<PAGE> 1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended April 30, 1997

                                       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 8,525,000 outstanding shares of COMMON STOCK at June 12, 1997.

                                     1



<PAGE>2

                 MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES

                                      Index

PART I.   FINANCIAL INFORMATION                                     Page

 Item 1.  Condensed Consolidated Balance Sheets April 30, 1997
            (unaudited) and July 31, 1996                               3

          Condensed Consolidated  Statements of Income Three
            months and nine months ended April 30, 1997
            and 1996 (unaudited)                                        4

          Condensed Consolidated Statements of Cash Flows
            Nine months ended April 30, 1997 and 1996 (unaudited)       5

          Notes to Condensed Consolidated Financial Statements          6

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

PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings                                         13

     Item 6. Exhibits and Reports                                      13

<PAGE> 3


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>
                                          April 30,  1997        July 31, 1996
                                                       (Unaudited)
                                          ------------------------------------
<S>                                          <C>                 <C>
Assets:
  Cash and cash equivalents                            $ 15,649     $  5,774
  Marketable securities                                   2,947            -
  Accounts receivable, net                               22,570       19,068
  Inventory                                              11,177        8,957
  Deferred income taxes                                     334          334
  Prepaid expenses and other current assets                  83          197
                                                          -----       ------
      Total current assets                               52,760       34,330

  Property and equipment, net                             2,676        2,244
  Goodwill, net                                           1,493            -
  Deferred income taxes                                     395          395
  Other assets                                            1,000          792
                                                          -----        -----
                                                        $58,324      $37,761
                                                        =======      =======

Liabilities:
  Current maturities under capital
   lease obligation                                    $     99      $    99
  Notes payable - bank                                    1,264        6,500
  Notes payable - shareholder                                 -          353
  Notes payable - other                                     307            -
  Accounts payable and accrued expenses                  20,108       17,113
  Deferred service revenue                                  113          129
  Income taxes payable                                        -          295
                                                         ------       ------
         Total current liabilities                       21,891       24,489

  Capital lease obligation, less current maturities         111          175
  Deferred compensation payable                             268          183
                                                         ------        -----
         Total liabilities                               22,270       24,847
                                                         ------       ------
Redeemable common stock                                       -        4,739

Shareholders' equity:
  Preferred stock, $.01 par value; 5,000,000
    shares authorized, none issued                            -            -
  Common stock, $.01 par value; 25,000,000 shares
    authorized, 8,525,000 and 6,200,000 shares
    issued and outstanding                                   85           62
  Additional paid-in capital                             20,397            -
  Retained earnings                                      15,572        8,113
                                                         ------        -----
         Total shareholders' equity                      36,054        8,175
                                                         ------        -----
                                                        $58,324      $37,761
                                                        =======      =======
</TABLE>

See notes to condensed consolidated financial statements.
                                         3


<PAGE>4

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

                                   Three months ended       Nine months ended
                                         April 30,              April 30,
                                      1997       1996         1997       1996
                                        Unaudited                Unaudited
                                        ---------                ---------
<S>                                <C>         <C>         <C>        <C>
Revenues                           $44,170     $50,764     $139,841   $141,264

Cost of revenues                    37,732      43,848      119,923    121,816
                                    ------      ------      -------    -------
       Gross profit                  6,438       6,916       19,918     19,448

Selling, general and
    administrative expenses          5,194       6,070       15,487     15,330
                                     -----       -----       ------     ------

       Income from operations        1,244         846        4,431      4,118

Interest expense                        (2)       (110)        (193)      (300)
Interest income                        217           5          344         15
Other income (expense)                   -           -           23         (7)
                                      ----         ----        ----       ----

       Income before income taxes    1,459         741        4,605      3,826

Provision for income taxes             589         296        1,885      1,537
                                       ---         ---        -----      -----

       Net income                   $  870    $    445       $2,720     $2,289
                                    ======    ========       ======     ======

Net Income per share                 $0.10    $   0.07        $0.36      $0.37
                                     =====    ========        =====      =====
Weighted average
  shares outstanding             8,525,000   6,262,626    7,530,978  6,262,626
                                 =========   =========    =========  =========
</TABLE>


See notes to condensed consolidated financial statements.
                                     4


<PAGE>5
                 Manchester Equipment Co., Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                        For the nine months
                                                          ended April 30,
                                                            1997          1996
                                                                (Unaudited)
                                                        ----------------------
<S>                                                          <C>         <C>
Cash flows from operating activities:
         Net income                                          $2,720      $2,289

  Adjustments to reconcile net income to net cash
   from operating activities:
         Depreciation and amortization                          450         297
         Allowance for doubtful accounts                        210         319
         Stock options granted to sales representatives           6           -
  Change in assets  and  liabilities,  net of the
   effects  of the  purchase  of Electrograph:
         Increase in accounts receivable                     (1,606)     (2,305)
         (Increase) decrease in inventory                      (514)        865
         Decrease in prepaid expenses and
             other current assets                               128          29
         Increase in other assets                              (168)        (98)
         Increase (decrease) in accounts payable and
             accrued expenses                                 1,009        (143)
         Decrease in deferred service contract revenue          (16)        (28)
         Increase (decrease)  in income taxes  payable         (295)        416
         Increase in deferred compensation payable               85           2
                                                               ----        ----
         Net cash provided by operating activities            2,009       1,643
                                                              -----       -----
Cash flows from investing activities:
         Capital expenditures                                  (881)       (413)
         Proceeds from sale of assets                            54          18
         Purchases of marketable securities                  (2,947)          -
         Payment for purchase of Electrograph, net
           of cash acquired                                  (1,857)          -
                                                             ------        ----
              Net cash used in investing activities          (5,631)       (395)
                                                             ------        ----
Cash flows from financing activities:
         Net repayments of borrowings                        (6,500)     (2,100)
         Payments on notes payable-shareholder                 (353)          -
         Payments on capital lease obligation                   (64)          -
         Net proceeds from initial public offering           20,414           -
                                                             ------       -----
              Net cash (used in) provided by
                financing activities                         13,497      (2,100)
                                                             ------      ------
Net increase (decrease) in cash and cash equivalents          9,875        (852)
         Cash and cash equivalents at beginning of period     5,774       1,834
                                                              -----       -----
Cash and cash equivalents at end of period                  $15,649        $982
                                                            =======        ====
</TABLE>
See notes to condensed consolidated financial statements.
                                       5
<PAGE> 6

                 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 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 most of the
Company's  revenues.  Service  revenues have not comprised a significant part of
revenues to date. The Company has entered into agreements with certain suppliers
and  manufacturers  which  provide  the  Company  favorable  pricing  and  price
protection in the event the vendor reduces its prices.

     In the  opinion  of  the  Company,  the  accompanying  unaudited  Condensed
Consolidated  Financial  Statements contain all adjustments  (consisting of only
normal  and  recurring  accruals)  necessary  to present  fairly  the  financial
position of the Company as of April 30, 1997 and the results of  operations  for
the three and nine  months  ended April 30, 1997 and 1996 and cash flows for the
nine months ended April 30, 1997 and 1996.  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,  1996,
included  in the  Company's  Prospectus  dated  November  25,  1996  prepared in
connection with the Company's initial public offering.

2. Net Income Per Share

     Net income per share is based upon the  weighted  average  number of common
shares and common share equivalents outstanding during each period. Common share
equivalents  include  dilutive  stock  options and warrants,  if any,  using the
treasury stock method.

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  (including   200,000
overallotment  shares) 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. Redeemable Common Stock

     Prior to the  consummation  of the  Offering,  the Company had an agreement
with a retired  shareholder  whereby the Company would be required to redeem all
of the shares held by the  shareholder in accordance with terms set forth in the
agreement.  In September 1996, among other provisions,  the retired  shareholder
agreed to  terminate  his option to sell his  remaining  shares to the  Company,
subject to successful  completion of the Offering. As a result of the successful
completion of the Offering, in the April 30, 1997 Condensed Consolidated Balance
Sheet,  the  amounts  which would have been due under this  agreement  have been
reclassified from redeemable common stock to retained earnings.
                                       6

<PAGE>7

5. Purchase of 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, of which $2.5 million
was paid in cash at closing.  In connection  with the  acquisition,  the Company
assumed  certain  liabilities  of  Electrograph  including debt with balances of
$1,264,000  in notes  payable - bank and $307,000 in notes payable - other as of
April 30, 1997.

     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
approximately  $1,500,000  which is being  amortized  on the straight-line basis
over 20 years.

     The following  unaudited pro forma  consolidated  results of operations for
the nine months  ended  April 30,  1997 and 1996  assume  that the  Electrograph
acquisition occurred on August 1, 1995 and reflect the historical  operations of
the  purchased  business  adjusted  for lower  interest  on  invested  funds and
increased  amortization,  net of  applicable  income  taxes  resulting  from the
acquisition: <TABLE> <CAPTION>
                                                   1997                  1996
                                                        (in thousands)
                                                        --------------
<S>                                             <C>                     <C>
                  Revenues                      $155,579                $153,270
                  Net income                       2,837                   2,353
                  Net income per share             $0.38                   $0.38
</TABLE>
     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.

6.  Litigation

     On March 28, 1997 a complaint  was filed by plaintiff  Vincent  Manguard in
the United States  District  Court for the Eastern  District of New York against
the Company,  its  President and Chief  Executive  Officer,  its Executive  Vice
President and Secretary,  and its Chief Financial Officer.  The plaintiff claims
to have  purchased  shares in the Company's  Offering and purports to sue on his
own behalf  and on behalf of a class of  persons  who  purchased  the  Company's
common stock either  pursuant to the Offering or in the period November 26, 1996
through  February  13,  1997.  The  Complaint  asserts  that the Company and the
individual  defendants  made false or  misleading  statements  and  omissions in
connection with the Offering in violation of Sections 11, 12(a)(2) and 15 of the
federal  Securities  Act of 1933,  and seeks  damages on behalf of the  putative
class in an  unspecified  amount  and/or  rescission,  together  with  costs and
expenses of litigation.

     The Company  believes  that the  allegations  in the complaint are entirely
without merit and intends vigorously to defend this matter.
                                    7


<PAGE> 8

ITEM 2 - MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS

     The following  discussion and analysis  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
Prospectus  dated  November  25, 1996.  This  discussion  and analysis  contains
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 involves risks and uncertainties  that could
cause actual results to differ from those  expected and  projected.  These risks
and uncertainties include, but are not limited to, those set forth below and the
risk factors described in the Company's Prospectus.

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 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
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.
                                    8
<PAGE>9
     The Company's largest customer  accounted for approximately 14% and 16% (or
$20,069,000,  and $22,346,000,  respectively) of the Company's  revenues for the
nine months ended April 30, 1997 and 1996,  respectively,  substantially  all of
which  revenues were derived from the sale of hardware  products.  This customer
accounted for 16% of revenues for the fiscal year ended July 31, 1996. 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  April  30,  1997  and  1996,  inventories
represented 19% and 27%, respectively of total assets. For the nine months ended
April 30,  1997 and 1996,  annualized  inventory  turnover  was 14 and 19 times,
respectively.  Inventory turned 18 times in the fiscal year ended July 31, 1996.
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 nine month  periods  ended April 30, 1997 and 1996.  For
the fiscal year ended July 31, 1996, bad debt expense  represented 0.1% 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  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 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.  The Company  believes that the impact
of price or volume changes of any particular product or products is not material
to the Company's Consolidated Financial Statements.
                                   9
<PAGE>10
     The  Company's  Chief  Executive  Officer  has entered  into an  employment
agreement with the Company under which he will receive $550,000 in compensation,
exclusive of fringe benefits,  for each of the fiscal years ending July 31, 1997
and 1998. In addition,  the  Company's  Executive  Vice  President has agreed to
receive base  compensation,  exclusive of fringe  benefits,  of $450,000 for the
fiscal years ending July 31, 1997 and 1998. These officers have agreed that they
will not be entitled  to any bonuses for fiscal 1997 and 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  and  offices  from  entities  that  are  owned or  controlled  by the
Company's majority shareholder. Each of the leases with related parties has been
amended  effective  with the closing of the  Offering to reduce the rent payable
under that lease to then current market rates.

RECENT ACQUISITION

     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, of which $2.5 million
was paid in cash at closing.  In connection  with the  acquisition,  the Company
assumed  certain  liabilities  of  Electrograph  including debt with balances of
$1,264,000  in notes  payable - bank and $307,000 in notes payable - other as of
April 30, 1997.

     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
approximately  $1,500,000  which is being  amortized on the straight-line  basis
over 20 years.

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 revenues.
 <TABLE> <CAPTION>
                                               Percentage of Revenues
                                      Three Months Ended      Nine Months Ended
                                         April  30               April  30,
                                       1997          1996     1997       1996
                                       ----          ----     ----       ----
    <S>                                 <C>         <C>      <C>        <C>
     Revenues                           100.0%      100.0%   100.0%     100.0%
     Cost of revenues                    85.4        86.4     85.8       86.2
                                         ----        ----     ----       ----
     Gross profit                        14.6        13.6     14.2       13.8
     Selling,  general and
      administrative expenses            11.8        12.0     11.0       10.9
                                         ----        ----     ----       ----
     Income from operations               2.8         1.7      3.2        2.9
     Interest and other income, net        .5        ( .2)      .1        (.2)
                                           --        ----      ---        ---
     Income  before income taxes          3.3         1.5      3.3        2.7
     Provision for income taxes           1.3          .6      1.4        1.1
                                          ---          --      ---        ---
     Net income                           2.0%         .9%     1.9%       1.6%
                                          ===          ==      ===        ===
</TABLE>
                                                 10
<PAGE> 11

Three Months Ended April 30, 1997 Compared to Three Months Ended April 30, 1996
--------------------------------------------------------------------------------

     Revenues. The Company's revenues decreased $6.6 million or 13.0% from $50.8
million for the three months ended April 30, 1996 to $44.2 million for the three
months  ended April 30, 1997 due to a general  softness in the  marketplace  for
personal computers and peripherals, as well as lower revenues from the Company's
major customer.

     Gross Profit.  Cost of revenues 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  decreased  $478,000 or 6.9% from $6.9  million for the
third quarter of fiscal 1996 to $6.4 million for the most recent fiscal quarter.
As a percentage of revenues, gross profit increased from 13.6% in fiscal 1996 to
14.6% in fiscal 1997. The decrease in gross profit dollars is principally due to
the  decrease  in  revenues.  Competitive  pressures,  changes  in the  types of
products or services sold and product  availability  result in  fluctuations  in
gross profit from period to period.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  decreased  $876,000 or 14.4% from $6.1  million in the
third  quarter of fiscal  1996 to $5.2  million  in the third  quarter of fiscal
1997.  This  decrease is  principally a result of lower  officers'  salaries and
rents  paid to related  parties  due to  agreements  that were  entered  into in
connection with the Company's  initial public offering.  Giving pro forma effect
to the changes in officers compensation and rents to related parties,  described
above and under  General,  the pro forma  selling,  general  and  administrative
expenses would have been  approximately $5.0 million or 9.8% of revenues for the
three months ended April 30, 1996.

     Interest  Income.  Interest income  increased from $5,000 in fiscal 1996 to
$217,000  in fiscal 1997 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 constant
at 40% of pre tax income.

NINE MONTHS ENDED APRIL 30, 1997 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996

     Revenues. The Company's revenues decreased $1.4 million or 1.0% from $141.3
million for the nine months ended April 30, 1996 to $139.8  million for the nine
months ended April 30, 1997 due to somewhat softer demand for personal computers
and peripherals as well as lower revenue from the Company's major customer.

     Gross Profit.  Gross profit  increased  $470,000 or 2.4% from $19.4 million
for the first nine  months of fiscal  1996 to $19.9  million for the most recent
fiscal nine months.  As a percentage of revenues,  gross profit  increased  from
13.8% to 14.2%.  The increase in gross  profit  percentage  is primarily  due to
changes in product mix. Competitive pressures,  changes in the types of products
or services sold and product availability result in fluctuations in gross profit
from period to period.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  increased  $157,000 or 1.0% from $15.3  million in the
first nine months of fiscal 1996 to $15.5 million in the first nine months of
                                       11
<PAGE> 12

fiscal 1997. This increase is principally a result of higher payroll and related
costs due to the hiring of  additional  technical  and  administrative  staff in
support of the Company's  strategy to increase its value-added  services revenue
partially offset by lower officers'  salaries and rents paid to related parties.
In  addition,   the  Company   incurred  higher   insurance,   depreciation  and
professional  fees during the  current  period.  Giving pro forma  effect to the
changes in officers  compensation and rents to related parties,  described above
and under General,  the pro forma selling,  general and administrative  expenses
would have been $14.3  million or 10.1% of revenues  for the nine  months  ended
April 30, 1996.

     Interest Income.  Interest income increased from $15,000 for the first nine
months of fiscal 1996 to  $344,000  for the first nine months of fiscal 1997 due
to the earnings on the 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  increased
slightly  from 40% for the nine months  ended April 30, 1996 to 41% for the nine
months ended April 30, 1997.

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 a financial
institution.

     For the nine  months  ended April 30,  1997,  cash  provided  by  operating
activities  was $2.0  million  consisting  primarily  of net  income  offset  by
increases in accounts  receivable  and  inventory net of an increase in accounts
payable and accrued  expenses.  The Company's  accounts  receivable and accounts
payable and accrued expenses balances as well as its investment in inventory can
fluctuate  significantly from one period to the next due to the receipt of large
customer  orders or payments or  variations in product  availability  and vendor
shipping patterns at any particular date. Generally, the Company's experience is
that  increases  in accounts  receivable,  inventory  and  accounts  payable and
accrued  expenses will  coincide with growth in revenue and increased  operating
levels.  In  addition,  during the nine months  ended April 30, 1997 the Company
used approximately $900,000 for capital expenditures,  $1.9 million (net of cash
acquired) for the purchase of  Electrograph  Systems,  Inc. and $2.9 million for
the purchase of marketable  securities and generated  $13.5 million in cash from
financing  activities  primarily  from the net proceeds of the  Offering  ($20.4
million) partially offset by the net repayments of bank debt ($6.5 million).

     The  Company  and a  subsidiary  have  available  lines  of  credit  with a
financial  institution  in the aggregate  amount of $13.5  million.  All amounts
outstanding under this line at the completion of the Offering were repaid by the
Company with the proceeds from the Offering  described below. At April 30, 1997,
a  subsidiary  of the Company  has $1.3  million  outstanding  under its line of
credit.

     On December 2, 1996, the Company  completed an initial public offering (the
"Offering") of 2,325,000 shares (including 200,000  overallotment 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
utilized  $7.7  million of the  proceeds  from the Offering to repay the balance
outstanding at that date under its line of credit with a financial  institution.
The remaining net proceeds have been invested in short-term,  interest  bearing,
investment grade securities.

     The Company believes that its current balances in cash and cash equivalents
and  marketable  securities,  expected cash flows from  operations and available
borrowings under the line of credit will be adequate to support current
                                       12
<PAGE>13

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 as well as for the
acquisition  of  a  new  internal   telecommunications   system.  The  aggregate
commitment for these projects is  approximately  $1.0 million 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.



PART II - OTHER INFORMATION

Item 1.       Legal Proceedings

     On March 28, 1997 a complaint  was filed by plaintiff  Vincent  Manguard in
the United States  District  Court for the Eastern  District of New York against
the Company,  its  President and Chief  Executive  Officer,  its Executive  Vice
President and Secretary,  and its Chief Financial Officer.  The plaintiff claims
to have  purchased  shares in the Company's  Offering and purports to sue on his
own behalf  and on behalf of a class of  persons  who  purchased  the  Company's
common stock either  pursuant to the Offering or in the period November 26, 1996
through  February  13,  1997.  The  Complaint  asserts  that the Company and the
individual  defendants  made false or  misleading  statements  and  omissions in
connection with the Offering in violation of Sections 11, 12(a)(2) and 15 of the
federal  Securities  Act of 1933,  and seeks  damages on behalf of the  putative
class in an  unspecified  amount  and/or  rescission,  together  with  costs and
expenses of litigation.

     The Company  believes  that the  allegations  in the complaint are entirely
without merit and intends vigorously to defend this matter.



Item 6.       Exhibits and Reports

(a)    Exhibits

       Exhibit No.           Description

       10.10    Asset Purchase  Agreement among Electrograph  Systems,  Inc.,
                Bitwise Designs,  Inc. and Electrograph  Acquisition,  Inc.,
                Manchester  Equipment Co., Inc., April 15, 1997

       27       Financial Data Schedule


(b)    Reports on Form 8-K

       None


                                       13

<PAGE>14

                         MANCHESTER EQUIPMENT CO., INC.

                                   Signatures

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


                                           MANCHESTER EQUIPMENT CO., INC.
                                                   (Registrant)



DATE:  June 12, 1997                        /s/ Barry Steinberg
                                              ----------------------
                                                  Barry Steinberg
                                           President and Chief Executive Officer



DATE:  June 12, 1997                        /s/ Joseph Looney
                                           -----------------
                                               Joseph Looney
                                           Chief Financial Officer