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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------


                                    FORM 10-K


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

                     For the fiscal year ended July 31, 2002

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

        For the transition period from _______________ to _______________

                         Commission File Number 0-21695

                          MANCHESTER TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

          New York                                                11-2312854
(State or other jurisdiction of                                 (I.R.S. Employer
 incorporation or organization)                                  I. D. Number)

                   160 Oser Avenue, Hauppauge, New York, 11788
              (Address of principal executive offices and Zip Code)


       Registrant's telephone number, including area code: (631) 435-1199

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                               ------------------

Indicate by check mark  whether the  Registrant  (1) has filed all reports 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 _____

Indicate by check mark if the disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The  aggregate  market value of the common stock held by  non-affiliates  of the
Registrant as of October 15, 2002 was $5,014,577  (2,639,251 shares at a closing
sale price of $1.90).

As of October 15, 2002, 7,990,215 shares of Common Stock ($.01 par value) of the
Registrant were issued and outstanding.
                              --------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None



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                          MANCHESTER TECHNOLOGIES, INC.

                                    FORM 10-K
                            YEAR ENDED JULY 31, 2002
                                TABLE OF CONTENTS

Part I

Item 1.      Business                                                        3
Item 2.      Properties                                                     11
Item 3.      Legal Proceedings                                              12
Item 4.      Submission of Matters to a Vote of Security Holders            12


Part II

Item 5.      Market for the Registrant's Common Stock and Related
              Stockholder Matters                                           12
Item 6.      Selected Financial Data                                        13
Item 7.      Management's Discussion and Analysis of Financial
              Condition and Results of Operations                           14
Item 7A.     Quantitative and Qualitative Disclosures about Market Risk     22
Item 8.      Financial Statements and Supplementary Data                    22
Item 9.      Changes In and Disagreements with Accountants on
              Accounting and Financial Disclosure                           22


Part III

Item 10.     Directors and Executive Officers of the Registrant             23
Item 11.     Executive Compensation                                         25
Item 12.     Security Ownership of Certain Beneficial Owners and Management 28
Item 13.     Certain Relationships and  Related Transactions                29


Part IV

Item 14.     Exhibits, Financial Statements, Schedules and Reports
              on Form 8-K                                                   30

             Signatures
             Certifications




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                                     PART I

This  Report  contains  certain  forward-looking  statements  that are  based on
current expectations.  The actual results of Manchester Technologies,  Inc. (the
"Company") may differ  materially from the results  discussed herein as a result
of a number of unknown factors.  Such factors  include,  but are not limited to,
there being no assurance  that the Company will be  successful  in expanding its
Internet presence,  that the acquisitions of Electrograph Systems, Inc., Coastal
Office Products,  Inc.,  Texport  Technology Group,  Inc.,  Learning  Technology
Group, LLC, Donovan Consulting Group, Inc. and e.Track Solutions,  Inc. will add
or  continue to add to the  Company's  profitability,  that the Company  will be
successful  in its efforts to focus on  value-added  services,  that the Company
will  be  successful  in  attracting  and  retaining  highly  skilled  technical
personnel and sales representatives  necessary to implement the Company's growth
strategies,  that the Company will not be adversely  affected by the slowdown in
technology  related  spending,  continued  intense  competition  in the computer
industry, continued decreases in average selling prices of personal computers, a
lack  of  product   availability  or   deterioration   in   relationships   with
manufacturers,  or a loss or decline in sales to any of its major customers. See
"Products" and "Competition" in Part I, Item 1 and "Management's  Discussion and
Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of
this report for a discussion of important factors that could affect the validity
of any forward  looking  statements.  The Company  undertakes  no  obligation to
publicly   revise  these   forward-looking   statements  to  reflect  events  or
circumstances that arise after the date hereof.

ITEM 1. Business

Our Company

         Manchester  Technologies,  Inc. ("Manchester" "we," "us," "our," or the
"Company") is a single-source  solutions  provider  specializing in hardware and
software  procurement,   custom  networking,   security,  IP  telephony,  remote
management,  application  development/e-commerce,  wireless, display technology,
storage, enterprise and Internet solutions. We offer our customers single-source
solutions  customized  to their  information  systems needs by  integrating  our
analysis, design and implementation services with hardware, software, networking
products and peripherals from leading  vendors.  Over the past 29 years, we have
forged  long-standing  relationships  with  both  customers  and  suppliers  and
capitalized on the rapid  developments in the computer  industry,  including the
shift toward client/server-based platforms.

         Our marketing  focus is on mid- to  large-sized  companies,  which have
become  increasingly  dependent upon complex information systems in an effort to
gain  competitive  advantages.  While many of these companies have the financial
resources to make the required capital investments in information systems, often
they do not have the  necessary  information  technology  personnel  to  design,
install or maintain complex systems or to incorporate the continuously  evolving
technologies.  As a result,  these  companies are turning to  independent  third
parties to procure,  design,  install,  maintain and upgrade  their  information
systems.

         We offer our  customers  a variety  of  value-added  services,  such as
consulting,  integration  and support  services,  together with a broad range of
computer and  networking  products  from leading  vendors.  Consulting  services
include  systems  design,   performance   analysis,   and  migration   planning.
Integration  services include product  procurement,  configuration,  testing and
systems  installation  and  implementation.  Support  services  include  network
management and monitoring, "help-desk" support, and enhancement, maintenance and
repair of computer  systems.  Most of our  revenues  are  derived  from sales to
customers located in the New York City Metropolitan area, with approximately 58%
of our revenue  generated  from our Long Island and New York City offices.  As a
result,  our  business,  financial  condition  and  results  of  operations  are
susceptible  to regional  economic  downturns  and other  regional  factors.  In
addition, as we expand in our existing markets,  opportunities for growth within
these  regions may become more limited.  There can be no assurance  that we will
grow enough in other markets to lessen our regional geographic concentration.

         We have a corporate web site and electronic  commerce system. The site,
located at www.e-manchester.com,  allows existing customers,  corporate shoppers
and others to find product  specifications,  compare  products,  check price and
availability  and place and track orders  quickly and easily,  24 hours a day, 7
days a week.

         Manchester  was  incorporated  in New York in 1973 and has eight active
wholly-owned   subsidiaries:   Manchester   International,   Ltd.,  a  New  York
corporation,  which sells computer hardware, software and networking products to
resellers domestically and internationally;  ManTech Computer Services,  Inc., a
New York  corporation,  which  identifies  and  provides  temporary  information
technology  positions  and  solutions  for  commercial  customers;  Electrograph
Systems,  Inc., a New York  corporation,  which distributes  display  technology
solutions and plasma display  monitors  throughout  the United  States;  Coastal
Office  Products,  Inc.,  a Maryland  corporation,  which is an  integrator  and

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reseller of computer  products in the Baltimore,  Maryland and Washington,  D.C.
areas;  Texport  Technology  Group,  Inc., a New York  corporation,  which is an
integrator and reseller of computer  products in the  Rochester,  New York area;
Learning  Technology Group, LLC, a New York limited liability company,  which is
an  integrator  and  reseller  of  computer   products   mainly  to  educational
institutions  within New York State;  Donovan Consulting Group, Inc., a Delaware
corporation,  which delivers wireless LAN solutions to customers nationwide; and
e.Track  Solutions,  Inc.,  a New York  corporation,  which  delivers  business,
Internet and information technology solutions to customers nationwide.

Industry

         Businesses have become increasingly  dependent upon complex information
systems in an effort to gain competitive  advantages or to maintain  competitive
positions.  Computer technology and related products are continuously  evolving,
making  predecessor  technologies or products obsolete within a few years or, in
some cases, within months. The constant changes in hardware and software and the
competitive pressure to upgrade existing products create significant  challenges
to companies.

         Over the last several  years,  the increase in  performance of personal
computers,  the  development  of a variety of  effective  business  productivity
software  programs and the ability to  interconnect  personal  computers in high
speed  networks  have led to an  industry  shift  away from  mainframe  computer
systems to client/server systems based on personal computer technology.  In such
systems, the client computer,  in addition to its stand-alone  capabilities,  is
able to obtain resources from a central server or servers. Accordingly, personal
computers  may  share   everything  from  data  files  to  printers.   Networked
applications  such as  electronic  mail and work  group  productivity  software,
coupled with widespread acceptance of Internet technologies,  have led companies
to  implement   corporate  intranets  (networks  that  enable  end-users  (e.g.,
employees)  to share  information).  The use of a  corporate  intranet  allows a
company to warehouse valuable  information,  which may be "mined" or accessed by
employees or other  authorized  users through readily  available  Internet tools
such as Web browsers and other graphical user interfaces.

         With  these  advances  in  information  systems  and  networking,  many
companies are reengineering their businesses using these technologies to enhance
their revenue and productivity.  However,  as the design of information  systems
has become more complex to accommodate the proliferating  network  applications,
the  configuration,  selection and  integration  of the  necessary  hardware and
software products have become increasingly more difficult and complicated. While
many  companies  have  the  financial  resources  to make the  required  capital
investments,  they  often  do not  have  the  necessary  information  technology
personnel to design,  install or maintain complex systems and may not be able to
provide  appropriate  or  sufficient  funding  or  internal  management  for the
maintenance  of their  information  systems.  As a result,  such  companies  are
increasingly turning to independent third parties to procure,  design,  install,
maintain and upgrade  their  information  systems.  By utilizing the services of
such third parties, companies are able to acquire state-of-the-art equipment and
expertise on a cost-effective basis.

The Manchester Solution

         Manchester offers its customers  single-source  solutions customized to
their information  systems needs. Our solution includes a variety of value-added
services,  including consulting,  integration,  network management,  "help-desk"
support, and enhancement,  maintenance and repair of computer systems,  together
with a broad range of computer and networking  products from leading vendors. We
believe we provide state-of-the-art, cost-effective information systems designed
to meet our customers' particular needs.

         As a result of our long-standing  relationships  with certain suppliers
and our large volume purchases, we are often able to obtain significant purchase
discounts which can result in cost-savings for our customers.  Our relationships
with our suppliers,  our inventory  management system and our industry knowledge
generally  enable us to procure desired products on a timely basis and therefore
to offer our customers timely product delivery.

Our Strategy

         The key elements of our strategy include:

         Emphasizing   Value-added  Services.   Value-added  services,  such  as
consulting,  integration and support  services,  generally provide higher profit
margins than computer  hardware  sales. We have increased our focus on providing
these services through a number of key strategies.  We have recruited additional
technical personnel with broad-based knowledge in systems design and specialized
knowledge in different areas of systems integration,  including VoIP (Voice over
Internet Protocol),  inter-networking (routers and switches security assessment,
wireless analysis), database design and management.

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         Increasing  Marketing  Focus on  Companies  Outside the Fortune 500. We
have increased our marketing focus on those companies outside the Fortune 500 in
order to increase our value-added services revenue. Our experience is that those
companies  are  increasingly  looking  to third  parties  to  provide a complete
solution  to their  information  systems  needs from both a service  and product
standpoint.   Such  companies  often  do  not  have  the  necessary  information
technology personnel to procure,  design, install or maintain complex systems or
to  incorporate  continuously  evolving  technologies.  We  believe  that we can
provide these companies with solutions to their information systems requirements
by providing a variety of  value-added  services  together with a broad range of
computer and networking products.

         Electronic  Ordering System. We have implemented an electronic ordering
system.  This ordering system enables  participating  customers to access us via
the Internet,  review various  products,  systems and services offered by us and
place  their  orders  on-line.  Customers  are  also  able to  obtain  immediate
customized information regarding products,  systems and services that meet their
specific  requirements.  The ordering  system  produces a matrix of  alternative
fully compatible  packages,  together with their availability and related costs,
based on parameters indicated by the customer.  Customers are not granted access
to  this  system  without  prior  credit  clearance.  (See  "Expanding  Internet
Presence").

         Increasing  Sales Force  Productivity.  We are  addressing a variety of
strategies  to  increase   sales  force   productivity.   We  have   implemented
enhancements  to our  system  allowing  our  sales  force  immediate  access  to
information  regarding price and availability of products.  In addition,  we are
developing   enhancements  that  will  allow  sales  representatives  to  obtain
immediate  customized  information  regarding  products and  services  that meet
specific  requirements  of customers.  We believe that this system will increase
the  productivity of our sales  representatives  by enabling them to offer rapid
and comprehensive solutions to their customers' needs.

         We provide training of our sales representatives in matters relating to
value-added services, such as consulting and integration services. To facilitate
such training, we constructed dedicated training facilities in our New York City
office.

         Expanding New York Metropolitan Area Presence.  We believe that we have
a strong presence and wide name recognition in the New York  Metropolitan  area,
where there is a strong  corporate  demand for computer  products and  services.
Manchester  is seeking to expand its  presence in this area through its New York
City office and increased sales and service capabilities.  We believe that these
steps  will  enable  us  to  capture  a  greater  percentage  of  the  New  York
Metropolitan area market.

         Expanding into Additional Business Centers. We have regional offices in
Newton,  Massachusetts;   Baltimore,  Maryland;  Boca  Raton,  Florida;  Lanham,
Maryland (Washington,  D.C.); Long Beach,  California;  Timonium,  Maryland; and
Rochester,  New York, as well as other  locations  throughout the United States,
from which we derived  approximately  42% of our  revenues  for the fiscal  year
ended July 31, 2002.

         Expanding Internet Presence. We have continuously upgraded and expanded
our    electronic    communication    system.    Our    website,    located   at
www.e-manchester.com,  allows existing customers,  corporate shoppers and others
to find product specifications,  compare products, check prices and availability
and place and track orders quickly and easily 24 hours a day, seven days a week.
We have made,  and  expect to  continue  to make,  significant  investments  and
improvements in our e-commerce capabilities.

         Our Services and Products

         We  offer   customized   single-source   solutions  to  our  customers'
information systems requirements,  including consulting, integration and support
services, together with a broad range of computer and networking products from a
variety of leading  vendors.  We provide our services through a skilled staff of
engineers  who are trained and  certified in leading  products  and  technology,
including Hewlett Packard, Microsoft, Novell and Cisco Systems.

     Services.   Our  services  include  consulting,   integration  and  support
services.

         Consulting.  Our staff of senior systems engineers provides  consulting
services  consisting of systems  design,  performance  and needs  analysis,  and
migration planning services.

         Systems design services include network,  communications,  applications
and custom  solutions  design.  Network design  services  involve  analysis of a
customer's   overall   network   needs,   including   access  to  the  Internet;
communications  design services involve analysis and creation of enterprise-wide
networks,  including corporate  intranets;  applications design services include
creation  of  relational   databases   meeting   customers'   specific  business
requirements;  and custom  solutions  design services  include design of storage
systems,   remote  access  systems  and  document   retention  through  scanning
technology.

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         Performance  analysis  involves  analyzing  a  customer's   information
systems to assess  potential points of failure,  to determine where  performance
could be increased and to prepare for change and growth.  This service  includes
the evaluation of applications  and their  interaction with the network in order
to maximize existing computer resources.  Through this evaluation process, which
includes a detailed report to the end-user,  a plan for the  optimization of the
customer's   existing  system  is  created,   as  well  as  recommendations  for
enhancements and future systems.

         Security  analysis  involves working with customers to develop security
policies covering network security, as well as risk analysis.  After a policy is
developed, a security strategy is planned and deployed using a variety of tools,
including   physical   firewalls,   packet   filtering,   encryption   and  user
authentication.

         Migration planning involves the performance of a detailed assessment of
existing  mission  critical  systems,  followed by an analysis of the end-user's
future requirements.  Working closely with the customer, our consultants develop
a  migration  strategy  using a defined  project  plan that  encompasses  skills
transfer and  training,  checking for data  integrity,  project  management  and
consolidation  and  reallocation  of  resources.  The primary  objective of this
service is to rapidly move the customer from a slow or costly system to a newer,
more efficient and cost-effective solution.

          Integration.   Integration   services  include  product   procurement,
configuration, testing, installation and implementation.

         We maintain a  sophisticated  systems build and test area,  adjacent to
our  warehousing  facilities,  where computer  systems are configured and tested
through the use of automated  systems.  Manchester  manages the installation and
implementation of its customers' information systems, and provides critical path
analysis,  vendor  management and facility  management  services.  Critical path
analysis  involves the management and  coordination of the various  hardware and
software  networking  components  of a systems  design  project.  Our  engineers
prepare reports setting forth coordinated  timetables with respect to installing
and integrating the customer's information systems.

         Support. We offer support services for customers' existing  information
systems,  including  network  management,   "help-desk"  services,   monitoring,
enhancements, maintenance and repair.

         Network  management  consists of  managing  the  compatibility  of, and
communication   between,   the  various   components   comprising  a  customer's
information  system.  The  increased  expense  associated  with the ownership of
information  systems has  encouraged  customers to outsource  the  management of
computer networks, including local area networks ("LANs") and wide area networks
("WANs").  Our  engineers  can provide  network  management  services on site at
customers' facilities, and remotely.

         "Help-desk"  services  consist of providing  customers  with  telephone
support. In addition,  our "service call management system", which we are in the
process of  enhancing,  will  enable our  "help-desk"  technicians  to access an
archive of prior service calls concerning  similar problems and their solutions,
resulting in a more efficient response to customers' calls.

         We offer our customers a comprehensive remote monitoring and management
service  called  "TelstarR"(R).  TelstarR  provides our customers cost effective
24/7/365 network support that is fully integrated for servers,  workstations and
routers. This remote management can improve company performance and identify and
respond to current and potential systems failures and other problems.

         Enhancement,  maintenance  and repair services range from broad on-site
coverage to less expensive, basic maintenance and repair of itemized hardware or
software,  as well as enhancements such as upgrades of existing  systems.  Field
representatives  are equipped with notebook computers to facilitate the exchange
of information with both the information  systems at the Company's  headquarters
and with technical databases available on the Internet. We maintain a laboratory
at our Long Island  facilities where we prototype  customer problems for quicker
solutions without jeopardizing customers' information systems.



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     Products.  We offer a wide  variety of  personal  computer  and  networking
products, display technology solutions, and peripherals, including:

         CRT Display Monitors                        Routers
         Desktop Computers                           Scanners
         Internet Access Products                    Servers
         LCD Flat Panel Monitors                     Software
         Modems                                      Storage Systems
         Monitors and Displays                       Switches
         Network Equipment                           Supplies and Accessories
         Notebook Computers                          Teleconferencing Equipment
         Plasma Display Monitors                     Terminals
         Power Protection Devices                    Wireless Products
         Printers                                    Workstations


         We have long-standing  relationships with many manufacturers,  which we
believe  assist  us in  procuring  desired  products  on a timely  basis  and on
desirable  financial  terms.  We sell  products  from most major  manufacturers,
including:

      Cisco Systems, Inc.                           Nortel Networks, Inc.
      Computer Associates International, Inc.       Novell, Inc.
      Epson America, Inc.                           Panasonic
      Hewlett-Packard Company                       Philips Electronics N.V.
      Hitachi America, Ltd.                         Pioneer Corp.
      Intel Corporation                             Seagate Technology, Inc.
      Microsoft Corporation                         Sony Corporation
      NEC Technologies, Inc.                        3Com Corp.
      NEC-Mitsubishi, Inc.                          Toshiba America Information
                                                     Systems, Inc.

         For the fiscal year ended July 31, 2002, sales of products manufactured
by Compaq, (now part of Hewlett Packard) Pioneer and NEC comprised approximately
19%, 11% and 11%,  respectively,  of our revenue. For the fiscal year ended July
31,  2001,  sales of  products  manufactured  by Compaq  and  Toshiba  comprised
approximately  20% and 11%,  respectively,  of our revenue.  For the fiscal year
ended July 31,  2000,  sales of  products  manufactured  by Compaq  and  Toshiba
comprised approximately 13% and 19%, respectively, of our revenue.

         We have entered  into  agreements  with our  principal  suppliers  that
include provisions providing for periodic renewals and permit termination by the
vendor without cause,  generally  upon 30 to 90 days written  notice,  depending
upon the vendor.  While our principal  suppliers  have  regularly  renewed their
respective  agreements  with us,  there  can be no  assurance  that the  regular
renewal of our dealer agreements will continue. The termination, or non-renewal,
of any or all of these dealer  agreements would materially  adversely affect our
business.  We,  however,  are not aware of any  reason for the  termination,  or
non-renewal,   of  any  of  those  dealer   agreements   and  believe  that  our
relationships with our principal suppliers are satisfactory.

         We are  dependent  upon  the  continued  supply  of  products  from our
manufacturers,   particularly   Hewlett-Packard,   Pioneer,   NEC  and  Toshiba.
Historically,  certain  suppliers  occasionally  experience  shortages of select
products that render them unavailable or necessitate  product  allocations among
resellers.  Each fiscal year,  the Company has  experienced  product  shortages,
particularly  related to newer  models.  We believe  that  product  availability
issues  occur as a result  of the  present  dynamics  of the  personal  computer
industry as a whole,  which include varied customer  product  demand,  shortened
product life cycles and increased  frequency of new product  introductions  into
the marketplace.  While there can be no assurance that product unavailability or
product  allocation,  or both,  will not increase in fiscal 2003,  the impact of
such an interruption is not expected to be unduly troublesome due to the breadth
of alternative product lines available to the Company.

         We seek to obtain volume  discounts for large customer  orders directly
from manufacturers and through aggregators and distributors.

         Many of our major product  manufacturers provide stock balancing rights
and price  protection  for a limited time period,  by way of credits or refunds,
against price reductions by the supplier between the time of the initial sale to
the Company and the subsequent  sale by the Company to our customers.  There can
be no assurance  that  manufacturers  will not further limit or eliminate  price
protection and stock balancing rights in the future.

                                       7
<PAGE>

Customers

         We grant credit to customers meeting specified  criteria and maintain a
centralized  credit  department that reviews credit  applications.  Accounts are
regularly  monitored for  collectibility  and  appropriate  action is taken upon
indication of risk.

         We believe that we benefit from our  long-standing  relationships  with
many of our customers, providing opportunities for continued sales and services.
We believe that our broad range of  capabilities  with respect to both  products
and  services  is  attractive  to  companies  of all sizes.  Although  we target
companies outside the Fortune 500 as one part of our strategy, we have sold, and
anticipate  that we will continue to sell,  to some of the largest  companies in
the United States.  For the fiscal years ended July 31, 2002,  2001 and 2000, no
one  customer  accounted  for more  than 10% of our total  revenue.  Some of our
significant  commercial  customers  currently include Quest  Diagnostics,  Inc.,
Citrix Systems,  Inc.,  Rochester Gas and Electric Corp.,  Ann Taylor,  Inc. and
Reuters America, Inc.

         Our return policy  generally  allows  customers to return  hardware and
unopened software,  without restocking  charges,  within 30 days of the original
invoice date, subject to advance approval,  our ability to return the product to
our  vendor  and  certain  other  conditions.  We are  generally  able to return
defective  merchandise  returned  from  customers  to the  vendor  for repair or
replacement.

Sales and Marketing

         Our sales are  generated  primarily by our 68 person  sales force.  Our
sales  representatives   generally  are  responsible  for  meeting  all  of  our
customers'  product and service needs and are  supervised by sales managers with
significant  industry  experience.   The  sales  managers  are  responsible  for
overseeing  sales  representative  training,  establishing  sales objectives and
monitoring account management  principles and procedures.  Sales representatives
attend seminars  conducted by manufacturers'  representatives at our facilities,
at which our new and existing product and service offerings are discussed.

         Our sales  representatives  are  assisted by  technical  personnel  who
support and  supplement  the sales efforts.  The  responsibilities  of technical
support  personnel  include  answering   preliminary  inquiries  from  customers
regarding  systems  design,  and on-site  visits to  customers'  facilities.  At
customers'  facilities,  the technical personnel gather information necessary to
assist  customers  in making  informed  decisions  regarding  their  information
systems.  Such data includes the nature of the  customer's  current  information
systems, the existing hardware and networking environment,  the customer's level
of expertise and its applications needs.

         We  believe  that  our name is  widely  recognized  for  high  quality,
competitively  priced  products and services.  Our  corporate  logo includes the
phrase  "Manchester,  the Answer" to emphasize  our position as a  knowledgeable
resource for  networking,  computer  and display  technology  solutions  for our
customers. We promote name recognition and the sale of our products and services
through regional business directories, trade magazine advertisements, television
and radio  advertisements,  direct  mailings to customers and  participation  in
computer  trade shows and special  events.  We  advertise  at numerous  sporting
events in the New York metropolitan  region,  including full page advertisements
in yearbooks  and/or  program  guides for sports teams such as the New York Mets
and the New York Knicks, and often feature nationally recognized athletes in our
advertising  campaigns.  We also  promote  interest in our products and services
through our website on the Internet,  and have expanded our website  information
to  provide  an  electronic  catalog  of  our  products  and  services.  Several
manufacturers offer market development funds,  cooperative advertising and other
promotional programs, on which we rely to partially fund many of our advertising
and promotional campaigns.

         Sales force and customer  training is an integral  part of our strategy
to increase our focus on providing value-added services. As  client/server-based
systems,  applications and network capabilities grow in complexity, the need for
technically  knowledgeable  sales  personnel  becomes  critical  to the  sale of
value-added services. Accordingly, we have expanded our training capabilities at
one of our Long Island facilities to conduct seminars for sales representatives.
The  seminars  address  such  topics as  general  developments  in the  computer
industry,  systems integration services and our management  information systems.
In addition,  we built a storage lab in our New York City office for sales force
training and for customer  demonstration and training.  We utilize our technical
personnel to conduct such seminars and may hire additional dedicated trainers as
needed.

Management Information Systems

         We  currently  use an IBM AS/400  and a Hewlett  Packard  storage  area
network  in  our  integrated   management   information  system,   which  enable


                                       8
<PAGE>

instantaneous access. We maintain proprietary management systems on our computer
system pursuant to which product purchases and sales are continually tracked and
analyzed.  Our  computer  system  is  also  used  for  accounting,  billing  and
invoicing.

         Our information system assists management in maintaining  controls over
our inventory and receivables.  Manchester's  average inventory turnover was 24,
33,  and 34 times for the fiscal  years  ended July 31,  2002,  2001,  and 2000,
respectively,  and we experienced  bad debt expense of less than 0.3% of revenue
in each of these years.

         During  the  fiscal  year  ended  July 31,  2000,  we  invested  in our
management information systems, including upgrading and expanding the IBM AS/400
system,  enhancing and modifying our  client/server-based  management  system to
track  services  rendered  for  customers,  and  upgrading  servers  and network
infrastructures  for our  headquarters.  During the  fiscal  year ended July 31,
2002, we further invested in our management  information systems, which included
replacing  all  routers  and  switches,  implementing  a storage  area  network,
installing wireless access points and putting into service an IP telephony phone
system. We utilize  experienced  in-house technical  personnel,  assisted by our
senior  engineers,  to  upgrade  and  integrate  additional  functions  into our
management information systems.

Competition

         The  computer  industry is  characterized  by intense  competition.  We
directly  compete  with  local,   regional  and  national  systems  integrators,
value-added  resellers  and  distributors  as  well  as  with  certain  computer
manufacturers  that market through direct sales forces and/or the Internet.  The
computer industry has recently experienced a significant amount of consolidation
through mergers and acquisitions,  and  manufacturers of personal  computers may
increase  competition  by  offering a range of  services  in  addition  to their
current  product  and service  offerings.  In the  future,  we may face  further
competition  from new market entrants and possible  alliances  between  existing
competitors.  In addition,  certain suppliers and manufacturers  market products
directly  through a direct sales force and/or the  Internet  rather than,  or in
addition to, channel distribution,  and also market services, such as repair and
configuration  services,  directly  to end users.  The number of  suppliers  and
manufacturers employing direct marketing may increase in the future. Some of our
competitors have, or may have, greater financial, marketing and other resources,
and may offer a broader  range of products and  services,  than us. As a result,
they may be able to respond  more  quickly to new or  emerging  technologies  or
changes in customer  requirements,  benefit from greater  purchasing  economies,
offer more aggressive  hardware and service pricing or devote greater  resources
to the promotion of their  products and services.  We may not be able to compete
successfully in the future with these or other current or potential competitors.

         Our ability to compete successfully depends on a number of factors such
as  breadth of product  and  service  offerings,  sales and  marketing  efforts,
product  and  service  pricing,  and quality and  reliability  of  services.  In
addition,  product  margins may decline due to pricing to win new  business  and
increasing  pricing  pressures from  competition.  We believe that gross margins
will continue to be reactive to industry-wide changes. Future profitability will
depend on our  ability to  increase  focus on  providing  technical  service and
support to customers,  competition,  manufacturer pricing strategies, as well as
our  control  of  operating  expenses,   product  availability,   and  effective
utilization  of vendor  programs.  It will also depend on the ability to attract
and retain quality service personnel and sales representatives while effectively
managing the utilization of such personnel and representatives.  There can be no
assurance that we will be able to attract and retain such skilled  personnel and
representatives.  The loss of a  significant  number of our  existing  technical
personnel  or  sales  representatives  or  difficulty  in  hiring  or  retaining
additional  technical personnel or sales  representatives or reclassification of
our sales  representatives  as employees could have a material adverse effect on
our business, results of operations and financial condition.

Subsidiaries

         Electrograph Systems, Inc.

         Electrograph Systems,  Inc.  ("Electrograph") is a national value-added
wholesale distributor of display technology  solutions,  and a leading wholesale
distributor of plasma display monitors in the United States. Electrograph offers
a full range of display technology  solutions for dealers and system integrators
throughout  the U.S.  Products  include LCD flat panel,  CRT and plasma  display
monitors, portable and fixed installation projectors, touch screen monitors, and
customer monitor integration solutions. In addition to Electrograph's nationwide
distribution  of  display  technology  solutions,  Electrograph  also  markets a
complete  line  of  LCD  flat  panel  and  plasma  display  monitors  under  the
Electrograph brand name.  Electrograph is headquartered in Hauppauge,  New York,
with branch offices throughout the U.S.

         Products are selected by  Electrograph  to minimize  competition  among
suppliers' products while maintaining some overlap to provide protection against
product shortages and discontinuations and to provide different price points for
certain  items.  Management  believes  Electrograph's   relationships  with  its
suppliers are enhanced by providing feedback to suppliers on products,  advising


                                       9
<PAGE>

suppliers of customer  preferences,  working with suppliers to develop marketing
programs,  and  offering  suppliers  the  opportunity  to provide  seminars  for
Electrograph's customers.

         None of Electrograph's material supplier agreements require the sale of
specified  quantities of products or restrict  Electrograph from selling similar
products manufactured by competitors.  Electrograph,  therefore, has the ability
to  terminate or curtail  sales of one product line in favor of another  product
line as a result  of  technological  change,  pricing  considerations,  customer
demand or supplier  distribution policy.  Electrograph has never been terminated
by any of its suppliers.

         Most of  Electrograph's  major suppliers provide price protection for a
limited time period, by way of credits, against price reductions by the supplier
between the time of the initial sale to Electrograph  and the subsequent sale by
Electrograph to its customer.  Some suppliers permit  Electrograph to rotate its
inventory by returning slow moving inventory for other inventory.

         While  Electrograph  distributes  products  of more than 30  suppliers,
approximately  32%,  and 31% of  Electrograph's  purchases  in fiscal  2002 were
derived from products manufactured by Pioneer and NEC, respectively.

         Electrograph's  distribution  operations  are currently  conducted from
distribution  centers  in  Hauppauge,  New  York  and  Long  Beach,  California.
Electrograph also maintains sales offices throughout the U.S.

Acquisitions

         Donovan Consulting Group, Inc.

         On August 29, 2001, the Company  acquired all of the outstanding  stock
of  Donovan  Consulting  Group,  Inc.   ("Donovan"),   a  Delaware   corporation
headquartered near Atlanta,  Georgia.  Donovan is a technical services firm that
delivers Wireless LAN solutions to customers nationwide. The acquisition,  which
has been accounted for as a purchase,  consisted of a cash payment of $1,500,000
plus  potential  future  contingent  payments.  Contingent  payments  of  up  to
$1,000,000 may be payable on each of November 2, 2002 and November 2, 2003 based
upon  Donovan  achieving  certain  agreed-upon  increases in revenue and pre-tax
earnings. In connection with the acquisition,  the Company assumed approximately
$435,000 of bank debt and $43,000 of other debt, which were subsequently repaid.
Donovan  was  acquired  in order to  strengthen  the  Company's  position in the
Wireless  LAN arena.  Donovan  allows the  Company to offer total  Wireless  LAN
solutions  including state of the art products as well as the services necessary
to have those products operate optimally.

         Operating   results  of  Donovan  are  included  in  the   consolidated
statements of income from the  acquisition  date.  The  estimated  fair value of
tangible   assets  and   liabilities   acquired  was   $497,000  and   $869,000,
respectively. The excess of the aggregate purchase price over the estimated fair
value of the tangible  net assets  acquired was  approximately  $1,872,000.  The
factors that  contributed  to the  determination  of the purchase  price and the
resulting  goodwill include the significant  growth expected in this area due to
the combination of the Company's long history of strong customer  relationships,
financial  strength and stability  coupled with Donovan's  product offerings and
highly skilled  technical staff. The $1,872,000 will not be amortized;  however,
it will be subject to impairment  testing in accordance  with Statement No. 142,
"Goodwill and Other Intangible Assets."

          e.Track Solutions, Inc.

         On November 9, 2001, the Company acquired all of the outstanding  stock
of e.Track Solutions, Inc. ("e.Track"),  a New York corporation headquartered in
Pittsford,  New York.  e.Track is a business  and  software  services  firm that
delivers business,  Internet and information  technology  solutions to customers
nationwide.  The  acquisition,  which  has  been  accounted  for as a  purchase,
consisted of cash payments of $290,000  (including debt assumed and subsequently
repaid).  e.Track  was  acquired  in order to allow  the  Company  to offer  our
customers  customized  software  solutions  along with the products and services
that we have traditionally offered.

         Operating   results  of  e.Track  are  included  in  the   consolidated
statements of income from the  acquisition  date.  The  estimated  fair value of
tangible   assets  and   liabilities   acquired  was   $116,000  and   $192,000,
respectively.  The excess of aggregate  purchase  price over the estimated  fair
value of the  tangible  net assets  acquired  was  $291,000.  The  factors  that
contributed  to the  determination  of the  purchase  price  and  the  resulting
goodwill  include the  expectation  that the  combination  of  e.Track's  highly
skilled  technical  staff,  coupled with the  Company's  financial  strength and
customer base, will result in significant  growth at e.Track going forward.  The
$291,000  will not be  amortized;  however,  it will be  subject  to  impairment
testing in accordance  with  Statement No. 142,  "Goodwill and Other  Intangible
Assets."

                                       10
<PAGE>

Employees

         On August 31, 2002,  we had 330  full-time  employees  consisting of 50
sales and marketing  representatives,  67 management and supervisory  personnel,
107 technical personnel and 106 administrative and other personnel. In addition,
on August 31, 2002, we had 18 independent  sales  representatives.  We are not a
party to any collective bargaining agreements and believe our relations with our
employees are good.

         The Company is highly dependent upon the services of the members of its
senior management team, particularly Barry R. Steinberg,  the Company's founder,
Chairman  of the  Board,  President  and Chief  Executive  Officer,  and Joel G.
Stemple,  Ph.D.,  the Company's  Executive  Vice  President.  The loss of either
member of the  Company's  senior  management  team may have a  material  adverse
effect on its business.

Intellectual Property

         We own, or have pending,  several  federally  registered  service marks
with respect to our name and logo. Most of our various dealer  agreements permit
us to refer to  ourselves  as an  "authorized  dealer" of the  products of those
manufacturers  and to  use  their  trademarks  and  trade  names  for  marketing
purposes.  We  consider  the use of  these  trademarks  and  trade  names in our
marketing to be important to our business.

ITEM 2. Properties

Properties

         We currently  have sales branches  nationwide,  including the corporate
headquarters located in Hauppauge,  New York. The following table identifies the
principal leased facilities.
<TABLE>
<CAPTION>

                                                          Approximate
                                                          Square Footage                 Lease
Facility              Location                       Office            Warehouse     Expiration Date
--------              --------                       ------            ---------     ---------------


<S>                   <C>                            <C>                <C>         <C>
Corporate             160 Oser Avenue (1)
Headquarters          Hauppauge, NY                  30,000                 -         October 2005

Warehouse and         50 Marcus Blvd. (1)
Service Center        Hauppauge, NY                  10,000             30,000        January 2008

New York City         469 Seventh Avenue
Sales Office          New York, NY                   13,000                 -         October  2007

Boca Raton, FL        185 N.W. Spanish River Blvd.
Sales Office          Boca Raton, FL                  3,214                 -         December 2007

Baltimore, MD         3832 Falls Rd.
Sales Office          Baltimore, MD                  10,000             2,000         December 2002

Washington, D.C.      5001 Forbes Blvd.
Sales Office          Lanham, MD                      3,000                 -         February 2003

Rochester, NY         106 Despatch Dr.
Sales Office          Rochester, NY                   6,500             3,500         February 2004

Electrograph          40 Marcus Blvd. (1)
Corporate HQ          Hauppauge, NY                  10,000            13,000         May 2007

Electrograph,
Timonium, MD          1818  Pot Spring Rd.
Sales Office          Timonium, MD                    3,280                 -         November 2007

Donovan               510 Swanson Road
Corporate HQ          Tyrone, GA                      4,000             1,500         September 2006

e.Track               1169 Pittsford-Victor Rd
Corporate HQ          Pittsford, NY                   3,662                  -        October 2005
</TABLE>

(1)      Leased from entities  controlled  by or affiliated  with certain of our
         executive officers,  directors and principal  shareholders.  The leases
         with related  parties  provide terms  comparable to those that could be
         obtained from independent third parties.



                                       11
<PAGE>




ITEM 3. Legal Proceedings

         We are  involved  in various  claims and legal  actions  arising in the
ordinary course of business. In the opinion of management,  based on advice from
its legal  counsel,  the ultimate  disposition  of these matters will not have a
material adverse effect.

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

         No matters were submitted to a vote of the security  holders during the
fourth quarter of fiscal 2002.

                                     PART II

ITEM 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

         Our Common Stock is traded on the NASDAQ  National  Market(R) under the
symbol MANC.  The  following  table sets forth the  quarterly  high and low sale
prices for the Common Stock as reported by the NASDAQ National Market.
<TABLE>
<CAPTION>

                Fiscal Year 2001                  High             Low
                ----------------                  ----             ---
               <S>                               <C>              <C>
                First Quarter                     5.625            3.156
                Second Quarter                    4.000            2.000
                Third Quarter                     2.750            1.938
                Fourth Quarter                    2.850            2.060

                Fiscal Year 2002
                ----------------
                First Quarter                     2.800            2.120
                Second Quarter                    2.790            2.150
                Third Quarter                     2.890            2.070
                Fourth Quarter                    2.740            2.050
</TABLE>

         On October 15, 2002,  the closing sale price for the  Company's  Common
Stock was $1.90 per share.  As of October 15, 2002 there were 46 shareholders of
record of the  Company's  Common Stock.  The Company  believes that there are in
excess of 500 beneficial holders of its common stock.

         Manchester has never declared or paid any dividends to shareholders. At
this  time we intend to  continue  our  policy  of  retaining  earnings  for the
continued development and expansion of our business.




                                       12
<PAGE>




ITEM 6.  Selected Financial Data

                      SELECTED CONSOLIDATED FINANCIAL DATA
                    (in thousands, except per share amounts)

         The selected  consolidated  financial data presented  below are derived
from our audited consolidated  financial statements.  The data should be read in
conjunction  with the  consolidated  financial  statements and notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included elsewhere in this Report.
<TABLE>
<CAPTION>

                                                           Fiscal Year Ended July 31,
                                                           --------------------------
                                        2002             2001         2000          1999         1998
                                       -----             ----         ----          ----         ----

<S>                                    <C>            <C>          <C>            <C>           <C>
Income Statement Data:
  Revenue                              $262,010       $280,278     $300,073       $228,641      $202,530
  Cost of revenue                       225,602        242,925      260,236        195,423       171,930
                                        -------        -------      -------        -------       -------
  Gross profit                           36,408         37,353       39,837         33,218        30,600
  Selling, general and
    administrative expenses              35,050         35,485       33,539         29,849        27,414
                                         ------         ------       ------         ------        ------
Income from operations                    1,358          1,868        6,298          3,369         3,186
Interest and other income, net              184            767          602            404           546
Provision for income taxes                  600            908        2,800          1,590         1,560
                                            ---            ---        -----          -----         -----
Net income                                 $942         $1,727       $4,100         $2,183        $2,172
                                            ===          =====        =====          =====         =====

Net income per share:
   Basic                                 $0.12           $0.21        $0.51          $0.27        $0.26
                                          ====            ====         ====           ====         ====
   Diluted                               $0.12           $0.21        $0.50          $0.27        $0.26
                                          ====            ====         ====           ====         ====

Weighted average shares of common stock outstanding:
    Basic                                 7,990          8,036        8,108          8,096         8,494
                                          =====          =====        =====          =====         =====
    Diluted                               7,991          8,058        8,228          8,096         8,499
                                          =====          =====        =====          =====         =====

                                                                July 31,
                                           2002          2001     2000            1999          1998
                                           ----          ----     ----            ----          ----
Balance Sheet Data:
  Working capital                       $30,098        $31,972      $30,453        $27,461       $26,112
  Total assets                           70,661         61,783       74,573         61,778        56,894
  Short-term debt                             -              -           18             85            82
  Shareholders' equity                   46,512         45,555       44,263         39,586        37,345
</TABLE>




                                       13
<PAGE>
ITEM 7. Management's  Discussion And Analysis Of Financial Condition And Results
        Of Operations

         The  following  discussion  and  analysis of  financial  condition  and
results of  operations  of the Company  should be read in  conjunction  with our
consolidated  financial statements and notes thereto appearing elsewhere in this
report. The following  discussion  contains certain  forward-looking  statements
within the meaning of Securities Act of 1933 as amended,  and Section 21E of the
Securities  and  Exchange Act of 1934,  as amended,  which  statements  are made
pursuant to the safe harbor  provisions  of The  Private  Securities  Litigation
Reform Act of 1995.  Forward looking  statements are not historical  facts,  are
based on the Company's  beliefs and  expectations as of the date of this report,
and involve risks and  uncertainties  that could cause actual  results to differ
materially  from the results  anticipated in those  forward-looking  statements.
These risks and  uncertainties  include,  but are not limited to those set forth
below and the risk factors described in the Company's other filings from time to
time with the Securities and Exchange Commission.

General

         We are an integrator  and reseller of computer  hardware,  software and
networking  products,  primarily for  commercial  customers and a distributor of
display  technology  solutions and plasma display monitors  primarily to dealers
and  system  integrators.   We  offer  our  customers  single-source  solutions,
customized to their information systems needs, by integrating  analysis,  design
and implementation  services with hardware,  software,  networking  products and
peripherals  from  leading  vendors.  To date,  most of our  revenues  have been
derived  from  product  sales.  We  generally  do not  develop or sell  software
products. However, certain computer hardware products sold by us are loaded with
prepackaged software products.

Certain Trends and Uncertainties

         The  computer  industry  is  characterized  by a number of  potentially
adverse business conditions,  including pricing pressures, evolving distribution
channels,  market  consolidation and a decline in the rate of growth in sales of
personal   computers.   Heightened  price  competition  among  various  hardware
manufacturers  may result in reduced per unit revenue and declining gross profit
margins.  As a result of the intense price competition  within our industry,  we
have experienced  increasing  pressure on our gross profit and operating margins
with respect to our sale of products.  Our inability to compete  successfully on
the  pricing of  products  sold,  or a  continuing  decline in gross  margins on
products  sold due to adverse  industry  conditions or  competition,  may have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         An  integral  part  of our  strategy  is to  increase  our  value-added
services revenue. These services generally provide higher operating margins than
those  associated  with the sale of products.  This strategy  requires us, among
other things,  to attract and retain  highly  skilled  technical  employees in a
competitive   labor   market,   provide   additional   training   to  our  sales
representatives  and enhance our existing service  management  system. We cannot
predict  whether we will be  successful  in  increasing  our focus on  providing
value-added  services,  and the  failure  to do so may have a  material  adverse
effect on our business, results of operations and financial condition.

         Geographic Issues. Our strategy also includes expanding our presence in
the New York metropolitan area by increasing our sales and service  capabilities
in our New York City  office and  enlarging  our  sales,  service  and  training
capabilities   at  our  Long   Island   headquarters,   as  well  as   expanding
geographically  into growing  business centers in the eastern half of the United
States.  We cannot  assure you that the  expansion of our New York  metropolitan
area operations will increase  profits  generated by such  operations,  that the
opening of new offices will prove profitable, or that these expansion plans will
not substantially  increase future capital  expenditures or other  expenditures.
The failure of this  component of our strategy may materially  adversely  affect
our business, results of operations and financial condition.

         To date,  our revenues have been based  primarily upon sales in the New
York  Metropolitan  area.  Our strategy,  encompassing  the expansion of service
offerings,  the  expansion  of  existing  offices and the  establishment  of new
regional  offices,  has  challenged  and will  continue to challenge  our senior
management and infrastructure. We cannot predict our ability to respond to these
challenges.  If we fail to effectively manage our planned growth, there may be a
material  adverse  effect on our business,  results of operations  and financial
condition.

         On September 11, 2001,  the World Trade Center in New York City and the
Pentagon  in  Washington,   D.C.  were  the  subject  of  terrorist  attacks.  A
significant  part of our  business  is  generated  from  our New  York  City and
Baltimore/Washington,  D.C. offices and revenues for the month of September were
adversely impacted with declines in orders and shipments.  We cannot predict the
impact that these or potential future attacks may have on our business,  results
of operations and financial condition.

                                       14
<PAGE>
         Personnel  Issues.  The success of our  strategy  depends in large part
upon our ability to attract and retain highly  skilled  technical  personnel and
sales representatives,  including independent sales  representatives,  in a very
competitive  labor  market.  Our ability to grow our service  offerings has been
somewhat limited by a shortage of qualified personnel,  and we cannot assure you
that  we will  be  able  to  attract  and  retain  such  skilled  personnel  and
representatives.  The loss of a  significant  number of our  existing  technical
personnel or sales representatives, difficulty in hiring or retaining additional
technical personnel or sales  representatives,  or reclassification of our sales
representatives as employees may have a material adverse effect on our business,
results of operations and financial condition.

         Competition.   The  computer   industry  is  characterized  by  intense
competition.  We directly  compete with local,  regional  and  national  systems
integrators,  value-added  resellers  and  distributors  as well as with certain
computer  manufacturers  that market  through  direct  sales  forces  and/or the
Internet. The computer industry has recently experienced a significant amount of
consolidation  through mergers and  acquisitions,  and manufacturers of personal
computers may increase  competition  by offering a range of services in addition
to their  current  product and  service  offerings.  In the future,  we may face
further  competition  from new market  entrants and possible  alliances  between
existing  competitors.  Moreover,  additional  suppliers and  manufacturers  may
choose to market  products  directly to end users  through a direct  sales force
and/or the Internet rather than or in addition to channel distribution,  and may
also  choose to market  services,  such as repair  and  configuration  services,
directly  to end  users.  Some  of our  competitors  have or may  have,  greater
financial,  marketing  and other  resources,  and may  offer a broader  range of
products and  services,  than us. As a result,  they may be able to respond more
quickly to new or emerging  technologies  or changes in  customer  requirements,
benefit from greater purchasing  economies,  offer more aggressive  hardware and
service  pricing or devote greater  resources to the promotion of their products
and  services.  We may not be able to compete  successfully  in the future  with
these or other current or potential competitors.

         Vendor  Relationships  and  Product   Availability.   Our  business  is
dependent upon our  relationships  with major  manufacturers and distributors in
the  computer  industry.  Many  aspects  of our  business  are  affected  by our
relationships with major manufacturers,  including product availability, pricing
and related  terms,  and  reseller  authorizations.  The  increasing  demand for
personal computers and ancillary  equipment has resulted in significant  product
shortages from time to time,  because  manufacturers have been unable to produce
sufficient  quantities  of certain  products to meet demand.  In addition,  many
manufacturers  have adopted  "just in time"  manufacturing  principles  that can
reduce the immediate  availability  of a wide range of products at any one time.
We cannot predict that  manufacturers  will maintain an adequate supply of these
products to satisfy all the orders of our customers or that,  during  periods of
increased demand,  manufacturers will provide products to us, even if available,
or at discounts previously offered to us. In addition, we cannot assure you that
the pricing and related terms offered by major  manufacturers will not adversely
change in the future. Our failure to obtain an adequate supply of products,  the
loss of a major manufacturer, the deterioration of our relationship with a major
manufacturer  or our inability in the future to develop new  relationships  with
other  manufacturers  may  have a  material  adverse  effect  on  our  business,
financial   condition  and  results  of   operations.   On  May  3,  2002,   the
Hewlett-Packard Company and Compaq Computer Corporation merged.  Manchester sold
the products of both  companies and we believe that we had strong  relationships
with both companies and continue to have a strong  relationship  with the merged
company. While we do not believe that there will be a material adverse effect on
our business,  financial condition and results of operations as a result of this
merger,  there can be no assurance that such a material  adverse effect will not
occur.

         Certain  manufacturers  offer  market  development  funds,  cooperative
advertising and other promotional programs to systems integrators,  distributors
and computer  resellers.  We rely on these funds for many of our advertising and
promotional  campaigns.  In recent years,  manufacturers  have generally reduced
their level of support with respect to these programs,  which has required us to
increase  spending of our own funds to obtain the same level of advertising  and
promotion.  If manufacturers continue to reduce their level of support for these
programs, or discontinue them altogether,  we would have to further increase our
advertising and promotion spending,  which may have a material adverse effect on
our business, financial condition and results of operations.

         Our  profitability  has been  affected by our ability to obtain  volume
discounts from certain  manufacturers,  which has been dependent,  in part, upon
our  ability  to sell  large  quantities  of  products  to  computer  resellers,
including value added resellers. Our sales to resellers have been made at profit
margins   generally  less  favorable  than  our  sales  directly  to  commercial
customers.  Our  inability to sell  products to computer  resellers  and thereby
obtain the desired volume discounts from manufacturers or to expand our sales to
commercial  customers  sufficiently  to  offset  our  need to rely on  sales  to
computer resellers may have a material adverse effect on our business, financial
condition and results of operations.

         Changing  Technology;  Inventory Risk. The markets for our products and
services  are   characterized  by  rapidly  changing   technology  and  frequent
introduction of new hardware and software products and services. This may render
many existing products and services noncompetitive, less profitable or obsolete.
Our  continued  success  will  depend  on our  ability  to keep  pace  with  the
technological   developments  of  new  products  and  services  and  to  address


                                       15
<PAGE>
increasingly  sophisticated customer requirements.  Our success will also depend
upon our  abilities  to address  the  technical  requirements  of our  customers
arising  from new  generations  of computer  technologies,  to obtain  these new
products from present or future  suppliers and vendors at reasonable  costs,  to
educate and train our employees as well as our  customers  with respect to these
new products or services and to integrate  effectively and efficiently these new
products into both our internal systems and systems developed for our customers.
We may not be successful in  identifying,  developing and marketing  product and
service developments or enhancements in response to these technological changes.
Our failure to respond  effectively  to these  technological  changes may have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

         Rapid product  improvement and  technological  change  characterize the
computer  industry.  This results in  relatively  short  product life cycles and
rapid product obsolescence,  which can place inventory at considerable valuation
risk. Certain of our suppliers provide price protection to us, which is intended
to reduce the risk of inventory  devaluation due to price  reductions on current
products.  Certain of our suppliers also provide stock  balancing to us pursuant
to which we are able to  return  unsold  inventory  to a  supplier  as a partial
credit against  payment for new products.  There are often  restrictions  on the
dollar amount of inventory that we can return at any one time.  Price protection
and stock  balancing  may not be  available  to us in the future,  and,  even if
available,  these measures may not provide complete  protection against the risk
of excess or obsolete inventories. Certain manufacturers have reduced the period
for which they provide price protection and stock balancing rights.  Although we
maintain a sophisticated  proprietary  inventory  management  system,  we cannot
assure you that we will continue to successfully  manage our existing and future
inventory.  Our failure to successfully  manage our current or future  inventory
may have a material  adverse  effect on our business,  financial  conditions and
results of operations.

         As a result of the rapid changes which are taking place in computer and
networking technologies, product life cycles are short. Accordingly, our product
offerings change  constantly.  Prices of products change,  with generally higher
prices  early in the life cycle of the product and lower  prices near the end of
the product's life cycle. The computer  industry has experienced  rapid declines
in  average  selling  prices of  personal  computers  and  peripherals.  In some
instances,  we have been able to offset these price  declines with  increases in
units shipped.  There can be no assurance  that average  selling prices will not
continue  to  decline  or that we will be able to  offset  declines  in  average
selling prices with increases in units shipped.

         Acquisitions.  Our strategy  envisions  that part of our future  growth
will  come  from  acquisitions  consistent  with our  strategy.  There can be no
assurance that we will be able to identify suitable acquisition  candidates and,
once identified,  to negotiate  successfully  their acquisition at a price or on
terms and  conditions  favorable to us, or to integrate  the  operations of such
acquired businesses with our operations. Certain of these acquisitions may be of
significant  size  and may  include  assets  that  are  outside  our  geographic
territories or are ancillary to our core business strategy.

         Quarterly Variations.  Our quarterly revenue and operating results have
varied  significantly  in the past and are  expected to continue to do so in the
future.  Quarterly revenue and operating results generally fluctuate as a result
of the demand for our products and services,  the  introduction  of new hardware
and software  technologies  with  improved  features,  the  introduction  of new
services  by us and our  competitors,  changes  in the  level  of our  operating
expenses,  competitive conditions and economic conditions.  In particular,  over
the last  several  years,  we have  increased  certain  of our  fixed  operating
expenses, including a significant increase in personnel, as part of our strategy
to increase our focus on providing  systems  integration and other higher margin
and  value  added  services.  As a  result,  we  believe  that  period-to-period
comparisons of our operating  results should not be relied upon as an indication
of future performance.  In addition, the results of any quarterly period are not
necessarily indicative of results to be expected for a full fiscal year.

         Microsoft  Litigation.  Most of the personal  computers we sell utilize
operating  systems  developed  by  Microsoft  Corporation.   The  United  States
Department  of  Justice  has  brought  a  successful  antitrust  action  against
Microsoft,  which could delay the  introduction  and  distribution  of Microsoft
products.  The  potential  unavailability  of  Microsoft  products  could have a
material  adverse  effect on our business,  results of operations  and financial
condition.

         Information Technology Systems. Our success is dependent in part on the
accuracy,  proper  utilization  and continuing  development  of our  information
technology systems, including our business application systems, Internet servers
and  telephony  system.  The  quality  and our  utilization  of the  information
generated by our information technology systems affects, among other things, our
ability  to conduct  business  with our  customers,  manage  our  inventory  and
accounts receivable,  purchase,  sell, ship and invoice our products efficiently
and on a timely  basis and  maintain  cost-efficient  operations.  While we have
taken  steps to protect our  information  technology  systems  from a variety of
threats,  including computer viruses and malicious hackers,  we cannot guarantee
that  such  steps  will  be  effective.  If  there  is a  disruption  to  or  an
infiltration of our information  technology systems, it could significantly harm
our business and results of operations.

                                       16
<PAGE>
         Stock  Repurchase  Program.   The  Company's  Board  of  Directors  has
authorized the Company to repurchase up to $1 million of its common stock, which
authorization is effective until the first Board of Directors  meeting following
the close of our 2003 fiscal year,  unless earlier  terminated by the Board. The
extent  to which  the  Company  repurchases  its  stock  and the  timing of such
purchases will depend upon market conditions and other corporate  considerations
to be evaluated by the Executive  Committee of the Board. The repurchase program
does not obligate the Company to repurchase any specific  number of shares,  and
repurchases  pursuant to the program may be  suspended or resumed at any time or
from  time to time  without  further  notice  or  announcement.  There can be no
assurance as to the effect, if any, that the adoption of the repurchase  program
or the making of  repurchases  thereunder  will have on the market  price of our
common stock.

E-Commerce

         We utilize a website and electronic  commerce system. The site, located
at www.e-manchester.com  allows both existing customers,  corporate shoppers and
others  to find  product  specifications,  compare  products,  check  price  and
availability  and place and track orders quickly and easily 24 hours a day seven
days a  week.  We have  made,  and  expect  to  continue  to  make,  significant
investments  and  improvements in our e-commerce  capabilities.  There can be no
assurance  that we will be successful in enhancing and  increasing  our business
through our expanded Internet presence.

Recent Acquisitions

         Donovan Consulting Group, Inc.

         On August 29, 2001, the Company  acquired all of the outstanding  stock
of Donovan, a Delaware corporation  headquartered near Atlanta, Georgia. Donovan
is a technical  services firm that delivers  Wireless LAN solutions to customers
nationwide.  The  acquisition,  which  has  been  accounted  for as a  purchase,
consisted of a cash  payment of  $1,500,000  plus  potential  future  contingent
payments.  Contingent  payments  of up to  $1,000,000  may be payable on each of
November  2, 2002 and  November  2, 2003 based upon  Donovan  achieving  certain
agreed-upon  increases in revenue and pre-tax  earnings.  In connection with the
acquisition, the Company assumed approximately $435,000 of bank debt and $43,000
of other debt, which were subsequently repaid.  Donovan was acquired in order to
strengthen the Company's position in the Wireless LAN arena.  Donovan allows the
Company  to  offer  total  Wireless  LAN  solutions  including  state of the art
products  as well as the  services  necessary  to have  those  products  operate
optimally.

         Operating   results  of  Donovan  are  included  in  the   consolidated
statements of income from the  acquisition  date.  The  estimated  fair value of
tangible   assets  and   liabilities   acquired  was   $497,000  and   $869,000,
respectively. The excess of the aggregate purchase price over the estimated fair
value of the tangible  net assets  acquired was  approximately  $1,872,000.  The
factors that  contributed  to the  determination  of the purchase  price and the
resulting  goodwill include the significant  growth expected in this area due to
the combination of the Company's long history of strong customer  relationships,
financial  strength and stability  coupled with Donovan's  product offerings and
highly skilled  technical staff. The $1,872,000 will not be amortized;  however,
it will be subject to impairment  testing in accordance  with Statement No. 142,
"Goodwill and Other Intangible Assets."

          e.Track Solutions, Inc.
         -----------------------

         On November 9, 2001, the Company acquired all of the outstanding  stock
of e.Track, a New York corporation headquartered in Pittsford, New York. e.Track
is a business and software  services firm that delivers  business,  Internet and
information technology solutions to customers nationwide. The acquisition, which
has been  accounted  for as a purchase,  consisted of cash  payments of $290,000
(including debt assumed and subsequently repaid).  e.Track was acquired in order
to allow the Company to offer our customers  customized software solutions along
with the products and services that we have traditionally offered.

     Operating results of e.Track are included in the consolidated statements of
income from the  acquisition  date. The estimated fair value of tangible  assets
and liabilities acquired was $116,000 and $192,000,  respectively. The excess of
aggregate  purchase  price over the  estimated  fair value of the  tangible  net
assets acquired was $291,000.  The factors that contributed to the determination
of the purchase price and the resulting  goodwill  include the expectation  that
the combination of e.Track's highly skilled  technical  staff,  coupled with the
Company's  financial  strength and  customer  base,  will result in  significant
growth at e.Track going forward. The $291,000 will not be amortized; however, it
will be subject to  impairment  testing in  accordance  with  Statement No. 142,
"Goodwill and Other Intangible Assets."


                                       17
<PAGE>

Critical Accounting Policies

         Financial  Reporting Release No. 60, which was recently released by the
Securities and Exchange  Commission,  encourages all registrants,  including the
Company,  to include a discussion of "critical"  accounting  policies or methods
used in the  preparation of financial  statements.  The preparation of financial
statements and related  disclosures  in conformity  with  accounting  principles
generally  accepted in the United States of America requires  management to make
judgments,  assumptions  and estimates  that affect the amounts  reported in the
consolidated  financial  statements  and  accompanying  notes.  Note  1  to  the
consolidated  financial  statements appearing elsewhere in this report describes
the significant  accounting  policies and methods used in the preparation of the
consolidated  financial statements.  Estimates are used for, but not limited to,
the accounting for the allowance for doubtful  accounts,  inventory  allowances,
and goodwill impairments.  Actual results could differ from these estimates. The
following critical accounting policies are impacted  significantly by judgments,
assumptions and estimates used in the preparation of the consolidated  financial
statements.

         The allowance for doubtful  accounts is based on our  assessment of the
collectibility  of  specific  customer  accounts  and the aging of the  accounts
receivable.  If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical  experience,  our estimates of
the recoverability of amounts due us could be adversely affected.

         Inventory  purchases  and  commitments  are based  upon  future  demand
forecasts.  If there is a sudden  or  significant  decrease  in  demand  for our
products or there is a higher risk of inventory  obsolescence because of rapidly
changing  technology and customer  requirements,  we may be required to increase
our inventory allowances and our gross margin could be adversely affected.

         We perform  goodwill  impairment  tests on an annual  basis and between
annual tests in certain  circumstances.  In assessing the  recoverability of the
Company's  goodwill,   the  Company  must  make  various  assumptions  regarding
estimated  future cash flows and other factors in determining the fair values of
the respective assets. If these estimates or their related assumptions change in
the future,  the Company may be required to record impairment  charges for these
assets  in  future  periods.  Any such  resulting  impairment  charges  could be
material to the Company's results of operations.



Results of Operations

         The following table sets forth, for the periods indicated,  information
derived from the  Company's  consolidated  statements  of income  expressed as a
percentage of related revenue or total revenue.
<TABLE>
<CAPTION>
                                                         Percentage of Revenue for
                                                         the Year Ended July 31,
                                                       2002         2001          2000
                                                       ----         ----          ----
<S>                                                    <C>          <C>           <C>
Revenue
         Products                                      95.3%        97.0%         97.6%
         Services                                       4.7          3.0           2.4
                                                        ---          ---           ---

                                                      100.0        100.0         100.0
                                                      -----        -----         -----
Cost of revenue
         Products                                      86.7         87.1          87.2
         Services                                      74.6         71.8          66.0
                                                       ----         ----          ----                     -
                                                       86.1         86.7          86.7
                                                       ----         ----          ----

Product gross profit                                   13.3         12.9          12.8
Services gross profit                                  25.4         28.2          34.0
                                                       ----         ----          ----
         Gross profit                                  13.9         13.3          13.3

Selling, general and administrative expenses           13.4         12.6          11.2
                                                       ----         ----          ----
Income from operations                                  0.5          0.7           2.1
Interest and other income, net                          0.1          0.2           0.2
                                                        ---          ---           ---
Income before income taxes                              0.6          0.9           2.3
Provision for income taxes                              0.2          0.3           0.9
                                                        ---          ---           ---
Net income                                              0.4%         0.6%          1.4%
                                                        ===          ===           ===
</TABLE>

                                       18
<PAGE>

Year Ended July 31, 2002 Compared to Year Ended July 31, 2001

         Revenue. Revenue decreased by $18.3 million or 7% to $262.0 million for
the year ended July 31,  2002 or fiscal  2002 from  $280.3  million for the year
ended July 31, 2001 or fiscal 2001.  Revenue from the sale of products decreased
by $22.2  million or 8% while revenue from service  offerings  increased by $3.9
million or 48%. The  decrease in product  revenue is primarily a result of lower
sales of personal  computers and peripherals as a result of the overall slowdown
in economic activity in general as well as the decline in corporate  spending in
the technology  industry in particular in fiscal 2002. This was partially offset
by  increased  sales of display  monitors,  primarily  large  screen  flat panel
displays by our  Electrograph  subsidiary.  The  increase in service  revenue is
primarily  attributable to the Company's  acquisitions of Donovan and e.Track in
fiscal 2002 as well as the growth in the sales of services to customers that are
delivered by manufacturers or vendors.

         Gross  Profit.  Cost of revenue  includes  the direct costs of products
sold,  freight and the  personnel  costs  associated  with  providing  technical
services,  offset  in part by  certain  market  development  funds  provided  by
manufacturers.  All other operating  costs are included in selling,  general and
administrative  expenses.  Gross  profit  decreased  by $0.9 million or 3%, from
$37.4 million in fiscal 2001 to $36.4 million in fiscal 2002.  Gross profit from
product  sales  decreased  by $1.7 million or 5% while gross profit from service
offerings  increased by $0.8 million or 33%. As a percentage  of revenue,  gross
profit from the sale of products increased from 12.9% in fiscal 2001 to 13.3% in
fiscal 2002 primarily as a result of increased sales of higher margin  products,
increased  volume rebates received from  manufacturers  and certain large volume
product purchases for which the Company received  discounts.  As a percentage of
revenue,  gross profit from the sale of services  declined  from 28.2% in fiscal
2001 to 25.4% in fiscal 2002 due  primarily  to lower  utilization  of technical
personnel as well as increased sales of lower margin services that are delivered
by manufacturers or vendors.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  decreased  by  $400,000,  or 1% from $35.5  million in
fiscal 2001 to $35.1 million in fiscal 2002. The decrease is principally  due to
lower salaries and personnel costs of approximately $400,000 reflecting the cost
reduction  measures that have been  instituted as a result of the of the overall
slowdown in economic  activity and the reduction in revenue,  decreased bad debt
expense of  approximately  $220,000,  lower  advertising  costs of approximately
$240,000  and lower  depreciation  and  amortization  costs of  $130,000.  These
decreases were partially  offset by higher  telephone  expenses of approximately
$250,000 and increased  rent expenses of  approximately  $220,000 as a result of
the Company's acquisitions in fiscal 2002. As a percentage of revenue,  selling,
general and administrative expenses increased from approximately 12.6% in fiscal
2001 to 13.4% in fiscal 2002.

         Interest and Other Income.  Interest and other income, net, declined by
$583,000 from  $767,000 in fiscal 2001 to $184,000 in fiscal 2002.  The decrease
in fiscal  2002 is a result of lower cash  balances  available  for  investment,
lower interest rates available in the  marketplace and the Company's  receipt of
insurance  proceeds in fiscal 2001 not received in fiscal  2002.  In fiscal 2001
the Company  received  approximately  $505,000 of proceeds in connection  with a
life insurance policy that it carried on a deceased  employee,  partially offset
by  approximately  $250,000  in  compensation  benefits  paid  to  the  deceased
employee's  beneficiary  principally under the terms of a deferred  compensation
agreement with the employee.

         Provision for income taxes. Our effective tax rate increased from 34.5%
of pre-tax income in fiscal 2001 to 38.9% of pre-tax income in fiscal 2002. This
increase  in fiscal 2002 is  primarily  the result of the Company not having the
benefit of the nontaxable  life insurance  proceeds  received in fiscal 2001 (as
discussed in Interest and Other Income above).

Year Ended July 31, 2001 Compared to Year Ended July 31, 2000

         Revenue.  Our revenue  decreased to $280.3  million in fiscal 2001 from
$300.1  million for the year ended July 31, 2000 or fiscal 2000.  The decline in
revenue  was 16% and 27% in the  third  and  fourth  quarters  of  fiscal  2001,
compared to the same quarters a year ago,  respectively,  reflecting the overall
slowdown  in economic  activity  in general as well as the decline in  corporate
spending in the technology  industry in  particular.  Revenue from product sales
decreased by $21.0  million,  or 7.2%, as a result of lower  selling  prices for
personal  computers  partially offset by a 6% increase in the number of personal
computers  sold as well as  increased  revenue  from the  sales of large  screen
flat-panel displays by our Electrograph subsidiary. Service revenue increased by
$1.2 million,  or 16.8%,  due to our continued  focus on developing  and selling
value-added services to our customers including  significant growth in the sales
of services to customers that are delivered by manufacturers or vendors.

         Gross  Profit.  Cost of revenue  includes  the direct costs of products
sold,  freight and the  personnel  costs  associated  with  providing  technical
services,  offset  in part by  certain  market  development  funds  provided  by
manufacturers.  All other operating  costs are included in selling,  general and
administrative  expenses.  Gross profit  decreased by $2.4 million or 6.2%, from
$39.8 million in fiscal 2000 to $37.4  million in fiscal 2001.  This decrease is
primarily the result of the decline in revenue  discussed above. As a percentage

                                       19
<PAGE>

of revenue, gross profit from the sale of products increased slightly from 12.8%
in fiscal 2000 to 12.9% in fiscal 2001. As a percentage of revenue, gross profit
from the sale of services  declined from 34.0% in fiscal 2000 to 28.2% in fiscal
2001 primarily as a result of increased  sales of lower margin services that are
delivered  by  manufacturers  or vendors  as well as  reduced  demand for higher
margin consulting and network design services.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased $1.9 million,  or 5.8% from $33.5 million in
fiscal 2000 to $35.5 million in fiscal 2001. The increase is principally  due to
higher bad debts and depreciation  and amortization  costs as well as costs from
our Rochester  office,  which was opened in connection with the  acquisitions of
Texport and LTG on March 22, 2000.  These  increases  were  partially  offset by
lower  commission  costs due to the lower revenue  discussed above. In addition,
selling,  general  and  administrative  costs were lower in the third and fourth
quarters  of  fiscal  2001  when  compared  to the  same  quarters  a year  ago,
reflecting the cost cutting  measures  (principally  personnel  costs) that have
been instituted as a result of the reduction in revenue.

         Interest and Other Income.  Interest and other income, net, declined by
$90,000 from $602,000 in fiscal 2000 to $512,000 in fiscal 2001  principally due
to lower interest  rates earned on short-term  investments as well as lower cash
balances available for investment.  Other income, net in fiscal 2001 consists of
approximately  $505,000  proceeds  received by the Company in connection  with a
life insurance policy that it carried on a deceased  employee,  partially offset
by  approximately  $250,000  in  compensation  benefits  paid  to  the  deceased
employee's  beneficiary  principally under the terms of a deferred  compensation
agreement with the employee.

         Provision for income taxes. Our effective tax rate decreased from 40.6%
of pre-tax income in fiscal 2000 to 34.5% of pre-tax income in fiscal 2001. This
decrease is primarily the result of nontaxable life insurance  proceeds received
in the fourth  quarter of fiscal 2001 (as discussed in Interest and Other Income
above) partially offset by higher state and local income taxes.

Liquidity and Capital Resources

         Our primary  sources of cash and cash  equivalents  in fiscal 2002 have
been internally generated working capital from profitable operations.

         The  Company's   working   capital  at  July  31,  2002  and  2001  was
approximately $30.1 million and $32.0 million, respectively.

         Operations for fiscal 2002,  fiscal 2001 and fiscal 2000,  after adding
back non-cash items,  provided cash of approximately $3.7 million,  $5.1 million
and $5.7  million,  respectively.  During such years,  other  changes in working
capital provided (used) cash of approximately ($4.4) million, ($4.1) million and
$7.6  million,  respectively,  resulting  in cash  being  provided  by (used in)
operating  activities of  approximately  ($0.7) million,  $0.9 million and $13.2
million, respectively. Our accounts receivable and accounts payable balances, as
well as our investment in inventory, can fluctuate significantly from one period
to the  next  due to the  receipt  of  large  customer  orders  or  payments  or
variations  in  product   availability  and  vendor  shipping  patterns  at  any
particular date.

         Investment activities for fiscal 2002, fiscal 2001 and fiscal 2000 used
cash of approximately $4.2 million, $2.0 million and $1.8 million, respectively.
These amounts include additions to property and equipment in fiscal 2002, fiscal
2001 and fiscal  2000 of  approximately  $2.6  million,  $2.0  million  and $1.7
million, respectively, and the payment for acquisitions, net of cash acquired of
approximately   $1.6   million  and  $0.2  million  in  fiscal  2002  and  2000,
respectively.

         Financing  activities for fiscal 2002, fiscal 2001 and fiscal 2000 used
cash of approximately $0.6 million, $0.6 million and $1.0 million, respectively.
These  amounts  include  (i)  proceeds  from the  issuance  of  common  stock in
connection with the exercise of stock options of  approximately  $6,000 and $0.4
million,  in fiscal 2001 and 2000,  respectively;  (ii) net  repayments  of bank
loans,  capitalized  lease  obligations  and other  debt of  approximately  $0.6
million,  $18,000 and $0.7 million in fiscal 2002, 2001 and 2000,  respectively;
and  (iii)  the  purchase  and  retirement  of the  Company's  common  stock  of
approximately  $0.6  million and $0.7  million in fiscal  2001 and fiscal  2000,
respectively.

       We have  available a line of credit with a financial  institution  in the
aggregate amount of $15.0 million. At July 31, 2002, no amounts were outstanding
under this line.

       We  believe  that our  current  balances  in cash  and cash  equivalents,
expected cash flows from operations and available  borrowings  under the line of
credit will be adequate to support current  operating levels for the foreseeable
future,  specifically through at least the end of fiscal 2003. We currently have
no material  commitments for capital  expenditures,  other than operating leases

                                       20
<PAGE>

that the Company  has  committed  to for its  facilities  and  certain  tangible
property.  Future  capital  requirements  of the Company  include  those for the
growth of working capital items such as accounts  receivable and inventory,  the
purchase of equipment,  expansion of facilities, as well as the possible opening
of new offices,  potential  acquisitions and expansion of the Company's  service
and  e-commerce   capabilities.   In  addition,   there  are  no   transactions,
arrangements  and other  relationships  with  unconsolidated  entities  or other
persons that are reasonably  likely to affect  liquidity or the availability of,
or requirements for, capital resources.

         The following  represents  the  Company's  commitment  under  operating
leases for each of the next five years ended July 31 and thereafter:
<TABLE>

                               <S>             <C>
                                2003            $1,729
                                2004             1,663
                                2005             1,710
                                2006             1,292
                               2007              1,175
                          Thereafter               607
                                                   ---

                                                $8,176
                                                ======
</TABLE>

         The Company regularly examines opportunities for strategic acquisitions
of other companies or lines of business and  anticipates  that it may issue debt
and/or equity securities either as direct consideration for such acquisitions or
to  raise  additional  funds to be used (in  whole  or in part) in  payment  for
acquired securities or assets. The issuance of such securities could be expected
to have a dilutive  impact on the  Company's  shareholders,  and there can be no
assurance as to whether or when any acquired business would contribute  positive
operating results commensurate with the associated investment.

Impact of Recently Issued Accounting Standards

         In July 2001, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 143,  "Accounting for
Asset Retirement  Obligations"  ("SFAS 143"). SFAS 143 establishes an accounting
standard  requiring  the recording of the fair value of  liabilities  associated
with the  retirement  of  long-lived  assets  in the  period  in which  they are
incurred. The Company has adopted the provisions of SFAS 143 effective August 1,
2002.  The  adoption  of SFAS  143  did not  have a  significant  effect  on the
Company's results of operations or its financial position.

         In October  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
Impairment  of  Long-Lived  Assets"  ("SFAS  144"),  which  addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This  statement  supersedes  SFAS No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," while retaining
the fundamental  recognition and measurement provisions of that statement.  SFAS
144 requires that a long-lived  asset to be  abandoned,  exchanged for a similar
productive  asset or distributed  to owners in a spin-off to be considered  held
and used until it is disposed of.  However,  SFAS 144 requires  that  management
consider revising the depreciable life of such long-lived asset. With respect to
long-lived  assets to be disposed of by sale, SFAS 144 retains the provisions of
SFAS No. 121 and, therefore,  requires that discontinued operations no longer be
measured  on a net  realizable  value  basis and that  future  operating  losses
associated with such discontinued operations no longer be recognized before they
occur.  SFAS 144 is effective for all fiscal  quarters of fiscal years beginning
after  December 15, 2001.  The Company has adopted the provisions of SFAS 144 as
of August 1, 2002. The adoption of SFAS 144 did not have any material  impact on
the Company's consolidated financial statements.

         In April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of SFAS
Statements  No.  4,  44,  and  64,  Amendment  of  SFAS  No.  13  and  Technical
Corrections"  ("SFAS 145"). SFAS 145 updates,  clarifies and simplifies existing
accounting  pronouncements  by rescinding  Statement 4, which required all gains
and losses from  extinguishments  of debt to be  aggregated  and,  if  material,
classified as an  extraordinary  item,  net of related  income tax effect.  As a
result,  the criteria in Opinion 30 will now be used to classify those gains and
losses.  Additionally,  the Statement requires that certain lease  modifications
that have economic effects similar to  sale-leaseback  transactions be accounted
for in the same manner as sale-leaseback  transactions.  The Company has adopted
the  provisions  of SFAS 145 as of August 1, 2002.  The adoption of SFAS 145 did
not have any impact on the Company's consolidated financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities" ("SFAS 146"). SFAS 146 will spread
out the reporting of expenses  related to  restructurings  initiated after 2002,
because commitment to a plan to exit an activity or dispose of long-lived assets
will no  longer  be enough to  record a  liability  for the  anticipated  costs.
Instead,  companies will record exit and disposal costs when they are "incurred"
and can be  measured  at fair  value,  and they  will  subsequently  adjust  the
recorded  liability for changes in estimated cash flows. The Company is required


                                       21
<PAGE>

to adopt the  provisions of SFAS 146 as of January 1, 2003. The Company does not
believe  that  the  adoption  of this  statement  will  have any  impact  on the
Company's  consolidated financial statements as no planned restructuring charges
currently exist.

Inflation

       We do not  believe  that  inflation  has  had a  material  effect  on our
operations.

ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk

       The  Company is not  exposed to  significant  market  risk.  The  Company
primarily  invests its cash in mutual funds  consisting of U.S.  Government  and
Government  Agency  Securities,  Municipal  Bonds  and  Corporate  Fixed  Income
securities.  Neither  a 100 basis  point  increase  nor  decrease  from  current
interest rates would have a material effect on the Company's financial position,
results of operations or cash flows.


ITEM 8.  Financial Statements and Supplementary Data

       The information  required by this item is contained in a separate section
of this  Report  beginning  on page  F-1.  See Index to  Consolidated  Financial
Statements beginning on page F-1.

ITEM  9.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

None.



                                       22
<PAGE>



                                    PART III

ITEM 10.  Directors and Executive Officers of the Registrant

         The  following  table sets  forth  information  concerning  each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>

Name                                           Age        Position
----                                           ---        --------

<S>                                            <C>        <C>
Barry R. Steinberg                             60         Chairman of the Board, President, Chief
                                                          Executive Officer and Director

Joel G. Stemple, Ph.D                          60         Executive Vice President, Secretary and Director

Elan Yaish                                     32         Chief Financial Officer and Assistant Secretary

Laura Fontana                                  47         Vice President - Technical Services

Joel Rothlein, Esq.                            73         Director

Bert Rudofsky                                  69         Director

Michael E. Russell                             55         Director

Julian Sandler                                 58         Director

Robert J. Valentine                            52         Director
</TABLE>

     Barry R. Steinberg,  the founder of the Company, has served as its Chairman
of the Board,  President  and Chief  Executive  Officer and as a director  since
Manchester's  formation in 1973. Mr.  Steinberg  previously  served as a systems
analyst for Sleepwater, Inc. and Henry Glass and Co.

     Joel G.  Stemple,  Ph.D.  has  served as  Executive  Vice  President  since
September  1996 and as Vice  President and as a director  since August 1982. Dr.
Stemple previously  performed consulting services for the Company and, from 1966
to 1982,  served as Assistant and Associate  Professor of  Mathematics at Queens
College, City University of New York.

     Elan  Yaish  has  served  as the  Company's  Chief  Financial  Officer  and
Assistant  Secretary  since August 2002.  From  February  2000 until joining the
Company,  Mr. Yaish served as Assistant  Vice  President of Finance for Comverse
Technology,  Inc. From June 1996 until  February 2000, Mr. Yaish was employed as
Vice President of Finance and Controller for Trans-Resources,  Inc. Mr. Yaish is
a Certified Public  Accountant,  a member of the American Institute of Certified
Public   Accountants  and  the  New  York  State  Society  of  Certified  Public
Accountants.

     Laura  Fontana  has served as Vice  President -  Technical  Services  since
January  2000 and as  Director of  Technical  Services  since  January  1999.  A
twenty-year  Manchester  veteran,  Ms. Fontana had previously  managed the sales
organization  and been  largely  responsible  for the  design of sales,  product
information,  and automated order-processing systems. She received her B.A. from
Dowling College.

     Joel Rothlein,  Esq. has been a director of the Company since October 1996.
Mr. Rothlein is a partner in the law firm of Kressel Rothlein Walsh & Roth, LLC,
Massapequa,  New York,  where he has practiced law since 1955.  Kressel Rothlein
Walsh & Roth,  LLC and its  predecessor  firms  have  acted as  outside  general
counsel to the Company since the Company's inception.

     Bert  Rudofsky  became a director  on July 15,  1998.  Mr.  Rudofsky is the
founder and president of Bert Rudofsky and Associates,  a management  consulting
firm  specializing in the computer  industry.  Mr. Rudofsky was a founder of MTI
Systems  Corp.,  a leading edge,  technical,  value-added  distribution  company
specializing in computer and data communications  products. Mr. Rudofsky was CEO
of MTI from 1968 until MTI was sold in 1990.

     Michael E.  Russell  became a director  on July 15,  1998.  Mr.  Russell is
presently a senior vice president at Prudential Securities  Incorporated and has
held several distinguished positions as a member of the business community, as a
member of the New York State Metropolitan  Transportation Authority (1987-1989),
as commissioner of the New York State Commission on Cable Television (1989-1991)
and  as  Special  Assistant  to  the  New  York  State  Senate  Majority  Leader
(1991-1994).

                                       23
<PAGE>

     Julian  Sandler became a director on December 2, 1996. Mr. Sandler is Chief
Executive  Officer of  Rent-a-PC,  Inc., a  full-service  provider of short-term
computer  rentals,  which Mr.  Sandler  founded in 1984. Mr. Sandler is also the
founder  and was the  President  from 1974 to 1993 of  Brookvale  Associates,  a
national  organization  specializing in the remarketing of hardware manufactured
by Digital Equipment  Corporation.  Mr. Sandler also co-founded and from 1970 to
1973 was Vice President of Periphonics Corporation, a developer and manufacturer
of voice response systems.

     Robert J. Valentine  became a director on April 17, 2001. Mr. Valentine was
the Manager of the New York Mets Major League  Baseball team from August 1996 to
September  2002.  In  addition,  Mr.  Valentine  is  the  owner  of a  chain  of
restaurants, a corporate spokesman and author.


Section 16(a) Beneficial Ownership Reporting Compliance
         Section 16 of the Securities Exchange Act of 1934, as amended, requires
that  officers,  directors  and  holders  of more than 10% of the  Common  Stock
(collectively,  "Reporting Persons") file reports of their trading in our equity
securities  with the  Securities and Exchange  Commission.  Based on a review of
Section 16 forms  filed by the  Reporting  Persons  during the fiscal year ended
July 31, 2002, we believe that the Reporting  Persons  timely  complied with all
applicable Section 16 filing requirements.




                                       24
<PAGE>



ITEM 11.      Executive Compensation.

         The following  table sets forth a summary of the  compensation  paid or
accrued by the Company  during the fiscal years ended July 31, 2002,  2001,  and
2000 to the Company's Chief Executive  Officer and the other executive  officers
whose  compensation  exceeded  $100,000  (collectively,   the  "Named  Executive
Officers"):
<TABLE>
<CAPTION>

                           Summary Compensation Table
                                                                                      Long Term
                                                                                      Compensation
                                       Annual Compensation                            Common Stock
Name and                                                           Other Annual       Underlying        All Other
Principal Position              Year       Salary       Bonus      Compensation(1)    Options           Compensation

<S>                             <C>        <C>          <C>          <C>                   <C>          <C>
Barry R. Steinberg,             2002       $650,000            -    $ 49,429 (2)                  -          -
 President  and Chief           2001       $650,000            -     $63,954 (2)                  -          -
 Executive Officer              2000       $650,000     $485,248     $58,707 (2)                  -          -

Joel G. Stemple, Executive      2002       $375,000            -     $33,349 (3)                  -          -
 Vice President and             2001       $450,000            -     $38,379 (3)                  -          -
  Secretary                     2000       $450,000     $242,624     $31,375 (3)                  -          -

Joseph Looney, Chief            2002       $245,000            -     $24,340 (4)             10,000          -
 Financial Officer, Vice        2001       $245,000            -     $26,694 (4)             10,000          -
 President, Finance and         2000       $220,000      $80,875     $11,025 (4)                  -          -
 Assistant Secretary(6)

Laura Fontana, Vice             2002       $196,794      $20,406     $35,744 (5)                  -          -
President - Technical Services  2001       $203,782      $13,418     $31,438 (5)                  -          -
                                2000       $169,254      $38,683     $17,848 (5)                  -          -

Mark Glerum, Vice               2001       $154,041            -      $7,800                      -          -
President - Sales(7)            2000       $128,830      $35,866     $ 6,675                  9,000          -
</TABLE>
No restricted stock awards,  stock  appreciation  rights or long-term  incentive
plan  awards  (all  as  defined  in the  proxy  regulations  promulgated  by the
Securities and Exchange  Commission)  were awarded to, earned by, or paid to the
Named Executive Officers during the fiscal year ended July 31, 2002.
------------------
(1)   Includes in fiscal 2002 employer  matching  contributions to the Company's
      defined  contribution  plan of $6,000,  $6,000,  $5,153,  and $6,000,  for
      Messrs. Steinberg,  Stemple, and Looney and Ms. Fontana,  respectively, in
      fiscal 2001  employer  matching  contributions  to the  Company's  defined
      contribution  plan of  $5,100,  $5,100,  $5,100  and  $5,100  for  Messrs.
      Steinberg,  Stemple  and Looney,  and Ms.  Fontana,  respectively,  and in
      fiscal 2000 employer matching  contributions of $5,100, $5,100, $5,100 and
      $5,048  for  Messrs.  Steinberg,  Stemple  and  Looney  and  Ms.  Fontana,
      respectively.
 (2)  Includes $34,575 in 2002, $50,000 in 2001, and $50,000 in 2000 of premiums
      paid by the Company for a whole life  insurance  policy in the name of Mr.
      Steinberg having a face value of $2,600,000 and under which his daughters,
      on the one hand, and the Company, on the other hand, are beneficiaries and
      share equally in the death benefits payable under the policy.
 (3)  Includes  $17,286  in 2002,  $25,000  in 2001,  and  $25,000  in 2000,  of
      premiums paid by the Company for a whole life insurance policy in the name
      of Mr.  Stemple  having a face  value of  $1,300,000  and under  which his
      spouse and the Company are  beneficiaries and are entitled to $600,000 and
      $700,000, respectively, of the death benefits payable under the policy.
  (4) Includes  $5,000 in each of 2001 and 2000 of premiums  paid by the Company
      for a whole life insurance  policy in the name of Mr. Looney having a face
      value  of  $345,000  and  under  which  his  spouse  and the  Company  are
      beneficiaries and are entitled to $100,000 and $245,000,  respectively, of
      the death  benefits  payable under the policy.  Also includes  $18,333 and
      $15,569 in 2002 and 2001, respectively,  representing the present value of
      benefits earned under the Company's deferred compensation plan.
  (5) Includes  $1,943 in 2002 and  $5,000 in each of 2001 and 2000 of  premiums
      paid by the Company for a whole life  insurance  policy in the name of Ms.
      Fontana  having a face value of  $589,000  and under which her minor child
      and the  Company  are  beneficiaries  and are  entitled  to  $200,000  and
      $389,000,  respectively,  of death benefits payable under the policy. Also
      includes $20,000 and $13,538 in 2002 and 2001, respectively,  representing
      the  present  value  of  benefits  earned  under  the  Company's  deferred
      compensation plan.
  (6) Resigned his position with the Company in July 2002.
  (7) Resigned his position with the Company in June 2001.



                                       25
<PAGE>


Option/SAR Grants in the Last Fiscal Year

         The following table sets forth certain  information  concerning options
granted to the Named  Executive  Officers  during the fiscal year ended July 31,
2002. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>

                               Option Grants During the Fiscal Year Ended July 31, 2002

                    Number of        % of Total                                        Potential Realizable Value
                    Securities       Options                                           at Assumed Annual Rates
                    Underlying       Granted to        Exercise                        of  Stock Price Appreciation
                    Options          Employees in      Price           Expiration      for Option Term(2)
                                                                                       ------------------
Name                Granted(1)       Fiscal Year       Per Share       Date            5%                10%
----                ----------       -----------       ---------       ----            --                ---

<S>                 <C>                 <C>            <C>             <C>  <C>        <C>               <C>
Joseph Looney       10,000              12.2%          $2.30           1/15/12(3)      $14,465           $36,656
</TABLE>
-------------
(1)      Grant consists of ten year incentive stock options (ISOs) granted under
         the Option Plan, exercisable immediately.
(2)      Amounts reported in this column represent  hypothetical values that may
         be  realized  upon  exercise of the  options  immediately  prior to the
         expiration of their term,  assuming the specified  compounded  rates of
         appreciation  of the common stock over the term of the  options.  These
         numbers are calculated based on rules promulgated by the Securities and
         Exchange  Commission.  Actual  gains,  if any, in option  exercises are
         dependent on the time of such  exercise and the future  performance  of
         the common stock.
(3)      Employment  terminated in July 2002.  All options expire 90 days after
         termination.

Aggregated Options/SAR Exercises and Fiscal Year-end Options/SAR Value Table

         The following table sets forth  information  with respect to the number
and  value  of  exercisable  and  unexercisable  options  granted  to the  Named
Executive  Officers as of July 31, 2002.  The Named  Executive  Officers did not
exercise any options during the fiscal year ended July 31, 2002. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>

                                                       Number of Securities             Value of
                        Shares                         Underlying Unsecured             Unexercised In-the-Money
                        Acquired                       Options/SAR's at                 Options/SAR's at
                        on             Value           July 31, 2002                    July 31, 2001(1)
         Name           Exercise       Realized        Exercisable/Unexercisable        Exercisable/Unexercisable

<S>           <C>                                                <C>                             <C>
Joseph Looney (2)              -           -                     80,000/10,000                    $ - /$ -
Laura Fontana                  -           -                     40,000/10,000                    $ - /$ -
</TABLE>
--------
(1)  Based on the closing  sale price of common stock as of July 31, 2002 ($2.16
     per share) minus the applicable exercise price.
(2)  Employment  terminated  in July  2002.  All  options  expire 90 days  after
     termination.



                                       26
<PAGE>



Compensation of Directors

         Pursuant to the  Company's  compensation  plan for its  directors,  all
non-employee  directors  receive  a  $20,000  annual  stipend,  payable  in four
quarterly  installments.  In  addition,  each  non-employee  director is granted
annually on August 1, an option under the  Company's  Amended and Restated  1996
Incentive  and Non Incentive  Stock Option Plan to purchase  10,000 shares at an
exercise  price  equal to the fair  market  value of the common  stock as of the
close of business on the last  business day preceding  such close.  Such options
are for a term of five years and are exercisable immediately upon such grant. On
August 1, 2001,  each of Joel Rothlein,  Bert  Rudofsky,  Michael E. Russell and
Julian Sandler, who are non-employee  directors,  received non-incentive options
to  purchase  10,000  shares at an  exercise  price of $2.80 per share (the fair
market value of the common stock on that date).

Employment Contracts

     Mr. Steinberg.  We do not have an employment  agreement with Mr. Steinberg.
We  continue  to  make  available  to  Mr.   Steinberg  the  auto  and  deferred
compensation  benefits that he has  historically  received.  Mr.  Steinberg also
participates  in  other  benefits  that  we  make  generally  available  to  our
employees, such as medical and other insurance, and Mr. Steinberg is eligible to
participate under the Company's stock option plan. In the event Mr.  Steinberg's
employment with us was terminated, he would not be precluded from competing with
us.

         Dr. Stemple. We have an employment agreement with Joel G. Stemple, PhD,
which extends through fiscal 2004.  Under the employment  agreement,  commencing
with  fiscal  2003,  Dr.  Stemple  receives a base  salary of  $225,000,  and is
entitled to an automobile and certain deferred compensation benefits, as well as
medical and other benefits generally offered by us to our employees. Dr. Stemple
also is able to participate  in our stock option plan. The employment  agreement
is  terminable  by either  party on 90 days'  prior  notice.  In the event we so
terminate  Dr.  Stemple's  employment,  he is entitled to severance  equal to 12
months of his then  current  base salary and $62,000 per year for the next three
years plus medical benefits based upon his severance agreement with the Company.
This  severance  will be  payable  in  accordance  with  our  customary  payroll
practices.  Under  the  employment  agreement,  if Dr.  Stemple  terminates  his
employment, or we terminate his employment for cause, Dr. Stemple is prohibited,
for a two-year  period  from such  termination,  from  competing  with us in the
eastern half of the United States.

Compensation Committee Interlocks and Insider Participation

         The members of our  Compensation  Committee  are Joel  Rothlein,  Esq.,
Julian Sandler, and Bert Rudofsky. Mr. Rothlein is a partner of Kressel Rothlein
Walsh & Roth, LLC, which,  with its predecessor  firms, has acted as our outside
general counsel since our inception.  We paid Kressel Rothlein Walsh & Roth, LLC
approximately  $208,000,  $215,000,  and $177,000,  for legal fees in the fiscal
years ended July 31, 2002, 2001 and 2000, respectively.  In addition, during the
years ended July 31, 2002, 2001 and 2000, we recorded  revenue of  approximately
$45,000,  $178,000, and $273,000,  respectively,  in connection with the sale of
computer equipment to a company controlled by Mr. Sandler.

         Our stock option plan is administered by the Board of Directors.  Barry
R.  Steinberg is President  and Chief  Executive  Officer and Joel G. Stemple is
Executive  Vice  President  of the  Company  and each of them is a member of the
Board. As members of the Board, they could vote on executive compensation issues
before the Board pertaining to the granting of stock options. Although the issue
has not arisen to date,  each of Messrs.  Steinberg  and  Stemple  has agreed to
abstain  from  voting  on the grant of stock  options  to him or to the other of
them.



                                       27
<PAGE>




ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

         The following  table sets forth certain  information  as of October 15,
2002 (except as otherwise indicated) with respect to the number of shares of the
Company's  common  stock  beneficially  owned by each person who is known to the
Company to  beneficially  own more than 5% of the common  stock,  together  with
their respective  addresses,  the number of shares of common stock  beneficially
owned by each  director of the Company and each Named  Executive  Officer of the
Company,  and the  number of shares of common  stock  beneficially  owned by all
executive officers and directors of the Company as a group.  Except as otherwise
indicated,  each such  shareholder  has sole  voting and  investment  power with
respect to the shares beneficially owned by such shareholder.
<TABLE>
<CAPTION>

                                                        Shares Beneficially   Percent of Shares
      Name and Address                                         Owned(1)         Outstanding
      -------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>
      Barry R. Steinberg(2) (3)                              4,690,201            58.7%
      Joel G. Stemple(2)                                       626,263             7.8
      Elan Yaish                                                     -              *
      Laura Fontana(4)                                          40,000              *
      Joel Rothlein(4) (5)                                      73,500              *
      Bert Rudofsky (4)                                         35,000              *
      Michael E. Russell (4)                                    35,000              *
      Julian Sandler(4)                                         41,000              *
      Robert J. Valentine(4)                                    10,000              *
      Dimensional Fund Advisors, Inc. (6)                      611,600             7.7 (7)
      1299 Ocean Ave. 11th Fl., Santa Monica, CA 90401
      All executive officers and directors as a group
        (9 persons) (8)                                      5,550,964            67.8%
</TABLE>

      * Less than 1%.

(1)   For purposes of determining the aggregate  amount and percentage of shares
      deemed beneficially owned by directors and Named Executive Officers of the
      Company  individually  and by all directors,  nominees and Named Executive
      Officers as a group,  exercise of all options  exercisable at or within 60
      days  listed  in the  footnotes  hereto  is  assumed.  For  such  purposes
      8,190,215 shares of Common Stock are deemed to be outstanding.
(2)   Address is 160 Oser Avenue, Hauppauge, New York 11788.
(3)   Excludes  59,000  shares  owned by Sheryl  Steinberg,  a  daughter  of Mr.
      Steinberg,  which shares were  purchased  with the proceeds of a loan from
      Mr.  Steinberg.  As reported on Schedule 13D filed on March 24,  1997,  as
      amended,  Mr.  Steinberg and Sheryl  Steinberg  each  disclaim  beneficial
      ownership of the common stock owned by the other.
(4)  Includes options exercisable at or within 60 days to purchase 40,000 shares
     (Ms. Fontana);  40,000 shares (Mr. Sandler);  35,000 shares (Mr. Rudofsky);
     40,000  shares (Mr.  Rothlein);  35,000  shares (Mr.  Russell);  and 10,000
     shares (Mr. Valentine).
(5)  Includes  31,500 shares held by the Kressel  Rothlein & Roth Profit Sharing
     Plan. Mr. Rothlein disclaims beneficial ownership of the common stock owned
     by the Kressel Rothlein & Roth Profit Sharing Plan, except to the extent of
     his beneficial interest in such plan.
(6)  Based upon a Schedule 13G filed with Securities and Exchange  Commission as
     of February 12, 2002.
(7)  Based on 7,990,215 shares of common stock issued and outstanding on October
     15, 2002.
(8) See Notes 1 through 5 above.



                                       28
<PAGE>



ITEM 13.  Certain  Relationships and Related Transactions

         Our Hauppauge,  New York facilities are leased from entities affiliated
with certain of our  executive  officers,  directors or principal  shareholders.
Each of the leases with related  parties was amended  effective with the closing
of our initial public offering in December 1996 to reduce the rent payable under
the lease to then  current  market  rates.  The  property  located  at 40 Marcus
Boulevard,  Hauppauge, New York is leased from a limited liability company owned
70% by Mr.  Steinberg  and his  relatives,  20% by Joel G. Stemple,  Ph.D.,  the
Company's  Executive  Vice  President  and a principal  shareholder,  and 10% by
Michael Bivona, a former officer of the Company. For the fiscal years ended July
31, 2002,  2001,  and 2000, we made lease  payments of $202,000,  $196,000,  and
$190,000,  respectively,  to  such  entity.  Our  offices  at 160  Oser  Avenue,
Hauppauge, New York are leased from a limited liability company owned 65% by Mr.
Steinberg,  17.5% by Dr. Stemple and 17.5% by Mr.  Bivona.  For the fiscal years
ended July 31,  2002,  2001,  and,  2000,  we made lease  payments of  $349,000,
$322,000, and $279,000, respectively, to such entity. The property located at 50
Marcus  Boulevard,  Hauppauge,  New  York is  leased  from Mr.  Steinberg  doing
business in the name of Marcus Realty. For the fiscal years ended July 31, 2002,
2001,  and 2000,  we made lease  payments of $381,000,  $366,000,  and $360,000,
respectively, to such entity. See "Business--Properties."

         Joel Rothlein, Esq., a director of the Company, is a partner of Kressel
Rothlein Walsh & Roth, LLC,  which,  with its  predecessor  firms,  has acted as
outside general counsel to the Company since our inception.  During fiscal 2002,
2001, and 2000, $208,000, $215,000, and $177,000, respectively, was paid to such
firm for legal fees.

         During the years  ended July 31,  2002,  2001,  and 2000,  we  recorded
revenue of $45,000, $178,000, and $273,000, respectively, in connection with the
sale of computer equipment to a company controlled by Julian Sandler, a director
of the Company.

         On May 20, 2002, the Company loaned Barry Steinberg $965,000 bearing an
interest rate of 2.00%. Mr. Steinberg repaid approximately  $585,000 of the loan
on May 30,  2002.  The  remainder  of the loan was repaid on July 18,  2002 plus
accrued interest.

     The Company employs the services of Seth Collins as Director of Operations.
Mr. Collins is the son-in-law of Barry Steinberg.  Mr. Collins receives a salary
of  approximately  $150,000 and is entitled to receive  various other  benefits,
such as the use of an automobile owned or leased by the Company as well as other
benefits generally offered by the Company to its employees.

     The Company employs the services of Ilene Steinberg as Design Manager.  Ms.
Steinberg is the daughter of Barry Steinberg. Ms. Steinberg receives a salary of
approximately  $81,000 and is entitled to receive various other benefits such as
the use of an  automobile  owned  or  leased  by the  Company  as well as  other
benefits generally offered by the Company to its employees.

         In the ordinary  course of its business  dealings  with  customers  and
vendors,  the Company  utilizes a restaurant  owned by Ilene Steinberg and Barry
Steinberg for such catering, dining and entertainment services. During the years
ended July 31, 2002,  2001 and 2000,  the Company paid  approximately  $109,000,
$64,000 and $62,000, respectively, for such services.



                                       29
<PAGE>



                                     PART IV
ITEM 14.  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

(a)      The following documents are filed as part of this Report:

     (1)  Financial  Statements (See Index to Consolidated  Financial Statements
          on page F-1 of this Report);

     (2)  Financial Statement Schedule

          Schedule II - Valuation and Qualifying Accounts


          All other schedules are omitted because they are not applicable or the
          required  information  is  included  in  the  consolidated   financial
          statements or notes thereto.

     (3)  Exhibits  required by Securities  and Exchange  Commission  Regulation
          S-K, Item 601:

      Exhibit No.     Description of Exhibit
      -----------     ----------------------

     3.1.c(1)    Restated Certificate of Incorporation filed October 1, 1996.

     3.1.d(11)  Certificate of Amendment of Certificate of Incorporation  filed
                January 30, 2001.

     3.2(1)     Bylaws of Registrant.

     4.2(1)     Form of Representative's Warrants.

    10.1(1)    1996 Incentive and Non-Incentive Stock Option Plan of Registrant.

    10.2(1)    Agreement  dated  September 24, 1996 between  Registrant  and
                Michael Bivona.

    10.3(1)*   Compensation   Agreement   dated  November  6,  1996  between
               Registrant and Joel G. Stemple.

    10.4.a(1)* Amendment dated November 6, 1996 to Agreement of Employment
               dated September 30, 1996 between Registrant and Joel G. Stemple.

    10.5.a(1)  Lease dated October 1995 between  Registrant  and 40 Marcus
               Realty, LLC - f/k/a 40 Marcus Realty Associates, as amended.

    10.5.b(1)  Lease  dated  January  1988  between  Registrant  and Marcus
               Realty, as amended.

    10.5.c(1)  Lease  dated June 1995  between  Registrant  and  Facilities
               Management.

    10.5.d(1)  Lease dated July 31, 1995 between  Registrant and Boatman's
               Equities, LLC - f/k/a 160 Oser Avenue Associates, as amended.

    10.5.e(1)  Lease dated  January 15, 1992  between  Registrant  and 352
               Seventh Avenue Associates.

    10.5.f(1)  Lease dated April 16, 1990 between Registrant and Regent Holding
               Corporation,  as  successor  to  Crow-Childress-Donner, Limited,
               as amended.

    10.5.g(1)  Business Lease dated December 4, 1992 between  Registrant and
               TRA Limited, as amended.

    10.5.h(5)  Lease  dated  June 23,  1997  between  Registrant  and First
               Willow, LLC.

    10.5.i(5)  Lease  dated  June 30,  1997  between  Registrant  and Angela C.
               Maffeo, Trustee Under the Will of John Capobianco.

    10.5.j(6)  Lease dated October 1, 1997 between  Registrant  and Spanish
               River Executive Plaza, Ltd. A/k/a Century Financial Plaza.

    10.5.k(4)  Lease dated January 2, 1998 between Coastal Office Products,
               Inc. and BC & HC Properties, LLC.

    10.5.l(10) Lease dated March 1, 2000  between ASP  Washington  LLC and
               Coastal Office Products.

    10.5.m(12) Lease dated April 5, 2001 between Emmatt Enterprises  Inc., and
               Donovan  Consulting Group, Inc.

    10.5.n(12) Lease  dated July 31,  1995  between  Registrant  and  Boatman's
               Equities, LLC - f/k/a 160 Oser Avenue Associates, as amended.


                                       30
<PAGE>



     10.5.o(13) Lease dated  November 30, 2001 between  Registrant  and Kin
                Properties, Inc. as agent.

     10.5.p(14) Lease dated June 1, 2002 between Electrograph  Systems, Inc. and
                40 Marcus Realty Associates.

     10.5.q(15) Lease dated September 9, 2002 between Electrograph Systems, Inc.
                and Pot Spring Center Limited Partnership.

     10.6(2)    Promissory Note dated October 15, 1996 between  Registrant and
                The Bank of New York.

     10.7.a(1)  Letter Agreement Regarding Inventory Financing dated December 7,
                1993 between ITT Commercial Finance Corp. and Registrant.

     10.7.b(1)  Agreement for Wholesale  Financing  dated November 11, 1993
                between ITT Commercial Finance Corp. and Registrant.

     10.7.c(1)  Intercreditor  Agreement  dated May 18,  1994  between  ITT
                Commercial Finance Corp. and The Bank of New York.

     10.8.a(1)  Letter Agreement  Regarding  Inventory Financing dated April 22,
                1996 between AT&T Capital Corporation and Registrant.

     10.8.b(1)  Intercreditor   Agreement  dated  May  18,  1994  between  AT&T
                Commercial Finance Corporation and The Bank of New York.

    10.9(1)    Reseller  Agreement  dated May 1,  1990 between Toshiba  America
                Information Systems, Inc. and Registrant.

    10.10(1)   Agreement for Authorized  Resellers  dated March 1, 1996 between
                Hewlett-Packard Company and Registrant.

    10.11(3)   Asset Purchase Agreement dated April 15, 1997 among Electrograph
               Systems, Inc., Bitwise Designs, Inc., Electrograph  Acquisition,
               Inc.and Registrant.

    10.12(4)   Definitive  Purchase Agreement and Indemnity  Agreement dated
               January 2, 1998 between Registrant and Coastal Office Products,
               Inc.

    10.13(7)   $15,000,000  Revolving Credit Facility Agreement dated July 21,
               1998 between Registrant and Bank of New York, as Agent.

    10.14(8)   $15,000,000  Revolving Credit Facility Agreement dated June 25,
               1999 between Registrant and EAB, as Agent.

    10.15(9)   Definitive  Purchase  Agreement  dated March 22, 2000 between
               Registrant and Texport  Technology  Group,  Inc.  and  Learning
               Technology Group, LLC.

    10.16(12)  Definitive  Purchase  Agreement  dated  August 29, 2001  between
               Registrant and Donovan Consulting Group.

    10.17(13)  Definitive  Purchase  Agreement  dated  November 1, 2001 between
                Registrant and e.Track Solutions, Inc.

    10.18      Third Amendment  to  $15,000,000   Revolving   Credit  Facility
                Agreement   dated  October  10,  2001  between   Registrant  and
                Citibank, as Agent.

     21         Subsidiaries of the Registrant

     23         Independent auditors' consent.

(b)      Reports on Form 8-K

         Form 8-K filed June 6, 2002 disclosing Press Release dated June 5, 2002
         reporting earnings for the third quarter ended April 30, 2002.

         Form 8-K filed June 28, 2002  disclosing  Press  Release dated June 27,
         2002  announcing the  resignation of the  registrant's  Chief Financial
         Officer.
-----------------------
* Denotes management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K.

                                       31
<PAGE>

1.   Filed as the same numbered Exhibit to the Company's  Registration Statement
     on Form S-1 (File No.  333-  13345) and  incorporated  herein by  reference
     thereto.
2.   Filed as the same  numbered  Exhibit to the Company's  Quarterly  Report on
     Form 10-Q for the  quarter  ended  October 31,  1996  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
3.   Filed as the same  numbered  Exhibit to the Company's  Quarterly  Report on
     Form  10-Q for the  quarter  ended  April  30,  1997  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
4.   Filed as the same  numbered  Exhibit to the Company's  Quarterly  Report on
     Form 10-Q for the  quarter  ended  January 31,  1998  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
5.   Filed as the same numbered  Exhibit to the Company's  Annual Report on Form
     10-K for the year ended July 31, 1997  (Commission  File No.  0-21695)  and
     incorporated herein by reference thereto.
6.   Filed as the same  numbered  Exhibit to the Company's  Quarterly  Report on
     Form 10-Q for the  quarter  ended  October 31,  1997  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
7.   Filed as the same numbered  Exhibit to the Company's  Annual Report on Form
     10-K for the year ended July 31, 1998  (Commission  File No.  0-21695)  and
     incorporated herein by reference thereto.
8.   Filed as the same  numbered  Exhibit to the  Registrant's  Annual Report on
     Form 10-K for the year ended July 31, 1999  (Commission  File No.  0-21695)
     and incorporated herein by reference thereto.
9.   Filed as the same numbered Exhibit to the Registrant's  Quarterly Report on
     Form  10-Q for the  quarter  ended  April  30,  2000  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
10.  Filed as the same  numbered  Exhibit to the  Registrant's  Annual Report on
     Form 10-K for the year ended July 31, 2000  (Commission  File No.  0-21695)
     and incorporated herein by reference thereto.
11.  Filed as the same numbered Exhibit to the Company's  Current Report on Form
     8-K dated January 30, 2001  (Commission  File No. 0-21695) and incorporated
     herein by reference thereto.
12.  Filed as the same  numbered  Exhibit to the  Registrant's  Annual Report on
     Form 10-K for the year ended July 31, 2001  (Commission  File No.  0-21695)
     and incorporated herein by reference thereto.
13.  Filed as the same numbered Exhibit to the Registrant's  Quarterly Report on
     Form 10-Q for the  quarter  ended  October 31,  2001  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
14.  Filed as the same numbered Exhibit to the Registrant's  Quarterly Report on
     Form 10-Q for the  quarter  ended  April  30,  2002,  (Commission  File No.
     0-21695) and incorporated herein by reference thereto.
15.  Filed as the same  numbered  Exhibit to the  Registrant's  Annual Report on
     Form 10-K for the year ended July 31, 2002.  (Commission  File No. 0-21695)
     and incorporated herein by reference thereto.



                                       32
<PAGE>










                                Items 8 and 14(A)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                          Page
Independent Auditors Report                                                F-2
Consolidated Financial Statements:
         Balance Sheets as of July 31, 2002 and 2001                       F-3
         Statements of Income for the years ended July 31, 2002,
          2001, and 2000                                                   F-4
         Statements of Shareholders' Equity for the years ended
          July 31, 2002, 2001, and 2000                                    F-5
         Statements of Cash Flows for the years ended July 31, 2002,
          2001, and 2000                                                   F-6
         Notes to Consolidated Financial Statements                        F-7

Schedule II - Valuation and Qualifying Accounts                            F-19































                                       F-1


<PAGE>







                          Independent Auditors' Report

The Board of Directors and Shareholders
Manchester Technologies, Inc.:

We have  audited the  accompanying  consolidated  balance  sheets of  Manchester
Technologies, Inc. and subsidiaries as of July 31, 2002 and 2001 and the related
consolidated statements of income,  shareholders' equity and cash flows for each
of the years in the  three-year  period ended July 31, 2002. In connection  with
our audits of the consolidated  financial  statements,  we have also audited the
financial  statement  schedule  as  listed  in  the  accompanying  index.  These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,   the  financial  position  of  Manchester
Technologies,  Inc. and  subsidiaries at July 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended July 31, 2002, in conformity with accounting  principles  generally
accepted in the United  States of America.  Also,  in our  opinion,  the related
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" as of August 1, 2001.



                                                KPMG  LLP


Melville, New York
September 25, 2002


                                      F-2
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                             July 31, 2002 and 2001
<TABLE>
<CAPTION>

                                   Assets                                2002                2001
                                   ------                                ----                ----                  -
                                                                  (in thousands, e per share amounts)
<S>                                                                      <C>                <C>
Current assets:
     Cash and cash equivalents                                         $ 8,963            $14,493
     Accounts receivable, net of allowance for doubtful accounts
        of $956 and $1,100, respectively                                32,561             25,135
     Inventory                                                          11,165              7,546
     Deferred income taxes                                                 403                459
     Prepaid income taxes                                                  426                 43
     Prepaid expenses and other current assets                             526                362
                                                                           ---                ---

                          Total current assets                          54,044             48,038

Property and equipment, net                                              7,012              6,300
Goodwill, net                                                            8,311              6,148
Deferred income taxes                                                      803                842
Other assets                                                               491                455
                                                                           ---                ---

                           Total assets                                $70,661            $61,783
                                                                        ======             ======

                          Liabilities and Shareholders' Equity
                          ------------------------------------

Current liabilities:
        Accounts payable and accrued expenses                          $23,078            $15,259
        Deferred service contract revenue                                  868                807
                                                                           ---                ---


                           Total  current liabilities                   23,946             16,066
                                                                        ------             ------


Deferred compensation payable                                              203                162
                                                                           ---                ---

Commitments and contingencies

Shareholders' equity:
     Preferred stock, $.01 par value, 5,000 shares
        authorized, none issued                                              -                  -
     Common stock, $.01 par value; 25,000 shares
        authorized, 7,990 and 7,990 shares issued
        and outstanding                                                     80                 80
     Additional paid-in capital                                         18,942             18,942
     Deferred compensation                                                 (23)               (38)
     Retained earnings                                                  27,513             26,571
                                                                        ------             ------

                         Total shareholders' equity                     46,512             45,555
                                                                        ------             ------

                         Total liabilities and shareholders' equity    $70,661            $61,783
                                                                        ======             ======
</TABLE>

See accompanying notes to consolidated financial statements.







                                      F-3
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                        Consolidated Statements of Income
                    Years ended July 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>

                                                                2002              2001                2000
                                                                ----              ----                ----
                                                                  (in thousands, except  per share amounts)
        <S>                                                    <C>              <C>                 <C>
         Revenue

              Products                                         $249,768         $271,982            $292,971
              Services                                           12,242            8,296               7,102
                                                                 ------            -----               -----
                                                                262,010          280,278             300,073
                                                                -------          -------             -------

         Cost of revenue
              Products                                          216,471          236,970             255,549
              Services                                            9,131            5,955               4,687
                                                                  -----            -----               -----
                                                                225,602          242,925             260,236
                                                                -------          -------             -------

              Gross profit                                       36,408           37,353              39,837
         Selling, general and administrative expenses            35,050           35,485              33,539
                                                                 ------           ------              ------

              Income from operations                              1,358            1,868               6,298


         Interest and other income, net                             184              767                 602
                                                                    ---              ---                 ---
              Income before provision for income taxes            1,542            2,635               6,900
         Provision for income taxes                                 600              908               2,800
                                                                    ---              ---               -----
              Net income                                           $942           $1,727              $4,100
                                                                    ===            =====               =====
              Net income per share
                  Basic                                          $0.12             $0.21               $0.51
                                                                  ====              ====                ====
         Diluted                                                 $0.12             $0.21               $0.50
                                                                 =====             =====               =====

         Weighted average shares of common
            stock and equivalents outstanding
         Basic                                                    7,990            8,036               8,108
                                                                  =====            =====               =====
         Diluted                                                  7,991            8,058               8,228
                                                                  =====            =====               =====



</TABLE>



See accompanying notes to consolidated financial statements.





                                      F-4
<PAGE>





                 Manchester Technologies, Inc. and Subsidiaries
                 Consolidated Statements of Shareholders' Equity
                    Years ended July 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>

                                                            Additional
                                         Common    Par      Paid-in       Deferred        Retained
                                         Shares    Value    Capital       Compensation    Earnings      Total
                                         ------    -----    -------       ------------    --------      -----
                                                                  (in thousands)



<S>                                       <C>      <C>       <C>              <C>       <C>           <C>
     Balance July 31, 1999                 8,085    $ 81      $ 18,799         $ (38)    $ 20,744      $ 39,586

     Purchase and retirement of stock       (151)     (1)         (670)            -            -          (671)
     Stock award compensation expense          -       -             -            34            -            34
     Deferred compensation                    10       -            61           (61)           -             -
     Stock issued in connection with
         exercise of stock options           109       1           413             -            -           414
     Stock issued in connection with
         purchase acquisition                106       1           799             -            -           800
     Net income                                -      -              -             -        4,100         4,100
                                            ----    ----       -------           ---        -----         -----
     Balance July 31, 2000                 8,159      82        19,402           (65)      24,844        44,263

     Purchase and retirement of stock       (171)     (2)         (619)            -            -          (621)
     Stock option commission expense           -       -            10             -            -            10
     Stock award compensation expense          -       -             -            27            -            27
     Stock issued in connection with
       exercise of stock options               2       -             6             -            -             6
     Tax benefit of stock option plan          -       -           143             -            -           143
     Net income                                -       -             -             -        1,727         1,727
                                           -----   -----         -----        ------        -----         -----
     Balance July 31, 2001                 7,990      80        18,942           (38)      26,571        45,555



     Stock award compensation expense          -       -             -            15            -            15
     Net income                                -       -             -             -          942           942
                                             ---    ----          ----           ---          ---           ---
     Balance July 31, 2002                 7,990     $80       $18,942          $(23)     $27,513       $46,512
                                           =====      ==        ======           ====      ======        ======

</TABLE>



     See accompanying notes to consolidated financial statements.






                                      F-5
<PAGE>












                          Manchester Technologies, Inc. and Subsidiaries
                           Consolidated Statements of Cash Flows
                         Years ended July 31, 2002, 2001, and 2000
<TABLE>
<CAPTION>

                                                                     2002         2001           2000
                                                                     ----         ----           ----
                                                                        (in thousands)
     <S>                                                           <C>           <C>             <C>
     Cash flows from operating activities:
     Net income                                                         $   942       $1,727          $4,100

     Adjustments to reconcile net income to net cash from
      operating activities:
         Depreciation and amortization                                    2,012        2,387           2,081
         Provision for (recovery of) doubtful accounts                      613          832            (366)
         Non-cash compensation and commission expense                        15           37              34
         Deferred income taxes                                               95          (49)           (154)
         Tax benefit from exercise of options                                 -          143               -
         Change in assets and liabilities, net of the effects of
          acquisitions:
           Accounts receivable                                           (7,773)      10,057            (264)
           Inventory                                                     (3,482)        (749)          1,951
           Prepaid  income taxes                                           (383)         592            (620)
           Prepaid expenses and  other current assets                       (92)         176            (177)
           Other assets                                                     (88)        (147)         (27)
           Accounts payable and  accrued expenses                         7,298      (14,053)          6,991
           Deferred service contract revenue                                 61         (139)            365
           Income  taxes payable                                              -            -            (668)
           Deferred compensation payable                                     41          128               -
                                                                             --          ---           -----

                Net cash (used in) provided by operating activities        (741)         942          13,246
                                                                           -----         ---          ------

     Cash flows from investing activities:
         Capital expenditures                                            (2,618)      (1,972)         (1,661)
         Payment for acquisitions, net of  cash acquired                 (1,613)           -            (179)
                                                                          -----       ------            -----
            Net cash used in investing activities                        (4,231)      (1,972)         (1,840)
                                                                          -----       -------          -----

     Cash flows from financing activities:
         Net repayments of borrowings from bank                            (515)           -            (648)
         Payments on capitalized lease obligations                            -            -             (85)
         Payments on notes payable - other                                  (43)         (18)             (9)
         Issuance of common stock upon exercise of options                    -            6             414
         Purchase and retirement of common stock                              -         (621)           (671)
                                                                           ----         -----           -----

                Net cash  used in  financing activities                    (558)        (633)           (999)
                                                                           -----         ---            ----

     Net increase (decrease)  in cash  and cash equivalents              (5,530)      (1,663)         10,407

         Cash and cash equivalents at beginning of year                  14,493       16,156           5,749
                                                                         ------       ------           -----

     Cash and cash equivalents at end of year                            $8,963      $14,493         $16,156
                                                                          =====       ======          ======

     Cash paid during the year for:
          Interest                                                        $  -        $    -             $ 4
                                                                          ====         =====              ==
          Income taxes                                                     $723       $  365          $4,205
                                                                            ===        =====          ======

     Other noncash transactions:
         Common stock issued in connection with acquisitions            $    -        $   -            $861
                                                                         =====        =====            ====

</TABLE>


     See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>





                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)

(1)  Operations and Summary of Significant Accounting Policies

      (a)  The Company

         Manchester Technologies, Inc. and its subsidiaries ("the Company") is a
      single-source  solutions  provider  specializing  in hardware and software
      procurement,   custom   networking,   storage,   enterprise  and  Internet
      solutions.  The  Company  offers  its  customers  single-source  solutions
      customized to their information systems needs by integrating its analysis,
      design and  implementation  services with hardware,  software,  networking
      products and peripherals from leading  vendors.  The Company operates in a
      single segment.

         Sales of  hardware,  software  and  networking  products  comprise  the
      majority  of  the  Company's  revenues.   The  Company  has  entered  into
      agreements with certain suppliers and  manufacturers  that may provide the
      Company  favorable  pricing and price  protection  in the event the vendor
      reduces its prices.

      (b)  Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
      Company  and its  wholly-owned  subsidiaries.  All  material  intercompany
      transactions and balances are eliminated in consolidation.

      (c)  Cash Equivalents

         The Company  considers  all highly  liquid  investments  with  original
      maturities  at the date of  purchase  of three  months  or less to be cash
      equivalents.  Cash  equivalents of $7,194 and $11,638 at July 31, 2002 and
      2001, respectively, consisted of money market mutual funds.

      (d)  Revenue Recognition

         Revenue from product sales is recognized at the time of shipment to the
      customer.  Revenue from services is recognized  when the related  services
      are  performed.  When product  sales and services are bundled,  revenue is
      recognized   upon   delivery  of  the  product  and   completion   of  the
      installation. Service contract fees are recognized as revenue ratably over
      the period of the applicable  contract.  Deferred service contract revenue
      represents  the unearned  portion of service  contract  fees.  The Company
      generally  does not develop or sell software  products.  However,  certain
      computer hardware products sold by the Company are loaded with prepackaged
      software products. The net impact on the Company's financial statements of
      product returns, primarily for defective products, has been insignificant.

      (e) Market Development  Funds and Advertising Costs

         The  Company  receives  various  market   development  funds  including
      cooperative  advertising funds from certain vendors,  principally based on
      volume purchases of products.  The Company records such amounts related to
      volume purchases as purchase  discounts which reduce cost of revenue,  and
      other incentives that require specific  incremental  action on the part of
      the Company,  such as training,  advertising or other pre-approved  market
      development  activities,  as an offset to the  related  costs  included in
      selling,  general and  administrative  expenses.  Total market development
      funds  amounted to $1,118,  $229,  and $414,  for the years ended July 31,
      2002, 2001 and 2000, respectively.

         The Company expenses all advertising costs as incurred.

      (f) Inventory

         Inventory,  consisting  of  computer  hardware,  software  and  related
      supplies,  is valued at the lower of cost  (first-in  first-out) or market
      value.



                                      F-7
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)

(g) Property and Equipment

         Property and  equipment  are stated at cost.  Depreciation  is provided
using the straight-line  and accelerated  methods over the economic lives of the
assets, generally from five to seven years. Leasehold improvements are amortized
over the shorter of the underlying lease term or asset life.

 (h)  Goodwill

         In July 2001, the Financial  Accounting Standards Board ("FASB") issued
Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  141  "Business
Combinations,"  and SFAS No. 142,  "Goodwill and Other Intangible  Assets." SFAS
No.  141  specifies  criteria  that  intangible  assets  acquired  in a business
combination  must meet to be recognized and reported  apart from goodwill.  SFAS
No. 142 requires  that goodwill and  intangible  assets with  indefinite  useful
lives no longer be  amortized,  but  instead be tested for  impairment  at least
annually in accordance  with the  provision of SFAS No. 142. This  pronouncement
also requires that  intangible  assets with estimable  useful lives be amortized
over their  respective  estimated  useful lives and reviewed for  impairment  in
accordance with SFAS No. 121.

         The Company has adopted the  provisions  of SFAS Nos. 141 and 142 as of
August 1, 2001.  The  Company  has  evaluated  its  existing  goodwill  that was
acquired in prior purchase  business  combinations  and has  determined  that an
adjustment or  reclassification  to intangible  assets at August 1, 2001 was not
required in order to conform to the new criteria in SFAS No. 141 for recognition
apart from goodwill.

         The Company was required to test goodwill for  impairment in accordance
with the provisions of SFAS No. 142 by January 31, 2002. In accordance with SFAS
No.  142,  goodwill  is  allocated  to  reporting  units,  which are  either the
operating  segment or one  reporting  level  below the  operating  segment.  The
Company  determined  that  its  reporting  unit for  purposes  of  applying  the
provisions  of  SFAS  142 was  its  operating  segment.  The  Company's  initial
impairment  review  indicated  that  there was no  impairment  as of the date of
adoption. Fair value for goodwill was determined based on discounted cash flows.

         Accumulated amortization was approximately $1,116 at both July 31, 2002
and 2001. Goodwill amortization for the years ended July 31, 2002, 2001 and 2000
was approximately $0, $386 and $331, respectively. The following table shows the
results of operations as if SFAS No. 142 was applied to prior periods:
<TABLE>
<CAPTION>

                                                       For the years ended July 31,
                                                   2002            2001             2000
                                                   ----            ----             ----

<S>                                                <C>            <C>              <C>
Net income as reported                             $942           $1,727           $4,100
Add back: Goodwill amortization                       -              386              331
                                                   ----              ---              ---

Adjusted net income                                $942           $2,113           $4,431
                                                    ===            =====            =====

Income per share - Basic
  Net income, as reported                        $0.12             $0.21           $0.51
  Goodwill amortization                              -              0.05            0.04
                                                -------            ------           ----

  Adjusted net income                            $0.12             $0.26           $0.55
                                                  =====             ====            ====

Income per share - Diluted
  Net income, as reported                        $0.12             $0.21           $0.50
  Goodwill amortization                              -              0.05            0.04
                                                ------              ----            ----

  Adjusted net income                            $0.12             $0.26           $0.54
                                                  ====              ====            ====

</TABLE>



                                      F-8
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)

      (i)  Income Taxes

         Deferred  taxes  are   recognized  for  the  future  tax   consequences
      attributable  to temporary  differences  between the  carrying  amounts of
      assets and  liabilities  for financial  statement  purposes and income tax
      purposes  using enacted  rates  expected to be in effect when such amounts
      are realized or settled.  The effect on deferred  taxes of a change in tax
      rates is  recognized  in income in the period that  includes the enactment
      date.

      (j)  Net Income Per Share

         Basic net income per share has been  computed by dividing net income by
      the weighted  average  number of common  shares  outstanding.  Diluted net
      income per share has been  computed by dividing net income by the weighted
      average number of common shares outstanding,  plus the assumed exercise of
      dilutive  stock options and warrants,  less the number of treasury  shares
      assumed to be  purchased  from the  proceeds of such  exercises  using the
      average market price of the Company's  common stock during each respective
      period. Options and warrants representing  approximately 887,000, 899,000,
      and  153,000,  shares for the years  ended July 31,  2002,  2001 and 2000,
      respectively,  were not included in the computation of diluted EPS because
      to do so would have been antidilutive.  The following table reconciles the
      denominators  of the basic and  diluted per share  computations.  For each
      year, the numerator is the net income as reported.
<TABLE>
<CAPTION>

                                       2002                       2001                      2000
                                       ----                       ----                      ----
                                            Per Share                  Per Share                 Per Share
                                    Shares  Amount            Shares   Amount           Shares   Amount

          <S>                   <C>           <C>          <C>        <C>            <C>            <C>
           Basic EPS             7,990,000     $0.12        8,036,000  $0.21          8,108,000      $0.51
                                                ====                    ====                          ====
           Effect of dilutive
            options                  1,000                     22,000                   120,000
                                     -----                     ------                   -------

           Diluted EPS           7,991,000     $0.12        8,058,000  $0.21          8,228,000      $0.50
                                 =========      ====        =========   ====          =========       ====
</TABLE>

     (k) Accounting for Stock-Based Compensation
         ---------------------------------------

         The Company records  compensation expense for employee stock options if
      the current  market  price of the  underlying  stock  exceeds the exercise
      price on the date of the grant.  On August 1, 1996,  the  Company  adopted
      SFAS No. 123,  "Accounting for Stock-Based  Compensation." The Company has
      elected  not to  implement  the fair  value  based  accounting  method for
      employee  stock  options,  but has elected to  disclose  the pro forma net
      income and net income per share for  employee  stock  option  grants  made
      beginning  in fiscal  1996 as if such  method had been used to account for
      stock-based compensation cost as described in SFAS No. 123.

      (l)  Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
      assumptions  relating to the reporting of assets and  liabilities  and the
      disclosure  of  contingent  assets  and  liabilities  at the  date  of the
      financial  statements  and the  reported  amounts of revenues and expenses
      during the  reporting  period to prepare  these  financial  statements  in
      conformity with  accounting  principles  generally  accepted in the United
      States of America. Actual results could differ from those estimates.

      (m)  Fair Value of Financial Instruments

         The  fair  values  of  accounts  receivable,  prepaid  expenses,  notes
      payable,  and  accounts  payable and accrued  expenses  are  estimated  to
      approximate  the  carrying  values  at  July  31,  2002  due to the  short
      maturities of such instruments.


                                      F-9
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)


      (n) Reclassifications
         Certain  prior year  amounts have been  reclassified  to conform to the
      manner of presentation in the current year.

(2)  Property and Equipment
     ----------------------

         Property and equipment at July 31, consist of the following:
<TABLE>
<CAPTION>


                                                            2002        2001
                                                            ----        ----

<S>                                                         <C>         <C>
      Furniture and fixtures                                $2,194      $3,088
      Machinery and equipment                               11,427       8,162
      Transportation equipment                                 671         588
      Leasehold improvements                                 3,204       2,934
                                                             -----       -----
                                                            17,496      14,772
      Less accumulated depreciation and amortization        10,484       8,472
                                                            ------       -----
                                                            $7,012      $6,300
                                                             =====       =====
</TABLE>

     Depreciation  and  amortization  expense  amounted to $2,012,  $2,001,  and
$1,750 for the years ended July 31, 2002, 2001 and 2000, respectively.

(3)  Acquisitions
     ------------

 Donovan Consulting Group, Inc.
 ------------------------------

         On August 29, 2001, the Company  acquired all of the outstanding  stock
of  Donovan  Consulting  Group,  Inc.   ("Donovan"),   a  Delaware   corporation
headquartered near Atlanta,  Georgia.  Donovan is a technical services firm that
delivers Wireless LAN solutions to customers nationwide. The acquisition,  which
has been accounted for as a purchase, consisted of a cash payment of $1,500 plus
potential future contingent payments. Contingent payments of up to $1,000 may be
payable on each of  November  2, 2002 and  November  2, 2003 based upon  Donovan
achieving  certain  agreed-upon  increases in revenue and pre-tax  earnings.  In
connection with the acquisition,  the Company assumed approximately $435 of bank
debt and $43 of other debt, which were subsequently repaid. Donovan was acquired
in order to strengthen the Company's position in the Wireless LAN arena. Donovan
allows the Company to offer total Wireless LAN solutions  including state of the
art products as well as the services  necessary to have those  products  operate
optimally.

         Operating   results  of  Donovan  are  included  in  the   consolidated
statements of income from the  acquisition  date.  The  estimated  fair value of
tangible assets and liabilities  acquired was $497 and $869,  respectively.  The
excess of the  aggregate  purchase  price over the  estimated  fair value of the
tangible  net  assets  acquired  was  approximately  $1,872.  The  factors  that
contributed  to the  determination  of the  purchase  price  and  the  resulting
goodwill  include  the  significant  growth  expected  in this  area  due to the
combination  of the  Company's  long history of strong  customer  relationships,
financial  strength and stability  coupled with Donovan's  product offerings and
highly skilled  technical staff. The $1,872 will not be amortized;  however,  it
will be subject to  impairment  testing in  accordance  with  Statement No. 142,
"Goodwill and Other Intangible Assets."

         The  presentation  of supplemental  pro forma financial  information is
deemed immaterial.



                                      F-10
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)


e.Track Solutions, Inc.
-----------------------

         On November 9, 2001, the Company acquired all of the outstanding  stock
of e.Track Solutions, Inc. ("e.Track"),  a New York corporation headquartered in
Pittsford,  New York.  e.Track is a business  and  software  services  firm that
delivers business,  Internet and information  technology  solutions to customers
nationwide.  The  acquisition,  which  has  been  accounted  for as a  purchase,
consisted of cash  payments of $290  (including  debt  assumed and  subsequently
repaid).  e.Track  was  acquired  in order to allow  the  Company  to offer  our
customers  customized  software  solutions  along with the products and services
that we have traditionally offered.

         Operating   results  of  e.Track  are  included  in  the   consolidated
statements of income from the  acquisition  date.  The  estimated  fair value of
tangible assets and liabilities  acquired was $116 and $192,  respectively.  The
excess of aggregate purchase price over the estimated fair value of the tangible
net assets acquired was $291. The factors that contributed to the  determination
of the purchase price and the resulting  goodwill  include the expectation  that
the combination of e.Track's highly skilled  technical  staff,  coupled with the
Company's  financial  strength and  customer  base,  will result in  significant
growth at e.Track going  forward.  The $291 will not be amortized;  however,  it
will be subject to  impairment  testing in  accordance  with  Statement No. 142,
"Goodwill and Other Intangible Assets."

         The  presentation  of supplemental  pro forma financial  information is
deemed immaterial.

(4)  Accounts Payable and Accrued Expenses
     -------------------------------------

     Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>

                                                        July 31,
                                                    2002            2001
                                                    ----            ----

<S>                                                <C>            <C>
                  Accounts payable, trade          $19,785        $11,759
                  Accrued salaries and wages         1,894          1,974
                  Customer deposits                    554            711
                  Other accrued expenses               845            815
                                                       ---            ---
                                                   $23,078        $15,259
                                                    ======         ======
</TABLE>


     The Company has  entered  into  financing  agreements  for the  purchase of
     inventory.  These  agreements are unsecured,  generally  allow for a 30-day
     non-interest-bearing  payment  period and require the Company to  maintain,
     among other things,  a certain  minimum  tangible net worth. In each of the
     years in the three-year  period ended July 31, 2002, the Company has repaid
     all balances  outstanding  under these agreements  within the non-interest-
     bearing  payment  period.  Accordingly,   amounts  outstanding  under  such
     agreements of $2,884,  $1,719, and $2,645, at July 31, 2002, 2001 and 2000,
     respectively,  are included in accounts payable and accrued expenses. As of
     July 31,  2002,  retained  earnings  available  for  dividends  amounted to
     approximately $15,500.


(5)  Employee Benefit Plans

         The  Company  maintains a qualified  defined  contribution  plan with a
     salary  deferral  provision,  commonly  referred to as a 401(k)  plan.  The
     Company  matches  50% of  employee  contributions  up to three  percent  of
     employees' compensation. The Company's contribution amounted to $346, $317,
     and $250, for the years ended July 31, 2002, 2001, and 2000, respectively.




                                      F-11
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)



         The Company also has two deferred compensation plans that are available
     to  certain  eligible  key  employees.  The  first  plan  consists  of life
     insurance  policies  purchased  by the Company for the  participants.  Upon
     vesting,  which  occurs  at  various  times  from  three  to ten  years,  a
     participant becomes entitled to have ownership of the policy transferred to
     him or her at termination of employment  with the Company.  The second plan
     consists  of a  commitment  by the  Company to pay a monthly  benefit to an
     employee for a period of ten years  commencing  either ten or fifteen years
     from such  employee's  entrance  into the plan.  The  Company has chosen to
     purchase life insurance policies to provide funding for these benefits.  As
     of July 31, 2002 and 2001,  the Company has recorded an asset  (included in
     other  assets)  of $256  and  $129,  respectively,  representing  the  cash
     surrender  value of policies  owned by the Company and a liability  of $203
     and $162,  respectively,  relating to the unvested  portion of benefits due
     under these plans.  For the years ended July 31, 2002,  2001 and 2000,  the
     Company  recorded an expense of $212,  $246,  and $92, in  connection  with
     these plans.  During fiscal 2001,  the Company  received $505 in connection
     with a life insurance policy that it carried on an employee who died, which
     was partially offset by $250 in compensation  benefits paid to the deceased
     employee.


(6)  Commitments and Contingencies
     -----------------------------

     Leases
     ------

         The  Company  leases  most  of  its  executive  offices  and  warehouse
     facilities from landlords consisting primarily of related parties (note 9).
     In addition,  the Company is  obligated  under lease  agreements  for sales
     offices and additional  warehouse  space.  Aggregate rent expense under all
     these leases amounted to $1,973,  $1,756,  and $1,594,  for the years ended
     July 31, 2002, 2001 and 2000, respectively.

         The following  represents  the  Company's  commitment  under  operating
     leases for each of the next five years ended July 31 and thereafter:
<TABLE>

                               <S>                      <C>
                                2003                    $1,729
                                2004                     1,663
                                2005                     1,710
                                2006                     1,292
                                2007                     1,175
                          Thereafter                       607
                                                           ---
                                                        $8,176
                                                        ======
</TABLE>

     Litigation
     ----------

         The Company is involved in various claims and legal actions  arising in
     the ordinary  course of business.  In the opinion of  management,  based on
     advice from its legal  counsel,  the ultimate  disposition of these matters
     will not have a material adverse effect on the Company's financial position
     or results of operations.



(7)   Line of Credit
      --------------

         In July 1998, the Company entered into a revolving credit facility with
     its banks, which was revised in June, 1999 to change  participating  banks.
     Under the terms of the facility,  the Company may borrow up to a maximum of
     $15,000.  Borrowings under the facility bear interest at variable  interest
     rates based upon several  options  available  to the Company.  The facility
     requires the Company to maintain certain financial ratios and covenants. As
     of July 31, 2002,  there was no balance  outstanding  under this agreement,
     which expires on January 31, 2005.





                                      F-12
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)

 (8)  Income Taxes
      ------------

      The provision for income taxes for the years ended July 31, 2002, 2001 and
2000 consists of the following:
<TABLE>
<CAPTION>

                                               2002         2001        2000
                                               ----         ----        ----                 -
   <S>                                        <C>          <C>       <C>
              Current
                  Federal                      $325         $728      $2,242
                  State                         180          229         712
                                                ---          ---         ---

                                                505          957       2,954
                                                ---          ---       -----

              Deferred
                  Federal                        70          (38)       (115)
                  State                          25          (11)        (39)
                                                 --          ---         ---

                                                 95          (49)       (154)
                                                 --          ---        ----
                                               $600         $908      $2,800
                                                ===          ===       =====
</TABLE>

      The  difference  between the Company's  effective  income tax rate and the
      statutory rate is as follows, for the years ended July 31,:
<TABLE>
<CAPTION>

                                                        2002           2001        2000
                                                        ----           ----        ----                 -


<S>                                                     <C>            <C>       <C>
      Income taxes at statutory rate                    $524           $896      $2,346
      State taxes, net of federal benefit                114            144         444
      Non deductible goodwill amortization                 -             85          85
      Nontaxable life insurance proceeds                   -           (172)          -
      Other                                              (38)           (45)        (75)
                                                         ---            ---         ---

                                                        $600           $908      $2,800
                                                         ===            ===       =====
</TABLE>

      The tax effects of  temporary  differences  that give rise to  significant
      portions of the net  deferred  tax asset at July 31, 2002 and 2001 were as
      follows:

<TABLE>
<CAPTION>
                                                        2002            2001
                                                        ----            ----

           <S>                                         <C>              <C>
            Deferred tax assets (liabilities):
                 Allowance for doubtful accounts        $383            $439
                 Deferred compensation                   554             473
                 Depreciation                            249             409
                 Other                                    20            (20)
                                                          --            ---
                 Net deferred tax asset               $1,206          $1,301
                                                       =====           =====
</TABLE>


              A valuation allowance has not been provided in connection with the
      deferred  tax  assets  since the  Company  believes,  based  upon its long
      history of  profitable  operations,  that it is more  likely than not that
      such deferred tax assets will be realized.




                                      F-13
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)

 (9)  Related Party Transactions
      --------------------------

         The Company leases its warehouse and distribution center as well as its
      corporate  offices and certain sales  facilities  from  entities  owned or
      controlled by  shareholders,  officers,  or directors of the Company.  The
      leases  generally  cover a period of ten years and expire at various times
      from 2005 through 2008. Lease terms generally  include annual increases of
      five percent. Rent expense for these facilities  aggregated  approximately
      $932,  $884, and $828,  for the years ended July 31, 2002,  2001 and 2000,
      respectively.

         The  Company  paid legal fees to a law firm in which a director  of the
      Company is a partner.  Such fees amounted to approximately $208, $215, and
      $177,  including  disbursements,  in the fiscal years ended July 31, 2002,
      2001 and 2000, respectively.

         During  fiscal  years  ended July 31,  2002,  2001 and 2000 the Company
      received approximately $45, $178, and $273, respectively,  in revenue from
      a company controlled by a director of the Company.

         On May  20,  2002  the  Company  loaned  its  chief  executive  officer
      approximately $965 bearing an interest rate of 2.00%. On May 30, 2002, the
      Company's  chief  executive  officer  repaid  $585  of the  loan  and  the
      remainder of the loan was repaid on July 18, 2002 plus accrued interest.

         In the ordinary  course of its business  dealings  with  customers  and
      vendors,  the Company  utilizes a restaurant  owned by the chief executive
      officer  and a  member  of  his  family  for  such  catering,  dining  and
      entertainment  services.  During the years ended July 31,  2002,  2001 and
      2000 the Company paid approximately $109, $64, and $62, respectively,  for
      such services.

 (10)  Shareholders' Equity
       --------------------

      Warrants
      --------

         In connection  with its Initial Public Offering (IPO) in December 1996,
      the Company issued to the underwriter warrants to purchase an aggregate of
      250,000 shares of common stock.  The warrants were  exercisable at a price
      of $12 per share and expired in December, 2001.

      Stock Option Plan
      -----------------

         Under  the   Company's   Amended  and  Restated   1996   Incentive  and
      Non-Incentive  Stock  Option  Plan as  amended,  (the  "Plan"),  which was
      approved by the  Company's  shareholders  in October 1996, an aggregate of
      2,600,000  shares of common stock are reserved for issuance  upon exercise
      of options thereunder. Under the Plan, incentive stock options, as defined
      in section 422 of the Internal  Revenue Code of 1986,  as amended,  may be
      granted to employees  and  non-incentive  stock  options may be granted to
      employees,  directors and such other persons as the Board of Directors may
      determine,  at  exercise  prices  equal to at least 100% (with  respect to
      incentive  stock options) and at least 85% (with respect to  non-incentive
      stock options) of the fair market value of the common stock on the date of
      grant. In addition to selecting the optionees, the Board of Directors will
      determine the number of shares of common stock subject to each option, the
      term of each  stock  option up to a maximum of ten years  (five  years for
      certain employees for incentive stock options), the time or times when the
      stock option  becomes  exercisable,  and  otherwise  administer  the Plan.
      Generally,  incentive  stock options  expire three months from the date of
      the holder's  termination  of  employment  with the Company  other than by
      reason  of death or  disability.  Options  may be  exercised  with cash or
      common stock previously  owned for in excess of six months.  The following
      table summarizes stock option activity:





                                      F-14
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                     Weighted
                                                                     Average
                                                Exercise             Exercise
                                                Balance              Price
                                                -------              -----



<S>                                             <C>                   <C>
         Balance July 31, 1999                  815,100               $3.93

           Granted                              253,250               $4.37
           Exercised                           (109,416)              $3.8125
           Cancelled                           (132,250)              $4.50
                                               --------               -----

         Balance July 31, 2000                  826,684               $4.00

           Granted                              123,000               $3.74
           Exercised                             (1,500)              $3.8125
           Cancelled                            (49,100)              $4.19
                                                -------               -----

         Balance July 31, 2001                  899,084               $3.95

           Granted                               81,800               $2.55
           Exercised                                  -                   -
           Cancelled                            (55,800)              $4.07
                                                -------               -----

           Balance July 31, 2002                925,084               $3.81
                                                =======               =====

</TABLE>

          At July 31, 2002, options with the following ranges of exercise prices
were outstanding:
<TABLE>
<CAPTION>


                              Options Outstanding                            Options Currently Exercisable
                              -------------------                            -----------------------------
     Range of
     Exercise                  Weighted Average                                           Weighted Average
     Prices          Number     Exercise Price         Remaining life       Number         Exercise Price
     ------          ------     --------------         --------------       ------         --------------

    <C>     <C>     <C>             <C>               <C>                  <C>               <C>
     $2.30 - $3.75   214,800         $2.94             7 Yrs.               135,500           $3.07
     $3.76 - $4.00   528,334         $3.83             5 Yrs.               461,666           $3.83
     $4.01 - $5.69   181,950         $4.78             7 Yrs                109,808           $4.76
                     -------                                                -------
     $2.30 - $5.69   925,084         $3.81             6 Yrs.               706,974           $3.83
                     =======                                                =======
</TABLE>

         All options  granted expire ten years from the date of grant except for
     options  granted to  directors,  which  expire  five years from the date of
     grant.

         The Company has adopted the pro forma disclosure  provision of SFAS No.
     123,  "Accounting for Stock Based Compensation".  Accordingly,  the Company
     does not record compensation cost in the financial statements for its stock
     options  that have an  exercise  price  equal to or  greater  than the fair
     market value of the underlying stock on the date of grant. Had compensation
     cost for the  Company's  stock option grants been  determined  based on the
     fair value at the grant date under SFAS No. 123, the  Company's  net income
     and net income per share for the years ended July 31,  2002,  2001 and 2000
     would approximate the pro forma amounts below:



                                      F-15
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                            2002          2001            2000
                                            ----          ----            ----
<S>                                        <C>         <C>              <C>
     Net income:
         As reported                        $942        $1,727           $4,100
         Pro forma                          $577        $1,335           $3,813

     Basic net income per share:
        As reported                        $0.12         $0.21           $0.51
        Pro forma                          $0.07         $0.17           $0.47

     Diluted net income per share:
        As reported                        $0.12         $0.21           $0.50
        Pro forma                          $0.07         $0.17           $0.46
</TABLE>

     The pro forma  effects on net income and  diluted  net income per share for
2002, 2001 and 2000 may not be representative of the pro forma effects in future
years.

     The fair value of options  granted was  estimated  using the  Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
                                                    2002       2001      2000
                                                    ----       ----      ----
<S>                                                   <C>       <C>       <C>
        Expected dividend yield                       0%        0%        0%
        Expected stock volatility                    59%       55%       49%
        Risk free interest rate                       3%        5%        5%
        Expected option term until exercise (years)   5.00      5.00      5.00
</TABLE>

     The per share weighted  average fair value of stock options  granted during
fiscal 2002, 2001 and 2000 was $1.79, $2.03, and $2.15, respectively.

     Repurchase of Common Stock
     --------------------------

     During the years  ended July 31,  2001 and 2000,  the  Company  repurchased
171,000,  and 150,600 shares of its common stock at an aggregate  purchase price
of $621,  and $671,  respectively.  Such shares were  subsequently  retired.  No
shares were repurchased in fiscal 2002.

(11)  Major Customer and Vendors and Concentration of Credit Risk
      -----------------------------------------------------------

     The  Company  sells and  provides  services  to  customers  who are located
primarily in the eastern United States.

     The Company's top five vendors accounted for  approximately  15%, 14%, 14%,
14%, and 13%,  respectively  of total product  purchases for the year ended July
31, 2002. The Company's top four vendors accounted for  approximately  19%, 14%,
10%, and 10%,  respectively,  of total product purchases for the year ended July
31, 2001. The Company's top three vendors accounted for approximately, 16%, 14%,
and 10%,  respectively  of total  product  purchases for the year ended July 31,
2000.

     At July 31, 2002 two customers  accounted for 9% and 5%,  respectively,  of
the Company's accounts receivable. No customer accounted for more than 5% of the
Company's  accounts  receivable at July 31, 2001 and 2000.  For the fiscal years
ended July 31, 2002, 2001 and 2000, no one customer  accounted for more than 10%
of total revenue.





                                      F-16
<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)



 (12)  Impact of Recently Issued Accounting Standards
       ----------------------------------------------

         In July 2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations"  ("SFAS  143").  SFAS  143  establishes  an  accounting
standard  requiring  the recording of the fair value of  liabilities  associated
with the  retirement  of  long-lived  assets  in the  period  in which  they are
incurred. The Company has adopted the provisions of SFAS 143 effective August 1,
2002.  The  adoption  of SFAS  143  did not  have a  significant  effect  on the
Company's results of operations or its financial position.

      In  October  2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
Impairment  of  Long-Lived  Assets,"  ("SFAS 144"),  which  addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets  and for  Long-Lived  Assets to Be  Disposed  Of,"  while  retaining  the
fundamental  recognition and measurement provisions of that statement.  SFAS 144
requires  that a  long-lived  asset to be  abandoned,  exchanged  for a  similar
productive  asset or distributed  to owners in a spin-off to be considered  held
and used until it is disposed of.  However,  SFAS 144 requires  that  management
consider revising the depreciable life of such long-lived asset. With respect to
long-lived  assets to be disposed of by sale, SFAS 144 retains the provisions of
SFAS No. 121 and, therefore,  requires that discontinued operations no longer be
measured  on a net  realizable  value  basis and that  future  operating  losses
associated with such discontinued operations no longer be recognized before they
occur.  SFAS 144 is effective for all fiscal  quarters of fiscal years beginning
after  December 15, 2001.  The Company has adopted the provisions of SFAS 144 as
of August 1, 2002. The adoption of SFAS 144 did not have any material  impact on
the Company's consolidated financial statements.

      In  April  2002,  the  FASB  issued  SFAS  No.  145,  "Rescission  of SFAS
Statements  No.  4,  44,  and  64,  Amendment  of  SFAS  No.  13  and  Technical
Corrections"  ("SFAS 145"). SFAS 145 updates,  clarifies and simplifies existing
accounting  pronouncements  by rescinding  Statement 4, which required all gains
and losses from  extinguishments  of debt to be  aggregated  and,  if  material,
classified as an  extraordinary  item,  net of related  income tax effect.  As a
result,  the criteria in Opinion 30 will now be used to classify those gains and
losses.  Additionally,  the Statement requires that certain lease  modifications
that have economic effects similar to  sale-leaseback  transactions be accounted
for in the same manner as sale-leaseback  transactions.  The Company has adopted
the  provisions  of SFAS 145 as of August 1, 2002.  The adoption of SFAS 145 did
not have any impact on the Company's consolidated financial statements.

      In July  2002,  the  FASB  issued  SFAS No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities" ("SFAS 146"). SFAS 146 will spread
out the reporting of expenses  related to  restructurings  initiated after 2002,
because commitment to a plan to exit an activity or dispose of long-lived assets
will no  longer  be enough to  record a  liability  for the  anticipated  costs.
Instead,  companies will record exit and disposal costs when they are "incurred"
and can be  measured  at fair  value,  and they  will  subsequently  adjust  the
recorded  liability for changes in estimated cash flows. The Company is required
to adopt the  provisions of SFAS 146 as of January 1, 2003. The Company does not
believe  that  the  adoption  of this  statement  will  have any  impact  on the
Company's  consolidated financial statements as no planned restructuring charges
currently exist.




                                      F-17
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2002, 2001 and 2000
                 (in thousands, except share and per share data)




(13) Quarterly Results (unaudited)
     -----------------------------
<TABLE>
<CAPTION>

                              Oct. 31    Jan 31    Apr. 30   July 31    Year
                              -------    ------    -------   -------    ----
     2002
     ----
<S>                            <C>       <C>      <C>       <C>       <C>
   Revenue                     $61,566   $68,099  $65,131   $67,214   $262,010
   Gross profit                  8,494    10,067    9,041     8,806     36,408
   Net income                      104       433      364        41        942
   Basic earnings per share       0.01      0.05     0.05      0.01       0.12
   Diluted earnings per share     0.01      0.05     0.05      0.01       0.12


     2001
     ----
   Revenue                     $81,142   $70,888  $68,598   $59,650   $280,278
   Gross profit                  9,757     8,917    9,765     8,914     37,353
   Net income                      638        24      665       400      1,727
   Basic earnings per share       0.08      0.00     0.08      0.05       0.21
   Diluted earnings per share     0.08      0.00     0.08      0.05       0.21
</TABLE>

        Basic and diluted  earnings per share for each of the quarters are based
   on  the  weighted-average  number  of  shares  outstanding  in  each  period.
   Therefore,  the sum of the quarters in a year may not  necessarily  equal the
   year's earnings per share.




                                      F-18
<PAGE>




                          Manchester Technologies, Inc.

                 Schedule II - Valuation and Qualifying Accounts
                 -----------------------------------------------
                                (dollars in thousands)
<TABLE>
<CAPTION>

                                        Column C-Additions
                                        ------------------
                         Column B-           (1)-         (2)-        Column D-       Column E-
Column A -               Balance at     Charged to    Charged to      Deductions-     Balance at
Description              beginning of   costs and     other              (a)          end of period
                         period         expenses      accounts (b)
                         ------         --------      ------------     ---------      -------------

Allowance for doubtful
accounts

Year ended:

<S>                        <C>             <C>             <C>             <C>            <C>
    July 31, 2000          $1,204          ($366)          $61               -             $899

    July 31, 2001            $899           $832             -            $631           $1,100

    July 31, 2002          $1,100           $613             -            $757             $956

</TABLE>

(a) Write-off amounts against allowance provided.
(b) Recorded in connection with the acquisitions.




                                      F-19
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunder duly authorized.

                                          Manchester Technologies, Inc.

Date:         October   22 , 2002         By: /S/ Barry  R. Steinberg
                                                 --------------------
                                              Barry R. Steinberg
                                              President, Chief Executive Officer
                                              Chairman of the Board and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of this Registrant and
in the capacities and on the dates indicated.

/S/ Barry R. Steinberg                              Date:   October  22 , 2002
 ----------------------
Barry R. Steinberg
President, Chief Executive Officer,
Chairman of the Board and Director
(Principal Executive Officer)


/S/ Joel G. Stemple                                  Date:  October 22 , 2002
   ----------------
Joel G. Stemple
Executive Vice President, Secretary and Director


/S/ Elan Yaish                                       Date: October  22, 2002
   -----------
Elan Yaish,
Chief Financial Officer and Assistant Secretary
 (Principal Accounting Officer)

/S/ Joel Rothlein                                    Date:  October 22 , 2002
   --------------
Joel Rothlein
Director

/S/  Michael E. Russell                               Date:  October  22, 2002
     ------------------
Michael Russell
Director

/S/ Bert Rudofsky                                    Date:   October  22, 2002
    -------------
Bert Rudofsky
Director

/S/ Julian Sandler                                   Date:   October 22, 2002
    --------------
Julian Sandler
Director

/S/ Robert J. Valentine                              Date:   October  22 , 2002
    -------------------
Robert J. Valentine
Director


<PAGE>



                                 CERTIFICATIONS

I, Barry R. Steinberg, certify that:

1. I have reviewed  this annual report on Form 10-K of Manchester  Technologies,
Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: October 28, 2002


/S/    BARRY R. STEINBERG
--------------------------
Barry R. Steinberg
Chief Executive Officer


I, Elan Yaish, certify that:

1. I have reviewed  this annual report on Form 10-K of Manchester  Technologies,
Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: October 28, 2002

/S/    ELAN YAISH
-----------------
Elan Yaish
Chief Financial Officer



<PAGE>