34




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

                                    FORM 10-K

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

                     For the fiscal year ended July 31, 2003

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


            For the transition period from _______________ to _______________

                         Commission File Number 0-21695

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


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

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

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

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

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

Indicate by check mark whether Registrant (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Act") during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
YES __X__        NO _____

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

Indicate by check mark whether Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).  Yes  [  ]   No [ X ]

The  aggregate  market  value of the  common  stock  held by  non-affiliates  of
Registrant as of October 7, 2003 was $8,373,884  (2,600,585  shares at a closing
sale price of $3.22).

As of October 7, 2003, 7,990,215 shares of Common Stock ($.01 par value) of
Registrant were issued and outstanding.
                              --------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

<PAGE>

================================================================================

                          MANCHESTER TECHNOLOGIES, INC.

                                    FORM 10-K
                            YEAR ENDED JULY 31, 2003
                                TABLE OF CONTENTS

Part I

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


Part II

Item 5.      Market for the Registrant's Common Stock and Related
             Stockholder Matters                                             12

Item 6.      Selected Financial Data                                         13
Item 7.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations                             14
Item 7A.     Quantitative and Qualitative Disclosures about Market Risk      22
Item 8.      Financial Statements and Supplementary Data                     22
Item 9.      Changes In and Disagreements with Accountants on
             Accounting and Financial Disclosure                             22
Item 9A      Controls and Procedures                                         23


Part III

Item 10.     Directors and Executive Officers of the Registrant              24
Item 11.     Executive Compensation                                          26
Item 12.     Security Ownership of Certain Beneficial Owners
             and Management                                                  29
Item 13.     Certain Relationships and Related Transactions                  30

Item 14.     Principal Accounting Fees and Services                          30

Part IV

Item 15.     Exhibits, Financial Statements, Schedules and Reports
             on Form 8-K                                                     31

             Signatures
             Certifications

<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 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 be
successful  in  expanding  its Internet  presence,  that the Company will not be
adversely  affected  by the  continued  intense  competition  in the  technology
industry,  continued  decreases in average selling prices of personal  computers
and  display  technology,  a decrease  in the growth of the  display  technology
market, 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",  "Competition"  and "Employees" in Part I, Item 1 and  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  in
Part II, Item 7 of this report for a discussion of important  factors that could
affect the validity of any forward looking statements. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof.

ITEM 1. Business

Our Company

     Manchester  Technologies,  Inc.  ("Manchester"  "we,"  "us,"  "our," or the
"Company") is a single-source  solutions  provider  specializing in hardware and
software  procurement,  display  technology,  custom  networking,  security,  IP
telephony,  remote  management,  application  development/e-commerce,   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. In addition,  we offer a complete
line  of  products  and  peripherals  for  our  customers'   display  technology
requirements. Over the past 30 years, we have forged long-standing relationships
with both customers and suppliers and  capitalized on the rapid  developments in
the technology industry.

     Our marketing focus for our information technology products and services 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. In the display technology arena,
our marketing  focus is on a full range of resellers,  both large and small,  in
both the commercial and consumer markets.

     We  offer  our  customers  a  variety  of  value-added   services  for  our
information  technology  products,  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.  Approximately 59%
of our  total  revenue  is  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 two web sites each incorporating an electronic commerce system. The
sites, located at www.e-manchester.com and www.electrograph.com,  allow existing
customers, corporate shoppers and others to find product specifications, compare
products,  check price and  availability  and place and track orders quickly and
easily, 24 hours a day, 7 days a week.

     Manchester  was  incorporated  in New  York in 1973  and  has  five  active
wholly-owned  subsidiaries:  Electrograph Systems, Inc., a New York corporation,
which distributes  display  technology  solutions  throughout the United States;
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  service  personnel  to fill  temporary  and  permanent
positions;  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; and e.Track  Solutions,  Inc., a New York  corporation,
which  delivers  business,  Internet  and  information  technology  solutions to
customers nationwide.
                                       3
<PAGE>

Industry

         Businesses have become increasingly dependent upon complex information
systems in an effort to gain competitive advantages or to maintain competitive
positions. Information 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.


         With the 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 display industry as a whole has experienced tremendous growth over
the past decade. Specific products included in this market include Liquid
Crystal Display ("LCD") Projectors, LCD Flat panel displays and plasma display
panels. Specifically, the flat panel display market is currently experiencing
accelerated growth, including growth in the mass market.

         The display market has recently moved from the early adopter stage of
the product cycle and is moving rapidly into the mass market. The flat panel
display market covers numerous markets including home theater, professional
audio-visual and information technology. The total worldwide plasma display
panel market is expected to continue to grow as market acceptance increases.
Industry-wide sales of flat panel display products and projectors are expected
to be in the hundreds of thousands of units over the next few years.

The Manchester Solution

     Manchester  offers its customers with its information  technology  products
and services,  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.

     With  our  display   technology   solutions,   we  are   committed  to  the
multi-faceted  support  of our  reseller  partners.  Our  mission  is to deliver
value-added services that differentiate the Company from the competition,  which
will allow our reseller  partners to be more  competitive  and  ultimately  more
profitable.  From our nationwide outbound sales force, to our factory-authorized
service,  our VAP  (Value-Added  Plus)  extended  warranty  program  offers  the
reseller channel extensive "value-added" distribution services.

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  storage,  IP telephony,
remote management and application development/e-commerce.

                                       4
<PAGE>

     Through our  "value-added"  business  model and  philosophy  in the display
technology  arena,  we have  been able to  capitalize  on the  display  industry
growth, penetrate new markets and increase the Company's overall market share.

     For over twenty  years,  our  subsidiary  Electrograph  Systems,  Inc.  has
provided  resellers with a spectrum of  "value-added"  services.  These services
include our strategically  located nationwide sales offices, a nationwide inside
sales support staff,  nationwide  warehousing for efficient  product  logistics,
product  customization and factory  authorized  service and repair. In addition,
the Company also offers financing options, marketing, technical and installation
support,  custom integrated  solutions,  touch screen solutions,  custom cabinet
painting  and  digital  signage  solutions,  as well as a line up of  peripheral
products.

     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 require  outside  assistance to support their
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.

     Acquisitions.  The Company  envisions  that part of our future  growth will
come  from  acquisitions   consistent  with  our  strategy.   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.

     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  and  track  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.  Our system allows our sales
force  immediate  access to  information  regarding  price and  availability  of
products.  In  addition,  our  system  allows  sales  representatives  to obtain
immediate  customized  information  regarding  products and  services  that meet
specific  requirements  of  customers.  We believe  that this system and further
enhancements  to  the  system  will  increase  the  productivity  of  our  sales
representatives  by enabling them to offer rapid and comprehensive  solutions to
their customers' needs.

     In the display  technology arena we offer an experienced and geographically
comprehensive  sales team.  The  Company  offers on site  demonstrations  by our
nationwide  outbound sales force. In addition,  the Company employs an extensive
inside sales support  department.  The  combination of the  nationwide  outbound
sales  force and the inside  sales  support  staff  enable the Company to take a
proactive  approach to the traditional  distribution sales business model, which
ultimately provides the reseller with a high level of sales and support.

     Expanding Internet Presence. We have continuously upgraded and expanded our
electronic  communication system. Our websites,  located at www.e-manchester.com
and  www.electrograph.com,  allow  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.

     Custom  Solutions.  Another  value-added  service the Company offers in the
display  technology  arena is  custom  integrated  solutions,  including  custom
cabinet painting and touch screen solutions. Our custom integrated solutions are
used in numerous market segments including digital signage, public display point
of purchase and point of sale applications.  These solutions help to improve the
Company's   unique   focus   on  the   value-added   services   niche,   further
differentiating  the Company from the  competition  and  improving the Company's
market penetration.

         Our Services and Products

     We offer customized  single-source solutions for our information technology
products  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


                                       5
<PAGE>


our information technology services through a skilled staff of engineers who are
trained and  certified in leading  products and  technology,  including  Hewlett
Packard, Microsoft, Novell and Cisco Systems.

     In addition,  we offer a wide range of product repair and services for both
in warranty and out of warranty products for our customers'  display  technology
requirements.  The Company is an authorized service and repair facility for most
of the  manufacturers  that we represent.  Our service  department also provides
extensive technical and installation support to both resellers and end users and
provides in and out of warranty product repair. Additional revenue is also being
generated as a result of our  implementation  of the  Electrograph - Value-Added
Plus(R) Extended Warranty Program.

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

     Consulting.  Our  staff of senior  systems  engineers  provides  consulting
services consisting of systems design, performance, security 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

                                       6
<PAGE>

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

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

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

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


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

     Cisco Systems, Inc.                         NEC-Mitsubishi, Inc.
     Citrix                                      Nortel Networks, Inc.
     Computer Associates International, Inc.     Novell, Inc.
     Epson America, Inc.                         Panasonic
     Fujitsu                                     Philips Electronics N.V.
     Hewlett-Packard Company                     Pioneer Corp.
     Hitachi America, Ltd.                       Seagate Technology, Inc.
     International Business Machines, Corp.      Sony Corporation
     Microsoft Corporation                       Symantec Corp.
     NEC Solutions, Inc.                         Toshiba America Information
                                                  Systems, Inc

     For the fiscal year ended July 31, 2003, sales of products  manufactured by
Pioneer,  HP/Compaq, Cisco and Toshiba comprised approximately 17%, 15%, 11% and
10%,  respectively,  of our  revenue.  For the fiscal year ended July 31,  2002,
sales  of  products  manufactured  by  HP/Compaq,   Pioneer  and  NEC  comprised
approximately  19%, 11% and 11%,  respectively,  of our revenue.  For the fiscal
year ended July 31, 2001,  sales of products  manufactured by Compaq and Toshiba
comprised approximately 20% and 11%, respectively, of our revenue.

     We have entered into agreements  with our principal  suppliers that include
provisions  providing for periodic renewals and permit termination by the vendor
without cause,  generally upon 30 to 90 days written notice,  depending upon the
vendor.  While our principal  suppliers have regularly  renewed their respective
agreements  with us, there can be no assurance  that the regular  renewal of our
agreements will continue.  The  termination,  or  non-renewal,  of any or all of
these 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
agreements and believe that our relationships  with our principal  suppliers are
satisfactory.

     We  are  dependent   upon  the  continued   supply  of  products  from  our
manufacturers,  particularly  Hewlett-Packard,  Cisco,  Pioneer,  Panasonic  and
Toshiba. Occasionally, certain suppliers experience shortages of select products
that render them unavailable or necessitate product allocations among resellers.
We believe  that  product  availability  issues occur as a result of the present
dynamics of the technology  industry as a whole,  which include varied  customer
product  demand,  shortened  product life cycles and increased  frequency of new
product introductions into the marketplace. While there can be no assurance that
product  unavailability  or product  allocation,  or both,  will not increase in
fiscal  2004,  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.
                                       7
<PAGE>

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

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

Customers

     We grant credit to customers meeting specified criteria and maintain credit
departments that review 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, 2003,  2002 and 2001, no
one  customer  accounted  for more  than 10% of our total  revenue.  Some of our
significant  commercial  customers  currently include Quest  Diagnostics,  Inc.,
Citrix Systems, Inc., Ann Taylor, Inc. and Dell Marketing, LP.

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

Sales and Marketing

     Our  sales  are   generated   primarily  by  our  71  sales  and  marketing
representatives. 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
which our new and existing product and service offerings are discussed.

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

     We  believe  that  our  name  is  widely   recognized   for  high  quality,
competitively  priced  products and services.  Our  corporate  logo includes the
phrase  "Manchester,  the Answer" to emphasize  our position as a  knowledgeable
resource for  networking,  computer  and display  technology  solutions  for our
customers. We promote name recognition and the sale of our products and services
through regional business directories, trade magazine advertisements, television
and radio  advertisements,  direct  mailings and  e-mailings  to  customers  and
participation  in trade  shows and  special  events.  We  advertise  at numerous
sporting  events  in the New  York  metropolitan  region,  including  full  page
advertisements  in yearbooks  and/or program guides for sports teams such as the
New York Mets and the New York Yankees, and often feature nationally  recognized
athletes in our advertising campaigns.  We also promote interest in our products
and services  through our websites on the Internet,  and have  expanded  website
functionality  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.

Management Information Systems

     We currently use an IBM AS/400 and a Hewlett  Packard  storage area network
in our integrated  management  information  system,  which enable  instantaneous
access.  We  maintain  proprietary  management  systems on our  computer  system
pursuant  to which  product  purchases  and sales are  continually  tracked  and
analyzed.  Our  computer  system  is  also  used  for  accounting,  billing  and
invoicing.

     Our information system assists management in maintaining  controls over our
inventory and receivables.  Manchester's  average inventory turnover was 24, 24,
and 33  times  for the  fiscal  years  ended  July 31,  2003,  2002,  and  2001,
respectively,  and we experienced  bad debt expense of less than 0.6% of revenue
in each of these years.
                                       8
<PAGE>

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

Competition

     The  technology  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  manufacturers
that market  through  direct sales forces  and/or the Internet.  The  technology
industry has recently experienced, and may continue 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  have
been, and additional  suppliers and manufacturers may choose, to 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. 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.

     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.

Electrograph Systems, Inc.

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

Acquisitions

         Donovan Consulting Group, Inc.

     On August 29, 2001, the Company  acquired all of the  outstanding  stock of
Donovan Consulting Group, Inc. ("Donovan"), a Delaware corporation headquartered
near  Atlanta,  Georgia.  Donovan is a  technical  services  firm that  delivers
Wireless LAN solutions to customers nationwide. The acquisition,  which has been
accounted  for as a purchase,  consisted  of a cash payment of  $1,500,000  plus
potential  future  contingent  payments.  No  contingent  payments were made. In
connection with the acquisition,  the Company assumed approximately  $435,000 of
bank debt and $43,000 of other debt, which were subsequently repaid. Donovan was
acquired in order to  strengthen  the  Company's  position in the  Wireless  LAN
arena.  Donovan  allowed  the  Company to offer  total  Wireless  LAN  solutions
including  state of the art products as well as the  services  necessary to have
those products operate optimally.
                                       9
<PAGE>

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

     In July 2003,  the Company  closed the Donovan  operations and sold certain
assets back to the former owners of Donovan.  The operations were closed because
the  synergies  that  were  anticipated  at the  time  of the  purchase  did not
materialize  and the Company will  continue to provide  wireless  solutions  via
partner delivered relationships that are estimated to be more cost effective. As
a result,  the Company  recorded a charge of  $2,481,000  for the  impairment of
goodwill and write-off of related assets of Donovan.

          e.Track Solutions, Inc.

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

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

Employees

     On August 31, 2003, we had 278 full-time  employees  consisting of 57 sales
and marketing  representatives,  57 management  and  supervisory  personnel,  81
technical personnel and 83 administrative and other personnel.  In addition,  on
August 31, 2003, we had 14 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.  The loss of any
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.

                                       10
<PAGE>

ITEM 2. Properties

Properties

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

                                                          Approximate
                                                          Square Footage                    Lease
Facility              Location                       Office            Warehouse        Expiration Date
<S>                   <C>                            <C>             <C>               <C>

Corporate             160 Oser Avenue
Headquarters          Hauppauge, NY                  30,000                -            March 2018

Warehouse and         50 Marcus Blvd.
Service Center        Hauppauge, NY                  10,000           30,000            March 2018

New York City         469 Seventh Avenue
Sales Office          New York, NY                   14,600                -            October  2007

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

Baltimore, MD         7130 Columbia Gateway Dr.
Sales Office          Baltimore, MD                  10,579                -            December 2008

Electrograph          40 Marcus Blvd
Corporate HQ          Hauppauge, NY                  10,000           13,000            March 2018

Timonium, MD          1818  Pot Spring Rd.
Sales Office          Timonium, MD                    4,416                -            November 2007

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

Seattle, WA           1800 Westlake Ave. N
Sales Office          Seattle, WA                       650                -            May 2004

Las Vegas, NV         6255 McLeod Dr.
Sales Office          Las Vegas, NV                     718                -            April 2006
</TABLE>

ITEM 3. Legal Proceedings

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

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

     No matters  were  submitted to a vote of the  security  holders  during the
fourth quarter of fiscal 2003.

                                       11

<PAGE>

                                     PART II

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

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

                Fiscal Year 2002                      High             Low
                -----------------                     ----             ---
               <S>                                   <C>              <C>

                First Quarter                         2.800            2.120
                Second Quarter                        2.790            2.150
                Third Quarter                         2.890            2.070
                Fourth Quarter                        2.740            2.050

                Fiscal Year 2003
                First Quarter                         2.430            1.699
                Second Quarter                        2.240            1.759
                Third Quarter                         2.090            1.610
                Fourth Quarter                        2.500            1.710
</TABLE>

     On October 7, 2003,  the closing sale price for the Company's  Common Stock
was $3.22 per share.  As of October 7, 2003 there were 54 shareholders of record
of the Company's  Common Stock. The Company believes that there are in excess of
500 beneficial holders of its common stock.

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

                                       12
<PAGE>



ITEM 6.  Selected Financial Data

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

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

                                                           Fiscal Year Ended July 31,
                                                           --------------------------
                                                2003           2002         2001      2000       1999
                                                ----          -----         ----      ----       ----
<S>                                        <C>           <C>          <C>            <C>        <C>

Income Statement Data:
  Revenue                                  $286,444      $262,010     $280,278       $300,073   $228,641
  Cost of revenue                           253,049       225,602      242,925        260,236    195,423
                                            -------       -------      -------        -------    -------
  Gross profit                               33,395        36,408       37,353         39,837     33,218
  Selling, general and
    administrative expenses                  34,559        35,050       35,485         33,539     29,849
  Impairment of goodwill and
    write-off of related assets               2,481             -            -              -          -
                                              -----      --------      -------        -------    -------
Income (loss) from operations                (3,645)        1,358        1,868          6,298      3,369
Interest and other income, net                   25           184          767            602        404
Income tax provision (benefit)               (1,032)          600          908          2,800      1,590
                                              -----           ---          ---          -----      -----

Net income (loss)                           $(2,588)         $942       $1,727         $4,100     $2,183
                                             =======          ===        =====          =====      =====
Net income (loss) per share:
   Basic                                     $(0.32)        $0.12         $0.21          $0.51     $0.27
                                             =======         ====          ====           ====      ====
   Diluted                                   $(0.32)        $0.12         $0.21          $0.50     $0.27
                                             ======          ====          ====           ====      ====

Weighted average shares of common stock outstanding:
    Basic                                     7,990         7,990        8,036          8,108      8,096
                                              =====         =====        =====          =====      =====
    Diluted                                   7,990         7,991        8,058          8,228      8,096
                                              =====         =====        =====          =====      =====
</TABLE>
<TABLE>
<CAPTION>

                                                                      July 31,
                                               2003          2002        2001           2000       1999
                                               ----          ----        ----           ----       ----
<S>                                         <C>           <C>          <C>            <C>       <C>

Balance Sheet Data:
  Working capital                           $30,661       $30,098      $31,972        $30,453    $27,461
  Total assets                               77,750        70,661       61,783         74,573     61,778
  Short-term debt                                 -             -            -             18         85
  Shareholders' equity                       43,934        46,512       45,555         44,263     39,586
</TABLE>


                                       13
<PAGE>

ITEM 7. Management's  Discussion And Analysis Of Financial Condition And Results
         Of Operations

     The following discussion and analysis of financial condition and results of
operations of the Company  should be read in conjunction  with our  consolidated
financial  statements and notes thereto appearing  elsewhere in this report. The
following  discussion  contains certain  forward-looking  statements  within the
meaning of the  Securities  Act of 1933,  as  amended,  and  Section  21E of the
Securities  and  Exchange Act of 1934,  as amended,  which  statements  are made
pursuant to the safe harbor  provisions  of The  Private  Securities  Litigation
Reform Act of 1995. Forward-looking statements are generally identifiable by the
use  of  the  words   "believes,"   "intends,"   "expects,"   "will,"   "plans,"
"anticipates,"  or  similar  expressions.  Forward  looking  statements  are not
historical  facts, are based on the Company's beliefs and expectations as of the
date of this report, and involve risks and uncertainties that could cause actual
results  to  differ   materially   from  the   results   anticipated   in  those
forward-looking  statements.  These risks and uncertainties include, but are not
limited  to,  those  set  forth  below  and the risk  factors  described  in the
Company's  other  filings  from time to time with the  Securities  and  Exchange
Commission.   Readers  are  cautioned  not  to  place  undue   reliance  on  any
forward-looking  statements,  which reflect management's opinions only as of the
date  hereof.  We  undertake  no  obligation  to revise or publicly  release the
results of any revision to any forward-looking statements.

General

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

Certain Trends and Uncertainties

     General.   The  technology   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
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.

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

     Geographic Considerations. On September 11, 2001, the World Trade Center in
New York  City and the  Pentagon  in  Washington,  D.C.  were  the  subjects  of
terrorist  attacks. A significant part of our business is generated from our New
York City and  Baltimore/Washington,  D.C. offices. We cannot predict the impact
that potential  future  attacks may have on our business,  results of operations
and financial condition. In addition, given the concentration of our business in
these geographic  areas,  our business could be materially  affected by economic
conditions   and   other   significant   events   in  the  New  York   City  and
Baltimore/Washington, D.C. areas.

     Management of Growth.  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.

     Personnel  Issues.  The success of our strategy  depends in large part upon
our ability to attract and retain highly skilled  technical  personnel and sales
representatives,   including  independent  sales  representatives,   in  a  very
competitive  labor  market.  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.

                                       14
<PAGE>
     Competition.   The  technology   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
technology  manufacturers  that market  through  direct sales forces  and/or the
Internet. The technology industry has recently experienced,  and may continue 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  have been, and  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 directly to end users. Some
of our  competitors  have or may have,  greater  financial,  marketing and other
resources, and may offer a broader range of products and services, than us. As a
result, they may be able to respond more quickly to new or emerging technologies
or changes in customer requirements,  benefit from greater purchasing economies,
offer more aggressive  hardware and service pricing or devote greater  resources
to the promotion of their  products and services.  We may not be able to compete
successfully in the future with these or other current or potential competitors.

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

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

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

     Changing  Technology;  Inventory  Risk.  The markets for our  products  and
services  are   characterized  by  rapidly  changing   technology  and  frequent
introduction of new hardware and software products and services. This may render
many existing products and services noncompetitive, less profitable or obsolete.
Our  continued  success  will  depend  on our  ability  to keep  pace  with  the
technological   developments  of  new  products  and  services  and  to  address
increasingly  sophisticated customer requirements.  Our success will also depend
upon our  abilities  to address  the  technical  requirements  of our  customers
arising  from new  generations  of computer  technologies,  to obtain  these new
products from present or future  suppliers and vendors at reasonable  costs,  to
educate and train our employees as well as our  customers  with respect to these
new products or services and to integrate  effectively and efficiently these new
products into both our internal systems and systems developed for our customers.
We may not be successful in  identifying,  developing and marketing  product and
service developments or enhancements in response to these technological changes.
Our failure to respond  effectively  to these  technological  changes may have a
material  adverse  effect on our  business,  financial  condition and results of
operations.
                                       15
<PAGE>
     Rapid  product  improvement  and  technological   change  characterize  the
technology  industry.  This results in relatively  short product life cycles and
rapid product obsolescence,  which can place inventory at considerable valuation
risk. Certain of our suppliers provide price protection to us, which is intended
to reduce the risk of inventory  devaluation due to price  reductions on current
products.  Certain of our suppliers also provide stock  balancing to us pursuant
to which we are able to  return  unsold  inventory  to a  supplier  as a partial
credit against  payment for new products.  There are often  restrictions  on the
dollar amount of inventory that we can return at any one time.  Price protection
and stock  balancing  may not be  available  to us in the future,  and,  even if
available,  these measures may not provide complete  protection against the risk
of excess or obsolete inventories. Certain manufacturers have reduced the period
for which they provide price protection and stock balancing rights.  Although we
maintain a sophisticated  proprietary  inventory  management  system,  we cannot
assure you that we will continue to successfully  manage our existing and future
inventory.  Our failure to successfully  manage our current or future  inventory
may have a material  adverse  effect on our  business,  financial  condition and
results of operations.

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

     Management.  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.
The  loss of any  member  of the  Company's  senior  management  team may have a
material adverse effect on its business.

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

     Quarterly  Variations.  Our quarterly  revenue and  operating  results have
varied  significantly  in the past and are  expected to continue to do so in the
future.  Quarterly revenue and operating results generally fluctuate as a result
of the demand for our products and services,  the  introduction  of new hardware
and software  technologies  with  improved  features,  the  introduction  of new
services  by us and our  competitors,  changes  in the  level  of our  operating
expenses,  competitive  conditions  and  economic  conditions.  As a result,  we
believe that period-to-period comparisons of our operating results should not be
relied upon as an indication of future performance.  In addition, the results of
any quarterly  period are not  necessarily  indicative of results to be expected
for a full fiscal year.

     Microsoft  Litigation.  Most of the  personal  computers  we  sell  utilize
operating  systems  developed  by  Microsoft  Corporation.   The  United  States
Department  of  Justice  has  brought  a  successful  antitrust  action  against
Microsoft.  On November  12,  2002,  the United  States  District  Court for the
District of Columbia issued an order entering a final judgment in the action. We
believe  that the  final  judgment,  if  implemented,  will not have a  material
adverse effect on our business,  results of operations and financial  condition.
However, the final judgment has been appealed, and we cannot predict the outcome
of the appeal or the effect that any  modifications  to the final judgment would
have on our business, results of operations or financial condition.

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

     Stock Repurchase  Program.  The Company's Board of Directors has authorized
the  Company  to  repurchase  up  to $1  million  of  its  common  stock,  which
authorization is effective until the first Board of Directors  meeting following
the close of our 2003 fiscal year  (expected to be at the end of October  2003),
unless  earlier  terminated  by the  Board.  The  extent  to which  the  Company
repurchases  its stock and the timing of such  purchases will depend upon market

                                       16
<PAGE>
conditions and other corporate  considerations  to be evaluated by the Executive
Committee of the Board. The repurchase  program does not obligate the Company to
repurchase  any  specific  number of shares,  and  repurchases  pursuant  to the
program  may be  suspended  or resumed at any time or from time to time  without
further notice or announcement.  There can be no assurance as to the effect,  if
any, that the adoption of the  repurchase  program or the making of  repurchases
thereunder will have on the market price of our common stock.

     This discussion of uncertainties is by no means exhaustive, but is designed
to  highlight  important  factors  that may impact  the  Company's  outlook  and
results.

       E-Commerce

     We utilize two websites each  incorporating an electronic  commerce system.
The sites, located at www.e-manchester.com and  www.electrograph.com  allow 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.

Acquisitions

       Donovan Consulting Group, Inc.

     On August 29, 2001, the Company  acquired all of the  outstanding  stock of
Donovan Consulting Group, Inc. ("Donovan"), a Delaware corporation headquartered
near  Atlanta,  Georgia.  Donovan is a  technical  services  firm that  delivers
Wireless LAN solutions to customers nationwide. The acquisition,  which has been
accounted  for as a purchase,  consisted  of a cash payment of  $1,500,000  plus
potential  future  contingent  payments.  No  contingent  payments were made. In
connection with the acquisition,  the Company assumed approximately  $435,000 of
bank debt and $43,000 of other debt, which were subsequently repaid. Donovan was
acquired in order to  strengthen  the  Company's  position in the  Wireless  LAN
arena.  Donovan  allowed  the  Company to offer  total  Wireless  LAN  solutions
including  state of the art products as well as the  services  necessary to have
those products operate optimally.

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

     In July 2003,  the Company  closed the Donovan  operations and sold certain
assets back to the former owners of Donovan.  The operations were closed because
the  synergies  that  were  anticipated  at the  time  of the  purchase  did not
materialize  and the Company will  continue to provide  wireless  solutions  via
partner delivered relationships that are estimated to be more cost effective. As
a result,  the Company  recorded a charge of  $2,481,000  for the  impairment of
goodwill and write-off of related assets of Donovan.

         e.Track Solutions, Inc.

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

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

                                       17
<PAGE>
Critical Accounting Policies

     Financial  Reporting  Release No. 60, which was released by the  Securities
and Exchange Commission,  encourages all registrants,  including the Company, to
include a discussion  of "critical"  accounting  policies or methods used in the
preparation of financial statements. The preparation of financial statements and
related disclosures in conformity with accounting  principles generally accepted
in  the  United  States  of  America  requires  management  to  make  judgments,
assumptions and estimates that affect the amounts  reported in the  consolidated
financial  statements  and  accompanying  notes.  Note  1  to  the  consolidated
financial   statements   appearing   elsewhere  in  this  report  describes  the
significant  accounting  policies  and methods  used in the  preparation  of the
consolidated  financial  statements.  The following critical accounting policies
are impacted  significantly by judgments,  assumptions and estimates used in the
preparation of the consolidated financial statements.

     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 generally
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.

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

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

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

       Results of Operations

     The  following  table sets forth,  for the periods  indicated,  information
derived from the Company's consolidated  statements of operations expressed as a
percentage of related revenue or total revenue.
<TABLE>
<CAPTION>
                                                                       Percentage of Revenue for
                                                                       the Year Ended July 31,
                                                                     2003         2002          2001
                                                                     ----         ----          ----
<S>                                                                 <C>          <C>          <C>
Revenue
         Products                                                    93.2%        95.3%         97.0%
         Services                                                     6.8          4.7           3.0
                                                                      ---          ---           ---
                                                                     100.0        100.0         100.0
                                                                    -----        -----         -----
Cost of revenue
         Products                                                    89.2         86.7          87.1
         Services                                                    76.3         74.6          71.8
                                                                     ----         ----          ----
                                                                     88.3         86.1          86.7
                                                                     ----         ----          ----

Product gross profit                                                 10.8         13.3          12.9
Services gross profit                                                23.7         25.4          28.2
                                                                     ----         ----          ----
         Gross profit                                                11.7         13.9          13.3

Selling, general and administrative expenses                         12.1         13.4          12.6
Impairment of goodwill and write-off of related assets                0.9         -               -
                                                                      ---       -----           ---
Income (loss) from operations                                        (1.3)         0.5           0.7
Interest and other income, net                                        -            0.1           0.2
                                                                    -----          ---           ---
Income (loss) before income taxes                                    (1.3)         0.6           0.9
Income tax provision (benefit)                                       (0.4)         0.2           0.3
                                                                      ---          ---           ---
Net income (loss)                                                    (0.9)%        0.4%          0.6%
                                                                     =====         ===           ===
</TABLE>
                                       18
<PAGE>
Year Ended July 31, 2003 Compared to Year Ended July 31, 2002

     Revenue. Revenue increased by $24.4 million or 9% to $286.4 million for the
year ended July 31, 2003 or fiscal  2003 from $262.0  million for the year ended
July 31, 2002 or fiscal  2002.  Revenue  from the sale of products  increased by
$17.1  million or 7% while  revenue  from  service  offerings  increased by $7.3
million or 60%.  The  increase  in  product  revenue  is  primarily  a result of
increased sales of display technology solutions, primarily sales of large screen
flat panel displays,  by our  Electrograph  subsidiary.  The increase in service
revenue is primarily  attributable  to the Company's  continued focus on growing
its sales of services and  solutions to its  existing  customer  base and to new
customers,  as well as the growth in the sales of services 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 related to volume purchases
provided by  manufacturers.  All other  operating costs are included in selling,
general  and  administrative   expenses,   offset  in  part  by  certain  market
development  funds  provided by  manufacturers.  Gross profit  decreased by $3.0
million or 8% from $36.4 million in fiscal 2002 to $33.4 million in fiscal 2003.
Gross  profit from  product  sales  decreased by $4.5 million or 14% while gross
profit from service offerings  increased by $1.5 million or 49%. As a percentage
of  revenue,  gross  profit from the sale of  products  decreased  from 13.3% in
fiscal  2002 to  10.8%  in  fiscal  2003  primarily  as a  result  of  increased
competition and pricing pressure. As a percentage of revenue,  gross profit from
the sale of services  declined from 25.4% in fiscal 2002 to 23.7% in fiscal 2003
due primarily to increased  sales of lower margin services that are delivered by
manufacturers or vendors.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative expenses decreased by $491,000 or 1% from $35.1 million in fiscal
2002 to $34.6 million in fiscal 2003. The decrease is  principally  due to lower
salaries and  personnel  costs of  approximately  $900,000  reflecting  the cost
reduction  measures  that have been  instituted by the Company,  decreased  rent
expense of approximately $280,000 as a result of the capital leases entered into
by the Company in March 2003 and decreased  sales  commissions of  approximately
$630,000 due to the lower gross margins earned on revenues. These decreases were
partially  offset by higher  telephone  expenses of  approximately  $390,000 and
increased  bad debt  expense of  approximately  $930,000,  primarily  due to the
bankruptcy of one customer.  As a percentage  of revenue,  selling,  general and
administrative  expenses  decreased from  approximately  13.4% in fiscal 2002 to
12.1% in fiscal 2003.

     Impairment of goodwill and write-off of related  assets.  In July 2003, the
Company closed the operations of its Donovan subsidiary, and sold certain assets
back to the former owners of Donovan.  The  operations  were closed  because the
synergies that were  anticipated at the time of the purchase did not materialize
and the  Company  will  continue  to  provide  wireless  solutions  via  partner
delivered  relationships  that are  estimated  to be more cost  effective.  As a
result,  the Company  recorded a charge of  approximately  $2.5  million for the
impairment of goodwill and write-off of related assets of Donovan.

     Interest and Other Income, net. Interest and other income, net, declined by
$159,000 from $184,000 in fiscal 2002 to $25,000 in fiscal 2003. The decrease in
fiscal 2003 is primarily a result of the Company's receipt of insurance proceeds
in the  amount  of  $113,000  and  interest  income  of  $120,000  earned on the
Company's cash investments offset by interest expense of approximately  $210,000
related  to the  interest  portion of the  capital  leases  entered  into by the
Company in March 2003 as compared  with  interest  income of $184,000  earned in
fiscal 2002 on the Company's cash investments.

     Income tax provision (benefit). Our effective tax expense rate was 38.9% in
fiscal 2002 and our  effective  tax benefit rate was 28.5% in fiscal  2003.  The
change in the rates is primarily due to the effect permanent differences have on
the income or loss in the periods.

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

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

     Gross Profit.  Cost of revenue  includes the direct costs of products sold,
freight and the personnel costs  associated with providing  technical  services,
offset in part by certain market  development  funds provided by  manufacturers.
All other  operating costs are included in selling,  general and  administrative
expenses,  offset  in part by  certain  market  development  funds  provided  by
manufacturers.  Gross profit  decreased by $0.9 million or 3% from $37.4 million
in fiscal 2001 to $36.4 million in fiscal 2002.  Gross profit from product sales
decreased  by $1.7  million or 5% while  gross  profit  from  service  offerings
                                       19
<PAGE>
increased by $0.8 million or 33%. As a percentage of revenue,  gross profit from
the sale of products increased from 12.9% in fiscal 2001 to 13.3% in fiscal 2002
primarily as a result of increased  sales of higher margin  products,  increased
volume  rebates  received from  manufacturers  and certain large volume  product
purchases for which the Company received discounts.  As a percentage of revenue,
gross  profit  from the sale of services  declined  from 28.2% in fiscal 2001 to
25.4% in fiscal 2002 due primarily to lower  utilization of technical  personnel
as well as  increased  sales of lower  margin  services  that are  delivered  by
manufacturers or vendors.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative expenses decreased by $435,000 or 1% from $35.5 million in fiscal
2001 to $35.1 million in fiscal 2002. The decrease is  principally  due to lower
salaries and  personnel  costs of  approximately  $400,000  reflecting  the cost
reduction  measures that have been  instituted as a result of the of the overall
slowdown in economic  activity and the reduction in revenue,  decreased bad debt
expense of  approximately  $220,000,  lower  advertising  costs of approximately
$240,000  and lower  depreciation  and  amortization  costs of  $130,000.  These
decreases were partially  offset by higher  telephone  expenses of approximately
$250,000 and increased  rent expenses of  approximately  $220,000 as a result of
the Company's acquisitions in fiscal 2002. As a percentage of revenue,  selling,
general and administrative expenses increased from approximately 12.6% in fiscal
2001 to 13.4% in fiscal 2002.

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

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

Liquidity and Capital Resources

     Our primary  sources of cash and cash  equivalents in fiscal 2003 have been
internally generated working capital from profitable  operations.  The Company's
working  capital at July 31, 2003 and 2002 was  approximately  $30.7 million and
$30.1 million, respectively.

     Operations for fiscal 2003,  fiscal 2002 and fiscal 2001, after adding back
non-cash items,  provided cash of approximately  $3.6 million,  $3.7 million and
$5.1 million, respectively.  During such years, other changes in working capital
provided (used) cash of approximately ($2.6) million,  ($4.4) million and ($4.1)
million,  respectively,  resulting in cash being provided by (used in) operating
activities  of  approximately  $0.9  million,  ($0.7)  million and $0.9 million,
respectively.  Our accounts receivable and accounts payable balances, as well as
our investment in inventory,  can fluctuate significantly from one period to the
next due to the receipt of large  customer  orders or payments or  variations in
product availability and vendor shipping patterns at any particular date.

     Investment  activities  for fiscal  2003,  fiscal 2002 and fiscal 2001 used
cash of approximately $1.3 million, $4.2 million and $2.0 million, respectively.
These amounts include additions to property and equipment in fiscal 2003, fiscal
2002 and fiscal  2001 of  approximately  $1.3  million,  $2.6  million  and $2.0
million,  respectively,  and the payment for acquisitions, net of cash acquired,
of approximately $1.6 million in fiscal 2002.

     Financing activities for fiscal 2003, fiscal 2002 and fiscal 2001 used cash
of approximately  $65,000,  $0.6 million and $0.6 million,  respectively.  These
amounts  include (i) proceeds  from the  issuance of common stock in  connection
with the exercise of stock options of approximately $6,000, in fiscal 2001, (ii)
net repayments of bank loans,  capitalized  lease  obligations and other debt of
approximately  $65,000,  $0.6 million and $18,000 in fiscal 2003, 2002 and 2001,
respectively;  and (iii) the purchase and  retirement  of the  Company's  common
stock of approximately $0.6 million in fiscal 2001.

     We have  available  a line of credit with a  financial  institution  in the
aggregate amount of $15.0 million. At July 31, 2003, no amounts were outstanding
under this line. At July 31, 2003,  the Company was not in  compliance  with all
the financial ratios and covenants that it is required to maintain in connection
with its line of credit.  The Company received a waiver waiving its requirements
from its banks for the period ended July 31, 2003.

     We believe that our current balances in cash and cash equivalents, expected
cash flows from  operations  and available  borrowings  under the line of credit
will be adequate to support current operating levels for the foreseeable future,
specifically  through  at least the end of fiscal  2004.  We  currently  have no
material commitments for capital expenditures,  other than operating and capital
leases that the Company has committed to for its facilities and certain tangible
                                       20
<PAGE>

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

     The Company  leased 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. In March 2003, the owners
sold the  properties  leased  by the  Company  to an  unaffiliated  company.  In
connection  with the sale, the Company entered into three  fifteen-year  leases,
each expiring on March 31, 2018, with the new owner. Lease terms include a lower
base rent in the first  year,  annual  rent  increases  of two  percent and four
five-year renewal options.

     The  Company  recorded  the new  leases as capital  leases and  accordingly
recorded an asset of approximately $8.2 million.  The asset is classified in the
balance  sheet as  Property  and  equipment,  net,  and is  amortized  using the
straight-line  method  over the lease  terms  and the  related  obligations  are
recorded as liabilities.

     The following represents the Company's commitment under capital leases for
each of the next five years ended July 31 and thereafter:
<TABLE>
<CAPTION>
                                                                (in thousands)
                                                                -------------
                     <S>                                           <C>

                      2004                                          $  825
                      2005                                             842
                      2006                                             859
                      2007                                             876
                      2008                                             894
                      2009 and thereafter                            9,612
                                                                  --------

                      Total payments                                13,908
                      Amount representing interest                  (5,773)
                                                                  ---------

                      Obligations under capital leases               8,135
                      Obligations due within one year                 (212)
                                                                 ----------

                      Long-term obligations under capital leases    $7,923
                                                                   =======
</TABLE>

       The following represents the Company's commitment under operating leases
for each of the next five years ended July 31 and thereafter:
                                                     (in thousands)
                                                     ------------
                               2004                      $603
                               2005                       631
                               2006                       595
                               2007                       553
                               2008                       210
                               Thereafter                   -
                                                      -------
                                                       $2,592
                                                       ======

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

       Impact of Recently Issued Accounting Standards

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 148,  "Accounting for
Stock-Based  Compensation - Transition and  Disclosure"  ("SFAS 148").  SFAS 148
provides  alternative  methods of transition for a voluntary  change to the fair
value method of accounting for stock-based  employee  compensation as originally
defined  by  SFAS  No.   123,   "Accounting   for   Stock-Based   Compensation."
Additionally,  SFAS 148 amends the  disclosure  requirements  of SFAS No. 123 to
require prominent disclosure in both the annual and interim financial statements
about the method of accounting for  stock-based  compensation  and the effect of
the method used on reported results.  The transitional  requirements of SFAS 148
are  effective  for all  financial  statements  for fiscal  years  ending  after
December 15, 2002. The Company adopted the disclosure  portion of this statement

                                       21
<PAGE>

during the fiscal year ended July 31, 2003.  The  application  of the disclosure
portion of this standard had no impact on the Company's  consolidated  financial
position or results of  operations.  The FASB  recently  indicated  that it will
require stock-based employee compensation to be recorded as a charge to earnings
pursuant  to a  standard  on  which  it  is  currently  deliberating.  The  FASB
anticipates  issuing an Exposure Draft in the fourth quarter of 2003 and a final
statement in the second  quarter of 2004.  The Company will  continue to monitor
the FASB's  progress on the  issuance of this  standard as well as evaluate  the
Company's position with respect to current guidance.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities",  which  amends and  clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is effective for contracts  entered into or modified after June 30, 2003
and for hedging  relationships  designated after June 30, 2003. The Company does
not believe that the adoption of SFAS No. 149 will have a material impact on its
consolidated financial statements.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial instruments with Characteristics of both Liability and Equity",  which
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics of both liability and equity in its
statement of financial  position.  SFAS No. 150 is effective for new or modified
financial  instruments  beginning  July 1,  2003  and for  existing  instruments
beginning August 1, 2003. The Company does not believe that the adoption of SFAS
No. 150 will have a material impact on its consolidated financial statements.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities,"  ("Int. No. 46") an interpretation of ARB No. 51.
Int. No. 46 addresses consolidation by business enterprises of variable interest
entities.  Int. No. 46 applies immediately to variable interest entities created
after January 31, 2003 and to variable  interest entities in which an enterprise
obtains an interest  after that date.  Int.  No. 46, as revised,  applies in the
first year or interim  period  beginning  after  December  15,  2003 to variable
interest  entities  in which an  enterprise  holds a variable  interest  that it
acquired  before  February 1, 2003. The Company is in the process of determining
the impact,  if any, of implementing  Int. No. 46 on its consolidated  financial
statements.

     In  November  2002,  the  Emerging  Issues  Task Force  reached a consensus
opinion on EITF 00-21,  Revenue  arrangements  with Multiple  Deliverables.  The
consensus provides that revenue  arrangements with multiple  deliverables should
be divided into separate  units of  accounting if certain  criteria are met. The
consideration  for the arrangement  should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all  deliverables  is not known or if the fair value is contingent
on delivery of specified  items or performance  conditions.  Applicable  revenue
recognition  criteria should be considered  separately for each separate unit of
accounting.  EITF 00-21 is effective  for revenue  arrangements  entered into in
fiscal periods  beginning after June 15, 2003.  Entities may elect to report the
change as a cumulative  effect  adjustment  in  accordance  with APB Opinion 20,
Accounting Changes. The Company does not believe that the adoption of EITF 00-21
will have a significant impact on the Company's financial position or results of
operations.

       Inflation

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

       ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk

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

       ITEM 8.  Financial Statements and Supplementary Data

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

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

       None.
                                       22
<PAGE>

     ITEM 9A. Controls and Procedures

     Our  management  has  evaluated,   under  the   supervision  and  with  the
participation of our Chief Executive  Officer and Chief Financial  Officer,  the
effectiveness  of our  disclosure  controls and  procedures  (as defined in Rule
13a-15(b) under the Securities  Exchange Act of 1934 [the "Exchange Act"]) as of
July 31,  2003 (the end of the  period  covered  by this  Annual  Report on Form
10-K). Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of such date, the Company's  disclosure controls
and procedures were effective in ensuring that all material information required
to be  disclosed  in the  reports  that the Company  files or submits  under the
Exchange Act have been made known to them in a timely fashion.

     During our  fiscal  quarter  ended July 31,  2003,  no  significant  change
occurred in our internal  control over  financial  reporting that has materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.


                                       23
<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                             61         Chairman of the Board, President, Chief
Executive Officer and Director

Joel G. Stemple, Ph.D                          61         Executive Vice President, Secretary and Director

Elan Yaish                                     33         Vice President Finance, Chief Financial Officer and
                                                             Assistant Secretary

Laura Fontana                                  48         Vice President - Technical Services

Seth Collins                                   36         Vice President of Operations

Robert Sbarra                                  43         Vice President of Sales and Marketing

Joel Rothlein, Esq.                            74         Director

Bert Rudofsky                                  70         Director

Michael E. Russell                             56         Director

Julian Sandler                                 59         Director

Robert J. Valentine                            53         Director
</TABLE>

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

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

     Elan Yaish has served as Vice  President  Finance since January 2003 and as
the Company's Chief Financial Officer and Assistant Secretary since August 2002.
From February 2000 until joining the Company, Mr. Yaish served as Assistant Vice
President of Finance for Comverse Technology, Inc. From June 1996 until February
2000,  Mr. Yaish was employed as Vice  President of Finance and  Controller  for
Trans-Resources,  Inc. Mr. Yaish is a Certified Public  Accountant,  a member of
the American  Institute of Certified  Public  Accountants and the New York State
Society of Certified Public Accountants.

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

     Seth Collins has served as Vice President of Operations  since January 2003
and Director of Operations  since joining the Company in February 1999. Prior to
joining  Manchester in February 1999, Mr. Collins was a manager in the financial
services  consulting  group  of  Oracle.  Previously,  Mr.  Collins  worked  for
FleetBoston  and Andersen  Consulting.  Mr.  Collins is a graduate of Rennselaer
Polytechnic Institute. Mr. Collins is the son-in-law of Barry R. Steinberg.

     Robert  Sbarra has served as Vice  President of Sales and  Marketing  since
joining the  Company in April  2003.  Prior to joining  Manchester,  Mr.  Sbarra
served in various  management  positions  at Hewlett  Packard  from June 1982 to
February  2003,  most  recently as Sales  Director for National  Accounts in the
Commercial Channels Group. Mr. Sbarra is a graduate of Columbia University where
he received a B.A. in Economics.

     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,
                                       24
<PAGE>

at Massapequa, New York. Kressel Rothlein Walsh & Roth, LLC, and its predecessor
firms,  have acted as outside general counsel to the Company since the inception
of the Company.

     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 Director of Investments at Wachovia  Securities and has held several
distinguished  positions as a member of the business  community,  as a member of
the  New  York  State  Metropolitan  Transportation  Authority  (1987-1989),  as
commissioner of the New York State  Commission on Cable  Television  (1989-1991)
and  as  Special  Assistant  to  the  New  York  State  Senate  Majority  Leader
(1991-1994).

     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
an  analyst  for ESPN and was the  Manager  of the New York  Mets  Major  League
Baseball team from August 1996 to September 2002. In addition,  Mr. Valentine is
the owner of a chain of restaurants, a corporate spokesman and author.

Audit Committee Composition

     The  Company  has  a   separately-designated   standing   audit   committee
established in accordance  with Section  3(a)(58)(A) of the Securities  Exchange
Act of 1934, as amended (the "Exchange Act"). Bert Rudofsky,  Michael E. Russell
and Julian Sandler are the members of our audit committee.

Audit Committee Financial Experts

     Our Board of Directors has  determined  that in its judgment,  each of Bert
Rudofsky, Michael E. Russell and Julian Sandler qualifies as an "audit committee
financial expert" in accordance with the applicable rules and regulations of the
SEC.  An  audit  committee   financial  expert  is  a  person  who  has  (1)  an
understanding  of  generally  accepted   accounting   principles  and  financial
statements; (2) the ability to assess the general application of such principles
in connection  with the  accounting for  estimates,  accruals and reserves;  (3)
experience  preparing,  auditing,  analyzing or evaluating  financial statements
that present a breadth and level of  complexity  of  accounting  issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the registrant's financial statements, or experience
actively  supervising  one or more persons  engaged in such  activities;  (4) an
understanding of internal controls and procedures for financial  reporting;  and
(5) an understanding of audit committee functions.

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, 2003, we believe that the Reporting  Persons  timely  complied with all
applicable Section 16 filing requirements.

Code of Ethics

     The  Company  has  adopted  a Code of  Ethics  (as  defined  in Item 406 of
Regulation  S-K) that applies to our Chief  Executive  Officer,  Chief Financial
Officer, and members of our Finance Department.  The Code of Ethics is posted on
our website,  http://www.e-manchester.com/company/investor.asp under the heading
"Code of Ethics." We intend to satisfy the disclosure  requirement regarding any
amendment  to, or a waiver of, a provision of the Code of Ethics by posting such
information at the same location on our website.

                                       25

<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, 2003,  2002,  and
2001 to the Company's Chief  Executive  Officer and to its next four most highly
compensated    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,             2003       $650,000                  $47,931 (2)                  -          -
 President  and Chief           2002       $650,000            -     $49,429 (2)                  -          -
 Executive Officer              2001       $650,000            -     $63,954 (2)                  -          -

Joel G. Stemple, Executive      2003       $225,000            -     $33,649 (3)                  -          -
 Vice President and             2002       $375,000            -     $33,349 (3)                  -          -
  Secretary                     2001       $450,000            -     $38,379 (3)                  -          -

Laura Fontana, Vice             2003       $227,630            -     $30,744 (4)            100,000          -
President - Technical Services  2002       $196,794      $20,406     $35,744 (4)                  -          -
                                2001       $203,782      $13,418     $31,438 (4)                  -          -

Elan Yaish, Chief               2003       $200,782      $25,000     $12,433 (5)            150,000(7)       -
Financial Officer, Vice
President  Finance and
Assistant Secretary

Seth Collins, Vice President    2003       $171,202            -     $20,700 (6)            100,000          -
Operations
</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, 2003.
------------------
(1)   Includes in fiscal 2003 employer matching contributions to the Company's
      defined contribution plan of $6,000, $6,000, $6,000, $4,500, and $6,000
      for Messrs. Steinberg, Stemple, Yaish, Collins and Ms. Fontana,
      respectively, in fiscal 2002 employer matching contributions to the
      Company's defined contribution plan of $6,000, $6,000, and $6,000 for
      Messrs. Steinberg, Stemple and Ms. Fontana, respectively, and in fiscal
      2001 employer matching contributions of $5,100, $5,100, and $5,100 for
      Messrs. Steinberg, Stemple and Ms. Fontana, respectively.
 (2)  Includes $34,575 in 2003 and 2002, and $50,000 in 2001 of premiums paid by
      the Company for a whole life insurance policy in the name of Mr. Steinberg
      having a face value of $2,600,000 and under which his daughters, on the
      one hand, and the Company, on the other hand, are beneficiaries and share
      equally in the death benefits payable under the policy.
 (3)  Includes $17,286 in 2003 and 2002, and $25,000 in 2001, 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 $1,944 in 2003, $1,943 in 2002 and $5,000 in 2001 of premiums
      paid by the Company for a whole life insurance policy in the name of Ms.
      Fontana having a face value of $589,000 and under which her minor child
      and the Company are beneficiaries and are entitled to $200,000 and
      $389,000, respectively, of death benefits payable under the policy. Also
      includes $15,000, $20,000 and $13,538 in 2003, 2002 and 2001,
      respectively, representing the present value of benefits earned under the
      Company's deferred compensation plan.
  (5) Includes $1,333 in 2003 representing the present value of benefits earned
      under the Company's deferred compensation plan.
  (6) Includes $11,250 in 2003 representing the present value of benefits
      earned under the Company's deferred compensation plan.
  (7) Includes option to purchase 50,000 shares granted to Mr. Yaish on August
      12, 2002 that Mr. Yaish surrendered upon grant of 100,000 shares to Mr.
      Yaish on April 30, 2003.

                                       26
<PAGE>





Option/SAR Grants in the Last Fiscal Year

     The  following  table sets forth  certain  information  concerning  options
granted to the Named  Executive  Officers  during the fiscal year ended July 31,
2003. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>

                               Option Grants During the Fiscal Year Ended July 31, 2003

                    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(1)
                                                                                     ------------------
Name                Granted          Fiscal Year       Per Share     Date            5%                10%
----                -------          -----------       ---------     ----            --                ---
<S>                 <C>                 <C>            <C>          <C>             <C>               <C>

Laura Fontana       100,000 (2)          15.0%          $1.84         5/01/13         $115,717          $293,249
Seth Collins        100,000 (2)          15.0%          $1.84         5/01/13         $115,717          $293,249
Elan Yaish           50,000 (3)           7.5%          $2.01         8/12/12(4)               -               -
Elan Yaish          100,000 (2)          15.0%          $1.84         5/01/13         $115,717          $293,249
</TABLE>

-------------

(1)  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.

(2)  Options become exercisable in four equal annual installments commencing May
     1, 2004.

(3)  The options were  exercisable in two equal annual  installments  commencing
     August 12, 2004.

(4)  The options were  surrendered by Mr. Yaish  concurrently  with the grant to
     him of 100,000 options on May 1, 2003.

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, 2003. The Named Executive Officers did not
exercise any options during the fiscal year ended July 31, 2003. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
                                                                                        Value of
                                                       Number of Securities             Unexercised
                        Shares                         Underlying Unsecured             In-the-Money
                        Acquired                       Options/SAR's at                 Options/SAR's at
                        on             Value           July 31, 2003                    July 31, 2003(1)
         Name           Exercise       Realized        Exercisable/Unexercisable        Exercisable/Unexercisable
         ----           --------       --------        -------------------------         -------------------------
<S>                           <C>         <C>               <C>                           <C>

Laura Fontana                  -           -                 50,000/100,000                $ - /$29,100
Seth Collins                   -           -                  6,000/100,000                $ - /$29,100
Elan Yaish                     -           -                     - /100,000                $ - /$29,100
</TABLE>

--------
(1)  Based on the closing sale price of common stock as of July 31, 2003 ($2.13
     per share) minus the applicable exercise price.

                                       27
<PAGE>


Compensation of Directors

     Pursuant  to  the  Company's  compensation  plan  for  its  directors,  all
non-employee  directors  receive  a  $20,000  annual  stipend,  payable  in four
quarterly  installments.  In  addition,  each  non-employee  director is granted
annually on August 1, an option under the  Company's  Amended and Restated  1996
Incentive  and Non Incentive  Stock Option Plan to purchase  10,000 shares at an
exercise  price  equal to the fair  market  value of the common  stock as of the
close of business on the last  business day preceding  such close.  Such options
are for a term of five years and are exercisable immediately upon such grant. On
August 1, 2002, each of Joel Rothlein, Bert Rudofsky, Michael E. Russell, Julian
Sandler  and  Robert J.  Valentine,  who are  non-employee  directors,  received
non-incentive  options to purchase  10,000 shares at an exercise  price of $2.16
per share (the fair market value of the common stock on that date).

Employment Contracts

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

     Dr.  Stemple.  We have an employment  agreement with Joel G. Stemple,  PhD,
which  extends  through  fiscal  2004.  Under the  employment  agreement,  which
commenced on August 1, 2003, Dr. Stemple receives a base salary of $225,000, and
is entitled to an automobile and certain deferred compensation benefits, as well
as medical and other  benefits  generally  offered by us to our  employees.  Dr.
Stemple also is able to  participate  in our stock option plan.  The  employment
agreement is terminable  by either party on 90 days' prior notice.  In the event
we so terminate Dr. Stemple's  employment,  he is entitled to severance equal to
12 months of his then  current  base  salary and  $62,000  per year for the next
three years plus medical  benefits  based upon his severance  agreement with the
Company. This severance will be payable in accordance with our customary payroll
practices.  Under  the  employment  agreement,  if Dr.  Stemple  terminates  his
employment, or we terminate his employment for cause, Dr. Stemple is prohibited,
for a two-year  period  from such  termination,  from  competing  with us in the
eastern half of the United States.


Compensation Committee Interlocks and Insider Participation

     The members of our Compensation  Committee are Joel Rothlein,  Esq., Julian
Sandler, and Bert Rudofsky.  Mr. Rothlein is a partner of Kressel Rothlein Walsh
& Roth, LLC, which, with its predecessor firms, has acted as our outside general
counsel  since  our  inception.  We paid  Kressel  Rothlein  Walsh  & Roth,  LLC
approximately  $257,000,  $208,000,  and $215,000,  for legal fees in the fiscal
years ended July 31, 2003, 2002 and 2001, respectively.  In addition, during the
years ended July 31, 2003, 2002 and 2001, we recorded  revenue of  approximately
$164,000,  $45,000, and $178,000,  respectively,  in connection with the sale of
computer equipment to a company controlled by Mr. Sandler.

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

                                       28
<PAGE>

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth certain  information  as of October 7, 2003
(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
named  executive  officers and  directors  of the Company as a group.  Except as
otherwise indicated,  each such shareholder has sole voting and investment power
with respect to the shares beneficially owned by such shareholder.
<TABLE>
<CAPTION>

                                                        Shares Beneficially       Percent of Shares
      Name and Address                                         Owned(1)             Outstanding
      -----------------------------------------------------------------------------------------
      <S>                                                    <C>                     <C>

      Barry R. Steinberg(2) (3)                              4,690,201                58.7%
      Joel G. Stemple(2)                                       626,263                 7.8
      Elan Yaish(2)                                                  -                  *
      Laura Fontana(2) (4)                                      50,500                  *
      Seth Collins(2) (3) (4)                                   65,000                  *
      Joel Rothlein(4) (5)                                      62,666                  *
      Bert Rudofsky (4)                                         45,000                  *
      Michael E. Russell (4)                                    45,000                  *
      Julian Sandler(4)                                         51,000                  *
      Robert J. Valentine(4)                                    20,000                  *
      Dimensional Fund Advisors, Inc. (5)                      600,300                 7.5 (6)
      1299 Ocean Ave. 11th Fl., Santa Monica, CA 90401
      All executive officers and directors as a group
        (10 persons) (7)                                     5,655,630                68.5%
</TABLE>

      * Less than 1%.

(1)  For purposes of determining  the aggregate  amount and percentage of shares
     deemed  beneficially owned by directors and Named Executive Officers of the
     Company  individually  and by all directors,  nominees and Named  Executive
     Officers as a group,  exercise of all options  exercisable  at or within 60
     days listed in the footnotes hereto is assumed. For such purposes 8,256,215
     shares of Common Stock are deemed to be outstanding.

(2)  Address is 160 Oser Avenue, Hauppauge, New York 11788.

(3)  Includes  59,000  shares owned by Mr. and Mrs.  Collins,  which shares were
     purchased  with the proceeds of a loan from Mr.  Steinberg.  As reported on
     Schedule 13D filed on March 24, 1997,  as amended,  Mr.  Steinberg and Mrs.
     Collins,  each disclaim  beneficial  ownership of the common stock owned by
     the other.

(4)  Includes options exercisable at or within 60 days to purchase 50,000 shares
     (Ms.  Fontana);  6,000 shares (Mr.  Collins);  50,000 shares (Mr. Sandler);
     45,000 shares (Mr. Rudofsky);  50,000 shares (Mr. Rothlein);  45,000 shares
     (Mr. Russell); and 20,000 shares (Mr. Valentine).

(5)  Based upon a Schedule 13G filed with Securities and Exchange  Commission as
     of February 3, 2003.


(6)  Based on 7,990,215 shares of common stock issued and outstanding on October
     15, 2002.

(7)   See Notes 1 through 4 above.


                                       29
<PAGE>


ITEM 13.  Certain Relationships and Related Transactions

     Our Hauppauge,  New York  facilities  were leased from entities  affiliated
with certain of our  executive  officers,  directors or principal  shareholders.
Each of the leases with related  parties was amended  effective with the closing
of our initial public offering in December 1996 to reduce the rent payable under
the lease to then  current  market  rates.  The  property  located  at 40 Marcus
Boulevard, Hauppauge, New York was leased from a limited liability company owned
70% by Mr.  Steinberg  and his  relatives,  20% by Joel G. Stemple,  Ph.D.,  the
Company's  Executive  Vice  President  and a principal  shareholder,  and 10% by
Michael Bivona, a former officer of the Company. For the fiscal years ended July
31, 2003,  2002,  and 2001, we made lease  payments of $138,000,  $202,000,  and
$196,000,  respectively,  to  such  entity.  Our  offices  at 160  Oser  Avenue,
Hauppauge,  New York were 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, 2003,  2002, and, 2001, we made lease payments of $212,000,
$349,000, and $322,000, respectively, to such entity. The property located at 50
Marcus  Boulevard,  Hauppauge,  New York was  leased  from Mr.  Steinberg  doing
business in the name of Marcus Realty. For the fiscal years ended July 31, 2003,
2002,  and 2001,  we made lease  payments of $260,000,  $381,000,  and $366,000,
respectively, to such entity.

     In March 2003, the owners sold the Hauppauge, New York properties leased by
the Company to an unaffiliated company. In connection with the sale, the Company
entered into three  fifteen-year  leases,  each expiring on March 31, 2018, with
the new owner.  Lease terms include a lower base rent in the first year,  annual
rent increases of two percent and four five-year renewal options.

     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 2003,
2002, and 2001, $257,000, $208,000, and $215,000, respectively, was paid to such
firm for legal fees.

     During the years ended July 31, 2003,  2002, and 2001, we recorded  revenue
of $164,000, $45,000, and $178,000, respectively, in connection with the sale of
computer  equipment to a company controlled by Julian Sandler, a director of the
Company.

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

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

     In the ordinary course of its business dealings with customers and vendors,
the Company  utilizes a restaurant  owned by Ilene Steinberg and Barry Steinberg
for such catering,  dining and  entertainment  services.  During the years ended
July 31, 2003, 2002 and 2001, the Company paid approximately $49,000,  $109,000,
and $64,000, respectively, for such services.

ITEM 14.  Principal Accountant Fees and Services

     Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A0,
the disclosure  requirements  of this Item 14 are not effective until the filing
of the  Company's  Annual  Report on Form 10-K for its first  fiscal year ending
after December 15, 2003.

                                       30


<PAGE>


                                     PART IV
ITEM 15.  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

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

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

     (2)  Financial Statement Schedule

          Schedule II - Valuation and Qualifying Accounts


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

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

Exhibit No. Description of Exhibit

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

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

  3.2(1)     Bylaws of Registrant.

 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*      Modification of Employment  Agreement dated January 29, 2003 between
            Registrant and Joel G. Stemple.

 10.3.a*    Severance  and Release  Agreement  dated  January 29, 2003 between
             Registrant and Joel G. Stemple.


 10.4*      Agreement of Employment dated April 1, 2003 between  Registrant and
            Robert Sbarra.

 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     Intentionally Omitted.

 10.5.f     Intentionally Omitted.

 10.5.g     Intentionally Omitted..

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

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

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

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

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

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

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

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

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

                                       31
<PAGE>

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

 10.5.r(17)  Lease  dated  March  14, 2003  between  Registrant  and  General
                Electric Capital Business Asset Funding Corporation.

 10.5.s(17)  Lease  dated  March 14,  2003  between  Registrant  and General
                 Electric Capital Business Asset Funding Corporation.

 10.5.t(17)  Lease dated March 14, 2003 between  Electrograph  Systems,  Inc.
                and General Electric Capital Business Asset Funding Corporation.

 10.5.u(17)  Lease  dated May 1, 2003  between  Registrant  and FSP  Gateway
                 Crossing Limited Partnership.

 10.6        Intentionally Omitted.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 10.19(16)     Fourth  Amendment to  $15,000,000   Revolving  Credit  Facility
               Agreement dated July 30, 2002 between Registrant and Citibank, as
               Agent.

 10.20         Indemnification   Agreement  dated  September  18,  2003  between
               Registrant and Elan Yaish.

 21            Subsidiaries of the Registrant

 23            Independent auditors' consent.

 31.1          Certification of Barry R. Steinberg pursuant to Rule 13a-14(a)

                                       32
<PAGE>

 31.2     Certification   of  Elan  Yaish  pursuant  to  Rule  13a-14(a).

 32.1     Certification  of Barry R.  Steinberg  pursuant  to 18 U.S.C.  Section
          1350.

 32.2     Certification of Elan Yaish pursuant to 18 U.S.C. Section 1350.

(b)      Reports on Form 8-K

         Form 8-K filed June 16, 2003 disclosing Press Release dated June 11,
         2003 reporting earnings for the third quarter ended April 30, 2003.

-----------------------
* 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.   Intentionally Omitted.
3.   Filed as the same numbered Exhibit to the Company's Quarterly Report on
     Form 10-Q for the quarter ended April 30, 1997 (Commission File No.
     0-21695) and incorporated herein by reference thereto.
4.   Filed as the same numbered Exhibit to the Company's Quarterly Report on
     Form 10-Q for the quarter ended January 31, 1998 (Commission File No.
     0-21695) and incorporated herein by reference thereto.
5.   Filed as the same numbered Exhibit to the Company's Annual Report on Form
     10-K for the year ended July 31, 1997 (Commission File No. 0-21695) and
     incorporated herein by reference thereto.
6.   Filed as the same numbered Exhibit to the Company's Quarterly Report on
     Form 10-Q for the quarter ended October 31, 1997 (Commission File No.
     0-21695) and incorporated herein by reference thereto.
7.   Filed as the same numbered Exhibit to the Company's Annual Report on Form
     10-K for the year ended July 31, 1998 (Commission File No. 0-21695) and
     incorporated herein by reference thereto.
8.   Filed as the same numbered Exhibit to the Registrant's Annual Report on
     Form 10-K for the year ended July 31, 1999 (Commission File No. 0-21695)
     and incorporated herein by reference thereto.
9.   Filed as the same numbered Exhibit to the Registrant's Quarterly Report on
     Form 10-Q for the quarter ended April 30, 2000 (Commission File No.
     0-21695) and incorporated herein by reference thereto.
10.  Filed as the same numbered Exhibit to the Registrant's Annual Report on
     Form 10-K for the year ended July 31, 2000 (Commission File No. 0-21695)
     and incorporated herein by reference thereto.
11.  Filed as the same numbered Exhibit to the Company's Current Report on Form
     8-K dated January 30, 2001 (Commission File No. 0-21695) and incorporated
     herein by reference thereto.
12.  Filed as the same numbered Exhibit to the Registrant's Annual Report on
     Form 10-K for the year ended July 31, 2001 (Commission File No. 0-21695)
     and incorporated herein by reference thereto.
13.  Filed as the same numbered Exhibit to the Registrant's Quarterly Report on
     Form 10-Q for the quarter ended October 31, 2001 (Commission File No.
     0-21695) and incorporated herein by reference thereto.
14.  Filed as the same numbered Exhibit to the Registrant's Quarterly Report on
     Form 10-Q for the quarter ended April 30, 2002, (Commission File No.
     0-21695) and incorporated herein by reference thereto.
15.  Filed as the same numbered Exhibit to the Registrant's Annual Report on
     Form 10-K for the year ended July 31, 2002. (Commission File No. 0-21695)
     and incorporated herein by reference thereto.
16. Filed as the same numbered Exhibit to the Registrant's Quarterly Report on
    Form 10-Q for the quarter ended October 31, 2002, (Commission File No.
    0-21695) and incorporated herein by reference thereto.
17. Filed as the same numbered Exhibit to the Registrant's Quarterly Report on
    Form 10-Q for the quarter ended April 30, 2003, (Commission File No.
    0-21695) and incorporated herein by reference thereto.

                                       33
<PAGE>









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

                                                                           Page
Independent Auditors Report                                                 F-2
Consolidated Financial Statements:
         Balance Sheets as of July 31, 2003 and 2002                        F-3
         Statements of Operations for the years ended July 31, 2003,
          2002, and 2001                                                    F-4
         Statements of Shareholders' Equity for the years ended
          July 31, 2003, 2002, and 2001                                     F-5
         Statements of Cash Flows for the years ended
          July 31, 2003, 2002, and 2001                                     F-6
         Notes to Consolidated Financial Statements                         F-7

Schedule II - Valuation and Qualifying Accounts                             F-21































                                       F-1


<PAGE>







                          Independent Auditors' Report

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

We have audited the accompanying consolidated balance sheets of Manchester
Technologies, Inc. and subsidiaries as of July 31, 2003 and 2002 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended July 31, 2003. 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, 2003 and 2002, and the results
of their operations and their cash flows for each of the years in the three-year
period ended July 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

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



                                                             KPMG  LLP


Melville, New York
September 26, 2003

                                      F-2
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                             July 31, 2003 and 2002
<TABLE>
<CAPTION>

                                   Assets                              2003                       2002
                                   ------                              ----                       ----
                                                                       (in thousands, except per share amounts)
<S>                                                                     <C>                 <C>

Current assets:
     Cash and cash equivalents                                          $ 8,553             $ 8,963

     Accounts receivable, net of allowance for doubtful accounts
        of $1,426 and $956, respectively                                 35,117              32,561
     Inventory                                                            9,605              11,165
     Deferred income taxes                                                  603                 403
     Prepaid income taxes                                                 1,704                 426
     Prepaid expenses and other current assets                              709                 526
                                                                         ------             -------

                      Total current assets                               56,291              54,044

Property and equipment, net                                              13,985               7,012
Goodwill, net                                                             6,439               8,311
Deferred income taxes                                                       757                 803
Other assets                                                                278                 491
                                                                        -------             -------

                      Total assets                                      $77,750             $70,661
                                                                         ======              ======

                          Liabilities and Shareholders' Equity

Current liabilities:
        Accounts payable and accrued expenses                           $24,752             $23,078
        Deferred service contract revenue                                   666                 868
        Current portion of capital lease obligations                        212                   -
                                                                       --------          ----------

                      Total  current liabilities                         25,630              23,946


Deferred compensation payable                                               263                 203
Capital lease obligations, net of current portion                         7,923                   -
                                                                          -----             -------

                                Total liabilities                        33,816              24,149
                                                                         ------              ------

Commitments and contingencies

Shareholders' equity:
     Preferred stock, $.01 par value; 5,000 shares
        authorized, none issued                                               -                   -
     Common stock, $.01 par value; 25,000 shares
        authorized, 7,990 and 7,990 shares issued
        and outstanding                                                      80                  80
     Additional paid-in capital                                          18,942              18,942
     Deferred compensation                                                  (13)                (23)
     Retained earnings                                                   24,925              27,513
                                                                         ------              ------

                      Total shareholders' equity                         43,934              46,512
                                                                         ------              ------

                      Total liabilities and shareholders' equity        $77,750             $70,661
                                                                         ======              ======
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3


<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    Years ended July 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>

                                                                2003              2002                2001
                                                                ----              ----                ----
                                                                  (in thousands, except  per share amounts)
         <S>                                                     <C>            <C>                 <C>

         Revenue
              Products                                           $266,891       $249,768            $271,982

              Services                                             19,553         12,242               8,296
                                                                   ------        -------            --------
                                                                  286,444        262,010             280,278
                                                                  -------        -------             -------

         Cost of revenue
              Products                                            238,125        216,471             236,970
              Services                                             14,924          9,131               5,955
                                                                   ------        -------             -------
                                                                  253,049        225,602             242,925
                                                                  -------        -------             -------

         Gross profit                                              33,395         36,408              37,353
         Selling, general and administrative expenses              34,559         35,050              35,485
         Impairment of goodwill and write-off of related assets     2,481              -                   -
                                                                    -----       --------             --------

         Income (loss) from operations                             (3,645)         1,358               1,868


         Interest and other income, net                                25            184                 767
                                                                   ------         ------               -----
         Income (loss)  before   income taxes                      (3,620)         1,542               2,635
         Income tax provision (benefit)                            (1,032)           600                 908
                                                                   -------         -----              ------
         Net income (loss)                                        $(2,588)          $942              $1,727
                                                                   =======           ===               =====
         Net income (loss) per share
              Basic                                                $(0.32)         $0.12               $0.21
                                                                    ======          ====                ====
              Diluted                                              $(0.32)         $0.12               $0.21
                                                                    =====           ====                ====
         Weighted average shares of common
            stock and equivalents outstanding
              Basic                                                 7,990          7,990               8,036
                                                                    =====          =====               =====
              Diluted                                               7,990          7,991               8,058
                                                                    =====          =====               =====
</TABLE>





See accompanying notes to consolidated financial statements.

                                      F-4


<PAGE>




                 Manchester Technologies, Inc. and Subsidiaries
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    Years ended July 31, 2003, 2002 and 2001

<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, 2000                 8,159     $82       $19,402          $(65)   $  24,844       $44,263

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



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


     Stock award compensation expense          -       -             -            10            -            10
     Net loss                                  -       -             -             -       (2,588)       (2,588)
                                        --------    ----    ----------         -----       -------       -------
     Balance July 31, 2003                 7,990    $ 80       $18,942         $ (13)     $24,925       $43,934
                                           =====     ===        ======           ====      ======        ======

</TABLE>


     See accompanying notes to consolidated financial statements.

                                      F-5


<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years ended July 31, 2003, 2002, and 2001
<TABLE>
<CAPTION>
                                                                     2003         2002           2001
                                                                     ----         ----           ----
                                                                              (in thousands)
     <S>                                                            <C>          <C>              <C>

     Cash flows from operating activities:
     Net income (loss)                                              $(2,588)     $   942          $1,727

     Adjustments to reconcile net income (loss) to net cash
      from operating activities:
           Depreciation and amortization                              2,265        2,012           2,387
           Provision for doubtful accounts                            1,545          613             832
           Impairment of goodwill and write-off of related assets     2,481            -               -
           Non-cash compensation and commission expense                  10           15              37
           Deferred income taxes                                       (154)          95             (49)
           Tax benefit from exercise of options                           -            -             143
           Change in assets and liabilities, net of the effects of
              acquisitions:
              Accounts receivable                                    (4,266)      (7,773)         10,057
              Inventory                                               1,402       (3,482)           (749)
              Prepaid income taxes                                   (1,278)        (383)            592
              Prepaid expenses and other current assets                (201)         (92)            176
              Other assets                                              213          (88)           (147)
              Accounts payable and  accrued expenses                  1,649        7,298         (14,053)
              Deferred service contract revenue                        (202)          61            (139)
              Deferred compensation payable                              61           41             128
                                                                         --           --             ---

                Net cash provided by (used in) operating activities     937         (741)            942
                                                                        ---         -----            ---

     Cash flows from investing activities:
         Capital expenditures                                        (1,282)      (2,618)         (1,972)
         Payment for acquisitions, net of  cash acquired                  -       (1,613)              -
                                                                   --------        -----        --------
                Net cash used in investing activities                (1,282)      (4,231)         (1,972)
                                                                     -------       -----          -------

     Cash flows from financing activities:
         Net repayments of borrowings from bank                           -         (515)              -
         Payments on capitalized lease obligations                      (65)           -               -
         Payments on notes payable - other                                -          (43)            (18)
         Issuance of common stock upon exercise of options                -            -               6
         Purchase and retirement of common stock                          -            -            (621)
                                                                       ----         ----            -----

                Net cash  used in  financing activities                 (65)        (558)           (633)
                                                                        ----        -----            ---

     Net decrease in cash  and cash equivalents                        (410)      (5,530)         (1,663)

         Cash and cash equivalents at beginning of year               8,963       14,493          16,156
                                                                      -----       ------          ------

     Cash and cash equivalents at end of year                        $8,553       $8,963         $14,493
                                                                      =====        =====          ======

     Cash paid during the year for:
          Interest                                                     $208       $    -         $     -
                                                                        ===        =====          ======
          Income taxes                                                 $320         $723          $  365
                                                                        ===          ===           =====

</TABLE>

                                      F-6

     See accompanying notes to consolidated financial statements.



<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

(1)  Operations and Summary of Significant Accounting Policies

      (a)  The Company

          Manchester Technologies,  Inc. and its subsidiaries ("the Company") is
     a single-source  solutions  provider  specializing in hardware and software
     procurement, display technology, custom networking, security, IP telephony,
     remote  management,   application   development/e-commerce,   storage,  and
     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.  In
     addition,  we offer a complete  line of products  and  peripherals  for our
     customers'  display  technology  requirements.  The  Company  operates in a
     single segment.

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

      (b)  Principles of Consolidation

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

      (c)  Cash Equivalents

          The Company  considers  all highly  liquid  investments  with original
     maturities  at the  date of  purchase  of three  months  or less to be cash
     equivalents.  Cash  equivalents  of $6,120 and $7,194 at July 31,  2003 and
     2002, 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
     generally  recognized  upon  delivery of the product and  completion of the
     installation.  Service contract fees are recognized as revenue ratably over
     the period of the applicable  contract.  Deferred  service contract revenue
     represents  the  unearned  portion of service  contract  fees.  The Company
     generally  does not develop or sell  software  products.  However,  certain
     computer  hardware products sold by the Company are loaded with prepackaged
     software products.  The net impact on the Company's financial statements of
     product returns, primarily for defective products, has been insignificant.

      (e) Market Development  Funds and Advertising Costs

          The  Company  receives  various  market  development  funds  including
     cooperative  advertising  funds from certain vendors,  principally based on
     volume  purchases of products.  The Company records such amounts related to
     volume  purchases as purchase  discounts which reduce cost of revenue,  and
     other  incentives that require specific  incremental  action on the part of
     the Company,  such as training,  advertising or other  pre-approved  market
     development  activities,  as an offset to the  related  costs  included  in
     selling,  general and  administrative  expenses.  Total market  development
     funds  amounted to $1,189,  $1,118,  and $229, for the years ended July 31,
     2003, 2002 and 2001, respectively.

         The Company expenses all advertising costs as incurred.

      (f) Inventory

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

                                      F-7
<PAGE>
                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

(g) Property and Equipment

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

(h) Goodwill

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  141  "Business
Combinations,"  and SFAS No. 142,  "Goodwill and Other Intangible  Assets." SFAS
No.  141  specifies  criteria  that  intangible  assets  acquired  in a business
combination  must meet to be recognized and reported  apart from goodwill.  SFAS
No. 142 requires  that goodwill and  intangible  assets with  indefinite  useful
lives no longer be  amortized,  but  instead be tested for  impairment  at least
annually in accordance  with the  provision of SFAS No. 142. This  pronouncement
also requires that  intangible  assets with estimable  useful lives be amortized
over their  respective  estimated  useful lives and reviewed for  impairment  in
accordance  with SFAS No. 144  "Accounting  for the  Impairment  or  Disposal of
Long-Lived Assets."

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

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

     Also required by SFAS 142, on an annual basis,  the Company tests  goodwill
and other intangible assets for impairment. To determine the fair value of these
intangible  assets,  there are many assumptions and estimates used that directly
impact the results of the testing.  In making these  assumptions  and estimates,
the Company uses set criteria  that are reviewed and approved by various  levels
of management,  and the Company  estimates the fair value of its reporting units
by using discounted cash flow analyses.

       Accumulated amortization was approximately $1,116 at both July 31, 2003
and 2002. Goodwill amortization for the years ended July 31, 2003, 2002 and 2001
was approximately $0, $0, and $386, respectively. The following table shows the
results of operations as if SFAS No. 142 was applied to prior periods:
<TABLE>
<CAPTION>

                                                            For the years ended July 31,
                                                     2003            2002             2001
                                                     ----            ----             ----
<S>                                                <C>                 <C>             <C>

Net income (loss) as reported                       $(2,588)            $942           $1,727

Add back: Goodwill amortization                           -                -              386
                                                    -------             ----              ---

Adjusted net income (loss)                          $(2,588)            $942           $2,113
                                                     =======             ===            =====

Income (loss) per share - Basic
  Net income (loss), as reported                     $(0.32)           $0.12            $0.21
  Goodwill amortization                                   -                -             0.05
                                                       ----             ----             ----

  Adjusted net income (loss)                         $(0.32)           $0.12            $0.26
                                                     ======             ====             ====

Income (loss) per share - Diluted
  Net income (loss), as reported                     $(0.32)           $0.12            $0.21
  Goodwill amortization                                   -                -             0.05
                                                      -----          -------           ------

  Adjusted net income (loss)                         $(0.32)           $0.12            $0.26
                                                     ======             ====             ====
</TABLE>

                                      F-8
<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

     In July 2003, the Company closed the operations of its subsidiary,  Donovan
Consulting  Group,  Inc.  ("Donovan")  and  recorded  a charge of $1,872 for the
impairment of goodwill associated with the acquisition of Donovan (see Note. 3).
There was no accumulated amortization associated with this goodwill.

     As of July 31, 2003 and 2002, there were no intangible  assets,  other than
goodwill,  subject or not  subject to  amortization.  There was no  amortization
expense for intangible assets subject to amortization during fiscal 2003, fiscal
2002, and fiscal 2001.

(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

     Effective August 1, 2002, the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets",  which establishes  accounting
and  reporting  standards for the  impairment or disposal of long-lived  assets.
SFAS No. 144 removes  goodwill  from its scope and retains the  requirements  of
SFAS No. 121 regarding the recognition of impairment losses on long-lived assets
held for use.

     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future  undiscounted  net cash
flows expected to be generated by the asset.  Recoverability  of assets held for
sale is  measured  by  comparing  the  carrying  amount  of the  assets to their
estimated fair market value.  If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceed the fair value of the assets.  Assets to be disposed
of are reported at the lower of the carrying  amount or fair value less costs to
sell.

     As a result of closing the  operations of Donovan (see note 3) in 2003, the
Company recorded a write-off of certain assets in the amount of $609.

(j) 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.

(k)  Net Income (Loss) Per Share

     Basic net income  (loss) per share has been computed by dividing net income
(loss) by the weighted average number of common shares outstanding.  Diluted net
income  (loss) per share has been  computed by dividing net income (loss) by the
weighted average number of common shares outstanding,  plus the assumed exercise
of dilutive  stock  options,  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  representing
approximately  1,302,000,  887,000, and 899,000, shares for the years ended July
31, 2003, 2002 and 2001,  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 (loss) as reported.
<TABLE>
<CAPTION>
                                       2003                       2002                      2001
                                       ----                       ----                      ----
                                            Per Share                  Per Share                 Per Share
                                    Shares  Amount            Shares   Amount           Shares   Amount
                                    ------  ------            ------   ------           ------   ------
           <S>                  <C>           <C>           <C>        <C>            <C>            <C>

           Basic EPS             7,990,000    $(0.32)       7,990,000  $0.12          8,036,000      $0.21
                                              =======                   ====                          ====

           Effect of dilutive
            options                      -                      1,000                    22,000
                                -----------                      -----                    ------

           Diluted EPS           7,990,000    $(0.32)       7,991,000  $0.12          8,058,000      $0.21
                                 =========     ======       =========   ====          =========       ====
</TABLE>
                                      F-9
<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

       (l)  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  (loss) and net income  (loss)
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.

     The Company applies  Accounting  Principles Board Opinion,  "Accounting for
Stock Issued to Employees"  ("APB 25"),  and related  interpretations  for stock
options  and other  stock-based  awards  while  disclosing  pro forma net income
(loss)  and net income  (loss)  per share as if the fair  value  method had been
applied  in  accordance   with  SFAS  No.  123,   "Accounting   for  Stock-Based
Compensation" ("SFAS 123").

     The Company  applies the intrinsic  value method as outlined in APB 25, and
related  interpretations in accounting for stock options and share units granted
under these programs.  Under the intrinsic value method, no compensation expense
is recognized  if the exercise  price of the  Company's  employee  stock options
equals the market price of the underlying stock on the date of grant.  Since the
Company has issued all stock grants at market value,  no  compensation  cost has
been  recognized.   SFAS  123  requires  that  the  Company  provide  pro  forma
information  regarding  net income (loss) and net income (loss) per common share
as if  compensation  cost  for the  Company's  stock  option  programs  had been
determined in accordance with the fair value method prescribed  therein.  During
fiscal  2003,  the  Company  adopted  the  disclosure  portion of SFAS No.  148,
"Accounting for Stock-Based  Compensation - Transition and Disclosure" requiring
quarterly SFAS 123 pro forma  disclosure.  The following  table  illustrates the
effect on net income (loss) and income (loss) per common share as if the Company
had measured the compensation cost for the Company's stock option programs under
the fair value method in each period presented.
<TABLE>
<CAPTION>

                                                      2003               2002           2001
                                                      ----               ----           ----
      <S>                                              <C>             <C>             <C>

      Net income (loss), as reported                   $(2,588)         $  942          $1,727
      Deduct:  Total stock-based
       employee compensation expense
       determined under fair value
       method for all awards, net of
       related tax effects                                (361)           (365)           (392)
                                                        -------           -----         -------

      Net income (loss) - pro forma                    $(2,949)         $  577          $1,335
                                                        =======            ===           =====

      Net income (loss) per common share:
       Basic - as reported                            $  (0.32)         $ 0.12        $  0.21
       Basic - pro forma                              $  (0.37)         $ 0.07        $  0.17

       Diluted - as reported                          $  (0.32)         $ 0.12        $  0.21
       Diluted - pro forma                            $  (0.37)         $ 0.07        $  0.17
</TABLE>

      (m)  Use of Estimates

     Management  of the Company has made a number of estimates  and  assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported  amounts of revenues and expenses  during the  reporting  period to
prepare these  financial  statements in conformity  with  accounting  principles
generally accepted in the United States of America.  Actual results could differ
from those estimates.
                                      F-10

<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

 (n)  Fair Value of Financial Instruments

     The fair values of accounts  receivable,  prepaid expenses,  notes payable,
and accounts  payable and accrued  expenses are  estimated  to  approximate  the
carrying  values  at  July  31,  2003  due  to  the  short  maturities  of  such
instruments.

(o)  Supplemental Cash Flow Information

     During the year ended July 31, 2003 the Company entered into capital leases
which represented non-cash transactions (see note 6).

(p)  Reclassifications

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

(2)  Property and Equipment

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

                                                       2003             2002
                                                       ----             ----
      <S>                                             <C>              <C>

      Furniture and fixtures                           $2,242           $2,194
      Machinery and equipment                          12,131           11,427
      Transportation equipment                            567              671
      Leasehold improvements                            3,226            3,204
      Capital leases                                    8,200                -
                                                        -----        ---------
                                                       26,366           17,496
      Less accumulated depreciation and amortization   12,381           10,484
                                                       ------           ------
                                                      $13,985           $7,012
                                                       ======            =====
</TABLE>

     Depreciation  and  amortization  expense  amounted to $2,620,  $2,012,  and
$2,001, for the years ended July 31, 2003, 2002 and 2001, respectively.

(3)  Acquisitions

 Donovan Consulting Group, Inc.

     On August 29, 2001, the Company  acquired all of the  outstanding  stock of
Donovan, a Delaware corporation  headquartered near Atlanta, Georgia. Donovan is
a technical  services  firm that  delivers  Wireless LAN  solutions to customers
nationwide.  The  acquisition,  which  has  been  accounted  for as a  purchase,
consisted  of a  cash  payment  of  $1,500,  plus  potential  future  contingent
payments.  No contingent payments were made. In connection with the acquisition,
the Company assumed approximately $435 of bank debt and $43 of other debt, which
were  subsequently  repaid.  Donovan  was  acquired in order to  strengthen  the
Company's  position in the  Wireless LAN arena.  Donovan  allowed the Company to
offer total Wireless LAN solutions  including  state of the art products as well
as the services necessary to have those products operate optimally.

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

     The presentation of supplemental pro forma financial information was deemed
immaterial.
                                      F-11
<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)


     In July 2003, the Company closed the operations of Donovan and sold certain
assets back to the former owners of Donovan.  The operations were closed because
the  synergies  that  were  anticipated  at the  time  of the  purchase  did not
materialize  and the Company will  continue to provide  wireless  solutions  via
partner delivered relationships that are estimated to be more cost effective. As
a result, the Company recorded a charge of $2,481 for the impairment of goodwill
and write-off of related assets of Donovan.


e.Track Solutions, Inc.

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

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

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

(4)  Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                            July 31,
                                                       2003           2002
                                                       ----           ----
                 <S>                                  <C>             <C>

                  Accounts payable, trade              $21,314        $19,785
                  Accrued salaries and wages             1,932          1,894
                  Customer deposits                        778            554
                  Other accrued expenses                   728            845
                                                           ---            ---
                                                       $24,752        $23,078
                                                        ======         ======
</TABLE>

     The Company has  entered  into  financing  agreements  for the  purchase of
inventory.  These  agreements  are  unsecured,  generally  allow  for  a  30-day
non-interest-bearing  payment period and require the Company to maintain,  among
other things,  a certain minimum tangible net worth. In each of the years in the
three-year  period  ended July 31,  2003,  the Company  has repaid all  balances
outstanding  under these  agreements  within the  non-interest-  bearing payment
period. Accordingly, amounts outstanding under such agreements of $2,757, $2,884
and $1,719,  at July 31,  2003,  2002 and 2001,  respectively,  are  included in
accounts payable and accrued  expenses.  As of July 31, 2003,  retained earnings
available for dividends amounted to approximately $15,200.

(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 $355, $346, and $317, for the years ended
July 31, 2003,2002, and 2001, respectively.

                                      F-12

<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)



     The Company also has two deferred  compensation plans that are available to
certain  eligible  key  employees.  The first plan  consists  of life  insurance
policies  purchased by the Company for the  participants.  Upon  vesting,  which
occurs at various times from three to ten years, a participant  becomes entitled
to have  ownership of the policy  transferred  to him or her at  termination  of
employment  with the Company.  The second plan  consists of a commitment  by the
Company  to pay a  monthly  benefit  to an  employee  for a period  of ten years
commencing  either ten or fifteen years from such  employee's  entrance into the
plan.  The  Company has chosen to purchase  life  insurance  policies to provide
funding  for these  benefits.  As of July 31,  2003 and 2002,  the  Company  has
recorded an asset  (included  in other  assets) of $278 and $256,  respectively,
representing  the cash  surrender  value of policies  owned by the Company and a
liability of $263 and $203,  respectively,  relating to the unvested  portion of
benefits  due under these  plans.  For the years ended July 31,  2003,  2002 and
2001,  the Company  recorded an expense of $144,  $212,  and $246, 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  leased 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. In March 2003, the owners
sold the  properties  leased  by the  Company  to an  unaffiliated  company.  In
connection  with the sale, the Company entered into three  fifteen-year  leases,
each expiring on March 31, 2018, with the new owner. Lease terms include a lower
base rent in the first  year,  annual  rent  increases  of two  percent and four
five-year renewal options.

     The  Company  recorded  the new leases as capital  leases and  accordingly,
recorded an asset of approximately $8.2 million.  The asset is classified in the
balance  sheet as Property  and  equipment,  net,  (see note 2) and is amortized
using the straight-line  method over the lease terms and the related obligations
are recorded as liabilities.

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

                      2004                                          $  825
                      2005                                             842
                      2006                                             859
                      2007                                             876
                      2008                                             894
                      2009 and thereafter                            9,612
                                                                  --------

                      Total payments                                13,908
                      Amount representing interest                  (5,773)
                                                                  ---------

                      Obligations under capital leases               8,135
                      Obligations due within one year                 (212)
                                                                 ----------

                      Long-term obligations under capital leases    $7,923
                                                                   =======
</TABLE>

     In addition,  the Company is obligated under operating lease agreements for
sales offices and additional  warehouse space.  Aggregate rent expense under all
these leases amounted to $1,696,  $1,973 and $1,756 for the years ended July 31,
2003, 2002, and 2001, respectively.

                                      F-13
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)


     The following  represents the Company's  commitment  under operating leases
for each of the next five years ended July 31 and thereafter:
<TABLE>
                              <S>                         <C>
                                2004                      $603
                                2005                       631
                                2006                       595
                                2007                       553
                                2008                       210
                                Thereafter                   -
                                                        ------
                                                        $2,592
                                                        ======
</TABLE>

     Litigation

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

(7)   Line of Credit

     In July 1998, the Company entered into a revolving credit facility with its
banks, which was revised in June, 1999 to change  participating banks. Under the
terms of the  facility,  the  Company  may  borrow up to a maximum  of  $15,000.
Borrowings  under the facility  bear interest at variable  interest  rates based
upon several options available to the Company. The facility requires the Company
to maintain  certain  financial  ratios and  covenants.  At July 31,  2003,  the
Company was not in compliance  with all the financial  ratios and covenants that
it  is  required  to  maintain.  The  Company  received  a  waiver  waiving  its
requirements  from its banks for the period ended July 31, 2003.  As of July 31,
2003, there was no balance  outstanding  under this agreement,  which expires on
January 31, 2005.

                                      F-14
<PAGE>


                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

 (8)  Income Taxes

     The provision (benefit) for income taxes for the years ended July 31, 2003,
2002 and 2001 consists of the following:
<TABLE>
<CAPTION>
                                             2003          2002          2001
                                             ----          ----          ----                 -
             <S>                           <C>            <C>           <C>
              Current
                  Federal                   $(1,195)       $325          $728
                  State                         317         180           229
                                                ---         ---           ---
                                               (878)        505           957
                                               ----         ---           ---
              Deferred
                  Federal                      (102)         70           (38)
                  State                         (52)         25           (11)
                                                ---          --           ---

                                               (154)         95           (49)
                                                ---          --            --

                                            $(1,032)       $600          $908
                                             =======        ===           ===
</TABLE>

      The difference between the Company's effective income tax rate and the
      statutory rate is as follows, for the years ended July 31,:
<TABLE>
<CAPTION>
                                                          2003         2002             2001
                                                          ----         ----             ----

      <S>                                             <C>             <C>              <C>
      Income taxes (benefit) at statutory rate         $(1,231)        $524             $896
      State taxes, net of federal benefit                  209          114              144
      Non deductible goodwill amortization                   -            -               85
      Nontaxable life insurance proceeds                     -            -             (172)
      Other                                                (10)         (38)             (45)
                                                           ---          ---              ---

                                                       $(1,032)        $600             $908
                                                        =======         ===              ===
</TABLE>

      The tax effects of temporary differences that give rise to significant
      portions of the net deferred tax asset at July 31, 2003 and 2002 were as
      follows:
<TABLE>
<CAPTION>
                                                          2003         2002
                                                          ----         ----
<S>                                                      <C>          <C>
              Deferred tax assets (liabilities):
                 Allowance for doubtful accounts          $583         $383
                 Deferred compensation                     605          554
                 Depreciation                              162          249
                 Other                                      10           20
                                                            --           --
                 Net deferred tax asset                 $1,360       $1,206
                                                         =====        =====
</TABLE>


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

                                      F-15

<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)

 (9)  Related Party Transactions

     The Company  leased 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. In March 2003, the owners
sold the  properties  leased  by the  Company  to an  unaffiliated  company.  In
connection  with the sale, the Company entered into three  fifteen-year  leases,
each expiring on March 31, 2018, with the new owner. Lease terms include a lower
base rent in the first  year,  annual  rent  increases  of two  percent and four
five-year  renewal  options.  Rent expense  paid to the former  owners for these
facilities  aggregated  approximately  $610, $932, and $884, for the years ended
July 31, 2003, 2002 and 2001, respectively.

     The  Company  paid  legal  fees to a law  firm in which a  director  of the
Company is a partner.  Such fees amounted to approximately  $257, $208 and $215,
including disbursements, in the fiscal years ended July 31, 2003, 2002 and 2001,
respectively.

     During the fiscal  years  ended July 31,  2003,  2001 and 2001 the  Company
received  approximately  $164,  $45, and $178,  respectively,  in revenue from a
company controlled by a director of the Company.

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

     In the ordinary course of its business dealings with customers and vendors,
the Company  utilizes a restaurant  owned by the chief  executive  officer and a
member of his  family for such  catering,  dining  and  entertainment  services.
During  the  years  ended  July  31,  2003,  2002  and  2001  the  Company  paid
approximately $49, $109, and $64, respectively, for such services.

 (10)  Shareholders' Equity

      Stock Option Plan

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

                                      F-16


<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                   Weighted
                                                                                   Average
                                                              Exercise             Exercise
                                                              Balance              Price
                                                              -------              -----

         <S>                                                  <C>                   <C>
         Balance July 31, 2000                                 826,684               $4.00

           Granted                                             123,000               $3.74
           Exercised                                            (1,500)              $3.8125
           Cancelled                                           (49,100)              $4.19
                                                               --------
         Balance July 31, 2001                                 899,084               $3.95

           Granted                                              81,800               $2.55
           Exercised                                                 -                   -
           Cancelled                                           (55,800)              $4.07
                                                               -------
         Balance July 31, 2002                                 925,084               $3.81

           Granted                                             665,250               $1.92
           Exercised                                                 -                   -
           Cancelled                                          (288,584)              $3.51
                                                             ---------
        Balance July 31, 2003                                1,301,750               $2.91
                                                             =========
</TABLE>

          At July 31, 2003, 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>
     $1.84 - $2.29     565,250         $1.87         10 Yrs.             50,000           $2.16
     $2.30 - $3.75     241,300         $2.81          7 Yrs.            134,334           $3.10
     $3.76 - $4.00     336,250         $3.84          4 Yrs             336,250           $3.84
     $4.01 - $5.69     158,950         $4.77          6 Yrs.            148,948           $4.78
                       -------                                          -------
     $1.84 - $5.69   1,301,750         $2.91          7 Yrs.            669,532           $3.78
                     =========                                          =======
</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 fair value of options  granted was  estimated  using the  Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>

                                                       2003     2002     2001
                                                       ----     ----     ----
<S>                                                    <C>      <C>      <C>
Expected dividend yield                                  0%      0%       0%
Expected stock volatility                               54%     59%      55%
Risk free interest rate                                  3%      3%       5%
Expected option term until exercise (years)              5.00    5.00     5.00
</TABLE>

     The per share weighted  average fair value of stock options  granted during
fiscal 2003, 2002 and 2001 was $1.27, $1.79, and $2.03, respectively.

                                      F-17
<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)


     Repurchase of Common Stock

     During the year ended  July 31,  2001,  the  Company  repurchased  171,000,
shares of its common stock at an aggregate  purchase price of $621.  Such shares
were subsequently retired. No shares were repurchased in fiscal 2002 and 2003.

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

     The Company sells and provides services to customers in the United States.

     The Company's top four vendors accounted for  approximately  16%, 16%, 10%,
and 10%,  respectively,  of total product  purchases for the year ended July 31,
2003. The Company's top five vendors accounted for approximately  15%, 14%, 14%,
14%, and 13%,  respectively,  of total product purchases for the year ended July
31, 2002. The Company's top four vendors accounted for  approximately  19%, 14%,
10%, and 10%,  respectively,  of total product purchases for the year ended July
31, 2001.

     At July 31, 2003, two customers accounted for 12% and 5%, respectively,  of
the Company's accounts receivable. At July 31, 2002, two customers accounted for
9% and 5%,  respectively,  of the  Company's  accounts  receivable.  No customer
accounted  for more than 5% of the  Company's  accounts  receivable  at July 31,
2001.  For the fiscal years ended July 31, 2003,  2002 and 2001, no one customer
accounted for more than 10% of total revenue.

(12)  Impact of Recently Issued Accounting Standards

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure"  ("SFAS  148").  SFAS 148 provides
alternative  methods  of  transition  for a  voluntary  change to the fair value
method of accounting for stock-based employee compensation as originally defined
by SFAS No. 123, "Accounting for Stock-Based Compensation."  Additionally,  SFAS
148  amends the  disclosure  requirements  of SFAS No. 123 to require  prominent
disclosure in both the annual and interim financial  statements about the method
of accounting for stock-based  compensation and the effect of the method used on
reported  results.  The transitional  requirements of SFAS 148 are effective for
all financial  statements  for fiscal years ending after  December 15, 2002. The
Company adopted the disclosure  portion of this statement during the fiscal year
ended July 31, 2003. The application of the disclosure  portion of this standard
had no impact on the  Company's  consolidated  financial  position or results of
operations.  The  FASB  recently  indicated  that  it will  require  stock-based
employee  compensation  to be  recorded  as a charge to  earnings  pursuant to a
standard on which it is currently deliberating.  The FASB anticipates issuing an
Exposure Draft in the fourth quarter of 2003 and a final statement in the second
quarter of 2004. The Company will continue to monitor the FASB's progress on the
issuance of this  standard  as well as  evaluate  the  Company's  position  with
respect to current guidance.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities",  which  amends and  clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is effective for contracts  entered into or modified after June 30, 2003
and for hedging  relationships  designated after June 30, 2003. The Company does
not believe that the adoption of SFAS No. 149 will have a material impact on its
consolidated financial statements.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial instruments with Characteristics of both Liability and Equity",  which
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics of both liability and equity in its
statement of financial  position.  SFAS No. 150 is effective for new or modified
financial  instruments  beginning  July 1,  2003  and for  existing  instruments
beginning August 1, 2003. The Company does not believe that the adoption of SFAS
No. 150 will have a material impact on its consolidated financial statements.

                                      F-18

<PAGE>

                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)




     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities,"  ("Int. No. 46") an interpretation of ARB No. 51.
Int. No. 46 addresses consolidation by business enterprises of variable interest
entities.  Int. No. 46 applies immediately to variable interest entities created
after January 31, 2003 and to variable  interest entities in which an enterprise
obtains an interest  after that date.  Int.  No. 46, as revised,  applies in the
first year or interim  period  beginning  after  December  15,  2003 to variable
interest  entities  in which an  enterprise  holds a variable  interest  that it
acquired  before  February 1, 2003. The Company is in the process of determining
the impact,  if any, of implementing  Int. No. 46 on its consolidated  financial
statements.

     In  November  2002,  the  Emerging  Issues  Task Force  reached a consensus
opinion on EITF 00-21,  Revenue  arrangements  with Multiple  Deliverables.  The
consensus provides that revenue  arrangements with multiple  deliverables should
be divided into separate  units of  accounting if certain  criteria are met. The
consideration  for the arrangement  should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all  deliverables  is not known or if the fair value is contingent
on delivery of specified  items or performance  conditions.  Applicable  revenue
recognition  criteria should be considered  separately for each separate unit of
accounting.  EITF 00-21 is effective  for revenue  arrangements  entered into in
fiscal periods  beginning after June 15, 2003.  Entities may elect to report the
change as a cumulative  effect  adjustment  in  accordance  with APB Opinion 20,
Accounting Changes. The Company does not believe that the adoption of EITF 00-21
will have a significant impact on the Company's financial position or results of
operations.

                                      F-19
<PAGE>



                 Manchester Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                          July 31, 2003, 2002 and 2001
                 (in thousands, except share and per share data)



(13) Quarterly Results (unaudited)
<TABLE>
<CAPTION>
                              Oct. 31     Jan 31     Apr. 30    July 31     Year
                              -------     ------     -------    -------     ----
      2003
      ----
<S>                             <C>         <C>       <C>         <C>       <C>
   Revenue                       $68,285    $80,542   $63,944     $73,673   $286,444
   Gross profit                    8,964      8,475     7,273       8,683     33,395
   Net income (loss)                 158       (125)       26      (2,647)    (2,588)
   Basic income (loss) per share    0.02      (0.02)     0.00       (0.33)     (0.32)
   Diluted income (loss) per share  0.02      (0.02)     0.00       (0.33)     (0.32)



     2002
     ----
   Revenue                       $61,566    $68,099   $65,131     $67,214   $262,010
   Gross profit                    8,494     10,067     9,041       8,806     36,408
   Net income                        104        433       364          41        942
   Basic income per share            0.01      0.05      0.05        0.01       0.12
   Diluted income per share          0.01      0.05      0.05        0.01       0.12
</TABLE>


         Basic and diluted income (loss) 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 income (loss) per share.

                                      F-20



<PAGE>



                          Manchester Technologies, Inc.

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

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

Allowance for doubtful
accounts

Year ended:

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

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

    July 31, 2003            $956         $1,545             -          $1,075           $1,426
</TABLE>


(a) Write-off amounts against allowance provided.


                                      F-21
<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  28, 2003                    By:  /S/ Barry R. Steinberg
                                                           -------------------
                                                            Barry R. Steinberg
                                              President, Chief Executive Officer
                                              Chairman of the Board and Director

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

 /S/ Barry R. Steinberg                                Date:   October  28, 2003
 ----------------------
Barry R. Steinberg
 President, Chief Executive Officer,
 Chairman of the Board and Director
(Principal Executive Officer)


/S/ Joel G. Stemple                                     Date:  October  28, 2003
   ----------------
Joel G. Stemple
Executive Vice President, Secretary and Director


/S/ Elan Yaish                                          Date:  October  28, 2003
   -----------
Elan Yaish,
Chief Financial Officer, Vice President Finance
 and Assistant Secretary
 (Principal Accounting Officer)

/S/ Joel Rothlein                                       Date:  October  28, 2003
   --------------
Joel Rothlein
Director

/S/  Michael E. Russell                                 Date:  October  28, 2003
     ------------------
Michael Russell
Director

/S/ Bert Rudofsky                                       Date:   October 28, 2003
    -------------
Bert Rudofsky
Director

/S/ Julian Sandler                                      Date:   October 28, 2003
------------------
Julian Sandler
Director

/S/ Robert J. Valentine                                 Date:   October 28, 2003
-----------------------
Robert J. Valentine
Director

















31