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                       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, 2001

                                       OR

_        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  I. D. Number)
    incorporation or organization)

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

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


                         Manchester Equipment Co., Inc.
        (Former name or former address, if changed from the last report)

           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. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of October 19, 2001 was $ 5,615,854 (2,636,557 shares at a closing
sale price of $2.13).

As of October 19, 2001, 7,990,215 shares of Common Stock ($.01 par value) of the
Registrant were issued and outstanding.
                              --------------------

                       DOCUMENTS INCORPORATED BY REFERENCE
                                     None

<page>
                          MANCHESTER TECHNOLOGIES, INC.

                                    FORM 10-K
                            YEAR ENDED JULY 31, 2001
                                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      20
Item 8.      Financial Statements and Supplementary Data                     20
Item 9.      Change In and Disagreements with Accountants on
              Accounting and Financial Disclosure                            20


Part III

Item 10.     Directors and Executive Officers of the Registrant              21
Item 11.     Executive Compensation                                          23
Item 12.     Security Ownership of Certain Beneficial Owners
              and Management                                                 27
Item 13.     Certain Relationships and  Related Transactions                 28


Part IV

Item 14.     Exhibits, Financial Statement Schedules and Reports
              on Form 8-K                                                    46

Signatures   Chief Executive Officer, Chief Financial Officer,
              and Directors                                                  49
                                       2
<page>
                                     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, and Donovan  Consulting  Group, 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 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.

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,  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  28  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 65%
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.  In  addition,  on June 25,  1999,  we  announced  the  launch of a
consumer products on-line super store,  Marketplace4U.com.  This site was closed
in January 2001.

         Manchester  was  incorporated  in New York in 1973 and has seven 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   microcomputer
peripherals  throughout the United  States;  Coastal  Office  Products,  Inc., a
Maryland  corporation,  which is an integrator and 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 and Donovan
Consulting  Group,  Inc., a Delaware  corporation,  which delivers  wireless LAN
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 Provider),  inter-networking (routers and switches security assessment,
wireless analysis), database design and management.

         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.);  and Rochester,  New York,  from which we derived
approximately 13% of our revenues for the fiscal year ended July 31, 2001.

         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 Compaq, 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.

         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"SM.  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.


<PAGE>



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

         Desktop Computers                         Servers
         Internet Access Products                  Software
         Modems                                    Storage Systems
         Monitors and Displays                     Switches
         Network Equipment                         Supplies and Accessories
         Notebook Computers                        Teleconferencing Equipment
         Printers                                  Terminals
         Routers                                   Wireless Products
         Scanners                                  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.
         Compaq Computer Corporation                Novell, Inc.
         Computer Associates International, Inc     Philips Electronics N.V.
         Epson America, Inc.                        Pioneer Corp.
         Hewlett-Packard Company                    Seagate Technology, Inc.
         Intel Corporation                          3Com Corp.
         Microsoft Corporation                      Toshiba America Information
         NEC-Mitsubishi, Inc.                         Systems, Inc.

         For the fiscal  years  ended  July 31,  2001,  2000 and 1999,  sales of
products  manufactured  by  Compaq,  Hewlett-Packard  and  Toshiba  collectively
comprised  approximately 38%, 33%, and 43%,  respectively,  of our revenues.  In
fiscal years ended July 31, 2001, 2000 and 1999, sales of products  manufactured
by Toshiba  accounted  for  approximately  11%,  19%, and 9%,  respectively,  of
revenue, substantially all of which were sales of notebook computers and related
accessories.  Also in these  fiscal  years,  sales of products  manufactured  by
Compaq  accounted for 20%,  13%, and 25%,  respectively,  of revenue.  The total
dollar volume of products purchased directly from  manufacturers,  as opposed to
distributors or resellers, was approximately $119 million, $122 million and $118
million, for the fiscal years ended July 31, 2001, 2000, and 1999, respectively,
and as a percentage of total cost of products sold was  approximately  50%, 48%,
and 61%, respectively.

         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.  Compaq,  Hewlett-Packard,  and Toshiba have regularly  renewed
their respective agreements with us, although 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 Compaq, Hewlett-Packard, and Toshiba are satisfactory.

         We are  dependent  upon  the  continued  supply  of  products  from our
suppliers,  particularly  Compaq,  Hewlett-Packard  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  high  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 2002, 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.

         Most of our major product  manufacturers provide price protection for a
limited  time  period as well as stock  balancing  rights,  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.
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, 2001,  2000 and 1999, no
one  customer  accounted  for more  than 10% of our total  revenue.  Some of our
significant   commercial   customers   currently   include  Sterling   Doubleday
Enterprises  (New York Mets),  Reuters  America Inc.,  Vytra Choice Care,  Inc.,
United  Nations  International  Children's  Emergency  Fund  (UNICEF) and United
Parcel Service of 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.

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 and computer  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  four-color  advertisements  in
yearbooks  and/or program guides for sports teams such as the New York Mets, the
New  York  Knicks  and  the New  York  Rangers,  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  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.
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  integrated  management  information
system, which is an on-line system enabling  instantaneous access. We maintain a
proprietary inventory management system 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 33,
34,  and 22 times for the fiscal  years  ended July 31,  2001,  2000,  and 1999,
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.  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  continues to experience 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 the largest wholesale
distributor of plasma display monitors in the United States. Electrograph offers
a full range of display technology  solutions for dealers and system integrators
through the U.S.  and Europe.  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   worldwide   distribution  of  display   technology   solutions,
Electrograph  also  manufactures  a  complete  line of LCD flat panel and plasma
display  monitors.  Electrograph is headquartered  in Hauppauge,  New York, with
branch offices throughout the U.S. and in Europe.

         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
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.  Additionally,  most of  Electrograph's  suppliers
accept defective  merchandise  returned within 12 to 15 months after shipment to
Electrograph.  Some  suppliers  permit  Electrograph  to rotate its inventory by
returning slow moving inventory for other inventory.

         While  Electrograph  distributes  products  of more than 15  suppliers,
approximately  28%, 28% and 10% of Electrograph's  purchases in fiscal 2001 were
derived from products manufactured by Pioneer, NEC, and Sony, respectively.

         Electrograph's  distribution  operations  are currently  conducted from
distribution  centers  in  Hauppauge,  New  York  and  Long  Beach,  California.
Electrograph also maintains sales offices in Timonium, Maryland, Northville, New
York and Long Beach, California.

Acquisitions

         Texport Technology Group, Inc. and Learning Technology Group, LLC


         On  March  22,  2000,  we  acquired  all of the  outstanding  ownership
interests of Texport Technology Group, Inc.  ("Texport") and Learning Technology
Group,  LLC ("LTG"),  affiliated  entities engaged in reselling and providing of
microcomputer  services and  peripherals to companies in the greater  Rochester,
New York area.  The  acquisition,  which has been  accounted  for as a purchase,
consisted of a cash payment of $0.4 million  plus  potential  future  contingent
payments.  A  contingent  payment of up to $750,000  may be payable on March 22,
2002 based upon achieving  certain  agreed-upon  increases in revenue and pretax
earnings.  The cash payment was made from our cash balances.  The selling owners
received  employment  agreements  that also  provided for the issuance of 10,000
shares of  common  stock.  The fair  value of the  common  stock,  amounting  to
$61,250,  was recorded as deferred  compensation  and is being expensed over the
three-year  vesting  period.  In  connection  with the  acquisition,  we assumed
approximately $648,000 of bank debt, which was subsequently repaid.


     Operating  results  of Texport  and LTG are  included  in the  consolidated
statement of income from the date of  acquisition.  The estimated  fair value of
tangible  assets and  liabilities  acquired was $1.6  million and $2.2  million,
respectively. The excess of the aggregate purchase price over the estimated fair
value of the tangible net assets acquired was approximately  $995,000,  which is
being amortized on a straight-line basis over 20 years.

         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
in Atlanta, Georgia. Donovan is a technical services firm that delivers Wireless
LAN solutions to customers nationwide. The acquisition,  which will be 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.

     Operating results of Donovan will be included in the consolidated statement
of income from the acquisition date. The estimated fair value of tangible assets
and liabilities acquired was $472,000 and $648,000,  respectively. The excess of
the aggregate  purchase  price over the estimated fair value of the tangible net
assets  acquired  was  approximately  $1,700,000.  The  $1,700,000  will  not be
amortized;  however, it will be subject to impairment testing in accordance with
Statement No. 142, "Goodwill and Other Intangible Assets."
                                       10


Employees

         At August 31, 2001,  we had 304  full-time  employees  consisting of 47
sales representatives,  48 management personnel,  88 technical personnel and 121
distribution and clerical personnel.  In addition, at August 31, 2001, we had 21
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.
<page>
ITEM 2. Properties

Properties

         We  currently  have  ten  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                 -           July 2005

Warehouse and         40 and 50 Marcus Blvd. (1)                                        October 2005 (40)
Service Center        Hauppauge, NY                  20,000            43,000           January 2008 (50)

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                   6,000                -           November 2002

Boston                25-27 Christina Street
Sales Office          Newton, MA                       3,000                -           October 2002

Baltimore, MD         3832 Falls Rd.
Sales office          Baltimore, MD                    8,000            2,000           January 2002

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

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

Electrograph          175 Commerce Drive
Corporate HQ          Hauppauge, NY                    5,000            5,000           June 2002

Electrograph,
Timonium, MD          57 W. Timonium Rd.
Sales Office          Timonium, MD                       650                -           Month to month

Donovan               510 Swanson Road
Corporate HQ          Tyrone, GA                     4,000              1,500           September 2006
</TABLE>

     (1) Leased from entities  controlled  by or affiliated  with certain of our
executive  officers,  directors and principal  shareholders.  Effective with the
consummation  of our initial  public  offering in November 1996, the leases with
related parties were amended to provide terms  comparable to those that could be
obtained from independent third parties.
<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 the fiscal year ended July 31, 2001.

                                     PART II

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

         Our Common Stock  commenced  trading on November 26, 1996 and 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.

                Fiscal Year 2000                     High             Low
                ----------------                     ----             ---
                First Quarter                        4.500            2.250
                Second Quarter                       8.000            3.000
                Third Quarter                        9.125            3.785
                Fourth Quarter                       6.938            3.125

                Fiscal Year 2001
                First Quarter                        5.625            3.156
                Second Quarter                       4.000            2.000
                Third Quarter                        2.750            1.938
                Fourth Quarter                       2.850            2.060


         On October 19, 2001,  the closing sale price for the  Company's  Common
Stock was $2.13 per share.  As of October 19, 2001 there were 45 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.



<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,
                                                           --------------------------
                                        2001             2000        1999           1998         1997
                                        ----             ----        ----           ----         ----


Income Statement Data:
<S>                                    <C>            <C>          <C>            <C>           <C>
  Revenue                              $280,278       $300,073     $228,641       $202,530      $187,801
  Cost of revenue                       242,925        260,236      195,423        171,930       161,186
                                        -------        -------      -------        -------       -------
  Gross profit                           37,353         39,837       33,218         30,600        26,615
  Selling, general and
    administrative expenses              35,485         33,539       29,849         27,414        21,023
                                         ------         ------       ------         ------        ------
Income from operations                    1,868          6,298        3,369          3,186         5,592
Interest and other income, net              767            602          404            546           395
Provision for income taxes                  908          2,800        1,590          1,560         2,450
                                            ---          -----        -----          -----         -----
Net income                               $1,727         $4,100       $2,183         $2,172        $3,537
                                          =====          =====        =====          =====         =====
Net income per share:
   Basic                                 $0.21           $0.51        $0.27          $0.26        $0.45
                                          ====            ====         ====           ====         ====
   Diluted                               $0.21           $0.50        $0.27          $0.26        $0.45
                                          ====            ====         ====           ====         ====
Weighted average shares of common stock outstanding:
    Basic                                 8,036          8,108        8,096          8,494         7,779
                                          =====          =====        =====          =====         =====
    Diluted                               8,058          8,228        8,096          8,499         7,779
                                          =====          =====        =====          =====         =====

                                                                July 31,
                                           2001          2000     1999            1998            1997
                                           ----          ----     ----            ----            ----
Balance Sheet Data:
  Working capital                       $31,972        $30,453      $27,461        $26,112       $30,578
  Total assets                           61,783         74,573       61,778         56,894        58,208
  Short-term debt, including
    current maturities of
    capital lease obligation                  -             18           85             82         1,637
  Capital lease obligation, excluding
     current maturities                       -              -            -              -            77
  Shareholders' equity                   45,555         44,263       39,586         37,345        36,877


</TABLE>

<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  Manchester  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 are not historical facts
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. 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.

         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 can't
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.

         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 can't 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  success has 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 terrorists attacks. Although a
significant  part of our  business  is  generated  from  our New  York  City and
Baltimore/Washington,  D.C. offices,  we are not aware of any material impact on
our  business as a result of these  attacks.  We cannot  predict the impact that
these  or  potential  future  attacks  may  have  on our  business,  results  of
operations and financial condition.

         In addition, 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.

         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.

         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. 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  September  4,  2001,
Hewlett-Packard   Company  and  Compaq  Computer  Corporation   announced  their
intention  to merge.  Manchester  sells the  products of both  companies  and we
believe that we have strong  relationships with both companies.  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.

         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 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
                                       15
<PAGE>

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 can't
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.

         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.

         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, 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.

         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. 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 decline or that we will be
able to offset  declines  in average  selling  prices  with  increases  in units
shipped.

         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.

         We lease certain warehouses and offices from entities that are owned or
controlled by our majority shareholder.  Each of the leases with related parties
has been amended  effective with the closing of our initial  public  offering in
December 1996 to reduce the rent payable under that lease to then current market
rates.

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.
16
<PAGE>

Recent Acquisitions

         Texport Technology Group, Inc.


         On  March  22,  2000,  we  acquired  all of the  outstanding  ownership
interests of Texport Technology Group, Inc.  ("Texport") and Learning Technology
Group,  LLC ("LTG"),  affiliated  entities engaged in reselling and providing of
microcomputer  services and  peripherals to companies in the greater  Rochester,
New York area.  The  acquisition,  which has been  accounted  for as a purchase,
consisted of a cash payment of $0.4 million  plus  potential  future  contingent
payments.  A  contingent  payment of up to $750,000  may be payable on March 22,
2002 based upon achieving  certain  agreed-upon  increases in revenue and pretax
earnings.  The cash payment was made from our cash balances.  The selling owners
received  employment  agreements  that also  provided for the issuance of 10,000
shares of  common  stock.  The fair  value of the  common  stock,  amounting  to
$61,250,  was recorded as deferred  compensation  and is being expensed over the
three-year  vesting  period.  In  connection  with the  acquisition,  we assumed
approximately $648,000 of bank debt, which was subsequently repaid.


     Operating  results  of Texport  and LTG are  included  in the  consolidated
statement of income from the date of  acquisition.  The estimated  fair value of
tangible  assets and  liabilities  acquired was $1.6  million and $2.2  million,
respectively. The excess of the aggregate purchase price over the estimated fair
value of the tangible net assets acquired was approximately  $995,000,  which is
being amortized on a straight-line basis over 20 years.

         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
in Atlanta, Georgia. Donovan is a technical services firm that delivers Wireless
LAN solutions to customers nationwide. The acquisition,  which will be 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.

     Operating results of Donovan will be included in the consolidated statement
of income from the acquisition date. The estimated fair value of tangible assets
and liabilities acquired was $472,000 and $648,000,  respectively. The excess of
the aggregate  purchase  price over the estimated fair value of the tangible net
assets  acquired  was  approximately  $1,700,000.  The  $1,700,000  will  not be
amortized;  however, it will be subject to impairment testing in accordance with
Statement No. 142, "Goodwill and Other Intangible Assets."

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
                                                        the Year Ended July 31,
                                                    2001        2000      1999
                                                    ----        ----      ----

<S>                                                 <C>         <C>       <C>
Revenue
         Products                                   97.0%       97.6%     97.0%
         Services                                    3.0         2.4       3.0
                                                     ---         ---       ---
                                                   100.0       100.0     100.0
                                                   -----       -----     -----
Cost of revenue
         Products                                   87.1        87.2      86.1
         Services                                   71.8        66.0      65.3
                                                    ----        ----      ----
                                                    86.7        86.7      85.5
                                                    ----        ----      ----


Product gross profit                                12.9        12.8      13.9
Services gross profit                               28.2        34.0      34.7
                                                    ----        ----      ----
         Gross profit                               13.3        13.3      14.5

Selling, general and administrative expenses        12.6        11.2      13.0
                                                    ----        ----      ----
Income from operations                               0.7         2.1       1.5
Interest and other income, net                       0.2         0.2       0.2
                                                     ---         ---       ---
Income before income taxes                           0.9         2.3       1.7
Provision for income taxes                           0.3         0.9       0.7
                                                     ---         ---       ---
Net income                                           0.6%        1.4%      1.0%
                                                     ===         ===       ===
</TABLE>
                                       17
<PAGE>

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 in 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
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.

         Other Income.  Interest and investment 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 Other  Income  above)
partially offset by higher state and local income taxes.


 Year Ended July 31, 2000 Compared to Year Ended July 31, 1999

         Revenue.  Our  revenue  increased  $71.4  million or 31.2% from  $228.6
million in fiscal 1999 to $300.1  million for fiscal 2000.  Revenue from product
sales  increased  by $71.3  million  (32.1%)  primarily  due to  higher  revenue
generated from the Company's  wholly-owned  subsidiaries,  Electrograph Systems,
Inc.  ("Electrograph")  and Texport Technology Group, Inc. (Texport),  which was
acquired  on March 22,  2000,  as well as  increases  in the number of  personal
computers  shipped and higher  average  selling  prices for personal  computers.
Services  revenue  increased  by $180,000,  or 2.6%,  reflecting  our  continued
emphasis on providing services.

         Gross  Profit.  Gross  profit  increased  by $6.6 million or 19.9% from
$33.2  million for fiscal 1999 to $39.8  million for fiscal  2000.  Gross profit
from the sale of products  increased by $6.6  million or 21.4% due  primarily to
increases in revenue  partially  offset by generally  lower  margins on products
resulting from the highly competitive  environment for computer products.  Gross
profit generated through service offerings increased by $15,000.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  $3.7 million or 12.4% from $29.8 million in
fiscal 1999 to $33.5 million in fiscal 2000. This increase  primarily relates to
higher  operating and  personnel  costs at  Electrograph  and Coastal as well as
operating  costs from Texport which was acquired on March 22, 2000. In addition,
we incurred higher advertising, depreciation and commission costs in fiscal 2000
partially offset by a recovery of bad debt expenses.
                                       18
<PAGE>

     Other  Income.  Interest  income  increased  due to  higher  cash  balances
available for investment and higher interest rates.

         Provision for Income Taxes.  Our  effective  income tax rate  decreased
from 42.1% in fiscal  1999 to 40.6% in fiscal  2000  primarily  due to the lower
percentage of non-taxable interest income and the non-deductible amortization of
goodwill to the  current  year  taxable  income as compared to that of the prior
year.

Liquidity and Capital Resources

         Our primary sources cash and cash  equivalents in fiscal 2001 have been
internally  generated  working capital from profitable  operations and a line of
credit from financial institutions.

         For the year ended July 31, 2001, cash provided by operating activities
was $942,000  consisting  primarily of net income  adjusted for non cash charges
(principally   depreciation  and   amortization),   and  decreases  in  accounts
receivable  partially  offset by a decrease  in  accounts  payable  and  accrued
expenses  and an increase in  inventory.  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. Generally,  our experience is that increases in
accounts  receivable,  accounts  payable and accrued expenses will coincide with
growth in revenue and increased operating levels. During the year ended July 31,
2001,  we  used  approximately   $2.0  million  for  capital   expenditures  and
approximately $621,000 was used to purchase and retire common stock.

       We have  available a line of credit with  financial  institutions  in the
aggregate amount of $15.0 million. At July 31, 2001, 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 lines of
credit will be adequate to support current  operating levels for the foreseeable
future,  specifically through at least the end of fiscal 2002. We currently have
no material  commitments for capital  expenditures.  Future capital requirements
include  those  for the  growth  of  working  capital  items  such  as  accounts
receivable  and inventory,  the purchase of equipment,  expansion of facilities,
potential contingent acquisition payments of $2,750,000, as well as the possible
opening of new offices and potential acquisitions.

Impact of Recently Issued Accounting Standards

     In July 2001, the FASB issued Statement No. 141,  "Business  Combinations,"
and  Statement No. 142 "Goodwill  and Other  Intangible  Assets."  Statement 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated  after  June  30,  2001 as well as all  purchase  method
business  combinations  completed  after  June  30,  2001.  Statement  141  also
specifies  criteria  intangible  assets  acquired in a purchase  method business
combinations must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately.  Statement 142 will require 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 provisions of Statement 142.
Statement  142 will also require that  intangible  assets with  definite  useful
lives  be  amortized  over  their  respective  estimated  useful  lives to their
estimated  residual values,  and reviewed for impairment in accordance with SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of."

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately  and has elected to adopt  Statement 142  effective  August 1, 2001.
Furthermore,  any  goodwill  and  any  intangible  asset  determined  to have an
indefinite  useful  life that are  acquired in a purchase  business  combination
completed  after June 30, 2001 will not be  amortized,  but will  continue to be
evaluated for impairment in accordance  with the appropriate  pre-Statement  142
accounting literature.

     Goodwill and intangible assets acquired in business combinations  completed
before July 1, 2001 will not be amortized after August 1, 2001. 19
                                       19
<page>
     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior   purchase   business   combinations,    and   to   make   any   necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition  apart from  goodwill.  Upon adoption of Statement  142, the Company
will be  required  to  reassess  the  useful  lives and  residual  values of all
intangible  assets  acquired in  purchase  business  combinations,  and make any
necessary amortization period adjustments by the end of the first interim period
after adoption.  In addition, to the extent an intangible asset is identified as
having an  indefinite  useful  life,  the  Company  will be required to test the
intangible  asset for impairment in accordance  with the provisions of Statement
142 within the first interim period.  Any impairment loss will be measured as of
the date of adoption  and  recognized  as the  cumulative  effect of a change in
accounting principle in the first interim period.

     In  connection  with  the  transitional  goodwill  impairment   evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an  indication  that  goodwill  is impaired  as of the date of  adoption.  To
accomplish  this the Company must identify its reporting units and determine the
carrying value of each  reporting unit by assigning the assets and  liabilities,
including the existing goodwill and intangible  assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each  reporting unit and compare
it with the reporting unit's carrying  amount.  To the extent a reporting unit's
carrying amount exceeds its fair value, an indication  exists that the reporting
unit's  goodwill may be impaired and the Company must perform the second step of
the  transitional  impairment test. In the second step, the Company must compare
the  implied  fair  value  of  the  reporting  unit's  goodwill,  determined  by
allocating the reporting unit's fair value to all of its assets  (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured  as of the  date  of  adoption.  This  second  step is  required  to be
completed  as  soon as  possible,  but no  later  than  the  end of the  year of
adoption. Any transitional  impairment loss will be recognized as the cumulative
effect  of a  change  in  accounting  principle  in the  Company's  consolidated
statement of income.

         As of the date of  adoption,  the Company  expects to have  unamortized
goodwill  in the  amount of  $6,148, which  will be  subject  to the  transition
provisions of Statements 141 and 142.  Amortization  expense related to goodwill
was $386 for the year  ended July 31,  2001.  Because  of the  extensive  effort
needed to comply with adopting  Statements 141 and 142, it is not practicable to
reasonably  estimate the impact of adopting  these  Statements  on the Company's
financial  statements  at  the  date  of  this  report,  including  whether  any
transitional  impairment  losses  will  be  required  to be  recognized  as  the
cumulative effect of a change in accounting principle.

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.



ITEM 8. Financial Statements and Supplementary Data

See Item 14.

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

None.

                                       20
<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                             59            Chairman of the Board, President, Chief
                                                              Executive Officer and Director

Joel G. Stemple, Ph.D                          59            Executive Vice President, Secretary and Director

Joseph Looney                                  44            Vice President, Finance, Chief Financial Officer
                                                             and Assistant Secretary

Laura Fontana                                  46            Vice President - Technical Services

Joel Rothlein, Esq.                            72            Director

Bert Rudofsky                                  67            Director

Michael E. Russell                             54            Director

Julian Sandler                                 57            Director

Robert J. Valentine                            51            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.

         Joseph Looney has served as the Company's Vice President, Finance since
January 2000 and as the Company's Chief Financial  Officer since May 1996 and as
Assistant  Secretary since April 1999. From 1984 until joining the Company,  Mr.
Looney served in various positions with KPMG LLP, including Senior Audit Manager
at the  end of his  tenure  at such  firm.  Mr.  Looney  is a  Certified  Public
Accountant,  a member of the  AICPA,  the New York State  Society  of  Certified
Public Accountants and the Institute of Internal Auditors.

         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 (1997-1989),
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).

         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 is
the Manager of the New York Mets Major League  Baseball  team. 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, 2001, we believe that the Reporting  Persons  timely  complied with all
applicable Section 16 filing requirements,  with the exception of Mr. Valentine,
who  filed  Form 3,  reporting  his  having  become a  director  of the  Company
approximately  two weeks late and Mr.  Looney,  who filed Form 5,  reporting the
issuance of options to him by the Company approximately three weeks late.



<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, 2001,  2000,  and
1999 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,             2001       $650,000            -     $63,954 (2)                  -          -
 President  and Chief           2000       $650,000     $485,248     $58,707 (2)                  -          -
 Executive Officer              1999       $650,000            -     $23,806 (2)                  -          -

Joel G. Stemple, Executive      2001       $450,000            -     $38,379 (3)                  -          -
 Vice President and             2000       $450,000     $242,624     $31,375 (3)                  -          -
  Secretary                     1999       $450,000            -     $13,881 (3)                  -          -

Joseph Looney, Chief            2001       $245,000            -     $26,694 (4)             10,000          -
 Financial Officer, Vice        2000       $220,000      $80,875     $11,025 (4)                  -          -
President, Finance and          1999       $200,000      $15,000     $15,061 (4)
Assistant Secretary

Laura Fontana, Vice             2001       $203,782      $13,418     $31,438 (5)                  -          -
President - Technical Services  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(6)       -

</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, 2001.
------------------

(1)  Includes in fiscal 2001 employer  matching  contributions  to the Company's
     defined  contribution plan of $5,100,  $5,100,  $5,100, and $5,100, for Mr.
     Steinberg, Mr. Stemple, Mr. Looney, and Ms. Fontana,  respectively,  fiscal
     2000 employer matching  contributions to the Company's defined contribution
     plan of $5,100, $5,100, $5,100 and $5,048 for Messrs.  Steinberg,  Stemple,
     Looney,  and Ms.  Fontana,  respectively,  fiscal  1999  employer  matching
     contributions of $4,800, $4,800 and $4,960 for Messrs.  Steinberg,  Stemple
     and Looney, respectively.
 (2)  Includes $50,000 in 2001, $50,000 in 2000, and $15,399 in 1999 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 $25,000 in 2001, $25,000 in 2000, and $7,606 in 1999, 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,  2000 and 1999 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  $15,569
      representing  the present  value of benefits  earned  under the  Company's
      deferred compensation plan.
(5)   Includes  $5,000  in each of 2001  and 2000 of  premiums  paid by us 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   $13,538
      representing  the present  value of benefits  earned  under the  Company's
      deferred compensation plan.
(6)      See option grant table below.
(7)      Resigned his position with the Company in June 2001.

<page>
         No bonus was paid for fiscal 2001 or 1999 to Mr. Steinberg. We continue
to make  available  to Mr.  Steinberg  the  auto use 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
were terminated, he would not be precluded from competing with us.

         We have an  employment  agreement  with Joel G. Stemple,  Ph.D.,  under
which Dr.  Stemple  received a base  salary of  $450,000.  No bonus was paid for
fiscal 2001 or 1999. Under the employment agreement, we provide Dr. Stemple with
an automobile and certain deferred compensation benefits and provide Dr. Stemple
with 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,  or we  elect  not  to  renew  his
employment agreement, he is entitled to severance equal to 12 months of his then
current base  salary.  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.

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,
2001. No stock appreciation rights have been granted by the Company.
<TABLE>
<CAPTION>

                               Option Grants During the Fiscal Year Ended July 31, 2001

                    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              8%             $3.75           10/25/10        $23,584        $59,765
-------------
</TABLE>

(1)  Grant consists of ten year 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.

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, 2001. No options were  exercised by the Named
Executive  Officers  during  the  fiscal  year  ended  July 31,  2001.  No stock
appreciation rights have been granted by the Company.
<TABLE>
<CAPTION>

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

<S>                           <C>         <C>                      <C>                           <C>
Joseph Looney                  -           -                     55,000/25,000                   $ - /$ -
Laura Fontana                  -           -                     25,000/25,000                    $ - /$ -
Mark Glerum (2)                -           -                          - /9,000                    $ - /$ -
</TABLE>
--------
(1)  Based on the closing  sale price of common stock as of July 31, 2001 ($2.80
     per share) minus the applicable exercise price.
(2)  Employment terminated in June 2001.  All options expired 90 days after
     termination.

Compensation of Directors

         Effective  July 12,  2000,  the Board  voted to change  the  directors'
compensation  plan.  Starting  August 1, 2000, all  non-employee  directors will
receive a $20,000 annual  stipend  payable in four  quarterly  installments.  In
addition,  each  non-employee  director will be granted annually on August 1, an
option to purchase  10,000 shares at an exercise  price equal to the fair market
value of the common  stock on August 1 of each year.  Such options will be for a
term of five years and will be exercisable immediately upon such grant.

         On August 1, 1999, under the previous directors' compensation plan, the
Board of Directors granted to each of Joel Rothlein,  Bert Rudofsky,  Michael E.
Russell  and  Julian  Sandler,  who are  non-employee  directors,  non-incentive
options  under the Plan to purchase  5,000 shares at on exercise  price of $2.75
per share (the fair  market  value of the common  stock on August 2,  1999).  In
addition,  on August 1, 2001 and 2000  pursuant  to and in  accordance  with the
directors  compensation  program described above, the Board of Directors granted
to each of Joel Rothlein, Bert Rudofsky,  Michael E. Russell and Julian Sandler,
who are non-employee directors, non-incentive options under the Plan to purchase
10,000  shares at an  exercise  price of $2.80 per share and  $4.625  per share,
respectively (the fair market value of the common stock on those dates).


         On  October  19,  1998,  the  Board of  Directors  appointed  a Special
Committee ("Special Committee") consisting of Bert Rudofsky, Michael Russell and
Julian  Sandler  to  explore  possible   strategies  and  methods  of  enhancing
shareholder  value.  As  compensation  for their work on the  Special  Committee
through  December 31,  1999,  each member of the  Committee  was paid $10,000 on
February 1, 1999 and $10,000 on August 1, 1999.


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  $215,000,  $177,000,  and $213,000,  for legal fees in the fiscal
years ended July 31, 2001, 2000 and 1999, respectively.  In addition, during the
years ended July 31, 2001, 2000 and 1999, we recorded  revenue of  approximately
$178,000,  $273,000, and $597,000  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 himself or to the other of
them.



<PAGE>



ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

         The following  table sets forth certain  information  as of October 19,
2001 (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                57.3%
      Joel G. Stemple(2)                                       626,263                 7.7
      Joseph Looney(4)                                          59,700                 0.7
      Laura Fontana                                             25,000                 0.3
      Joel Rothlein(4) (5)                                      63,500                 0.8
      Bert Rudofsky (4)                                         25,000                 0.3
      Michael E. Russell (4)                                    25,000                 0.3
      Julian Sandler(4)                                         33,500                 0.4
      Robert J. Valentine                                            -                 -
      Dimensional Fund Advisors, Inc. (6)                      611,600
      1299 Ocean Ave. 11th Fl., Santa Monica, CA 90401
      All executive officers and directors as a group

        (9 persons) (7)                                      5,548,164                67.8%
</TABLE>

(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 currently exercisable options listed
      in the footnotes hereto is assumed.  For such purposes 8,182,715 shares of
      Common Stock are deemed to be outstanding.
(2)   Address is 160 Oser Avenue, Hauppauge, New York 11788.
(3)   Excludes 59,500 shares owned by Ilene Steinberg and 59,000 shares owned by
      Sheryl Steinberg,  daughters 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,  Ilene Steinberg,
      and Sheryl  Steinberg  each  disclaim  beneficial  ownership of the common
      stock owned by the others.
(4)  Includes  currently  exercisable  options to  purchase  55,000  shares (Mr.
     Looney); 25,000 shares (Ms. Fontana);  32,500 shares (Mr. Sandler);  25,000
     shares (Mr. Rudofsky); 30,000 shares (Mr. Rothlein); and 25,000 shares (Mr.
     Russell).
(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 13F filed with Securities and Exchange  Commission as
     of June 30, 2001. (7) See Notes 1 through 5 above.



<PAGE>


ITEM 13.  Certain  Relationships and Related Transactions

         Until August 1994, we were affiliated with Electrograph  Systems,  Inc.
("Electrograph").  Barry R. Steinberg, our President and Chief Executive Officer
and majority  shareholder,  served as  Electrograph's  Chairman of the Board and
Chief  Financial  Officer and had  beneficial  ownership  (directly  and through
shares  held by his  spouse  and  certain  trusts,  of which  his  children  are
beneficiaries)   of  35.5%  of  the  outstanding   shares  of  common  stock  of
Electrograph.   In  August  1994,   Bitwise   Designs,   Inc.   ("Bitwise"),   a
publicly-traded  company engaged in the manufacture and distribution of document
imaging  systems,  personal and  industrial  computers and related  peripherals,
acquired  Electrograph through a stock-for-stock  merger; Mr. Steinberg acquired
beneficial ownership of less than 1% of the outstanding capital stock of Bitwise
for the  common  stock of  Electrograph  in which  he had a direct  or  indirect
beneficial  interest.  Mr.  Steinberg  served as a  director  of,  and  provided
consulting  services to, Bitwise from August 1994 through September 17, 1996. On
April 25, 1997, we purchased substantially all of the assets of Electrograph.

         Three of our  four  Hauppauge,  New York  facilities  are  leased  from
entities  affiliated  with  certain  of our  executive  officers,  directors  or
principal shareholders. 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 shareholder
and former  officer of the  Company.  For the fiscal  years ended July 31, 2001,
2000,  and 1999,  we made lease  payments of $196,000,  $190,000,  and $186,000,
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, 2001,  2000,  and 1999, we made lease  payments of $322,000,  $279,000,  and
$271,000,  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, 2001,  2000, and
1999, we made lease payments of $366,000, $360,000, and $344,000,  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 2001,
2000, and 1999, $215,000, $177,000, and $213,000, respectively, was paid to such
firm for legal fees.

         During the years  ended July 31,  2001,  2000,  and 1999,  we  recorded
revenue of $178,000, $273,000, and $597,000, respectively in connection with the
sale of computer equipment to a company controlled by Julian Sandler, a director
of the Company.



                                       27
<PAGE>



                                     PART IV

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

(a)      (1)      Financial Statements
                  The financial  statements  included herein are filed as a part
of this Report.

                          Manchester Technologies, Inc.
                          INDEX TO FINANCIAL STATEMENTS


                                                                           Page
Independent Auditors' Report                                                29

Consolidated Financial Statements:
         Balance Sheets as of July 31, 2001 and 2000                        30
         Statements of Income for the years ended
          July 31, 2001, 2000, and 1999                                     31
         Statements of Shareholders' Equity for the years ended
          July 31, 2001, 2000, and 1999                                     32
         Statements of Cash Flows for the years ended July 31, 2001,
           2000, and 1999                                                   33
         Notes to Consolidated Financial Statements                         34


Schedule II - Valuation and Qualifying Accounts                             49

                                       28
<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, 2001 and 2000 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, 2001. 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended July 31, 2001, 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.




                                              KPMG  LLP


Melville, New York
September 21, 2001

                                       29
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                             July 31, 2001 and 2000

<TABLE>
<CAPTION>

                                   Assets                                2001          2000
                                   ------                                ----          ----
                                                                         (in thousands,
                                                                    except per share amounts)
<S>                                                                      <C>          <C>
Current assets:
     Cash and cash equivalents                                           $14,493      $16,156
      Accounts receivable, net of allowance for doubtful accounts
        of $1,100 and $899, respectively                                  25,135       36,024
     Inventory                                                             7,546        6,797
     Deferred income taxes                                                   459          579
     Prepaid income taxes                                                     43          635
     Prepaid expenses and other current assets                               362          538
                                                                             ---          ---

                             Total current assets                         48,038       60,729


Property and equipment, net                                                6,300        6,329
Goodwill, net                                                              6,148        6,534
Deferred income taxes                                                        842          673
Other assets                                                                 455          308
                                                                             ---          ---

                                                                         $61,783      $74,573
                                                                          ======       ======

                          Liabilities and Shareholders' Equity

Current liabilities:
     Accounts payable and accrued expenses                               $15,259      $29,312
     Notes payable                                                             -           18
     Deferred service contract revenue                                       807          946
                                                                             ---          ---


                             Total  current liabilities                   16,066       30,276


Deferred compensation payable                                                162           34

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 8,159 shares issued
        and outstanding                                                       80           82
     Additional paid-in capital                                           18,942       19,402
     Deferred compensation                                                   (38)         (65)
     Retained earnings                                                    26,571       24,844
                                                                          ------       ------

                             Total shareholders' equity                   45,555       44,263
                                                                          ------       ------

                                                                         $61,783      $74,573
                                                                          ======       ======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       30
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                        Consolidated Statements of Income
                    Years ended July 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                           2001        2000           1999
                                                           ----        ----           ----

                                                           (in thousands, except per share amounts)
<S>                                                      <C>          <C>           <C>
         Revenue
              Products                                   $271,982     $292,971      $221,719

              Services                                      8,296        7,102         6,922
                                                            -----        -----         -----
                                                          280,278      300,073       228,641
                                                          -------      -------       -------

         Cost of revenue
              Products                                    236,970      255,549       190,901
              Services                                      5,955        4,687         4,522
                                                            -----        -----         -----
                                                          242,925      260,236       195,423
                                                          -------      -------       -------

              Gross profit                                 37,353       39,837        33,218

         Selling, general and administrative expenses      35,485       33,539        29,849
                                                           ------       ------        ------

              Income from operations                        1,868        6,298         3,369

         Other income (expense):
              Other income, net                               255            -             -
              Interest and investment income, net             512          602           404
                                                              ---          ---           ---


              Income before provision for income taxes      2,635        6,900         3,773

         Provision for income taxes                           908        2,800         1,590
                                                              ---        -----         -----
              Net income                                   $1,727       $4,100        $2,183
                                                            =====        =====         =====
              Net income per share
                  Basic                                    $0.21         $0.51         $0.27
                                                            ====          ====          ====
                  Diluted                                  $0.21         $0.50         $0.27
                                                           =====         =====         =====

         Weighted average shares of common
            stock and equivalents outstanding
              Basic                                        8,036        8,108         8,096
                                                           =====        =====         =====
              Diluted                                      8,058        8,228         8,096
                                                           =====        =====         =====


</TABLE>



See accompanying notes to consolidated financial statements.

                                       31
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                 Consolidated Statements of Shareholders' Equity
                    Years ended July 31, 2001, 2000 and 1999

<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, 1998                 8,097      81        18,767           (64)      18,561        37,345

     Purchase and retirement of stock        (12)      -           (33)            -            -           (33)
     Stock option commission expense           -       -            65             -            -            65
     Stock award compensation expense          -       -             -            26            -            26
     Net income                                -      -              -             -        2,183         2,183
                                            ----    ----      --------           ---        -----         -----
     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
                                           ======     ==        ======           ====      ======        ======
</TABLE>

     See accompanying notes to consolidated financial statements.

                                       32

<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                    Years ended July 31, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                                     2001         2000           1999
                                                                     ----         ----           ----
                                                                             (in thousands)
<S>                                                                  <C>          <C>             <C>
     Cash flows from operating activities:
     Net income                                                      $1,727       $4,100          $2,183
     Adjustments to reconcile net income to net cash from
        operating activities:
     Depreciation and amortization                                    2,387        2,081           1,835
     Provision for (recovery of) doubtful accounts                      832         (366)            154
     Non-cash compensation and commission expense                        37           34              91
     Deferred income taxes                                              (49)        (154)           (141)
     Tax benefit from exercise of options                               143            -               -
     Change in assets and liabilities, net of the effects of
       acquisitions:
       Decrease (increase) in accounts receivable                    10,057         (264)         (8,605)
       (Increase) decrease in inventory                                (749)       1,951             922
        Decrease (increase) in prepaid  income taxes                    592         (620)              -
        Decrease (increase) in prepaid expenses and
          other current assets                                          176         (177)            (50)
        (Increase) decrease in other assets                            (147)         (27)            287
        (Decrease) increase in accounts payable and
          accrued expenses                                          (14,053)       6,991           2,325
        (Decrease) increase in deferred service contract revenue       (139)         365            (194)
        Increase (decrease) in income taxes payable                       -         (668)            443
        Increase (decrease) in deferred compensation payable            128            -             (75)
        Sale of investments                                               -            -           1,501
                                                                       ----       ------           -----

                Net cash provided by operating activities               942       13,246             676
                                                                        ---       ------             ---

     Cash flows from investing activities:
         Capital expenditures                                        (1,972)      (1,661)         (1,735)
         Payment for acquisitions, net of  cash acquired                  -         (179)           (871)
                                                                      -----         ----            ----

            Net cash used in investing activities                    (1,972)      (1,840)         (2,606)
                                                                     -------       -----          -------

     Cash flows from financing activities:
         Net repayments of borrowings from bank                           -         (648)              -
         Payments on capitalized lease obligations                        -          (85)           (104)
         Payments on notes payable - other                              (18)          (9)              -
         Issuance of common stock upon exercise of options                6          414               -
         Purchase and retirement of common stock                       (621)        (671)            (33)
                                                                       -----        -----            ----

            Net cash used in financing activities                      (633)        (999)           (137)
                                                                        ---         ----            -----

     Net increase (decrease)  in cash  and cash equivalents          (1,663)      10,407          (2,067)

         Cash and cash equivalents at beginning of year              16,156        5,749           7,816
                                                                     ------        -----           -----

     Cash and cash equivalents at end of year                       $14,493      $16,156          $5,749
                                                                     ======       ======           =====

     Cash paid during the year for:
          Interest                                                  $     -           $4              $5
                                                                     ======           ==              ==
          Income taxes                                              $   365       $4,205            $992
                                                                      =====       ======             ===

     Other noncash transactions:
         Capitalized lease obligation                               $     -      $     -            $107
                                                                     ======       ======            ====
         Common stock issued in connection with acquisitions        $     -         $861          $    -
                                                                     ======         ====          ======

</TABLE>



     See accompanying notes to consolidated financial statements.

                                       33
<page>
                 Manchester Technologies, Inc. and Subsidiaries
                    Notes to Consolidated Financial Statements
                           July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)

(1)  Operations and Summary of Significant Accounting Policies
     ---------------------------------------------------------

      (a)  The Company
           -----------


         Manchester  Technologies,  Inc.  ("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  which 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 $11,638, and $12,178 at July 31, 2001 and
      2000, 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 $229, $414, and $380, for the years ended July 31, 2001,
      2000, and 1999, 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.

                                       34
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                    Notes to Consolidated Financial Statements
                           July 31, 2001, 2000 and 1999
                 (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
            --------

          Goodwill  related to  acquisitions  represents the excess of cost over
     the fair value of tangible net assets acquired.  Goodwill is amortized on a
     straight-line  basis over twenty years. The Company reviews the significant
     assumptions  that  underlie  the  twenty-year   amortization  period  on  a
     quarterly  basis and will  shorten the  amortization  period if  considered
     necessary. The Company assesses the recoverability of this intangible asset
     by determining  whether the  amortization of the goodwill  balance over its
     remaining life can be recovered through projected  undiscounted future cash
     flows.  Accumulated amortization was approximately $1,166, and $780 at July
     31, 2001 and 2000,  respectively.  Amortization  expense of $386, $331, and
     $266,  for the years  ended July 31,  2001,  2000,  and 1999 is included in
     selling, general and administrative expenses in the consolidated statements
     of income.


         The Company  evaluates its long-lived  assets,  and goodwill related to
      those  assets to be held and  used,  and  long-lived  assets  and  certain
      identifiable intangibles to be disposed of and recognizes an impairment if
      it is probable  that the  recorded  amounts  are in excess of  anticipated
      undiscounted  future cash flows.  If the sum of the  expected  cash flows,
      undiscounted and without interest, is less than the carrying amount of the
      assets,  an  impairment  loss is  recognized  as the  amount  by which the
      carrying amount of the asset exceeds the fair value.

      (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 899,000,  153,000, and 1,065,000
      shares for the years ended July 31, 2001,  2000,  and 1999,  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>

                                       2001                       2000                      1999
                                       ----                       ----                      ----
                                            Per Share                  Per Share                 Per Share
                                    Shares  Amount            Shares   Amount           Shares   Amount
                                    ------  ------            ------   ------           ------   ------

          
                      <C>           <C>          <C>          <C>          <C>         <C>
           Basic EPS             8,036,000     $0.21        8,108,000    $0.51        8,096,000   $0.27
                                                ====                      ====                    =====
           Effect of dilutive

            options                 22,000                    120,000                         -
                                    ------                    -------                  ---------


           Diluted EPS           8,058,000     $0.21        8,228,000    $0.50        8,096,000   $0.27
                                 =========      ====        =========     ====        =========    ====
</TABLE>

                                       35

<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                    Notes to Consolidated Financial Statements
                           July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)


      (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 generally accepted accounting  principles.  Actual results
      could differ from those estimates.

      (m)  Fair Value of Financial Instruments
           -----------------------------------

         The  fair  values  of  accounts  receivable,  prepaid  expenses,  notes
      payable,   accounts   payable  and  accrued   expenses  are  estimated  to
      approximate  the  carrying  values  at  July  31,  2001  due to the  short
      maturities of such instruments.



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

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

                                                            2001        2000
                                                            ----        ----


<S>                                                         <C>         <C>
      Furniture and fixtures                                $3,089      $2,619
      Machinery and equipment                                8,162       6,971
      Transportation equipment                                 588         483
      Leasehold improvements                                 2,934       2,834
                                                             -----       -----
                                                            14,772      12,907
      Less accumulated depreciation and amortization         8,472       6,578
                                                             -----       -----
                                                            $6,300      $6,329
                                                             =====       =====
</TABLE>

         Depreciation and amortization  expense amounted to $2,001,  $1,750, and
$1,569, for the years ended July 31, 2001, 2000 and 1999, respectively.

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

Coastal Office Products, Inc.
-----------------------------

         On January 2, 1998, the Company acquired all of the outstanding  shares
of Coastal  Office  Products,  Inc.  ("Coastal"),  a value  added  reseller  and
provider of  microcomputer  services and peripherals to companies in the greater
Baltimore,  Maryland  area. The  acquisition,  which has been accounted for as a
purchase,  consisted  of cash  payments of  approximately  $3,971  (including  a
contingent  payment of $871 made on March 15, 1999).  An  additional  contingent
payment  of $800 was made on March 15,  2000  through  the  issuance  of 105,786
shares of the  Company's  common  stock.  The cash  payments  were made from the
Company's cash balances. The selling shareholders received employment agreements
that also provided for the issuance of 20,000  shares of common stock.  The fair
value  of  the  common  stock,  amounting  to  $80,  was  recorded  as  deferred
compensation and is being expensed over the three-year vesting period.
                                       36
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)


         Operating   results  of  Coastal  are  included  in  the   consolidated
statements of income from the date of acquisition.  The acquisition  resulted in
goodwill of $4,776,  which is being amortized on the straight-line basis over 20
years.

Texport Technology Group, Inc. and Learning Technology Group, LLC
-----------------------------------------------------------------

         On  March  22,  2000,  the  Company  acquired  all of  the  outstanding
ownership  interests of Texport Technology Group, Inc.  ("Texport") and Learning
Technology  Group,  LLC ("LTG"),  affiliated  entities  engaged in reselling and
providing of microcomputer  services and peripherals to companies in the greater
Rochester,  New York area.  The  acquisition,  which has been accounted for as a
purchase,  consisted of a cash payment of $400 plus potential future  contingent
payments.  A  contingent  payment of up to $750 may be payable on March 22, 2002
based  upon  achieving  certain  agreed-upon  increases  in  revenue  and pretax
earnings.  The cash  payment  was made from the  Company's  cash  balances.  The
selling  owners  received  employment  agreements  that  also  provided  for the
issuance of 10,000 shares of common  stock.  The fair value of the common stock,
amounting to $61, was recorded as deferred  compensation  and is being  expensed
over the three-year  vesting  period.  In connection with the  acquisition,  the
Company assumed approximately $648 of bank debt, and $27 of notes payable to the
former shareholders, which were subsequently repaid.


     Operating  results  of Texport  and LTG are  included  in the  consolidated
statement of income from the date of  acquisition.  The estimated  fair value of
tangible  assets and liabilities  acquired was $1,600 and $2,200,  respectively.
The excess of the aggregate  purchase price over the estimated fair value of the
tangible net assets acquired was approximately $995, which is being amortized on
a straight-line basis over 20 years.


         The following  unaudited pro forma  consolidated  results of operations
for the years ended July 31, 2000 and 1999 assume that the acquisitions occurred
on  August  1, 1998 and  reflect  the  historical  operations  of the  purchased
businesses adjusted for lower interest on invested funds,  contractually revised
officer compensation and increased amortization, net of applicable income taxes,
resulting from the acquisition:


                                                            Year ended July 31,
                                                            2000         1999
                                                            ----         ----

           Revenue                                        $306,056     $242,166
           Net income                                       $3,773       $2,094
           Diluted net income per share                      $0.46        $0.26

The pro forma results of operations are not necessarily indicative of the actual
results that would have occurred had the acquisitions been made at the beginning
of the period, or of results which may occur in the future.

(4)  Accounts Payable and Accrued Expenses

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

                                                              July 31,
                                                          2001           2000
                                                          ----           ----

<S>                                                      <C>            <C>
                  Accounts payable, trade                $11,759        $25,005
                  Accrued salaries and wages               1,974          2,535
                  Customer deposits                          711            628
                  Other accrued expenses                     815          1,144
                                                             ---          -----
                                                         $15,259        $29,312
                                                          ======         ======
</TABLE>



                                       37

<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)




          The Company has entered into financing  agreements for the purchase of
     inventory.  These  agreements are secured by the related  inventory  and/or
     accounts  receivables.  In each of the years in the three-year period ended
     July 31, 2001, the Company has repaid all balances  outstanding under these
     agreements  within the  non-interest-bearing  payment period.  Accordingly,
     amounts outstanding under such agreements of $1,719, $2,645, and $2,944 and
     at July 31,  2001,  2000 and 1999,  respectively,  are included in accounts
     payable and accrued  expenses.  In August 1997, the Company  entered into a
     new  financing  agreement  for the  purchase of  inventory.  The  agreement
     provides a maximum of $10,000 in credit for  purchases  of  inventory  from
     certain  specified  manufacturers.  The agreement is  unsecured,  generally
     allows for a 30-day  non-interest-bearing  payment  period and requires the
     Company to maintain,  among other things,  a certain  minimum  tangible net
     worth.  As of July 31, 2001,  retained  earnings  available  for  dividends
     amounted to approximately $16,500.



(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 $317, $250,
     and $273 for the years ended July 31, 2001, 2000 and 1999, respectively.


         The  Company  also  has  two  deferred  compensation  plans  which  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, 2001 and 2000, the Company has recorded an asset (included with
     other  assets)  of  $129  and  $34,  respectively,  representing  the  cash
     surrender  value of policies  owned by the Company and a liability  of $162
     and $34,  respectively,  relating to the  unvested  portion of benefits due
     under these plans.  For the years ended July 31, 2001,  2000 and 1999,  the
     Company  recorded an expense of $246, $92, and $51 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 $1,756,  $1,594,  and $1,539,  for the years ended
     July 31, 2001, 2000 and 1999.

         The following  represents  the  Company's  commitment  under  operating
     leases for each of the next five years ended July 31 and thereafter:
                                2002                   $1,843
                                2003                    1,559
                                2004                    1,412
                                2005                    1,366
                                2006                      744
                          Thereafter                    1,206
                                                        -----
                                                       $8,130
                                                       ======

                                       38
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)

     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, 2001,  there was no balance  outstanding  under this agreement,
     which expires on April 2, 2002.




                                       39
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000, and 1999
                 (in thousands, except share and per share data)

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

      The provision for income taxes for the years ended July 31, 2001, 2000 and
1999 consists of the following:
<TABLE>
<CAPTION>

                                                    2001       2000        1999
                                                    ----       ----        ----
           <S>                                  <C>        <C>         <C>

              Federal                               $728     $2,242      $1,351
              State                                  229        712         380
                                                     ---        ---         ---

                                                     957      2,954       1,731
                                                     ---      -----       -----

              Federal                                (38)      (115)       (106)
              State                                  (11)       (39)        (35)
                                                     ---        ---         ---

                                                     (49)      (154)       (141)
                                                     ----      -----      -----
                                                    $908     $2,800      $1,590
                                                     ===      =====       =====
</TABLE>

     The  difference  between the  Company's  effective  income tax rate and the
     statutory rate is as follows,  for the years ended July 31, 2001,  2000 and
     1999 :

                                                    2001      2000         1999
                                                    ----      ----         ----

      Income taxes at statutory rate                $896     $2,346      $1,283
      State taxes, net of federal benefit            144        444         228
      Non deductible goodwill amortization            85         85          64
      Nontaxable life insurance proceeds            (172)         -           -
      Other                                          (45)       (75)         15
                                                     ---        ---          --

                                                    $908     $2,800      $1,590
                                                     ===      =====       =====

      The tax effects of  temporary  differences  that give rise to  significant
      portions of the net  deferred  tax asset at July 31, 2001 and 2000 were as
      follows:

                                                       2001                2000
                                                       ----                ----

              Deferred tax assets (liabilities):
                 Allowance for doubtful accounts       $439                $359
                 Deferred compensation                  473                 375
                 Depreciation                           409                 328
                 Other                                  (20)                190
                                                        ---                 ---

                 Net deferred tax asset              $1,301              $1,252
                                                      =====               =====


              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.


                                       40
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (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 $884, $828, and
      $801, for the years ended July 31, 2001, 2000, and 1999, respectively.

         The  Company  paid legal fees to a law firm in which a director  of the
      Company  is a  partner.  Such  fees  amounted  to $215,  $177,  and  $213,
      including  disbursements,  in the fiscal years ended July 31, 2001,  2000,
      and 1999 respectively.

         During  fiscal  years ended July 31, 2001,  2000,  and 1999 the Company
      received approximately $178, $273, and $597, respectively, in revenue from
      a company controlled by a director of the Company.

 (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 are exercisable at a price of
      $12 per share and expire 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:

                                       41



<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                    Notes to Consolidated Financial Statements
                           July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                      Weighted
                                                                      Average
                                                 Exercise             Exercise
                                                 Balance              Price


        <S>                                      <C>                   <C>
         Balance July 31, 1998                    849,600               $3.92
            Granted                                19,000               $3.52
            Cancelled                             (53,500)              $3.8125
                                                  -------
         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
                                                  =======
</TABLE>


          At July 31, 2001, 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
     ------               ------    --------------     --------------              ------       --------------

<S>  <C>     <C>          <C>           <C>               <C>                       <C>               <C>
     $2.50 - $3.75        141,000       $3.25             8 Yrs.                    68,334            $3.31
     $3.8125 - $4.875     753,084       $4.07             6 Yrs.                   453,632            $3.91
     $5.69                  5,000       $5.69             9 Yrs                          -             -
                            -----                                                  -------

     $2.50 - $5.69        899,084       $3.95             6 Yrs.                   521,966            $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  which have an  exercise  price  equal to or greater  than the fair
     market value of the underlying  stock on the date of grant. The Company has
     recognized a total of $152 in deferred commission expense  representing the
     value of stock options granted to non-employee sales representatives.  Such
     cost is  expensed  over the  vesting  period,  amounting  to $10 and $65 in
     fiscal 2001 and 1999,  respectively.  No expense was  recognized  in fiscal
     2000.  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, 2001, 2000 and 1999 would approximate the pro forma amounts below:

                                       42

<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)


                                                    2001        2000     1999
                                                    ----        ----     ----

         Net income:
           As reported                               $1,727     $4,100   $2,183
           Pro forma                                 $1,335     $3,813   $1,940

         Basic net income per share:
           As reported                                $0.21      $0.51    $0.27
           Pro forma                                  $0.17      $0.47    $0.24


         Diluted net income per share:
           As reported                                $0.21      $0.50    $0.27
           Pro forma                                  $0.17      $0.46    $0.24

The pro forma  effects on net income and  diluted net income per share for 2001,
2000 and 1999 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:
                                                    2001       2000      1999
                                                    ----       ----      ----
Expected dividend yield                               0%        0%        0%
Expected stock volatility                            55%       49%       43%
Risk free interest rate                               5%        5%        5%
Expected option term until exercise (years)           5.00      5.00      5.00

     The per share weighted  average fair value of stock options  granted during
fiscal 2001, 2000 and 1999 was $2.03, $2.15, and $1.40, respectively.

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

     During  the  years  ended  July  31,  2001,  2000  and  1999,  the  Company
repurchased  171,000,  150,600,  and  11,800  shares of its  common  stock at an
aggregate purchase price of $621, $671, and $33, respectively.  Such shares were
subsequently retired.

(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 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. The
Company's  top  two  vendors   accounted  for   approximately,   21%,  and  10%,
respectively of total product purchases for the year ended July 31, 1999.

     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,  2001,  2000 and
1999, no one customer accounted for more than 10% of total revenue.


                                       43

<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                    Notes to Consolidated Financial Statements
                           July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)



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

In July 2001, the FASB issued Statement No. 141,  "Business  Combinations,"  and
Statement No. 142 "Goodwill and Other Intangible Assets." Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June  30,  2001  as  well  as  all  purchase  method  business
combinations  completed  after  June 30,  2001.  Statement  141  also  specifies
criteria  intangible assets acquired in a purchase method business  combinations
must meet to be recognized  and reported  apart from  goodwill,  noting that any
purchase  price  allocable to an assembled  workforce  may not be accounted  for
separately.  Statement 142 will require that goodwill and intangible assets with
indefinite  useful  lives  no  longer  be  amortized,  but  instead  tested  for
impairment at least annually in accordance with the provisions of Statement 142.
Statement  142 will also require that  intangible  assets with  definite  useful
lives  be  amortized  over  their  respective  estimated  useful  lives to their
estimated  residual values,  and reviewed for impairment in accordance with SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of."

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately  and has elected to adopt  Statement 142  effective  August 1, 2001.
Furthermore,  any  goodwill  and  any  intangible  asset  determined  to have an
indefinite  useful  life that are  acquired in a purchase  business  combination
completed  after June 30, 2001 will not be  amortized,  but will  continue to be
evaluated for impairment in accordance  with the appropriate  pre-Statement  142
accounting literature.

     Goodwill and intangible assets acquired in business combinations  completed
before July 1, 2001 will not be amortized after August 1, 2001.

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior   purchase   business   combinations,    and   to   make   any   necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition  apart from  goodwill.  Upon adoption of Statement  142, the Company
will be  required  to  reassess  the  useful  lives and  residual  values of all
intangible  assets  acquired in  purchase  business  combinations,  and make any
necessary amortization period adjustments by the end of the first interim period
after adoption.  In addition, to the extent an intangible asset is identified as
having an  indefinite  useful  life,  the  Company  will be required to test the
intangible  asset for impairment in accordance  with the provisions of Statement
142 within the first interim period.  Any impairment loss will be measured as of
the date of adoption  and  recognized  as the  cumulative  effect of a change in
accounting principle in the first interim period.

     In  connection  with  the  transitional  goodwill  impairment   evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an  indication  that  goodwill  is impaired  as of the date of  adoption.  To
accomplish  this the Company must identify its reporting units and determine the
carrying value of each  reporting unit by assigning the assets and  liabilities,
including the existing goodwill and intangible  assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each  reporting unit and compare
it with the reporting unit's carrying  amount.  To the extent a reporting unit's
carrying amount exceeds its fair value, an indication  exists that the reporting
unit's  goodwill may be impaired and the Company must perform the second step of
the  transitional  impairment test. In the second step, the Company must compare
the  implied  fair  value  of  the  reporting  unit's  goodwill,  determined  by
allocating the reporting unit's fair value to all of its assets  (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured  as of the  date  of  adoption.  This  second  step is  required  to be
completed  as  soon as  possible,  but no  later  than  the  end of the  year of
adoption. Any transitional  impairment loss will be recognized as the cumulative
effect  of a  change  in  accounting  principle  in the  Company's  consolidated
statement of income.


                                       44
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2001, 2000 and 1999
                 (in thousands, except share and per share data)


     As of the  date of  adoption,  the  Company  expects  to  have  unamortized
goodwill  in the  amount of  $6,148  which  will be  subject  to the  transition
provisions of Statements 141 and 142.  Amortization  expense related to goodwill
was $386 for the year  ended July 31,  2001.  Because  of the  extensive  effort
needed to comply with adopting  Statements 141 and 142, it is not practicable to
reasonably  estimate the impact of adopting  these  Statements  on the Company's
financial  statements  at  the  date  of  this  report,  including  whether  any
transitional  impairment  losses  will  be  required  to be  recognized  as  the
cumulative effect of a change in accounting principle.

(13) Subsequent Event
     ----------------

     On August 29, 2001, the Company  acquired all of the  outstanding  stock of
Donovan Consulting Group, Inc. ("Donovan") a Delaware corporation  headquartered
in Atlanta, Georgia. Donovan is a technical services firm that delivers Wireless
LAN solutions to customers nationwide. The acquisition,  which will be 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.

     Operating results of Donovan will be included in the consolidated statement
of income from the acquisition date. The estimated fair value of tangible assets
and  liabilities  acquired  was $472 and $648,  respectively.  The excess of the
aggregate  purchase  price over the  estimated  fair value of the  tangible  net
assets  acquired was  approximately  $1,700.  The $1,700 will not be  amortized;
however,  it will be subject to impairment  testing in accordance with Statement
Statement No. 142, "Goodwill and Other Intangible Assets."

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

                              Oct. 31      Jan 31    Apr. 30  July 31    Year
                              -------      ------    -------  -------    ----
<S>                            <C>         <C>       <C>      <C>      <C>
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


     2000
   Revenue                      65,360      70,847    81,867   81,999   300,073
   Gross profit                  9,743       8,970    11,251    9,973    39,837
   Net income                    1,086         825     1,495      694     4,100
   Basic earnings per share       0.13        0.10      0.18     0.09      0.51
   Diluted earnings per share     0.13                  0.10     0.18      0.08                           0.50

</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.

                                       45
<PAGE>



ITEM 14.  Exhibits,  Financial  Statements,  Schedules,  and Reports on Form 8-K
(Continued)

         (2)      Financial Statement Schedules
                  Schedule II - Valuation and Qualifying Accounts and Reserves

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

         (3)      Exhibits:

 3.1.a(1)  Certificate of Incorporation of Registrant filed August 21, 1973.

3.1.b(1)  Certificate of Amendment of Certificate of Incorporation filed January
          29, 1985.

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

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.h5    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(11)Lease dated  April 5, 2001  between  Emmatt  Enterprises  Inc.,  and
          Donovan Consulting Group, Inc.,

10.5.n(11) Lease dated July 31, 1995 between Registrant and Boatman's  Equities,
           LLC - f/k/a 160 Oser Avenue Associates, as amended.

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

 23.1     Independent auditors' consent.


(b)      Reports on Form 8-K
         The  Registrant  did not file any  reports  on Form 8-K during the last
quarter of the period covered by this report, and none were required.
-----------------------
* Denotes management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K.

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  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.

                                       47

<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  29, 2001              By: ss/ Barry  R. Steinberg_
                                                     --------------------
                                              Barry R. Steinberg
                                              President, Chief Executive Officer

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.

 ss/ Barry R. Steinberg                      Date:   October 29, 2001
 ----------------------
Barry R. Steinberg
President, Chief Executive Officer,
Chairman of the Board and Director
(Principal Executive Officer)


ss/ Joel G. Stemple                          Date:  October 29, 2001
   ----------------
Joel G. Stemple
Executive Vice President and Director


ss/ Joseph Looney                            Date:   October 29, 2001
   --------------
Joseph Looney
Vice President - Finance,
Chief Financial Officer (Principal Accounting Officer)


ss/ Joel Rothlein                              Date:  October 29, 2001
   --------------
Joel Rothlein
Director

ss/  Michael Russell                            Date:  October 29, 2001
     ---------------
Michael Russell
Director

ss/ Bert Rudofsky                               Date: October 29, 2001
    -------------
Michael Russell
Director
                                       48
<PAGE>

<TABLE>

                          Manchester Technologies, Inc.

                 Schedule II - Valuation and Qualifying Accounts
                 -----------------------------------------------
                             (dollars in thousands)

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



Allowance for doubtful
accounts

Year ended:

    <S>                   <C>              <C>            <c>             <C>            <C>
    July 31, 1999          $1,150           $154             -            $100           $1,204

    July 31, 2000          $1,204          ($366)          $61               -             $899

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

</TABLE>

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

                                       49
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