
      an
      ongoing IRS tax audit. 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.


5




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. As of February 29, 2008, the Company recorded a $341,165 other
      receivable on the balance sheet to record this potential recovery under the
      indemnification provisions. The accounting effect of recording the $341,165
      other receivable was to decrease goodwill by $341,165.




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 from immediately through a term of 4 years.




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.




6




A
      summary
      of stock options for the six months ended February 29, 2008 is as
      follows:




Weighted Average
            
            Weighted Average
            
            Aggregate**For the Six Months Ended February 29, 2008**
            
            
            Shares
            
            
            Exercise
                Price
            
            
            Remaining
                Term
            
            
            Intrinsic ValueOptions
                Outstanding -September 1, 2007
            
            
            396,500
            
            $
            1.22Options
                Granted
            
            
            32,500
            
            $
            0.68Options
                Exercised
            
            
            -Options
                Forfeited or Expired
            
            
            (10,000
            )
            $
            1.31Options
                Outstanding -February 29, 2008
            
            
            419,000
            
            $
            1.18
            
            
            6.55
                years
            
            $
            3,800Options
                Exercisable -February 29, 2008
            
            
            156,625
            
            $
            1.19
            
            
            7.58
                years
            
            $
            3,800




The
      following assumptions were used to value options during the three months and
      six
      months ended February 29, 2008:


Three Months Ended
              
              Six Months EndedFebruary 29, 2008
              
              February 29, 2008Weighted-Average
                  Fair Value
              
              $
              0.61
              
              $
              0.53*Assumptions*Expected
                  Volatility
              
              
              101
              %
              
              101
              %Expected
                  Term
              
              
              4.75
                  years
              
              
              4.87
                  yearsExpected
                  Forfeiture Rate
              
              
              0
              %
              
              0
              %Dividend
                  Yield
              
              
              0
              %
              
              0
              %Risk-Free
                  Interest Rate
              
              
              3.34
              %
              
              3.27
              %


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. During the three
      months ended February 29, 2008, the Company granted 10,331 shares of stock
      to a
      member of senior management team. The fair value of these 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.




A
      summary
      of nonvested (restricted) shares for the six months ended February 29, 2008
      is
      as follows:


**For the Six Months Ended February 29, 2008**
                  
                  Shares
                  
                  Weighted Average
                    Grant Date FairValueNonvested
                      - September 1, 2007
                  
                  
                  456,974
                  
                  $
                  1.25Granted
                  
                  
                  10,331
                  
                  $
                  1.21Vested
                  
                  
                  (133,763
                  )Forfeited
                  
                  
                  (3,000
                  )
                  $
                  1.44Nonvested
                      -February 29, 2008
                  
                  
                  330,542
                  
                  $
                  1.24Vested
                      -February 29, 2008
                  
                  
                  133,763
                  
                  $
                  1.26
  7




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




Stock-based
      compensation costs related to the 2006 Plan totaled $78,723 and $146,075 during
      the three months and six months ended February 29, 2008, respectively. As of
      February 29, 2008, the Company had recognized a total of $573,112 in
      compensation cost and had $362,929 of unrecognized compensation cost related
      to
      these instruments. 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
      1,649,955 and 1,598,365 shares, with an exercise price of $2.24 and $2.31 per
      share, as of February 29, 2008 and February 28, 2007, respectively. The
      outstanding stock warrants were anti-dilutive for the six months ended February
      29, 2008 and February 28, 2007, because the exercise price was greater than
      the
      average market price of the Company’s common shares over such six month periods.





**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% (6.75% as of February 29, 2008) for revolving credit loans. Floor plan
      loans do 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 (9.75% as of February
      29, 2008).




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.




The
      Company had balances of approximately $1.0 million and $5.85 million outstanding
      under the revolving portion of the Credit Facility, and balances of $11.88
      million and $2.63 million (included in the Company’s accounts payable)
      outstanding plus $524,400 and $1.80 million in open approvals under the floor
      plan portion of the Credit Facility with the Lender at February 29, 2008 and
      August 31, 2007, respectively. Net availability of $2.56 million and $8.78
      million was available under the revolving portion of the Credit Facility, and
      $16.04 million and $12.95 million was available under the floor plan portion
      of
      the Credit Facility, as of February 29, 2008 and August 31, 2007,
      respectively.


8





As
      of
      February 29, 2008, 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 EndedFebruary 29, 2008
                  
                  % of Total
                  
                  February 28, 2007
                  
                  % of TotalDepartments
                      of the United StatesGovernment
                  
                  $
                  26,482,919
                  
                  
                  60.1
                  %
                  $
                  21,351,697
                  
                  
                  51.9
                  %State
                      and Local Governments
                  
                  
                  2,262,595
                  
                  
                  5.1
                  %
                  
                  3,243,055
                  
                  
                  7.9
                  %Commercial
                      Companies
                  
                  
                  11,387,333
                  
                  
                  25.8
                  %
                  
                  12,951,877
                  
                  
                  31.5
                  %Education
                      and other
                  
                  
                  3,935,654
                  
                  
                  8.9
                  %
                  
                  3,607,744
                  
                  
                  8.8
                  %Total
                      Revenues
                  
                  $
                  44,068,502
                  
                  
                  100.0
                  %
                  $
                  41,154,373
                  
                  
                  100.0
                  %
 For the Six Months EndedFebruary 29, 2008
                  
                  % of Total
                  
                  February 28, 2007
                  
                  % of TotalDepartments
                      of the United StatesGovernment
                  
                  $
                  74,853,433
                  
                  
                  63.1
                  %
                  $
                  67,513,193
                  
                  
                  63.6
                  %State
                      and Local Governments
                  
                  
                  5,980,610
                  
                  
                  5.0
                  %
                  
                  6,768,340
                  
                  
                  6.4
                  %Commercial
                      Companies
                  
                  
                  24,469,810
                  
                  
                  20.6
                  %
                  
                  24,064,034
                  
                  
                  22.7
                  %Education
                      and other
                  
                  
                  13,404,835
                  
                  
                  11.3
                  %
                  
                  7,747,949
                  
                  
                  7.3
                  %Total
                      Revenues
                  
                  $
                  118,708,688
                  
                  
                  100.0
                  %
                  $
                  106,093,516
                  
                  
                  100.0
                  %




The
      Department of the Air Force, one of the departments of the United States
      Government accounted for approximately $14 million or 31.8%, and $15.07 million
      or 12.7% of the Company’s total revenues for the three and six months ended
      February 29, 2008. The same customer accounted for approximately $197,000 or
      0.5% and $1.78 million or 1.7% of the Company’s total revenue for the three and
      six months ended February 28, 2007.





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




The
      trade
      account receivables consist of the following:


February 29,
              
              August
                  31,2008
              
              2007Trade
                  receivables
              
              $
              27,095,697
              
              $
              29,165,423Allowance
                  for doubtful accounts
              
              $
              (391,137
              )
              $
              (391,137)Trade
                  receivables, net
              
              $
              26,704,561
              
              $
              28,774,286




**6.**  **Accrued
      Liabilities**




Current
      accrued liabilities consisted of the following:




February 29, 2008
              
              August 31, 2007Accrued
                  payroll
              
              $
              760,326
              
              $
              934,517Accrued
                  commissions
              
              
              522,053
              
              
              507,317Accrued
                  state sales taxes
              
              
              665,983
              
              
              286,158Accrued
                  third party service fees
              
              
              60,178
              
              
              115,776Other
                  accrued expenses
              
              
              1,702,034
              
              
              2,328,240$
              3,710,575
              
              $
              4,172,008





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





**7.**  **Accumulated
      deficit**




Accumulated
      deficit roll-forward for the six months ended February 29, 2008 consists of
      the
      following:




AccumulatedDeficitBalance
                at August 31, 2007
            
            $
            (1,235,600
            )Adoption
                of FIN 48 -September 1, 2007
            
            
            (132,812
            )(
                see footnote 2 Income Taxes)Net
                income for six months ended February 29, 2008
            
            
            854,824Balance
                at February 29, 2008
            
            $
            (513,588
            )




**8.**  **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
      and six months ended February 28, 2007, the Company recorded $58,334 and
      $145,834, respectively, for this management fee in the accompanying consolidated
      statements of operations.




10




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 $90,000 for each of the six months ended February 29, 2008 and February
      28,
      2007, 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 six months ended February 29, 2008 and February 28, 2007, the
      Company recorded expense under this lease totaling to $88,650.




**9.
      Amended Employment Agreements and Management Agreement
      Charges**




On
      February 5, 2007, in connection with the amended and restated employment
      agreements with Keith Grabel and Mary Margaret Grabel, and in connection with
      the termination of the Management Services Agreement, Westwood issued
      subordinated promissory notes to Mr. Grabel, Mrs. Grabel and DARR Global in
      the
      principal amount of $671,300, $655,600, and $1,002,900, respectively. The total
      principal amount of these notes, equaling $2,329,800, has been recorded as
      amended employment agreement and management agreement charges on the
      consolidated statements of operations for the three months ended February 28,
      2007.




**10.
      Subsequent Events**




On
      March
      20, 2008, EGS, a wholly-owned subsidiary of the Company, Luceo and Sivapatham
      Natarajan (“Mr. Natarajan”) entered into a Stock Purchase Agreement, pursuant to
      which EGS agreed to acquire all of the outstanding stock of Luceo from Mr.
      Natarajan for approximately $3.7 million plus the assumption of certain
      liabilities. The purchase price consists of (i) cash at closing in an aggregate
      amount equal to $1,795,000; (ii) a subordinated promissory note in a principal
      amount of $820,000 which is payable in two equal installments of $410,000 each
      on the 12 month and 18 month anniversaries of the closing and (iii) contingent
      payments of additional cash consideration each year for the next three years
      on
      the anniversary of the closing if certain performance goals are met. The
      purchase price may be reduced pursuant to a post-closing working capital
      adjustment. The acquisition was funded through borrowings under the Credit
      Facility with the Lender .
      The
      Lender consented to this transaction.




11




**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
      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.




12


***Recent
      Events***





On
      March
      20, 2008, Emtec acquired through our subsidiary Emtec Global Services LLC,
      all
      of the outstanding stock of Luceo, Inc. headquartered in Naperville, IL, for
      approximately $3.7 million plus the assumption of certain liabilities. The
      purchase price consists of (i) cash at closing in an aggregate amount equal
      to
      $1,795,000; (ii) a subordinated promissory note in a principal amount of
      $820,000 which is payable in two equal installments of $410,000 each on the
      12
      month and 18 month anniversaries of the closing and (iii) contingent payments
      of
      additional cash consideration each year for the next three years on the
      anniversary of the closing if certain performance goals are met. The
      purchase price may be reduced pursuant to a post-closing working capital
      adjustment. The acquisition was funded through borrowings under the Credit
      Facility with the Lender.


13


**Results
      of Operations**




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




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 February 29, 2008 and February 28,
      2007.


**EMTEC,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **Three
        Months Ended**
 **February 29,**
                
                **February 28,****2008**
                
                **2007**
                
                **Change**
                
                **%**Revenues
                
                $
                44,068,502
                
                $
                41,154,373
                
                $
                2,914,129
                
                
                7.1
                %Cost
                    of revenues
                
                
                39,097,259
                
                
                36,802,405
                
                
                2,294,854
                
                
                6.2
                %Gross
                    profit
                
                
                4,971,243
                
                
                4,351,968
                
                
                619,275
                
                
                14.2
                %Percent
                    of revenues
                
                
                11.3
                %
                
                10.6
                %Operating
                    expenses:Selling,
                    general, and administrative expenses
                
                
                4,920,946
                
                
                5,755,872
                
                
                (834,926
                )
                
                -14.5
                %Management
                    fee – related party
                
                
                -
                
                
                58,334
                
                
                (58,334
                )
                
                -100.0
                %Amended
                    employment agreements and management agreement charges
                
                
                -
                
                
                2,329,800
                
                
                (2,329,800
                )
                
                -100.0
                %Rent
                    expense – related party
                
                
                89,325
                
                
                89,325
                
                
                -
                
                
                0.0
                %Depreciation
                    and amortization
                
                
                307,511
                
                
                291,485
                
                
                16,026
                
                
                5.5
                %Total
                    operating expenses
                
                
                5,317,782
                
                
                8,524,816
                
                
                (3,207,034
                )
                
                -37.6
                %Pecent
                    of revenues
                
                
                12.1%
                
                
                20.7%Operating
                  loss
                
                
                (346,539
                )
                
                (4,172,848
                )
                
                3,826,309
                
                
                91.7
                %Percent
                    of revenues
                
                
                -0.8
                %
                
                -10.1
                %Other
                    expense (income):Interest
                    income – other
                
                
                (48,888
                )
                
                (16,965
                )
                
                (31,923
                )
                
                188.2
                %Interest
                    expense
                
                
                315,720
                
                
                354,880
                
                
                (39,160
                )
                
                -11.0
                %Other
                
                
                -
                
                
                (163
                )
                
                163
                
                
                N/ALoss
                    before income taxes
                
                
                (613,371
                )
                
                (4,510,600
                )
                
                3,897,229
                
                
                86.4
                %Provision
                  (benefit) for income taxes
                
                
                (221,993
                )
                
                (1,814,856
                )
                
                1,592,863
                
                
                87.8
                %Net
                    loss
                
                $
                (391,378
                )
                $
                (2,695,744
                )
                $
                2,304,366
                
                
                85.5
                %Percent
                  of revenues
                
                
                -0.9
                %
                
                -6.6
                %


14


*Total
      Revenues*




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


For the Three Months EndedFebruary 29, 2008
                
                % of Total
                
                February 28, 2007
                
                % of TotalDepartments
                    of the United StatesGovernment
                
                $
                26,482,919
                
                
                60.1
                %
                $
                21,351,697
                
                
                51.9
                %State
                    and Local Governments
                
                
                2,262,595
                
                
                5.1
                %
                
                3,243,055
                
                
                7.9
                %Commercial
                    Companies
                
                
                11,387,333
                
                
                25.8
                %
                
                12,951,877
                
                
                31.5
                %Education
                    and other
                
                
                3,935,654
                
                
                8.9
                %
                
                3,607,744
                
                
                8.8
                %Total
                    Revenues
                
                $
                44,068,502
                
                
                100.0
                %
                $
                41,154,373
                
                
                100.0
                %




Total
      revenues increased $2.91 million, or 7.1%, to $44.07 million for the three
      months ended February 29, 2008, compared to $41.15 million for the three months
      ended February 28, 2007. This increase is primarily attributable to an increase
      in our revenues from Departments of the United States Government.




During
      the three months ended February 29, 2008 and February 28, 2007, U.S.
      governmental department and agency related revenues represented approximately
      60.1% and 51.9% 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 $5.1 million during the three months ended February 29, 2008
      compared with the three months ended February 28, 2007. This is primarily
      attributable to a large computer hardware sale to the Department of the Air
      Force of approximately $14.0 million during the quarter ended February 29,
      2008.
      The same customer accounted for approximately $197,000 in revenues during the
      three months ended February 28, 2007.




We
      expect
      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 in fiscal 2007 we
      were one of nine awardees of a U.S. Army contract that contemplates the awardees
      participating in government purchases that may approximate $5.0 billion in
      the
      aggregate for all the awardees over 10 years. Additionally, in fiscal 2007,
      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, and
      we
      continue to bid on new contracts. 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.


15




Revenues
      from various commercial clients decreased by approximately $1.56 million during
      the three months ended February 29, 2008, compared with the three months ended
      February 28, 2007. This decrease is mainly due to a decrease in our ordinary
      course business with various commercial clients. There is a solid
      well-established client base to build upon as we expand our product and service
      offerings to existing clients as well as develop new relationships.




During
      the three months ended February 29, 2008, revenues from our education business
      increased by approximately $327,000 compared with the three months ended
      February 28, 2007. This increase is mainly attributable to a slight increase
      in
      our ordinary course business with various school districts.




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 $619,275, or 14.2 %,
      to
      $4.97 million for the three months ended February 29, 2008 as compared to $4.35
      million for the three months ended February 28, 2007. This increase is primarily
      attributable to an increase in revenues as discussed in the Total Revenues
      section and an increase in our services gross profit attributable to higher
      utilization of our engineers during the three months ended February 29, 2008
      compared with three months ended February 28, 2007.




Measured
      as a percentage of revenues, our gross profit margin increased to 11.3% of
      total
      revenues for the three months ended February 29, 2008 from 10.6% for the three
      months ended February 28, 2007. 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 decreased by $834,926, or 14.5% to $4.92
      million for the three months ended February 28, 2008, compared to $5.76 million
      for the three months ended February 28, 2007. This decrease in selling, general
      and administrative expenses for the three months ended February 29, 2008 is
      primarily attributable to following: merger and acquisition related costs
      expensed during the three months ended February 29, 2008 were approximately
      $100,000 compared with $678,116 incurred during the three months ended February
      28, 2007; stock compensation expense related to the issuance of stock options
      and non-vested stock which was $78,723 for the three months ended February
      29,
      2008 compared with $109,281 for the three months ended February 28, 2007;
      severance costs of approximately $150,000 which were incurred during the three
      months ended February 28, 2007; and office consolidation costs of approximately
      $125,000 which were incurred during three months February 28, 2007.


16




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 and acquisition 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 .




*Amended
      Employment Agreements and Management Agreement Charges*




On
      February 5, 2007, in connection with the entry into amended and restated
      employment agreements with Keith Grabel and Mary Margaret Grabel, and in
      connection with the termination of the Management Services Agreement, Westwood
      issued subordinated promissory notes to Mr. Grabel, Mrs. Grabel and DARR Global
      in the principal amount of $671,300, $655,600, and $1,002,900, respectively.
      The
      total principal amount of these notes equaling $2,329,800 has been recorded
      as
      amended employment agreements and management agreement charges on the
      consolidated statements of operations for the three months ended February 28,
      2007.




*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 February 29, 2008 and February 28, 2007, 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 February
      29, 2008 and February 28, 2007, 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 5.5%, or $16,026, to $307,511 for the
      three months ended February 29, 2008, compared to $291,485 for the three months
      ended February 28, 2007. This increase in depreciation expense is mainly due
      to
      depreciation expense associated with computer equipment purchased during the
      fiscal year ended August 31, 2007.




17




Intangible
      assets at February 29, 2008 and August 31, 2007 consisted of the value ascribed
      to customer relationships of $8,661,712 less accumulated amortization of
      $1,519,111 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 $145,087 for each of the three months ended February
      29, 2008 and February 28, 2007.




*Operating
      Loss*





Operating
      loss for the three months ended February 29, 2008 decreased by 91.7%, or $3.83
      million, to $346,539, compared to $4.17 million for the three months ended
      February 28, 2007. This decrease in operating loss is primarily attributable
      to
      reasons discussed in the sections above including increased revenues; increased
      gross profit; decreased selling, general and administrative expenses; and the
      charges incurred as a result of the amended employment agreements and management
      agreement entered into during the three months ended February 28,
      2007.




*Interest
      expense*





Interest
      expense decreased by 11.0%, or $39,160, to $315,720 for the three months ended
      February 29, 2008, compared to $354,880 for the three months ended February
      28,
      2007. This is primarily attributable to lower average balance on our line of
      credit during three months ended February 29, 2008 as compared to the three
      months ended February 28, 2007. This is a result of higher operating income
      during the last three quarters than prior periods, which was used in part to
      reduce the balance on our line of credit.




*Provision
      for Income Taxes*





We
      recorded an income tax benefit of $221,993 for the three months ended February
      29, 2008 as compared to an income tax benefit of $1.81 million for the three
      months ended February 28, 2007.  The effective tax benefit rate was 36% for
      the three months ended February 29, 2008 versus 40% for the three months ended
      February 28, 2007. The decrease in the tax benefit rate was primarily the result
      of FIN 48 interest expense recorded in the current period classified as income
      taxes, a tax benefit shortfall from stock compensation grants in the current
      period that reduced the income tax benefit and the effect of permanent
      differences between our financial statements and income tax
      returns.




18


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




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 six months ended February 29, 2008 and February 28,
      2007.


**EMTEC,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**


**February 29,**
              
              **February 28,****2008**
              
              **2007**
              
              **Change**
              ****
              **%**Revenues
              
              $
              118,708,688
              
              $
              106,093,516
              
              $
              12,615,172
              
              
              11.9
              %Cost
                  of revenues
              
              
              105,092,468
              
              
              95,682,901
              
              
              9,409,567
              
              
              9.8
              %Gross
                  profit
              
              
              13,616,220
              
              
              10,410,615
              
              
              3,205,605
              
              
              30.8
              %Percent
                  of revenues
              
              
              11.5
              %
              
              9.8
              %Operating
                  expenses:Selling,
                  general, and administrative expenses
              
              
              10,676,389
              
              
              11,102,828
              
              
              (426,439
              )
              
              -3.8
              %Management
                  fee – related party
              
              
              -
              
              
              145,834
              
              
              (145,834
              )
              
              -100.0
              %Amended
                  employment agreements and management agreement charges
              
              
              -
              
              
              2,329,800
              
              
              (2,329,800
              )
              
              -100.0
              %Rent
                  expense – related party
              
              
              178,650
              
              
              178,650
              
              
              -
              
              
              0.0
              %Depreciation
                  and amortization
              
              
              608,014
              
              
              550,736
              
              
              57,278
              
              
              10.4
              %Total
                  operating expenses
              
              
              11,463,053
              
              
              14,307,848
              
              
              (2,844,795
              )
              
              -19.9
              %Pecent
                  of revenues
              
              
              9.7
              %
              
              13.5
              %Operating
                  income (loss)
              
              
              2,153,167
              
              
              (3,897,233
              )
              
              6,050,400
              
              
              155.2
              %Percent
                  of revenues
              
              
              
              
              
              
              
              
              1.8
              %
              
              -3.7
              %Other
                  expense (income):Interest
                  income – other
              
              
              (66,663
              )
              
              (57,915
              )
              
              (8,748
              )
              
              15.1
              %Interest
                  expense
              
              
              652,743
              
              
              563,598
              
              
              89,145
              
              
              15.8
              %Other
              
              
              (18
              )
              
              (413
              )
              
              395
              
              
              N/AIncome
                  (loss) before income taxes
              
              
              1,567,105
              
              
              (4,402,503
              )
              
              5,969,608
              
              
              135.6
              %Provision
                  (benefit) for income taxes
              
              
              712,281
              
              
              (1,739,810
              )
              
              2,452,091
              
              
              -140.9
              %Net
                  income (loss)
              
              $
              854,824
              
              $
              (2,662,693
              )
              $
              3,517,517
              
              
              132.1
              %Percent
                  of revenues
              
              
              0.7
              %
              
              -2.5
              %


19




*Total
      Revenues*




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


For the Six Months EndedFebruary 29, 2008
              
              % of Total
              
              February 28, 2007
              
              % of TotalDepartments
                  of the United States Government
              
              $
              74,853,433
              
              
              63.1
              %
              $
              67,513,193
              
              
              63.6
              %State
                  and Local Governments
              
              
              5,980,610
              
              
              5.0
              %
              
              6,768,340
              
              
              6.4
              %Commercial
                  Companies
              
              
              24,469,810
              
              
              20.6
              %
              
              24,064,034
              
              
              22.7
              %Education
                  and other
              
              
              13,404,835
              
              
              11.3
              %
              
              7,747,949
              
              
              7.3
              %Total
                  Revenues
              
              $
              118,708,688
              
              
              100.0
              %
              $
              106,093,516
              
              
              100.0
              %


Total
      revenues increased $12.62 million, or 11.9%, to $118.71 million for the six
      months ended February 29, 2008, compared to $106.09 million for the six months
      ended February 28, 2007. This increase is primarily attributable to an overall
      increase in our customers’ IT spending particularly with Departments of the
      United States Government and education business




During
      the six months ended February 29, 2008 and February 28, 2007, U.S. governmental
      department and agency related revenues represented approximately 63.1% and
      63.6%
      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
      $7.34 million during the six months ended February 29, 2008 compared with the
      six months ended February 28, 2007. This is primarily attributable to a large
      computer hardware sale to the Department of the Air Force of approximately
      $15.1
      million and Federal Bureau of Prisons of approximately $11.0 million during
      the
      six months ended February 29, 2008. The same customers Department of the Air
      Force and Federal Bureau of Prisons accounted for approximately $1.8 million
      and
      $140,000, respectively, for the six months ended February 28, 2007.




We
      expect
      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 in fiscal 2007 we
      were one of nine awardees of a U.S. Army contract that contemplates the awardees
      participating in government purchases that may approximate $5.0 billion in
      the
      aggregate for all of the awardees over 10 years. Additionally, in fiscal 2007,
      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 and we continue to bid on new contracts. 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 $405,000 during
      the
      six months ended February 29, 2008 compared with the six months ended February
      28, 2007. This increase is primarily attributable to an overall increase in
      our
      commercial customers’ IT spending during this period.




20




During
      the six months ended February 29, 2008, revenues from our education business
      increased to approximately $13.40 million from $7.75 million for the six months
      ended February 28, 2007. This increase was primarily attributable to various
      computer roll-out projects we began to implement in May 2007 which were
      completed during the quarter ended November 30, 2007.





*Gross
      Profit*





Aggregate
      gross profit increased $3.21 million, or 30.8 %,
      to
      $13.62 million for the six months ended February 29, 2008 as compared to $10.41
      million for the six months ended February 28, 2007. 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 higher
      utilization of our engineers, various computer roll-out projects in our
      education business, which we completed during this period and various volume
      incentive rebates, and other incentives offered by certain manufacturers. We
      received approximately $600,000 in additional various volume incentive rebates
      during the six months ended February 29, 2008 compared with the six months
      ended
      February 28, 2007. We also receive 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 11.5% of
      total
      revenues for the six months ended February 29, 2008 from 9.8% for the six months
      ended February 28, 2007. 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.





*Selling,
      General and Administrative Expenses*





Selling,
      general and administrative expenses decreased by $426,439, or 3.8% to $10.68
      million for the six months ended February 29, 2008, compared to $11.10 million
      for the six months ended February 28, 2007. This decrease in selling, general
      and administrative expenses for the six months ended February 29, 2008 is
      primarily attributable to following: merger and acquisition related costs
      expensed during the six months ended February 29, 2008 which were approximately
      $101,000 compared with $678,116 incurred during the six months ended February
      28, 2007; stock compensation expense related to the issuance of stock options
      and non-vested stock which was $146,075 for the six months ended February 29,
      2008 compared with $190,122 for the six months ended February 28, 2007;
      severance costs of approximately $210,000 which were incurred during the six
      months ended February 28, 2007; and office consolidation costs of approximately
      $125,000 which were incurred during the six months February 28, 2007.





Excluding
      the above listed decreases, our selling, general and administrative expenses
      would have increased by approximately $529,000 for the six month ended February
      29, 2008 compared with the six months ended February 28, 2007. This increase
      is
      mainly due to an increase in sales commission expense by approximately $370,000,
      which is directly related to the increase in gross profit as discussed in the
      Gross Profit section. The reminder of the increase is mainly due various
      marketing initiatives launched during this period.




21


*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
      six months ended February 29, 2008 and February 28, 2007, we recorded $90,000
      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 six months ended February
      29, 2008 and February 28, 2007, we recorded $88,650 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 10.4%, or $57,278, to $608,014 for the
      six
      months ended February 29, 2008, compared to $550,736 for the six months ended
      February 28, 2007. This increase in depreciation expense is mainly due to a
      change in the estimated life of the computer equipment purchased during the
      fiscal year ended August 31, 2007.




Intangible
      assets at February 29, 2008 and August 31, 2007 consisted of the value ascribed
      to customer relationships of $8,661,712 less accumulated amortization of
      $1,519,111 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 $290,175 for each of the six months ended February
      29,
      2008 and February 28, 2007.





*Operating
      Income*





Operating
      income increased $6.06 million, to $2.15 million for the six months ended
      February 29, 2008, compared to operating loss of $3.90 million for the six
      months ended February 28, 2007. This increase in operating income is primarily
      attributable to reasons discussed in the sections above including increased
      revenues; increased gross profit; decreased selling, general and administrative
      expenses; and the non-recurrence of charges incurred as a result of the amended
      employment agreements and management agreement entered into during the three
      months ended February 28, 2007.




22





*Interest
      expense*





Interest
      expense increased by 15.8%, or $89,145, to $652,743 for the six months ended
      February 29, 2008, compared to $563,598 for the six months ended February 28,
      2007. This is mainly due to a higher average balance on our line of credit
      as a
      result of increased business activity during six months ended February 29,
      2008
      as compared to the six months ended February 28, 2007.





*Provision
      for Income Taxes*





We
      recorded an income tax expense of $712,281 during the six months ended February
      29, 2008 as compared to income tax benefit of $1.74 million for the six months
      ended February 28, 2007.  The effective tax rate was 46% for the six months
      ended February 29, 2008 versus an effective tax benefit rate of 40% for the
      six
      months ended February 28, 2007. The higher current tax rate was primarily the
      result of FIN 48 interest expense recorded in the current period classified
      as
      income taxes, a tax benefit shortfall from stock compensation grants in the
      current period that increased income tax expense and the effect of permanent
      differences between our financial statements and income tax
      returns.




**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.
      The
      Company does not expect adoption of SFAS No. 157 to have a material impact
      on
      its 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. The Company is currently reviewing the impact of SFAS No.
      159
      on our financial statements.




23





*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.
      The
      Company does not expect that the adoption of this pronouncement will have any
      effect on its financial statements since all of its current subsidiaries are
      wholly owned.





*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 acquire. 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 February
      29, 2008 of $863,830 represented a decrease of $1.39 million 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 February 29, 2008 decreased to
      approximately $1.00 million from $5.85 million at August 31, 2007. As of
      February 29, 2008, our net working capital (defined as the excess of our current
      assets over our current liabilities) was approximately $1.52 million higher
      than
      it was at August 31, 200 7.  The
      increase in working capital is primarily attributable to our positive operating
      income for the six months ended February 29, 2008.




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.




24




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% (6.75% as of February 29, 2008) for revolving credit loans. Floor plan
      loans will 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 (9.75% as of
      February 29, 2008).




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 was available to us through January
      2008.




As
      of
      February 29, 2008, we had an outstanding balance of $1.00 million under the
      revolving portion of the Credit Facility and $11.88 million of outstanding
      (included in the Company’s accounts payable) balances plus $524,400 in open
      approvals under the floor plan portion of the Credit Facility with Lender.
      As of
      February 29, 2008, we had net availability of $2.56 million under the revolving
      portion of the Credit Facility and net availability of $16.04 million under
      the
      floor plan portion of the Credit Facility.





As
      of
      February 29, 2008, the Company determined that it was in compliance with its
      financial covenants with the Lender.





As
      of
      February 29, 2008, we had open term credit facilities with our primary trade
      vendors, including aggregators and manufacturers, of approximately $27.2 million
      with outstanding principal of approximately $9.30 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 $57,373 during the six months ended February 29, 2008 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.




On
      March
      20, 2008, EGS, a wholly-owned subsidiary of the Company, Luceo and Mr. Natarajan
      entered into a Stock Purchase Agreement, pursuant to which EGS agreed to acquire
      all of the outstanding stock of Luceo from Mr. Natarajan for approximately
      $3.7
      million plus the assumption of certain liabilities. The purchase price consists
      of (i) cash at closing in an aggregate amount equal to $1,795,000; (ii) a
      subordinated promissory note in a principal amount of $820,000 which is payable
      in two equal installments of $410,000 each on the 12 month and 18 month
      anniversaries of the closing and (iii) contingent payments of additional cash
      consideration each year for the next three years on the anniversary of the
      closing if certain performance goals are met. The purchase price may be
      reduced pursuant to a post-closing working capital adjustment. The acquisition
      was funded through borrowings under the Credit Facility with the
      Lender.




25




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.




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.




26




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.




§
            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.





27


*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.




*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 February 29, 2008 and August 31, 2007 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.




28




**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 February 29,
      2008 was approximately $1.0 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 $10,000 annually.




29




**Item
      4T.**  **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 February
      29, 2008. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures
      including the accumulation and communication of disclosures to the Company’s
      Chief Executive Officer and Chief Financial Officer as appropriate to allow
      timely decision regarding required disclosure, were effective to provide
      reasonable assurance 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 February 29, 2008 that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




30




**PART
      II – OTHER INFORMATION**




**Item
      4. Submission of Matters to a vote by Securities Holders**




The
      Annual Meeting of Shareholders of the Company (the “Meeting”) was held on
      January 29, 2008. There were present at the Meeting in person or by proxy
      shareholders holding an aggregate of 13,317,085 shares of Common Stock of a
      total number of 14,839,260 shares of Common Stock outstanding and entitled
      to
      vote at the Meeting.




**1.**
            **Election
                of Directors.**





The
      following director was elected as a Class B director.





**NOMINEE**
            
            **FOR**
            
            **AGAINST**
            
            **ABSTENSIONS**Keith
                Grabel
            
            
            13,298,604
            
            
            -
            
            
            18,481




**2.**
            **The
                stockholders ratified the appointment of McGladrey & Pullen, LLP as
                the Company’s independent registered public accounting firm for the fiscal
                year ending August 31, 2008 by the vote set forth
                below:**





**FOR**
            
            **AGAINST**
            
            **ABSTENSIONS**13,289,749
            
            
            6,850
            
            
            20,486





31


**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 April
      14, 2008 .




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




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




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




32


**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:
      April 14, 2008




33