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 January 31, 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 8,545,000 outstanding shares of COMMON STOCK at February 27,
1998.






<PAGE>



                 MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES

                                      Index

PART I.      FINANCIAL INFORMATION                                        Page

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

             Condensed Consolidated Statements of Income
                    Three months and six months ended
                     January 31, 1998 and 1997 (unaudited)                    4

             Condensed Consolidated Statements of Cash Flows
                    Six months ended January 31, 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                      9


PART II.     OTHER INFORMATION

Item 1.      Legal Proceedings                                               15

Item 2.      Changes in Securities                                           15

Item 4.      Submission of Matters to a Vote of Security Holders             15

Item 6.      Exhibits and Reports                                            16


















<PAGE>

PART I  FINANCIAL INFORMATION

ITEM 1.            Financial Statements

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

<TABLE>
<CAPTION>
                                                    January 31,
                                                       1998       July 31, 1997
                                                       ----       -------------
                                                    (Unaudited)
<S>                                                   <C>           <C>

Assets:
  Cash and cash equivalents                           $ 10,412       $ 15,049
  Investments                                                -          4,408
  Accounts receivable, net                              26,271         21,473
  Inventory                                              7,549         10,127
  Deferred income taxes                                    440            440
  Prepaid expenses and other current assets                993            248
                                                           ---            ---
         Total current assets                           45,665         51,745

  Property and equipment, net                            5,328          4,073
  Goodwill, net                                          4,438          1,524
  Deferred income taxes                                    379            379
  Other assets                                             737            487
                                                           ---            ---
                                                       $56,547        $58,208
                                                       =======        =======
Liabilities:
  Current maturities under capital lease obligations   $   142        $    99
  Notes payable - bank                                       -          1,274
  Notes payable - other                                     66            264
  Accounts payable and accrued expenses                 17,708         19,283
  Deferred service revenue                                 540            247
                                                           ---            ---
         Total current liabilities                      18,456         21,167

  Capital lease obligations, less current maturities        27             77
  Deferred compensation payable                             87             87
                                                            --             --

         Total liabilities                              18,570         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
   and outstanding                                          85             85
  Additional paid-in capital                            20,510         20,403
  Retained earnings                                     17,382         16,389
                                                        ------         ------
         Total shareholders' equity                     37,977         36,877
                                                        ------         ------
                                                                                         ------                ------
                                                       $56,547        $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 share and per share amounts)
                                    Unaudited
<TABLE>
<CAPTION>

                   Three months ended January 31,   Six months ended January 31,
                              1998        1997          1998           1997
                              ----         ----         ----           ----
<S>                         <C>          <C>            <C>          <C>
Revenue
  Products                  $48,308      $44,046        $94,416      $94,636
  Services                    1,064          638        2,012          1,035
                              -----          ---        -------        -----
                             49,372       44,684         96,428       95,671
                             ------       ------         ------       ------
Cost of revenue
  Products                   41,665       38,112         81,266       81,649
  Services                      803          271          1,466          542
                                ---          ---          -----          ---
                             42,468       38,383         82,732       82,191
                             ------       ------         ------       ------

    Gross profit              6,904        6,301         13,696       13,480

Selling, general and
   administrative expenses    6,705        5,105         12,404       10,293
                              -----        -----         ------       ------

    Income from operations      199        1,196          1,292        3,187

Interest expense                (23)         (71)           (33)        (191)
Interest income                 203          122            404          127
Other income                      -           23              -           23
                                ---           --            ---          ---

   Income before income taxes   379        1,270          1,663        3,146

Provision for income taxes      148          521            670        1,296
                               ----          ---            ---        -----

   Net income                $  231         $749          $ 993       $1,850
                             ======         ====          =====       ======

Net Income per share
   Basic                      $0.03      $  0.10         $0.12         $0.26
                              =====      =======         =====         =====
   Diluted                    $0.03      $  0.10         $0.12         $0.26
                              =====      =======         =====         =====

Weighted average
  shares outstanding      8,531,304    7,867,935      8,528,152    7,033,968
                          =========    =========      =========    =========

</TABLE>


See notes to condensed consolidated financial statements.

                                       4



<PAGE>



                 Manchester Equipment Co., Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                            For the six months ended January 31,
                                                    1998                 1997
                                                          (Unaudited)
                                                 ----------------------------

<S>                                                     <C>           <C>
Cash flows from operating activities:
         Net income                                     $  993         $1,850
  Adjustments to reconcile net income
   to net cash from operating activities:
         Depreciation and amortization                     550            285
         Allowance for doubtful accounts                   192            185
         Stock compensation expense                         27              -
  Change in  assets and liabilities net of
   the  effects of the  purchase of Coastal:
         Increase in accounts receivable                (4,522)        (2,140)
         Decrease (increase) in inventory                3,500         (1,762)
         Increase  in prepaid expenses and
             other current assets                         (715)           (87)
         (Increase) decrease in other assets               (90)           209
         Decrease in accounts payable and
             accrued expenses                           (2,647)        (2,706)
         Decrease in deferred service contract revenue     (22)            (3)
         Decrease  in income taxes  payable                  -           (295)
         Increase in deferred compensation payable           -             85
                                                          ----          -----

         Net cash used in operating activities          (2,734)        (4,379)
                                                        ------         ------

Cash flows from investing activities:
         Capital expenditures                           (1,648)          (342)
         Proceeds from sale of assets                        -             54
         Proceeds from sale of investments               4,408              -
         Payment for the purchase of Coastal,
           net of cash acquired                         (2,921)             -
                                                        ------            ---
              Net cash used in investing activities       (161)          (288)
                                                          ----           ----

Cash flows from financing activities:
         Net repayments of borrowings                   (1,274)        (6,500)
         Payments on notes payable-shareholder               -           (235)
         Payments on capital lease obligations             (53)           (40)
         Net proceeds from initial public offering           -         20,414
         Payments on notes payable - other              (  415)             -
                                                           ---          -----

              Net cash (used in) provided by
               financing activities                     (1,742)        13,639
                                                        ------         ------
Net increase (decrease) in cash and cash equivalents    (4,637)         8,972
     Cash and cash equivalents at beginning of period   15,049          5,774
                                                        ------          -----
Cash and cash equivalents at end of period             $10,412        $14,746
                                                       =======        =======
</TABLE>
See notes to condensed consolidated financial statements.

                                       5

<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 a systems 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 January 31, 1998 and the results
      of  operations  for the three months and six months ended January 31, 1998
      and 1997 and cash  flows for the six months  ended  January  31,  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 six month
      periods  ended  January 31,  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

                                       6
 <PAGE>
      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.  For the periods  presented,  stock options and warrants have been
      excluded  from the  calculation  of diluted net income per share since 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 Maryland corporation and 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.

     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 three and six months ended January 31, 1998 and 1997 assume that

                                       7
<PAGE>
      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:

                                Three months ended           Six months ended
                                   January 31,                 January 31,
                                 1998         1997          1998         1997
                                 ----         ----          ----         ----
                                 (in thousands)               (in thousands)

         Revenues                $50,802    $51,884       $100,003     $110,071
         Net income                  242        809          1,019        2,007
         Net income per share      $0.03      $0.10          $0.12        $0.28

         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.

                                        8


<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 a systems 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 revenues have 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'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
                                        9
 <PAGE>
      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 12%
      (or $7,698,000,  and $11,480,000,  respectively) of the Company's revenues
      for  the six  months  ended  January  31,  1998  and  1997,  respectively,
      substantially all of which revenues were derived from the sale of hardware
      products.  This customer accounted for 15% of revenues for the fiscal year
      ended July 31,  1997.  There can be no  assurance  that the  Company  will
      continue to derive substantial revenues from this customer.

           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  January  31,  1998  and  1997,
      inventories  represented 13% and 17%,  respectively,  of total assets. For
      the six months  ended  January  31,  1998 and 1997,  annualized  inventory
      turnover was 22 and 15 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 revenues in each of the six month periods ended
      January 31, 1998 and 1997.  For the fiscal year ended July 31,  1997,  bad
      debt expense represented 0.2% of total revenues.

           The Company's  quarterly  revenues and operating  results have varied
      significantly  in the past and are  expected  to  continue to do so in the
      future.  Quarterly revenues 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
                                       10
<PAGE>
      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 which 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'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. 

                                       11

<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   Six Months Ended
                                              January 31,        January 31,
                                           1998       1997     1998       1997
                                           ----       -----    ----       ----
<S>                                        <C>        <C>       <C>       <C>
         Product Sales                     97.8%      98.6%     97.9%     98.9%
         Services                           2.2        1.4       2.1       1.1
                                            ---        ---       ---       ---
              Total revenue               100.0      100.0     100.0     100.0
                                          -----      -----     -----     -----

         Cost of Product Sales             86.2       86.5      86.1      86.3
         Cost of Services                  75.5       42.5      72.9      52.4
                                           ----       ----      ----      ----
              Cost of revenue              86.0       85.9      85.8      85.9
                                          -----      -----      ----      ----

         Product Gross Profit              13.8       13.5      13.9      13.7
         Services Gross Profits            24.5       57.5      27.1      47.6
                                           ----       ----      ----      ----
              Gross Profit                 14.0       14.1      14.2      14.1
                                           ----       ----      ----      ----

         Selling, general and
            administrative expenses        13.6       11.4      12.9      10.8
                                          -----       ----      ----      ----
         Income from operations             0.4        2.7       1.3       3.3
         Interest and other income, net     0.4        0.1       0.4      .0
                                           ----        ---       ---    ----
         Income before income taxes         0.8        2.8       1.7       3.3
         Provision for income taxes         0.3        1.1       0.7       1.4
                                          -----       ----       ---       ---
         Net income                         0.5%       1.7%      1.0%      1.9%
                                          ======      =====      ===       ===
</TABLE>

     Three Months Ended  January 31, 1998 Compared to Three Months Ended October
     31, 1997

          Revenue.  The Company's  revenue  increased $4.7 million or 10.5% from
     $44.7  million for the three months ended January 31, 1997 to $49.4 million
     for the three months ended January 31, 1998.  Product revenue  increased by
     $4.3 million  (9.7%) 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 numbers 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  $426,000  (67%) 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 $603,000 or 9.6% from
      $6.3 million for the second quarter of fiscal 1997 to $6.9 million for the
      most  recent  fiscal  quarter.  Gross  profits  from the sale of  products
      increased  by  $709,000  while  gross  profit  from the  sale of  services
      declined  by  $106,000.  The  changes  in gross  profits  from the sale of
      products  primarily  results from the changes in revenue  discussed above.
      The decline in gross profit from service  offerings is due to increases in
      salaries and  personnel  involved in  providing  technical  services.  The
                                       12
<PAGE>
      Company continues to add technical and engineering personnel as a means of
      growing service related business. As a percentage of revenue, gross profit
      decreased  to 14.0% in fiscal 1998 as  compared  to 14.1% 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 $1,600,000 or 31.3% from $5.1 million in
      the second quarter of fiscal 1997 to $6.7 million in the second quarter of
      fiscal 1998. This increase is principally a result of additional personnel
      and  higher  salaries  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 increased from $122,000 in fiscal
      1997 to $203,000 in fiscal 1998 due to earnings on short term  investments
      made with  certain  of the  proceeds  from the  Company's  initial  public
      offering.

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

     Six Months Ended  January 31, 1998 Compared To Six Months Ended January 31,
     1997

          Revenue. The Company's revenue increased by $757,000 (0.8%) from $95.7
     million  for the first six months of fiscal  1997 to $96.4  million for the
     first six 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 service offerings  increased by 94% over service revenue for the prior
     year fiscal period while product revenue  declined by 0.2% from fiscal 1997
     amounts.

              Gross Profit.  Gross profit  increased  $216,000 (1.6%) from $13.5
      million for the first six months of fiscal  1997 to $13.7  million for the
      most recent six month period.  Margins on product sales  improved to 13.9%
      versus 13.7% due to better product mix while margins on service  offerings
      declined  from  47.6%  to  27.1%  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 $2.1  million  (20.5%)  from $10.3
      million in fiscal 1997 to $12.4 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,  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.

                                       13



<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 six months  ended  January 31,  1998,  cash used in  operating
     activities was $2.7 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 three months ended  January 31, 1998 the Company used
     approximately $1.6 million for capital expenditures,  $1.7 million to repay
     indebtedness and $2.9 million (net of cash acquired) to acquire Coastal and
     generated $4.4 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. No amounts
      are currently 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. 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 $750,000,  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.
                                       14



<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
      Manchester  Equipment  and its  officers  and  directors.  The Company has
      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

      Recent Sales of Unregistered Securities

          In connection  with  employment  agreements  entered into with the two
     former  shareholders  of Coastal,  on January 2, 1998 the Company issued to
     each such  shareholder  10,000 shares of its common stock.  Such shares are
     unregistered, were issued under Section 4(2) of the Securities Act of 1933,
     as amended,  and are restricted in that they vest ratably over a three year
     period  commencing on the date of issuance,  with all unvested shares being
     forfeited  and  canceled  if the  individual's  employment  is  voluntarily
     terminated  or  terminated   for  cause  (as  defined  in  the   employment
     agreement).  The  individuals  acquired the shares for  investment  and the
     stock certificates representing the shares were duly legended.

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

             On  January  14,  1998 the  Company  held  its  Annual  Meeting  of
      Shareholders  to (1) elect five  Directors  to serve until the 1999 Annual
      Meeting of  Shareholders;  and (2) ratify the  reappointment  of KPMG Peat
      Marwick  LLP as  independent  auditors  of the Company for the year ending
      July 31, 1998.

             The  results of the voting for the  election of  Directors  were as
follows:
<TABLE>
<CAPTION>

                                                                  Broker
           Nominee          For        Withheld      Abstain     Non-votes
           ---------------------------------------------------------------
<S>                        <C>         <C>           <C>             <C>

      Barry R. Steinberg   7,780,145   225,400        0               0
      Joel G. Stemple      7,780,145   225,400        0               0
      Joel Rothlein        7,781,145   224,400        0               0
      George Bagetakos     7,781,145   224,400        0               0
      Julian Sandler       7,781,145   224,400        0               0
</TABLE>
                                       15
<PAGE>
             Accordingly,  each of the five nominees received a plurality of the
      total votes that were cast.

             The results of the voting on the ratification of the appointment of
      KPMG  Peat  Marwick  LLP as the  Company's  independent  auditors  were as
      follows:

<TABLE>
<CAPTION>
                                                                       Broker
                           For               Against   Abstain        Non-votes
                           ---               -------   -------        ---------
<S>                   <C>                    <C>      <C>             <C>
                      7,973,645              6,400     25,500            0
</TABLE>

             Accordingly, the number of shares voted for the ratification of the
      appointment  of KPMG Peat  Marwick  constituted  a majority  of the shares
      present in person or represented by proxy.

      Item 6.     Exhibits and Reports

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

      Exhibit No.      Description
      -----------      -----------
      10.5.j           Lease dated October 1, 1997 between Registrant and
                       Spanish River Executive Plaza, Ltd. a/k/a Century
                       Financial Plaza

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

      10.12            Definitive Purchase Agreement and Indemnity Agreement
                       between Registrant and Coastal Office Products, Inc.

         27            Financial Data Schedule


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

      None


                                       16


<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:  March   12, 1998                    s/s Barry Steinberg
                                           -------------------
                                           Barry Steinberg
                                           President and Chief Executive Officer



DATE:  March   12, 1998                    s/s Joseph Looney
                                           -----------------
                                           Joseph Looney
                                           Chief Financial Officer
                                       17