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 October 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 8,096,600  outstanding shares of COMMON STOCK at December 7,
1998.






<PAGE>



                 MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES

                                Table of Contents

PART I.     FINANCIAL INFORMATION                                          Page

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

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

            Condensed Consolidated Statements of Cash Flows
               Three months ended October 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                       8


PART II.    OTHER INFORMATION


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)
<TABLE>
<CAPTION>

                                                October 31,  1998  July 31, 1998
                                                                   -------------
                                                 (Unaudited)     
                                                 -----------     
<S>                                                  <C>             <C>    
Assets:
  Cash and cash equivalents                           $  9,802        $  7,816
  Investments                                            1,500           1,501
  Accounts receivable, net                              29,662          26,296
  Inventory                                              9,742           9,167
  Deferred income taxes                                    482             482
  Prepaid expenses and other current assets                114             290
                                                           ---             ---
         Total current assets                           51,302          45,552

  Property and equipment, net                            6,147           5,975
  Goodwill, net                                          5,133           4,325
  Deferred income taxes                                    475             475
  Other assets                                             582             567
                                                           ---             ---

                                                       $63,639         $56,894
                                                       =======          =======

Liabilities:
  Current maturities under capital lease
   obligation                                         $    53          $    82
  Accounts payable and accrued expenses                24,503           18,358
  Deferred service revenue                                698              775
  Income taxes payable                                    339              225
                                                          ---              ---
         Total current liabilities                     25,593           19,440


  Deferred compensation payable                           109              109
                                                          ---              ---

         Total liabilities                             25,702           19,549
                                                       ------           ------

Shareholders' equity:
  Preferred stock, $.01 par value; 5,000,000
    shares authorized, none issued                          -                -
  Common stock, $.01 par value; 25,000,000
    shares authorized, 8,096,600 issued and
    outstanding                                           81                81
  Additional paid-in capital                          18,785            18,767
  Deferred compensation                                  (58)              (64)
  Retained earnings                                   19,129            18,561
                                                      ------            ------

         Total shareholders' equity                   37,937            37,345
                                                      ------            ------

                                                     $63,639           $56,894
                                                     =======           =======
</TABLE>

See notes to condensed consolidated financial statements.
<PAGE>

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

                                                 Three months ended October 31,
                                                      1998                1997
                                                      ----                ----
                                                             Unaudited
                                                             ---------
<S>                                                 <C>               <C>    

Revenue
       Products                                    $55,675            $46,108
       Services                                      1,824                948
                                                     -----                ---
                                                    57,499             47,056
                                                    ------             ------
Cost of revenue
       Products                                     48,382             39,601
       Services                                     _1,104                663
                                                    49,486             40,264
                                                    ------             ------

       Gross profit                                  8,013              6,792

Selling, general and
    administrative expenses                          7,185              5,699
                                                     -----              -----

       Income from operations                          828              1,093

Interest expense                                        (2)               (10)
Interest income                                        115                201
                                                   -------             ------

       Income before income taxes                      941              1,284

Provision for income taxes                             373                522
                                                       ---                ---

       Net income                                   $  568               $762
                                                     =====               ====

Net Income per share - Basic                         $0.07              $0.09
                                                     =====              =====
Net income per share - Diluted                       $0.07              $0.09
                                                     =====              =====

Weighted average shares outstanding - Basic       8,096,600         8,525,000
                                                  =========         =========
Weighted average shares outstanding - Diluted     8,096,600         8,525,000
                                                  =========         =========
                                                                                          
</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 three months ended October 31,
                                                          1998            1997
                                                      ------------------------
                                                              (Unaudited)
<S>                                                 <C>                   <C> 
                                                              -----------
Cash flows from operating activities:
         Net income                                       $ 568          $762

  Adjustments to reconcile net income to
      net cash from operating activities:
         Depreciation and amortization                      424           266
         Allowance for doubtful accounts                     87            96
         Non cash compensation and commission 
          expense                                            24            15
  Change in assets and liabilities:
         Increase in accounts receivable                 (3,453)       (1,177)
         (Increase) decrease in inventory                  (575)        1,342
         Decrease in prepaid expenses and
            other current assets                            176           138
         Increase in other assets                           (15)         (116)
         Increase (decrease) in accounts payable and
             accrued expenses                             5,274        (2,090)
         Decrease in deferred service contract revenue      (77)          (26)
         Increase  in income taxes  payable                 114           377
         Sale of investments                                  1         1,903
                                                           ----         -----

         Net cash provided by operating activities        2,548         1,490
                                                          -----         -----

Cash flows from investing activities:
         Capital expenditures                              (533)         (439)
                                                          -----          ----

              Net cash used by investing activities        (533)         (439)
                                                            ---           ---

Cash flows from financing activities:
         Net repayments of borrowings                         -        (1,274)
         Payments on capital lease obligation               (29)          (25)
         Payments on notes payable - other                    -            99
                                                              -            --
              Net cash used in financing activities         (29)       (1,398)
                                                            ---        ------
Net increase (decrease) in cash and cash equivalents      1,986          (347)
      Cash and cash equivalents at beginning of period    7,816        15,049
                                                          -----        ------
Cash and cash equivalents at end of period               $9,802       $14,702
                                                         ======       =======
See notes to condensed consolidated financial statements.

</TABLE>

<PAGE>



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

   1. Organization and Basis of Presentation

         Manchester  Equipment Co., Inc. (the "Company") is a network 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 October 31, 1998 and the results
      of  operations  for the three months  ended  October 31, 1998 and 1997 and
      cash flows for the three months ended October 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, 1998,  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 month  periods ended
      October  31,  1998 has 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.  Acquisition of 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
<PAGE>  
     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.  Contingent payments of up to $1,050 in each of
     calendar  1998 and 1999 will be  determined  based upon  Coastal  achieving
     certain  agreed upon  increases  in revenue and pretax  income for calendar
     1998 and 1999 over calendar  1997  amounts.  The cash payment was made from
     the Company's cash balances.  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.  As of October 31, 1998,  the Company has recorded
     an additional  purchase price of $871,000,  of which $800,000  represents a
     contingent payment due on March 15, 1999. The selling shareholders received
     employment  agreements that also provided for the issuance of 20,000 shares
     of common stock.  The fair value of the common stock,  amounting to $80,000
     was  recorded  as  deferred  compensation  and is being  expensed  over the
     three-year vesting period.

         Operating results of Coastal are included in the Condensed Consolidated
      Statement of Income from the date of acquisition. The acquisition resulted
      in goodwill of $3,836,000  which is being  amortized on the  straight-line
      basis over 20 years.

         The following  unaudited pro forma  consolidated  results of operations
      for the three  months  ended  October  31,  1997  assume  that the Coastal
      acquisition  occurred  on  August  1,  1997  and  reflect  the  historical
      operations  of the  purchased  business  adjusted  for lower  interest  on
      invested funds,  contractually  revised officer  compensation and rent and
      increased amortization, net of applicable income taxes, resulting from the
      acquisition:

                                                 Three months ended
                                                  October 31, 1997
                                                  (in thousands,
                                             except per share amounts)
                  Revenue                             $49,090
                                                       ======
                  Net income                             $848
                                                         ====
                  Net income per share                  $0.10
                                                         ====

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



<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 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, 1998,  and those set forth in the  Company's  other filings
      from time to time with the Securities and Exchange Commission.

      General

           The  Company  is  a  network  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 form 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
 <PAGE>   
     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 7% and 10%
      (or $3,939,000, and $4,502,000, respectively) of the Company's revenue for
      the  three  months  ended   October  31,  1998  and  1997,   respectively,
      substantially  all of which  revenue was derived from the sale of hardware
      products.  This  customer  accounted for 7% of revenue for the fiscal year
      ended July 31,  1998.  There can be no  assurance  that the  Company  will
      continue to derive substantial revenue 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 large quantities of
      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 October 31, 1998 and July 31, 1998,
      inventories  represented 15% and 16%,  respectively,  of total assets. For
      the three months  ended  October 31, 1998 and 1997,  annualized  inventory
      turnover was 20 and 18 times,  respectively.  Inventory turned 17 times in
      the fiscal  year  ended  July 31,  1998.  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 three  month  periods
      ended October 31, 1998 and 1997.  For the fiscal year ended July 31, 1998,
      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 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
      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
<PAGE>      
     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.

           Most  of  the  personal  computers  shipped  by the  Company  utilize
      operating  systems developed by Microsoft  Corporation.  The United States
      Department of Justice has brought an 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 the  Company's  business,  results  of  operations  and
      financial condition.

      Year 2000 Issue

           Many existing  computer  systems,  including certain of the Company's
      internal systems as well as those that the Company sells to customers, use
      only the last two digits to identify years in the date field. As a result,
      those  systems may not  accurately  distinguish  years in the 21st century
      from years in the 20th  century,  or may not function  properly when faced
      with years later than 1999.  This problem is generally  referred to as the
      "Year 2000 Issue."  Computer  systems that are able to deal correctly with
      dates after 1999 are referred to as "Year-2000-Compliant."


      Year 2000 Readiness Disclosure

           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 the Company's
      continued ability to operate without  interruption.  This process has been
      underway  since  before  January 1, 1998 and is  currently on schedule for
      completion in the first  calendar  quarter of 1999.  The Company is in the
      process of obtaining  assurances regarding Year 2000 compliance from other
      companies upon which it may rely for products or services.

           The  Company  expects  to  implement  successfully  the  systems  and
      programming  changes necessary to address the Year 2000 Issue. The Company
      expects to implement  these changes using primarily  internal  information
      technology and other personnel.  Moreover, the Company does not expect the
      costs associated with that  implementation to be material to the Company's
      financial position or results of operations.

           With  respect to products  sold to  customers,  the Company  does not
      warrant any products  sold as  Year-2000-Compliant.  Instead,  the Company
      refers customers to warrantees provided by the product's manufacturers.

          The Company  believes the most reasonably  likely worst case Year 2000
     scenario would include a combination of some or all of the following:

     -    Internal information technology modules or systems may fail to operate
          or may give  erroneous  information.  Such  failure  could  result  in
          shipping  delays,  inability  to generate or delays in  generation  of
          financial  reports  and  statements,   inability  of  the  Company  to
          communicate  among its various offices,  and computer network downtime
          resulting in inefficiencies and higher payroll expenses.

     -    Components in HVAC, lighting,  telephone, security and similar systems
          might fail, causing such systems to fail.

     -    Communications  with  customers  and vendors that the Company  depends
          upon may fail or give erroneous  information.  These types of problems
          could  result in such  difficulties  as the  inability  to  receive or
          process  customer  orders,  shipping  delays,  or sale of  products at
          erroneous  prices.  Furthermore,  customers  may be unable  to, or may
          suffer delays, in remitting payments to the Company on timely basis.
<PAGE>
     -    The  unavailability  of  products  as a result of Year  2000  problems
          experienced by one or more key vendors of the Company,  or as a result
          of  changes  in  inventory  levels at  aggregators,  VARs and  similar
          providers in response to an  anticipated  Year 2000 problem and/or the
          inability of the Company to develop alternative sources for products.

     -    Products sold to some of the Company's customers could fail to perform
          some or all of their  intended  functions.  In such a  situation,  the
          Company's  maximum  obligation  would  be to  repair  or  replace  the
          defective  products  to the extent the  Company is  required  to do so
          under manufacturer warranty.

           The Company  believes its plans for addressing the Year 2000 Issue as
      outlined  above are  adequate to handle the most  reasonably  likely worst
      case  scenario.  The  Company  does not  believe  it will incur a material
      financial  impact for the risk of  failure,  or from the costs  associated
      with  assessing  the risks of failure,  arising  from the Year 2000 Issue.
      Consequently,  the Company  does not intend to create a  contingency  plan
      other than as set forth above. In addition, if the Company's assessment of
      its vendors,  when completed,  indicate that certain product shortages can
      be anticipated, the Company may adjust its plans accordingly, although the
      Company  does  believe  that it has the  capacity to maintain  significant
      levels of inventory.

           The statements  above  describing the Company's  plans and objectives
      for handling the Year 2000 Issue and the expected  impact of the Year 2000
      Issue on the  Company are  forward-looking  statements.  Those  statements
      involve risks and uncertainties  that could cause actual results to differ
      materially from the results discussed above. Factors that might cause such
      a difference include, but are not limited to, delays in executing the plan
      outlined  above and  increased or  unforeseen  costs  associated  with the
      implementation  of the plan and any  necessary  changes  to the  Company's
      systems.  Any inability on the part of the Company to implement  necessary
      changes in a timely fashion could have an adverse effect on future results
      of operations.  Moreover,  even if the Company successfully implements the
      changes  necessary  to  address  the  Year  2000  Issue,  there  can be no
      assurance  that the Company will not be adversely  affected by the failure
      of others to become Year-2000-Compliant.

      Recent Acquisition

           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   approximately   $3.1  million  plus  potential  future
      contingent  payments.  The cash payment was made from the  Company's  cash
      balances. Contingent payments of up to $1,050,000 in each of calendar 1998
      and 1999 will be determined  based upon Coastal  achieving  certain agreed
      upon  increases in revenues and pretax  income for calendar  1998 and 1999
      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
      Consolidated  Statements  of  Income  from  the date of  acquisition.  The
      acquisition  resulted in goodwill of $3,836,000,  which is being amortized
      on the straight-line basis over 20 years.



<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.
                                                     Percentage of Revenues
                                                        Three Months Ended
                                                            October 31,   
                                                      1998            1997
                                                      ----            ----
           Product Sales                              96.8%            98.0%
           Services                                    3.2              2.0
                                                       ---              ---
                Total revenue                        100.0            100.0
                                                     -----            -----

           Cost of Product Sales                      86.9             85.9
           Cost of Services                           60.5             69.9
                                                      ----             ----
                Cost of revenue                       86.1             85.6
                                                      ----            -----

           Product Gross Profit                       13.1             14.1
           Services Gross Profits                     39.5             30.1
                                                      ----             ----
                Gross Profit                          13.9             14.4
                                                      ----             ----

           Selling, general and
              administrative expenses                 12.5             12.1
                                                      ----            -----
           Income from operations                      1.4              2.3
           Interest and other income, net               .2               .4
                                                        --              ---
           Income before income taxes                  1.6              2.7
           Provision for income taxes                   .6              1.1
                                                        --           ------
           Net income                                  1.0%             1.6%
                                                       ===           ======

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

           Revenue.  The Company's revenue increased $10.4 million or 22.2% from
      $47.1 million for the three months ended October 31, 1997 to $57.5 million
      for the three months ended October 31, 1998.  Product revenue increased by
      $9.6 million  (20.7%) due  primarily to increases in shipments of personal
      computers and monitors, as well as revenue generated by Coastal, partially
      offset by lower shipments to the Company's major customer as well as lower
      per unit prices for personal computers. Service revenue increased $876,000
      (92.4%)  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 $1.2 million or 18.0%
      from $6.8 million for the first quarter of fiscal 1998 to $8.0 million for
      the most recent  fiscal  quarter.  Gross profits from the sale of products
      increased  by  $786,000  while  gross  profit  from the  sale of  services
      increased by $435,000. The changes in gross profits primarily results from
      the changes in revenue discussed above. As a percentage of revenue,  gross
      profit  decreased to 13.9% in the first quarter of fiscal 1999 as compared
      to  14.4% in  fiscal  1998.  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 $1.5 million or 26.1% from $5.7 million
<PAGE>     
     in the first quarter of fiscal 1998 to $7.2 million in the first quarter of
     fiscal 1999.  This increase is principally a result of higher  salaries and
     personnel  costs  as  well  as  higher  advertising  and  depreciation  and
     amortization  costs  resulting  from the  Company  strategy  of focusing on
     providing value added services.  In addition,  the Company  incurred higher
     operating  costs  associated  with the  Company's new  subsidiary,  Coastal
     Office Products, Inc.

              Interest  Income.  Interest income  decreased from $201,000 in the
      first fiscal  quarter of 1998 to $115,000 in the first  fiscal  quarter of
      1999 due to lower cash balance availability for investment.

          Provision  for Income  Taxes.  The  effective  income tax rate dropped
     slightly to 40% in the current period  compared to 41% of pre-tax income in
     prior year period.

      Liquidity and Capital Resources

           The  Company's  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,  1998,  cash  provided  by
      operating  activities was $2.5 million consisting  primarily of net income
      and an increase in accounts payable and accrued expenses, partially offset
      by an  increase  in  accounts  receivable  and  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 October 31, 1998 the Company used
      approximately $533,000 for capital expenditures.

           The   Company  has   available  a  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, 1998.

           The  Company  believes  that its  current  balances  in cash and cash
      equivalents  and  investments,  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  1999.  The Company  currently  has no 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.

      New Accounting Standards

           The  Financial   Accounting   Standards  Board  issued  Statement  of
      Financial  Accounting  Standards No. 131, "Disclosure About Segments of an
      Enterprise  and  Related  Information,"  which  the  Company  has  adopted
      effective  August  1,  1998.  This  statement  establishes  standards  for
      reporting  information about operating  segments,  and related disclosures
      about  product and services,  geographic  areas and major  customers.  The
      adoption  of this  statement  did  not  have an  impact  on the  financial
      position or results of operations of the Company.

           The Company will  implement the  provisions of Statement of Financial
      Accounting Standards No. 133,  "Accounting for Derivative  Instruments and
      Hedging  Activities,"  in  fiscal  2000.  The  Company  believes  that the
      implementation  of this  new  pronouncement  will  have no  impact  on the
      financial position and results of operations of the Company.



<PAGE>




      PART II - OTHER INFORMATION


      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:  December 9, 1998                      /s/ Barry Steinberg 
                                            ----------------------
                                           Barry Steinberg
                                           President and Chief Executive Officer



DATE:  December 9, 1998                    /s/ Joseph Looney
                                           -----------------
                                           Joseph Looney
                                           Chief Financial Officer


<PAGE>