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# SECURITIES AND EXCHANGE COMMISSION

# WASHINGTON, D.C. 20549

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# 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 October 31, 2000

or

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

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# COMMISSION FILE NUMBER 0-21695

# Manchester Equipment Co., Inc.

# (Exact name of registrant as specified in its charter)

New York

(State or other jurisdiction of Incorporation or organization)

11-2312854

(I.R.S. Employer Identification Number)

# 160 Oser
AvenueHauppauge, New York 11788

(Address of registrant's principal executive offices)

(631) 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.

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

There were 8,013,815
outstanding shares of COMMON STOCK at December 6, 2000.

# MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES

# Table of Contents

PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements
     Condensed Consolidated Balance Sheets
         October 31, 2000 (unaudited) and July 31, 2000

    Condensed Consolidated Statements of Income

         Three months ended October 31, 2000 and 1999 (unaudited)

     Condensed Consolidated Statements of Cash Flows
         Three months ended October 31, 2000 and 1999 (unaudited)

     Notes to Condensed Consolidated Financial Statements

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

PART 2.          OTHER INFORMATION

Item 6.            Exhibits and Reports

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

`October 31,   July 31,
                                                              2000        2000
                                                           (Unaudited)
                                                           -----------   -------
Assets:
  Cash and cash equivalents ............................   $  9,514    $ 16,156
  Accounts receivable, net .............................     35,861      36,024
  Inventory ............................................      8,887       6,797
  Deferred income taxes ................................        579         579
  Prepaid income taxes .................................         83         635
  Prepaid expenses and other current assets ............        413         538
                                                                ---         ---

         Total current assets ..........................     55,337      60,729

  Property and equipment, net ..........................      6,095       6,329
  Goodwill, net ........................................      6,432       6,534
  Deferred income taxes ................................        673         673
  Other assets .........................................        288         308
                                                                ---         ---

                                                           $ 68,825    $ 74,573
                                                           ========    ========
Liabilities:
  Accounts payable and accrued expenses ................   $ 23,561    $ 29,312
  Notes payable ........................................         11          18
  Deferred service contract revenue ....................        875         946
                                                                ---         ---

         Total current liabilities .....................     24,447      30,276

Deferred compensation payable ..........................         34          34
                                                                 --          --
         Total liabilities .............................     24,481      30,310
                                                             ------      ------

Shareholders' equity:
  Preferred stock, $.01 par value; 5,000  shares
     authorized, none issued ...........................         --          --
  Common stock, $.01 par value; 25,000  shares authorized,
     8,014 and 8,159  issued and outstanding ...........         80          82
  Additional paid-in capital ...........................     18,836      19,402
  Deferred compensation ................................        (54)        (65)
  Retained earnings ....................................     25,482      24,844
                                                             ------      ------

         Total shareholders' equity ....................     44,344      44,263
                                                             ------      ------
                                                            $68,825     $74,573
                                                            =======     =======`

See notes to condensed consolidated financial statements.

# Manchester Equipment
Co., Inc. and SubsidiariesCondensed Consolidated Statements of Income
(in thousands, except per share amounts)

`Three months ended October 31,
                                                2000        1999
                                                ----        ----
                                                     Unaudited
                                                     ---------

Revenue
     Products ..............................   $ 79,515   $ 63,448
     Services ..............................      1,627      1,912
                                                  -----      -----

                                                 81,142     65,360
                                                 ------     ------
Cost of revenue
     Products ..............................     70,281     54,287
     Services ..............................      1,104      1,330
                                                  -----      -----

                                                 71,385     55,617
                                                 ------     ------

     Gross profit ..........................      9,757      9,743

Selling, general and administrative expenses      8,885      8,019

     Income from operations ................        872      1,724

Interest expense ...........................         --         (1)
Interest and investment income .............        196        118
                                                    ---        ---

     Income before income taxes ............      1,068      1,841

Provision for income taxes .................        430        755
                                                    ---        ---

     Net income ............................   $    638   $  1,086
                                               ========   ========

Net income per share
     Basic .................................   $   0.08   $   0.13
                                               ========   ========
     Diluted ...............................   $   0.08   $   0.13
                                               ========   ========

Weighted average shares outstanding
     Basic .................................      8,133      8,074
                                                  =====      =====
     Diluted ...............................      8,222      8,076
                                                  =====      =====`

See notes to condensed consolidated financial statements

# Manchester
Equipment Co., Inc. and SubsidiariesCondensed Consolidated Statements of
Cash Flows(in thousands)

`For the three months
                                                               ended October 31,
                                                                2000       1999
                                                                ----       ----
                                                                   (Unaudited)
                                                                   -----------
Cash flows from operating activities:
         Net income ......................................       638    $ 1,086

  Adjustments to reconcile net income to net cash from
    operating activities:
       Depreciation and amortization .....................       543        474
       Allowance for doubtful accounts ...................       117        (51)
       Non cash compensation and commission expense ......        11          7

  Change in assets and liabilities:
    Decrease in accounts receivable .......................        46     2,716
    Decrease (increase) in inventory ......................    (2,090)    1,130
    Decrease in prepaid income taxes ......................       552      --
    Decrease in prepaid expenses and
        other current assets ..............................       125       103
    Decrease  in other assets .............................        20        19
    Increase (decrease) in accounts payable and
        accrued expenses ..................................    (5,751)    2,179
    Increase (decrease) in deferred service contract revenue      (71)       34
    Increase  in income taxes  payable .....................       --       166
                                                                  ---       ---

         Net cash provided by (used in) operating activities   (5,860)    7,863
                                                                ------     -----
  Cash flows from investing activities:
    Capital expenditures ...................................     (207)      (40)
                                                                 ----       ---
         Net cash used by investing activities .............     (207)      (40)
                                                                 ----       ---
Cash flows from financing activities:
    Payments on notes payable - other ......................       (7)     --
    Payments on capital lease obligations ..................       --       (31)
    Purchase and retirement of common stock ................     (574)     (133)
    Issuance of common stock upon exercise of options ......        6        --
                                                                  ---        ---

        Net cash used in financing activities .............      (575)     (164)
                                                                 ----      ----

  Net (decrease) increase in cash and cash
   equivalents ..........                                      (6,642)    7,659
   Cash and cash equivalents at beginning of period .......    16,156     5,749
                                                               ------     -----
  Cash and cash equivalents at end of period ..............   $ 9,514   $13,408
                                                              ========  ========`

See notes to condensed consolidated financial statements.

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

## 1. Organization and Basis of Presentation

Manchester
          Equipment   Co.,   Inc.    (Manchester,    we,
     us,   our,   or  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 integrating its analysis,  design and implementation 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 may 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 October 31, 2000 and the results of operations for the three
months ended October 31, 2000 and 1999 and cash flows for the three months ended
October 31, 2000 and 1999. 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, 2000, included in the
Companys Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.

## 2. Net Income Per Share

Basic
net income per share has been computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share has
been computed by dividing net income by the weighted average number of common
shares outstanding, plus the assumed exercise of dilutive stock options and
warrants, less the number of treasury shares assumed to be purchased from the
proceeds of such exercises using the average market price of the Companys
common stock during each respective period. Stock options and warrants
representing 210,000 and 833,100 shares for the three months ended October 31,
2000 and 1999, respectively, are excluded from the calculation of diluted net
income per share when the result would be antidilutive. The following table
reconciles the denominators of the basic and diluted per share computations. For
each period, the numerator is the net income as reported.

`(shares in thousands)
                                               Three months ended October 31,
                                             2000                  1999
                                             ----                  ----
                                                Per share             Per share
                                    Shares      amount      Shares    amount
                                    ------      ------      ------    ------
      Basic                           8,133        $0.08      8,074     $0.13
                                                   =====                =====
      Effect of dilutive  options        89                       2
                                         --                       -

      Diluted                         8,222        $0.08      8,076     $0.13
                                      =====        =====      =====     =====`

`Three months ended October 31,
                                                    2000             1999
                                                    ----             ----
                                                        (in thousands)
      Cash paid for income taxes                     $62             $745
                                                     ===             ====`

# 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 Manchester  should be read in conjunction with our
     condensed  consolidated  financial  statements  and notes thereto  included
     elsewhere in this Quarterly  Report on Form 10-Q and with our Annual Report
     on 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, 2000, and
     those set forth in the  Company's  other filings from time to time with the
     Securities and Exchange Commission.

## General

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

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

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

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

To date,  our success has been based  primarily  upon sales in the New
     York Metropolitan area. Our strategy, encompassing the expansion of service
     offerings,  the expansion of existing offices and the  establishment of new
     regional offices,  has challenged and will continue to challenge our senior
     management and  infrastructure.  We can't 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.

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

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

Our  business  is  dependent   upon  our   relationships   with  major
     manufacturers  and distributors in the computer  industry.  Many aspects of
     our business are affected by our  relationships  with major  manufacturers,
     including  product  availability,  pricing and related terms,  and reseller
     authorizations.  The increasing demand for personal computers and ancillary
     equipment has resulted in significant products shortages from time to time,
     because  manufacturers have been unable to produce sufficient quantities of
     certain products to meet demand. We can't 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 can't  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.

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 conditions and results of operations.

The markets for our products and services are characterized by rapidly changing technology and frequent introduction of new hardware and
     software products and services.  This may render many existing products and
services noncompetitive, less profitable or obsolete. Our continued success will
depend on our ability to keep pace with the  technological  developments  of new
products  and  services  and  to  address  increasingly  sophisticated  customer
requirements.  Our success  will also depend upon our  abilities  to address the
technical requirements of our customers arising from new generations of computer
technologies,  to obtain these new products from present or future suppliers and
vendors at reasonable  costs,  to educate and train our employees as well as our
customers  with  respect to these new  products  or  services  and to  integrate
effectively  and efficiently  these new products into both our internal  systems
and  systems  developed  for  our  customers.   We  may  not  be  successful  in
identifying,  developing  and  marketing  product  and service  developments  or
enhancements in response to these technological  changes. Our failure to respond
effectively to these technological changes may have a material adverse effect on
our business, financial condition and results of operations.

Rapid product improvement and technological change characterize the computer industry.  This results in relatively short product life cycles
     and rapid product  obsolescence,  which can place inventory at considerable
valuation risk. Certain of our suppliers provide limited 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.  During  fiscal
2000,  certain  manufacturers  reduced the period for which they  provide  price
protection  and stock  balancing  rights.  Although we maintain a  sophisticated
proprietary  inventory  management  system,  we  can't  assure  you that we will
continue to successfully  manage our existing and future inventory.  Our failure
to  successfully  manage  our  current or future  inventory  may have a material
adverse   effect  on  our  business,   financial   conditions   and  results  of
operations.

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

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

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

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

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

## Results of Operations

The following table sets forth, for the periods indicated,  information derived from our Condensed  Consolidated  Statements
      of Income expressed as a percentage of related revenue or total revenue.

`Percentage of Revenues
                                  Three Months Ended
                                      October 31,
                                      -----------
                                    2000     1999
                                    ----     ----
Product Sales ................      98.0%    97.1%
Services .....................       2.0      2.9
                                     ---      ---
     Total revenue ...........     100.0    100.0
                                   -----    -----
Cost of Product Sales ........      88.4     85.6
Cost of Services .............      67.9     69.6
                                    ----     ----
     Cost of revenue .........      88.0     85.1
                                    ----     ----

Product Gross Profit .........      11.6     14.4
Services Gross Profits .......      32.1     30.4
                                    ----     ----
     Gross Profit ............      12.0     14.9

Selling, general and
   administrative expenses ...      10.9     12.3
                                    ----     ----
Income from operations .......       1.1      2.6
Interest and other income, net       0.2      0.2
                                     ---      ---
Income before income taxes ...       1.3      2.8
Provision for income taxes ...       0.5      1.1
                                     ---      ---
Net income ...................       0.8%     1.7%
                                     ===      ===`

## Three  Months Ended  October 31, 2000  Compared to
Three Months Ended October 31, 1999

Revenue.

Our revenue increased $15.8 million (24.1%) from $65.4 million for the three
months ended October 31, 1999 to $81.1 million for the three months ended
     October 31, 2000. Product revenue increased by $16.1 million (25.3%) due
primarily to increases in shipments of monitors and displays as well as
increases in shipments of computers partially offset by lower average selling
prices for personal computers. Service revenue decreased $285,000 (14.9%) due
primarily to lower revenues generated by our permanent and temporary staffing
division.

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 $14,000 (0.1%) from $9.7 million
for the first  quarter of fiscal 1999 to $9.8 million for the most recent fiscal
quarter. Gross profit from the sale of products increased by $73,000 while gross
profit from the sale of  services  decreased  by  $59,000.  The changes in gross
profit  primarily  result  from the  changes in revenue  discussed  above.  As a
percentage of revenue,  gross profit  decreased to 12.0% in the first quarter of
fiscal  2001  as  compared  to  14.9%  in  fiscal  2000.  Increased  competitive
pressures,  changes in types of products and services sold, reductions in volume
incentives  available  from  manufacturers  all  contributed to the reduction in
gross profit margins despite the increase in revenues discussed above.

Selling,
General and Administrative Expenses. Selling, general and administrative
expenses increased $866,000 or 10.8% from $8.0 million in the first quarter of
fiscal 2000 to $8.9 million in the first quarter of fiscal 2001. This increase
is principally a result of higher salaries, personnel and commission costs as
well as higher bad debt expense and depreciation and amortization expense
partially offset by lower insurance costs.

Interest
and Investment Income.Interest and investment income increased by $78,000
due to higher cash balances available for investments as well as higher interest
rates.

Provision
for Income Taxes. The effective income tax rate decreased slightly to 40.3%
of pretax income in the current period compared to 41.0% of pretax income in the
prior years period.

## Liquidity and Capital Resources

Our
primary sources of financing have been internally generated working capital from
profitable operations and a line of credit from financial institutions.

For
the three months ended October 31, 2000, cash used in operating activities was
$5.9 million consisting primarily of increases in inventory and, a decrease in
accounts payable and accrued expenses, partially offset by net income,
depreciation and amortization and a decrease in prepaid income taxes. Our
accounts receivable and accounts payable and accrued expenses, balances as well
as our investment in inventory can fluctuate significantly from one period to
the next due to the receipt of large customer orders or payments or variations
in product availability and vendor shipping patterns at any particular date.
Generally, our experience is that increases in accounts receivable, inventory
and accounts payable and accrued expenses will coincide with growth in revenue
and increased operating levels. In addition, during the three months ended
October 31, 2000 we used approximately $207,000 for capital expenditures, and
$574,000 to repurchase and retire common stock.

We
have an available line of credit with financial institutions in the aggregate
amount of $15.0 million. No amounts were outstanding under this line as of
October 31, 2000.

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  2001.  We  currently  have no
material  commitments  for capital  expenditures.  Future  capital  requirements
include  those  for the  growth  of  working  capital  items  such  as  accounts
receivable  and  inventory  and the  purchase  of  equipment  and  expansion  of
facilities  as  well  as the  possible  opening  of new  offices  and  potential
acquisitions.

## New Accounting Pronouncements

Effective
     August 1, 2000,  we  implemented  t he  provisions  of Financial  Accounting
Standards  No. 133,  Accounting  for  Derivative  Instruments  and Hedging
Activities,  as amended.  The adoption of this new standard did not have a
material impact on our consolidated financial statements.

PART II - OTHER INFORMATIONItem 6.     Exhibits and Reports

`(a)     Exhibits
              --------

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

         27                  Financial Data Schedule


      (b)     Reports on Form 8-K
              -------------------

      None`

# 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.                                         BR>.
                                          (Registrant)



DATE:  December 12, 2000                  /s/ Barry Steinberg
                                            ------------------
                                          Barry Steinberg
                                          President and Chief Executive Officer



DATE:  December 12, 2000                   /s/ Joseph Looney
                                           ----------------
                                          Joseph Looney
                                          Chief Financial Officer`