SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended April 30, 1998

                                       or

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

                 For the transition period from __________ to ____________

                            COMMISSION FILE NUMBER 0-21695

                         Manchester Equipment Co., 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)                        Identification Number)

                                 160 Oser Avenue
                            Hauppauge, New York 11788
              (Address of registrant's principal executive offices)

                                 (516) 435-1199
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                 [X] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
stock, as of the latest practicable date.

         There  were  8,418,800  outstanding  shares of COMMON  STOCK at May 31,
1998.






<PAGE>



                 MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES

                                      Index

PART I.            FINANCIAL INFORMATION                                   Page

Item 1.            Condensed Consolidated Balance Sheets
                          April 30, 1998 (unaudited) and July 31, 1997       3

                   Condensed Consolidated Statements of Income
                      Three months and nine months ended
                      April 30, 1998 and 1997 (unaudited)                    4

                   Condensed Consolidated Statements of Cash Flows
                      Nine months ended April 30, 1998 and 1997 (unaudited)  5

                   Notes to Condensed Consolidated Financial Statements      6

Item 2.            Management's Discussion and Analysis of Financial
                          Condition and Results of Operations                8


PART II.           OTHER INFORMATION

Item 1.            Legal Proceedings                                        14


Item 6.            Exhibits and Reports                                     14


















<PAGE>



PART I  FINANCIAL INFORMATION

ITEM 1.            Financial Statements

                 Manchester Equipment Co., Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
                       (in thousands except share amounts)

                                               April 30, 1998      July 31, 1997
                                                (Unaudited)                     
                                                 -----------       -------------
<TABLE>
<S>                                                  <C>                <C> 
                                                 
Assets:
Cash and cash equivalents                            $ 7,290            $15,049
  Investments                                          2,501              4,408
  Accounts receivable, net                            25,716             21,473
  Inventory                                            5,625             10,127
  Deferred income taxes                                  440                440
  Prepaid expenses and other current assets              402                248
                                                         ---                ---
         Total current assets                         41,974             51,745

  Property and equipment, net                          5,911              4,073
  Goodwill, net                                        4,382              1,524
  Deferred income taxes                                  379                379
  Other assets                                           626                487
                                                         ---                ---
                                                     $53,272            $58,208
                                                     =======            =======
                                                                                 
  Current maturities under capital
    lease obligations                             $      145            $    99
  Notes payable - bank                                     -              1,274
  Notes payable - other                                    -                264
  Accounts payable and accrued expenses               13,988             19,283
  Deferred service revenue                               570                247
                                                         ---                ---
                                                                                    
      Total current liabilities                       14,703             21,167

  Capital lease obligations, less current maturities       -                 77
     Deferred compensation payable                        87                 87
                                                          --                 --

         Total liabilities                            14,790             21,331
                                                      ------             ------

Shareholders' equity:
  Preferred stock, $.01 par value; 5,000,000
    shares authorized, none issued                         -                  -
  Common stock, $.01 par value; 25,000,000 shares
    authorized, 8,545,000 and 8,525,000 issued            85                 85
  Additional paid-in capital                          20,527             20,403
  Treasury stock (22,400 shares)                         (99)                 -
  Retained earnings                                   17,969             16,389
                                                      ------             ------
                                                                                         
         Total shareholders' equity                   38,482             36,877
                                                      ------             ------
                                                     $53,272            $58,208
                                                     =======            =======
</TABLE>
See notes to condensed consolidated financial statements.
                                        3


<PAGE>




                 Manchester Equipment Co., Inc. and Subsidiaries
                   Condensed Consolidated Statements of Income
                    (in thousands, except per share amounts)
                                    Unaudited
<TABLE>
<CAPTION>

                                  Three months ended April 30,    Nine months ended  April 30,
                                      1998             1997              1998        1997
                                      ----             ----              ----        ----
<S>                                 <C>               <C>              <C>         <C>  
Revenue
       Products                     $52,655           $43,405         $147,071     $138,041
       Services                       1,514               765            3,526        1,800
                                      -----               ---            -----        -----
                                     54,169            44,170          150,597      139,841
                                     ------            ------          -------      -------
Cost of revenue
       Products                      45,026            37,385          126,292      119,039
       Services                       1,160               347            2,626          884
                                      -----               ---            -----          ---
                                     46,186            37,732          128,918      119,923
                                     ------            -------         -------      -------

       Gross profit                   7,983             6,438           21,679       19,918

Selling, general and
    administrative expenses           7,086             5,194           19,490       15,487
                                      -----             -----           ------       ------

       Income from operations           897             1,244            2,189        4,431

Interest expense                        ( 5)              ( 2)             (38)        (193)
Interest income                          82               217              486          344
Other income                              -                 -                -           23
                                        ---             -----             ----           --

     Income before income taxes         974             1,459            2,637        4,605

Provision for income taxes              387               589            1,057        1,885
                                        ---               ---            -----        -----

     Net income                       $ 587              $870           $1,580       $2,720
                                      =====              ====           ======       ======

Net Income per share
   Basic                              $0.07           $  0.10           $0.19         $0.36
                                      =====           =======           =====         =====
   Diluted                            $0.07           $  0.10           $0.19         $0.36
                                      =====           =======           =====         =====

Weighted average
  shares outstanding
  Basic                               8,542             8,525            8,533        7,531
                                      =====             =====            =====        =====
  Diluted                             8,548             8,525            8,535        7,531
                                      =====             =====            =====        =====
</TABLE>


See notes to condensed consolidated financial statements.




<PAGE>



                 Manchester Equipment Co., Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                For the nine months ended April 30,
                                                                         1998          1997
                                                                             (Unaudited)
                                                                             -----------
<S>                                                                     <C>         <C>

Cash flows from operating activities:
     Net income                                                         $1,580       $2,720
  Adjustments to reconcile net income to net cash from
   operating activities:
     Depreciation and amortization                                         900          450
     Allowance for doubtful accounts                                       288          210
     Stock compensation expense                                             44            6
  Change in assets and liabilities net of the effects
   of acquisitions:
     Increase in accounts receivable                                    (4,063)      (1,606)
     Decrease (increase) in inventory                                    5,424         (514)
     Decrease (increase)  in prepaid expenses and
         other current assets                                             (124)         128
     Decrease (increase) in other assets                                    21         (168)
     (Decrease) increase in accounts payable and
        accrued expenses                                                (6,367)       1,009
     (Decrease) increase in deferred service contract revenue                8          (16)
     Decrease  in income taxes  payable                                      -         (295)
     Increase in deferred compensation payable                               -           85
        Net cash provided by (used in) operating activities             (2,289)       2,009

Cash flows from investing activities:
     Capital expenditures                                               (2,525)        (881)
     Proceeds from sale of assets                                            -           54
     Proceeds from sale of (payment for purchase of) investments         1,907       (2,947)
Payment for acquisitions, net of cash acquired                          (2,921)      (1,857)
                                                                         -----        -----
          Net cash used in investing activities                         (3,539)      (5,631)
                                                                        ------        ------

Cash flows from financing activities:
     Net repayments of borrowings                                       (1,274)      (6,500)
     Payments on notes payable-shareholder                                   -         (353)
     Payments on capital lease obligations                                 (77)         (64)
     Net proceeds from initial public offering                               -       20,414
     Purchase of  treasury stock                                           (99)           -
     Payments on notes payable - other                                    (481)           -
                                                                           ---     --------
          Net cash (used in) provided by  financing activities          (1,931)      13,497
                                                                         -----       ------
Net increase (decrease) in cash and cash equivalents                    (7,759)       9,875
     Cash and cash equivalents at beginning of period                   15,049        5,774
                                                                        ------        -----
Cash and cash equivalents at end of period                              $7,290      $15,649
                                                                        ======      =======
                                                                       
</TABLE>
                                                                       
See notes to condensed consolidated financial statements.


<PAGE>



                 Manchester Equipment Co., Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements

   1. Operations and Basis of Presentation

         Manchester  Equipment  Co., Inc. (the  "Company") is an integrator  and
      reseller of computer hardware, software and networking products, primarily
      for commercial customers.  The Company offers its customers  single-source
      solutions  customized  to their  information  systems  needs by  combining
      value-added  services with  hardware,  software,  networking  products and
      peripherals from leading vendors.

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

          In the opinion of the Company,  the accompanying  unaudited  Condensed
     Consolidated  Financial  Statements contain all adjustments  (consisting of
     only  normal  and  recurring  accruals)  necessary  to  present  fairly the
     financial  position  of the Company as of April 30, 1998 and the results of
     operations  for the three  months and nine months  ended April 30, 1998 and
     1997 and cash  flows for the nine  months  ended  April 30,  1998 and 1997.
     Although the Company  believes that the disclosures  herein are adequate to
     make the information not misleading,  these financial  statements should be
     read in  conjunction  with the audited  financial  statements and the notes
     thereto for the year ended July 31, 1997,  included in the Company's Annual
     Report on Form 10-K as filed with the Securities and Exchange Commission.

2.   Net Income Per Share

          In February  1997, the FASB issued  Statement of Financial  Accounting
     Standards No. 128,  "Earnings Per Share" ("EPS") which the Company  adopted
     in the second  quarter of fiscal  1998.  It replaces  the  presentation  of
     primary EPS with the  presentation  of basic EPS and replaces fully diluted
     EPS with diluted  EPS. It also  requires a dual  presentation  of basic and
     diluted  EPS on the face of the  income  statement  for all  entities  with
     complex capital  structures and requires a reconciliation of the numerators
     and  denominators  of  the  basic  EPS  computation  to the  numerator  and
     denominator of the diluted EPS computation.

          Net  income  per  share of common  stock for the three and nine  month
     periods  ended  April  30,  1998  have  been  calculated  according  to the
     guidelines  of  Statement  No.  128 and prior  periods'  EPS data have been
     restated to conform with Statement No. 128.

          Basic net income per share has been computed by dividing net income by
     the  weighted  average  number of common  shares  outstanding.  Diluted net
     income per share has been  computed by dividing  net income by the weighted
     average number of common shares  outstanding,  plus the assumed exercise of
     dilutive  stock  options and warrants,  less the number of treasury  shares
     assumed to be  purchased  from the  proceeds  of such  exercises  using the
     average market price of the Company's  common stock during each  respective
     period.  Stock  options and warrants are excluded from the  calculation  of
     diluted net income per share when the result would be antidilutive.


3.   Initial Public Offering

          On December 2, 1996, the Company  completed an initial public offering
     (the  "Offering")  of  2,325,000  shares of its common  stock at an initial
     public  offering  price of $10 per share.  Net proceeds to the Company were
     approximately $20.4 million, after deducting the underwriting discounts and
     commissions and other costs associated with the Offering.

4.   Acquisitions

     Coastal Office Products Inc.:

          On January 2, 1998, the Company acquired all of the outstanding shares
     of Coastal Office Products,  Inc.  ("Coastal"),  a reseller and provider of
     microcomputer   services  and  peripherals  to  companies  in  the  greater
     Baltimore, Maryland area. The acquisition,  which has been accounted for as
     a purchase,  consisted of a cash  payment of $3.1  million  plus  potential
     future  contingent  payments.  The cash payment was made from the Company's
     cash balances.  The amounts of the  contingent  payments will be determined
     based upon  achieving  certain agreed upon increases in revenues and pretax
     income over calendar 1997 amounts.  Contingent  payments,  if any, would be
     paid in cash (or,  under certain  conditions,  in Company  common stock) on
     March 15, 1999 and March 15, 2000.

          Operating   results  of  Coastal  are   included   in  the   Condensed
     Consolidated  Statements  of  Income  from  the  date of  acquisition.  The
     acquisition  resulted in goodwill of $2,965,000 which is being amortized on
     the straight-line basis over 20 years.
<PAGE>
     Electrograph Systems, Inc.:

          On April 25, 1997,  the Company,  through a newly formed  wholly-owned
     subsidiary,  acquired  substantially  all of the assets and assumed certain
     liabilities of  Electrograph  Systems,  Inc., a wholly owned  subsidiary of
     Bitwise  Designs,  Inc.  Electrograph  is  a  specialized   distributor  of
     microcomputer  peripherals,  primarily in the eastern  United  States.  The
     purchase price and transaction costs aggregated approximately $2.6 million.

          The acquisition has been accounted for as a purchase and the operating
     results  of  Electrograph  are  included  in  the  Condensed   Consolidated
     Statements of Income from the date of acquisition. The acquisition resulted
     in goodwill of  $1,543,000  which is being  amortized on the  straight-line
     basis over 20 years.

          The following  unaudited pro forma consolidated  results of operations
     for the nine  months  ended April 30, 1998 and 1997 assume that the Coastal
     and  Electrograph  acquisitions  occurred on August 1, 1996 and reflect the
     historical  operations  of the  purchased  businesses  adjusted  for  lower
     interest on invested funds,  contractually revised officer compensation and
     rent and increased amortization,  net of applicable income taxes, resulting
     from the acquisitions:

<TABLE>
<CAPTION>
                                                            Nine months ended
                                                                 April 30,
                                                            1998         1997
                                                         (in thousands,  except
                                                            per share amounts)
                 <S>                                     <C>           <C>   

                  Revenue                                 $154,172     $161,323
                  Net income                                 1,605        2,907
                  Net income per share                       $0.19        $0.39
</TABLE>
          The pro forma results of operations are not necessarily  indicative of
     the actual results that would have occurred had the acquisitions  been made
     at the  beginning  of the  period,  or of  results  which  may occur in the
     future.

5.   Legal Proceedings

          On January  12,  1998,  the Company  announced  that it had reached an
     agreement in principle  settling the  Shareholder  Securities  Class Action
     ("Lawsuit")  filed against the Company and certain of its officers in March
     1997. The proposed  settlement,  which is subject to court approval,  would
     result in the distribution of $1,350,000 minus approved attorney's fees and
     related  expenses,  to  purchasers  of the  Company's  common  stock in the
     Company's  initial public  offering,  and during the period of November 26,
     1996 to February 13, 1997. The entire  $1,350,000  cash settlement is to be
     paid by the Company's insurance carrier.

          The settlement will include a release of all claims that were asserted
     or that could have been asserted in the Lawsuit against the Company and its
     officers and  directors.  The Company  agreed to the  settlement  solely to
     avoid the expense,  burdens and  uncertainties  of further  litigation  and
     continues  to deny that it has any  liability  on  account  of the  matters
     asserted in the litigation or that the Plaintiffs' claims have merit.


<PAGE>



ITEM 2 - 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 the
     condensed  consolidated  financial  statements  and notes thereto  included
     elsewhere  in this  Quarterly  Report on Form  10-Q and with the  Company's
     Annual Report or Form 10-K. This discussion and analysis  contains  certain
     forward-looking  statements  within the  meaning of the  Securities  Act of
     1933, as amended,  and Section 21E of the Securities  Exchange Act of 1934,
     as  amended,  which  are  not  historical  facts,  and  involve  risks  and
     uncertainties that could cause actual results to differ materially from the
     results anticipated in those  forward-looking  statements.  These risks and
     uncertainties include, but are not limited to, those set forth below, those
     set forth in the  Company's  Annual  Report on Form 10-K for the year ended
     July 31, 1997, and those set forth in the Company's other filings from time
     to time with the Securities and Exchange Commission.

     General

          Manchester  is  an  integrator  and  reseller  of  computer  hardware,
     software and networking products,  primarily for commercial customers.  The
     Company offers its customers  single-source  solutions  customized to their
     information systems needs by combining  value-added services with hardware,
     software,  networking  products and peripherals  from leading  vendors.  To
     date,  most of the Company's  revenue has been derived from product  sales.
     The Company generally does not develop or sell software products.  However,
     certain  computer  hardware  products  sold by the  Company are loaded with
     pre-packaged software products.

          As a result of intense price competition  within the computer industry
     as  well  as  other  industry  conditions,   the  Company  has  experienced
     increasing  pressure on per unit prices as well as on its gross  profit and
     operating  margins  with  respect to the sale of  products.  The  Company's
     strategy  includes  increasing its focus on providing  value added services
     with operating  margins that are higher than those obtained with respect to
     the sale of products. The Company has experienced a significant increase in
     selling,  general  and  administrative  expenses  primarily  in the from of
     increased  personnel costs, in connection with the  implementation  of this
     strategy.  The  Company's  future  performance  will  depend in part on its
     ability to manage  successfully  a continuing  shift in its  operations  to
     value-added services.

          The Company  directly  competes  with  local,  regional  and  national
     systems  integrators,  value-added  resellers  ("VARs") and distributors as
     well as with certain  computer  manufacturers  that market  through  direct
     sales forces. In the future, the Company may face further  competition from
     new market entrants and possible alliances between existing competitors. In
     addition, certain suppliers and manufacturers may choose to market products
     directly  to end  users  through a direct  sales  force  rather  than or in
     addition to channel  distribution.  Some of the Company's competitors have,
     or may have,  greater  financial,  marketing and other  resources,  and may
     offer a broader  range of products and  services,  than the  Company.  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.
     There  can be no  assurance  that  the  Company  will be  able  to  compete
     successfully in the future with these or other current or potential  future
     competitors.

          The Company's  business is dependent upon its relationships with major
     manufacturers in the computer industry.  There can be no assurance that the
     pricing and related terms offered by major manufacturers will not adversely
     change in the future. The failure to obtain an adequate supply of products,
     the  loss of a  major  manufacturer,  the  deterioration  of the  Company's
     relationship  with a major  manufacturer or the Company's  inability in the
     future to develop new relationships with other  manufacturers  could have a
     material  adverse effect on the Company's  business,  results of operations
     and financial condition.

          The Company's largest customer  accounted for approximately 8% and 14%
     (or $11,355,000,  and $20,069,000,  respectively) of the Company's  revenue
     for  the  nine  months  ended  April  30,  1998  and  1997,   respectively,
     substantially  all of which  revenue was derived  from the sale of hardware
     products.  This  customer  accounted for 15% of revenue for the fiscal year
     ended  July 31,  1997.  There can be no  assurance  that the  Company  will
     continue to derive substantial revenue from this customer.
<PAGE>
          The Company's profitability has been enhanced by its ability to obtain
     volume  discounts from certain  manufacturers,  which has been dependent in
     part upon the  Company's  ability to sell  products to computer  resellers,
     including VARs.  There can be no assurance that the Company will be able to
     continue to sell  products  to  resellers  and  thereby  obtain the desired
     discounts  from  the  manufacturers  or that  the  Company  will be able to
     increase  sales to  end-users  to  offset  the need to rely  upon  sales to
     resellers.

          The markets for the Company's  products and services are characterized
     by rapidly changing  technology and frequent  introductions of new hardware
     and software  products and services,  which render many  existing  products
     noncompetitive,  less profitable or obsolete. The Company believes that its
     inventory  controls have contributed to its ability to respond  effectively
     to these technological  changes. As of April 30, 1998 and 1997, inventories
     represented 11% and 19%, respectively, of total assets. For the nine months
     ended April 30, 1998 and 1997,  annualized inventory turnover was 30 and 14
     times,  respectively.  Inventory  turned 17 times in the fiscal  year ended
     July 31, 1997. The failure of the Company to anticipate  technology  trends
     or to continue to  effectively  manage its inventory  could have a material
     adverse  effect  on the  Company's  business,  results  of  operations  and
     financial condition.

          The  Company  believes  its  controls  on  accounts   receivable  have
     contributed   to  its   profitability.   The  Company's  bad  debt  expense
     represented  0.2% of total  revenue in each of the nine month periods ended
     April 30, 1998 and 1997.  For the fiscal year ended July 31, 1997, bad debt
     expense represented 0.2% of total revenues.

          The  Company's  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  the  Company's  products  and  services,  the
     introduction  of new  hardware  and  software  technologies  with  improved
     features,  the  introduction  of  new  services  by  the  Company  and  its
     competitors,  changes in the level of the Company's operating expenses, the
     timely availability of product supply,  competitive conditions and economic
     conditions.  In particular,  the Company currently is increasing certain of
     its  fixed  operating  expenses,   including  a  significant   increase  in
     personnel,  as part of its  strategy  to  increase  its focus on  providing
     higher margin, value-added services. Accordingly, the Company believes that
     period-to-period  comparisons of its operating results should not be relied
     upon as an indication of future  performance.  In addition,  the results of
     any  quarterly  period are not  indicative  of results to be expected for a
     full fiscal year.

          As a result of rapid  changes  that are taking  place in computer  and
     networking technologies,  product life cycles are short.  Accordingly,  the
     Company's  product offerings change  constantly.  Prices of products change
     with  generally  higher  prices  early in the life cycle of the product and
     lower  prices  near the end of the  product's  life  cycle.  Recently,  the
     computer  industry has experienced rapid declines in average selling prices
     of  personal  computers.  In some  instances,  the Company has 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 the Company will be able to offset  declines in average selling prices
     with increases in units shipped.

          The Company has  undertaken a complete  and thorough  review of all of
     its  operations  to determine  those aspects which involve or are dependent
     upon a computer  application.  The Company is  reviewing  the  software and
     operating systems for each such application to determine if it is Year 2000
     compliant.  Any such system or application which is not Year 2000 compliant
     is being  modified or upgraded to assure our  continued  ability to operate
     without  interruption.  This process has been underway since before January
     1, 1998 and is currently on schedule for completion before January 1, 1999.
     The Company  intends to secure  assurances  regarding Year 2000  compliance
     from other companies upon which we may rely for products or services.

          Most  of  the  personal  computers  shipped  by  the  Company  utilize
     operating   systems  developed  by  Microsoft   Corporation.   Windows  98,
     Microsoft's  latest operating  system,  is expected to be available in June
     1998.  The United  States  Department  of Justice has brought an  antitrust
     action  against   Microsoft,   which  could  delay  the   introduction  and
     distribution  of  this,  and  other  Microsoft   products.   The  potential
     unavailability  of Microsoft  products could have a material adverse effect
     on the Company's business, results of operations and financial condition.
<PAGE>
          The Company's Chief  Executive  Officer has entered into an employment
     agreement with the Company under which he receives  annual  compensation of
     $550,000,  exclusive of fringe benefits, through the end of fiscal 1998. In
     addition,  the  Company's  Executive  Vice  President has agreed to receive
     annual base compensation, exclusive of fringe benefits, of $450,000 through
     the end of fiscal 1998.  These officers agreed not to, and did not, receive
     any bonuses for fiscal  1997 and further  agreed that any bonus  payable to
     either of these  officers  in fiscal 1998 will  require  the  approval of a
     majority of the  independent  directors of the Company.  The Company leases
     certain  warehouse  facilities  and offices from entities that are owned or
     controlled by the Company's majority  shareholder.  Each of the leases with
     related  parties was amended  effective  with the closing of the  Company's
     Initial Public Offering to reduce the rent payable under that lease to then
     current market rates.


<PAGE>
Results of Operations

     The  following  table sets forth,  for the periods  indicated,  information
derived from the Company's Condensed Consolidated Statements of Income expressed
as a percentage of related revenue or total revenue.
<TABLE>
<CAPTION>

                                                      Percentage of Revenue
                                       Three Months Ended      Nine Months Ended
                                             April 30,             April 30,
                                         1998       1997        1998      1997
                                         ----       ----        ----      ----
<S>                                      <C>        <C>         <C>        <C>  
    Product Sales                        97.2%      98.3%       97.7%      98.7%
    Services                              2.8        1.7         2.3        1.3
                                          ---        ---         ---        ---
         Total revenue                  100.0      100.0       100.0      100.0
                                        -----      -----       -----      -----

    Cost of Product Sales                85.6       86.1        85.9       86.2
    Cost of Services                     76.6       45.4        74.5       49.1
                                         ----       ----        ----       ----
         Cost of revenue                 85.3       85.4        85.6       85.8
                                         ----      -----        ----       ----

    Product Gross Profit                 14.4       13.9        14.1       13.8
    Services Gross Profit                23.4       54.6        25.5       50.9
                                         ----       ----        ----       ----
         Gross Profit                    14.7       14.6        14.4       14.2

    Selling, general and
       administrative expenses           13.1       11.8        12.9       11.0
                                         ----       ----        ----       ----
    Income from operations                1.6        2.8         1.5        3.2
    Interest and other income, net        0.2        0.5         0.3        0.1
                                          ---        ---         ---        ---
    Income before income taxes            1.8        3.3         1.8        3.3
    Provision for income taxes            0.7        1.3         0.7        1.4
                                          ---        ---         ---        ---
    Net income                            1.1%       2.0%        1.1%       1.9%
                                          ===        ===         ===        === 
</TABLE>                                                          
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997

     Revenue.  The Company's revenue increased $10.0 million or 22.6% from $44.2
million for the three months ended April 30, 1997 to $54.2 million for the three
months ended April 30, 1998.  Product revenue  increased by $9.2 million (21.3%)
due  primarily  to  revenue   generated  from  the  Company's  new  wholly-owned
subsidiaries, Electrograph Systems, Inc. ("Electrograph"), which was acquired on
April 25, 1997,  and Coastal,  which was acquired on January 2, 1998, as well as
increases in the number of personal  computers  shipped.  These  increases  were
partially  offset by lower  shipments to the Company's  major customer and lower
per unit prices for personal computers. Service revenue increased $749,000 (98%)
as a  result  of the  Company's  continued  emphasis  on  providing  value-added
services.

     Gross Profit.  Cost of revenue  includes the direct costs of products sold,
freight and the personnel costs  associated with providing  technical  services,
offset in part by certain market  development  funds provided by  manufacturers.
All other  operating costs are included in selling,  general and  administrative
expenses. Gross profit increased $1.5 million or 24.0% from $6.4 million for the
third quarter of fiscal 1997 to $8.0 million for the most recent fiscal quarter.
Gross profit from the sale of products  increased  by $1.6  million  while gross
profit  from the sale of  services  declined  by  $64,000.  The changes in gross
profit from the sale of products  primarily  results from the changes in revenue
discussed  above.  The decline in gross profit from services is due to increases
in salaries and personnel involved in providing  technical  services,  partially
<PAGE>
offset by higher  revenue.  The current  quarter  cost of services  reflects the
costs of technical and engineering personnel added,  principally in the previous
fiscal  quarter,  as a part of the  Company's  strategy  to grow  higher  margin
service related business. As a percentage of revenue,  gross profit increased to
14.7% in fiscal 1998 as compared to 14.6% in fiscal 1997. Competitive pressures,
changes in types of products or services sold and product availability result in
fluctuation in gross profit.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative expenses increased $1.9 million or 36.4% from $5.2 million in the
third  quarter of fiscal  1997 to $7.1  million in the second  quarter of fiscal
1998.  This increase is  principally  a result of higher  salaries and personnel
costs  related to the  Company's  increased  emphasis on  providing  value-added
services as well as additional operating costs associated with the Company's new
subsidiaries,  Electrograph  and Coastal,  which were acquired on April 25, 1997
and January 2, 1998,  respectively,  and higher  depreciation and  amortization,
training, and legal costs partially offset by lower advertising expenses.

     Interest Income.  Interest income decreased from $217,000 in fiscal 1997 to
$82,000 in fiscal 1998 due to lower cash balances available for investment.

     Provision  for  Income  Taxes.  The  effective  income  tax  rate  remained
relatively constant at approximately 40% of income before income taxes.

Nine Months Ended April 30, 1998 Compared To Nine Months Ended April 30, 1997

     Revenue.  The  Company's  revenue  increased by $10.8  million  (7.7%) from
$139.8  million for the first nine  months of fiscal 1997 to $150.6  million for
the first nine months of fiscal 1998.  The increase is due to revenue from newly
acquired subsidiaries partially offset by lower shipments to the Company's major
customer and lower per unit prices for personal computers. Revenue from services
increased  by 96% over service  revenue for the prior nine month  fiscal  period
while product revenue increased by 6.5% from fiscal 1997 amounts.

     Gross Profit. Gross profit increased $1.8 million (8.8%) from $19.9 million
for the first nine  months of fiscal  1997 to $21.7  million for the most recent
nine month period.  Margins on product sales  improved to 14.1% versus 13.8% due
to better product mix while margins on service offerings  declined from 50.9% to
25.5%  primarily  due to higher  salaries  and  additions  to  personnel  in the
technical services area.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses increased by $4.0 million (25.8%) from $15.5 million in
fiscal 1997 to $19.5 in fiscal 1998. This increase is primarily due to increases
in the personnel  infrastructure as the Company continues to build its sales and
service  organization  and  increase  its  emphasis  on  providing  value  added
services.  Furthermore,  selling,  general and administrative expenses increased
due to the  addition  of the two new  subsidiaries  that  were not a part of the
Company in the comparable period a year ago, as well as higher  depreciation and
amortization,  training and legal expenses partially offset by lower advertising
costs.

     Interest  Income.  Interest income increased due to earnings on investments
made with the proceeds from the Company's initial public offering.

     Provisions  For  Income  Taxes.  The  effective  income  tax rate  remained
relatively constant at approximately 40% of income before income taxes.



<PAGE>




Liquidity and Capital Resources

     Historically,   the  Company's  primary  sources  of  financing  have  been
internally  generated  working capital from profitable  operations and a line of
credit from a financial institution.

     For the nine months ended April 30, 1998, cash used in operating activities
was $2.3 million consisting  primarily of an increase in accounts receivable and
a decrease in accounts  payable and accrued  expenses,  partially  offset by net
income and a decrease  in  inventory.  The  Company's  accounts  receivable  and
accounts  payable and accrued  expenses  balances as well as its  investment  in
inventory  can  fluctuate  significantly  from one period to the next due to the
receipt  of  large  customer   orders  or  payments  or  variations  in  product
availability and vendor shipping patterns at any particular date. Generally, the
Company's  experience is that  increases in accounts  receivable,  inventory and
accounts  payable and accrued  expenses will coincide with growth in revenue and
increased operating levels. In addition,  during the nine months ended April 30,
1998 the Company used approximately $2.5 million for capital expenditures,  $1.8
million to repay indebtedness and $2.9 million (net of cash acquired) to acquire
Coastal and generated $1.9 million from the sale of investments.  On December 2,
1996,  the Company  completed an initial  public  offering (the  "Offering")  of
2,325,000  shares of its common stock  resulting in net proceeds to the Company,
after  deducting  underwriting  discount and expenses,  of  approximately  $20.4
million.

     The  Company  and a  subsidiary  have  available  lines  of  credit  with a
financial  institution in the aggregate amount of $10.0 million. As of April 30,
1998, no amounts are outstanding under these lines.

     The Company believes that its current balances in cash and cash equivalents
and  investments,  expected cash flows from operations and available  borrowings
under the lines of credit will be adequate to support current  operating  levels
for the  foreseeable  future,  specifically  through  at least the end of fiscal
1998.  On March 10,  1998,  the Company  announced  that its Board of  Directors
authorized the expenditure,  through February 28, 1999, of up to $1.8 million to
repurchase  its common  stock.  As of May 19, 1998,  approximately  $1.3 million
remains  available for  repurchases  under the program.  The Company has entered
into  commitments  for the  renovation and expansion of certain of its sales and
service  facilities.  The aggregate  remaining  commitment for these projects is
approximately  $500,000,  which will be paid out of the Company's available cash
balances.  The Company  currently has no other material  commitments for capital
expenditures.  Future capital  requirements of the Company include those for the
growth of working  capital items such as accounts  receivable  and inventory and
the purchase of equipment  and  expansion of  facilities as well as the possible
opening of new offices and potential acquisitions.




<PAGE>



      PART II - OTHER INFORMATION

      Item 1.              Legal Proceedings

           On January 12,  1998,  the Company  announced  that it had reached an
      agreement in principle  settling the Shareholder  Securities  Class Action
      ("Lawsuit") filed against the Company and certain of its officers in March
      1997. The proposed settlement,  which is subject to court approval,  would
      result in the  distribution of $1,350,000  minus approved  attorney's fees
      and related  expenses,  to purchasers of the Company's common stock in the
      Company's  initial public offering,  and during the period of November 26,
      1996 to February 13, 1997. The entire  $1,350,000 cash settlement is to be
      paid by the Company's insurance carrier.

           The  settlement  will  include  a  release  of all  claims  that were
      asserted  or that could have been  asserted  in the  Lawsuit  against  the
      Company  and  its  officers  and  directors.  The  Company  agreed  to the
      settlement  solely to avoid the  expense,  burdens  and  uncertainties  of
      further  litigation  and  continues  to deny that it has any  liability on
      account of the matters  asserted in the litigation or that the Plaintiffs'
      claims have merit.

      Item 2.     Changes in Securities


      Item 6.     Exhibits and Reports

      (a)         Exhibits

       Exhibit No.           Description
         27                  Financial Data Schedule


      (b)        Reports on Form 8-K

                 None





<PAGE>




                         MANCHESTER EQUIPMENT CO., INC.

                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                          MANCHESTER EQUIPMENT CO., INC.
                                          (Registrant)



DATE:  June 10, 1998                      ss: Barry Steinberg
                                              ---------------
                                          Barry Steinberg
                                          President and Chief Executive Officer



DATE:  June 10, 1998                      ss: Joseph Looney
                                              -------------
                                          Joseph Looney
                                          Chief Financial Officer