UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

(Mark One)



 X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE 
---  ACT OF 1934 (Fee Required)


                         For the fiscal year ended December 31, 1998

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
--------  EXCHANGE ACT OF 1934
          (No Fee Required)

                         For the transition period from __________ to _________

                         Commission file number 0-13324

                            QUESTRON TECHNOLOGY, INC.
 ------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

<TABLE>
     <S>                                                                                          <C>                          

                                Delaware                                                          23-2257354
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     (State or other jurisdiction of incorporation or organization)                 (I.R.S. Employer Identification No.)

            6400 Congress Avenue, Suite 200A, Boca Raton, FL                                       33487
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                (Address of principal executive offices)                                         (Zip Code)
</TABLE>

Issuer's telephone number:  (561) 241 - 5251

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.001 Par Value
-------------------------------------------------------------------------------
                                (Title of class)

                     Series IV Common Stock Purchase Warrant
-------------------------------------------------------------------------------
                                (Title of class)

                         Preferred Share Purchase Right
                       to Purchase 1/1,000th of a share of
    Series A Junior Participating Preferred Stock, par value $0.01 per share
-------------------------------------------------------------------------------
                                (Title of class)

           Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the past 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. 
     Yes /X/   No
        -----      -----

           Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. -----

           State issuer's revenues for its most recent fiscal year. The
                                                                    ----
Company's revenues for the year ended December 31, 1998 were $56,968,007.
-------------------------------------------------------------------------

           As of March 9, 1999, the aggregate market value of common stock held
by non-affiliates of the registrant was approximately $12,495,000. In addition,
as of March 9, 1999, the aggregate market value of Series IV Common Stock
Purchase Warrants held by non-affiliates of the registrant was approximately
$2,816,000.

           As of March 9, 1999, there were 4,783,326 shares of the issuer's
common stock and 3,900,000 of the issuer's Series IV Common Stock Purchase
Warrants outstanding.

Transitional Small Business Disclosure Format:      Yes            No     /X/
                                                         -----           -----


<PAGE>


           Certain information set forth in this Annual Report includes "Forward
Looking  Statements"  within the  meaning of the Private  Securities  Litigation
Reform Act of 1995 and is subject to certain risks and uncertainties,  including
those  identified  under the caption  "Risk  Factors"  which  appears in Item 1.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which speak only as of the date hereof.  The Company  undertakes no
obligation to release publicly any revisions to these forward-looking statements
to  reflect  events  or  circumstances  after  the  date  hereof  or to  reflect
unanticipated events or developments.

                                     PART I

Item 1.  Business.

General
-------

           Questron  Technology,  Inc. (the  "Company" or  "Questron")  provides
inventory  logistics  management  programs and is a value-added  distributor  of
fasteners and other small parts  (commonly  referred to as "C" inventory  items)
sold to original  equipment  manufacturers  ("OEMs")  through  its  wholly-owned
subsidiary,  Questron Distribution Logistics, Inc. ("QDL") (formerly named Quest
Electronic  Hardware,  Inc.).  The  Company  is  also a  master  distributor  of
fasteners through its subsidiary Integrated Material Systems, Inc. ("IMS") and a
distributor of lithium batteries  through its subsidiary Power Components,  Inc.
("PCI").

           Effective  as of July 1,  1998,  QDL  acquired  100% of the  stock of
Fas-Tronics,  Inc.,  a privately  owned  distributor  of  fasteners  and other C
inventory  items located in Forth Worth,  TX, with a primary focus on commercial
aerospace customers,  particularly airplane seat manufacturers.  Effective as of
July 1, 1998,  QDL also acquired 100% of the stock of Fortune  Industries,  Inc.
("Fortune"),  a privately  owned  distributor of fasteners and other C inventory
items  located in Forth Worth,  TX, with a primary  focus on  aerospace  defense
contractors. Effective as of December 1, 1998, QDL acquired the business and net
operating  assets of AFCOM,  Inc.  ("AFCOM"),  a privately owned  distributor of
fasteners  and other C  inventory  items  headquartered  in  Orlando,  FL,  with
branches in Melbourne, FL and Atlanta, GA.

Business
--------

           QDL provides its customers with inventory management  services,  such
as bin-stock replenishment and other just-in-time inventory management programs,
and is the outsourced  materials  management function for many of its customers,
providing complete supply chain management from procurement to deployment of the
products  managed.  QDL  serves  more  than  6,000  customers  in  the  military
aerospace, industrial products, commercial aerospace,  semiconductor fabrication
equipment, consumer products,  telecommunications,  medical electronics contract
manufacturing and computer and computer networking manufacturing industries.

           Fasteners and other C inventory  items include screws,  bolts,  nuts,
washers, pins, rings, fittings, springs, spacers, standoffs, plastic components,
cable  ties and  accessories,  drawer  slides,  connectors  and  similar  parts.
According to an industry  study,  sales of fasteners in 1996 were  approximately
$8.0 billion in the United States. The OEM market represents in excess of 80% of
the total U.S. fastener market,  the

                                       2
<PAGE>

maintenance and repair operations ("MRO") market accounts for 13% of the market,
with construction and other markets  accounting for the remaining 7%. The United
States fastener market is estimated to have over 1,900 distributors. The Company
believes that the OEM fastener and related parts distribution industry is in the
early  stages of  consolidation,  and the Company  plans to  participate  in the
consolidation of the industry.  The Company believes that its broad selection of
fasteners  and other C inventory  items,  high  quality  services,  professional
management team, and strong competitive  position will allow it to be one of the
leading consolidators.

           Fasteners  and other C inventory  items  constitute a majority of the
total  number  of  parts  needed  by an OEM to  manufacture  its  products,  but
represent only a small fraction of the total materials cost. The cost for an OEM
to manage its inventory of fasteners and other C inventory  items  internally is
relatively  high due to: (i) the large number of fasteners and other C inventory
items in inventory; (ii) the inability of an OEM to achieve scale economies that
QDL is able to  derive  from  servicing  multiple  customers;  (iii) the risk of
interruptions for just-in-time ("JIT")  manufacturing  operations;  and (iv) the
need to perform quality assurance testing of the fasteners and other C inventory
items.  The  Company  believes  that  OEMs are  increasingly  outsourcing  their
fastener and other C inventory items inventory  procurement and management needs
to  distributors  like the  Company  in order to focus on their key  competency,
their core manufacturing  businesses,  thereby reducing costs. To further reduce
costs,  many  manufacturers  are seeking to consolidate  the number of suppliers
they use and are selecting  distributors  with  extensive  product lines who can
also provide  inventory-related  services.  To capitalize  on these trends,  the
Company  offers a broad  array of  fasteners  and other C inventory  items,  and
provides a variety of related  procurement  and inventory  management  services,
including inventory  management  information  systems and reports,  just-in-time
delivery programs, quality assurance,  advisory engineering services,  component
kit  production  and  delivery,   and  electronic   data   interchange   ("EDI")
applications.

           QDL's combined net sales have increased at a compound  annual rate of
approximately 16% per year over the five years ended December 31, 1998, adjusted
for 1997 and 1998 acquisitions to reflect true internal growth.  The Company has
generated  such  growth  primarily  by  expanding  the  breadth  of its  product
offerings and value-added services,  which has allowed QDL to increase its sales
to existing customers and attract new customers.

Industry Overview
-----------------

           Companies  operating  in the  fastener  and other C  inventory  items
distribution  business  can  generally  be  characterized  by the end users they
serve, which are comprised broadly of OEMs, MROs and construction companies. The
traditional  fastener and other C inventory items distribution market is similar
to most industrial  distribution markets.  Fasteners and other C inventory items
are  purchased  from both domestic and overseas  manufacturers  and sold to both
domestic and overseas  customers.  The majority of these  fasteners  and other C
inventory items are sold to OEM and MRO clients on a purchase order basis.  Some
smaller  distributors  specialize along industry lines because of the uniqueness
of customer  requirements.  Other smaller  distributors  provide a wide range of
fasteners and other C inventory items used for general assembly.  QDL provides a
wide range of  fasteners  and other C  inventory  items to meet the  specialized
needs of its OEM customers.

                                       3
<PAGE>


           Customer demand for inventory management services and electronic data
interchange has required industry  participants to invest in the development and
utilization of sophisticated  computer  systems in order to remain  competitive.
Automated  inventory  picking,   component  kit  assembly  and  quality  control
procedures  also require  investments in personnel and  equipment.  In addition,
many  customers are seeking to reduce their  operating  costs by decreasing  the
number of  suppliers   with  whom  they do  business,  often  eliminating  those
suppliers  offering  limited ranges of products and services.  QDL believes that
these trends have placed a substantial number of small,  owner-operated fastener
distributors  at a competitive  disadvantage  because of their  limited  product
lines and inventory  systems.  In addition,  many of these smaller  distributors
have  limited  access to the  capital  resources  necessary  to provide  working
capital needed to provide a full range of services to their customers.

Business Strategy

           QDL  intends  to become  one of the  premier  national  providers  of
inventory  logistics  management  programs  and  a  value-added  distributor  of
fasteners and other C inventory items,  focused  primarily on the needs of OEMs.
QDL seeks to develop and supply  inventory-related  services  designed to reduce
its customers'  operating costs.  Quality  assurance,  JIT delivery programs and
component kit production are examples of such services currently provided by QDL
to its customers.  By supplying such services,  QDL strives to become integrated
into its customers' internal  manufacturing  processes and be able to anticipate
its  customers'   needs,   which  the  Company   believes  results  in  improved
profitability and customer retention.

           OEMs and other fastener customers choose fastener suppliers based, in
significant part, on the quality of the service supplied.  QDL believes that its
superior  customer service depends on its  well-trained,  technically  competent
workforce  and its belief that its  workforce  provides an advantage  over other
distributors of fasteners and other C inventory items.  QDL continually  reviews
its training and operating  practices at each of its  subsidiaries to insure the
highest standards of quality and customer service are maintained  throughout its
operations.  As part of its commitment to superior quality and customer service,
the  Company  is  SSQA  compliant  (SEMATECH  Quality  Standard)  and  ISO  9002
(International   Standards  Organization)   certified  or  compliant,   becoming
certified as required by its customers on a branch location basis.

           One of the  primary  goals of the Company is to  accelerate  internal
growth both by expanding the range of products and services provided to existing
customers and by aggressively pursuing new customers.  The Company believes that
it will be able to expand sales to existing customers by capitalizing on (i) its
diverse  product  offerings  and its  marketing  expertise,  (ii)  cross-selling
opportunities  across  the  Company's  customer  base,  and (iii) its  access to
financial  resources that are necessary to support the demands of its customers.
The  Company  intends to broaden its  geographic  coverage,  which will  present
opportunities  to capture  new  business  as well as  additional  business  from
existing customers that operate nationwide.

           The Company's  integration  of its acquired  businesses  has provided
significant  increases  in  its  profitability.   The  Company  has  centralized
appropriate  administrative functions and used its increased purchasing power to
improve contractual  relationships and gain volume discounts from its suppliers.
The Company has also improved productivity through enhanced inventory management
procedures,  standardization of its quality procedures, and the consolidation of
its  information  systems and  employee  

                                       4
<PAGE>


benefit plans. All of the businesses acquired prior to 1998 are fully integrated
and operating through an on-line, real-time computer system.

           The Company  pursued an  aggressive  acquisition  program in 1997 and
1998,  having  completed  seven  acquisitions  during that period.  As described
above,  the Company  believes  that the  fastener  and other C  inventory  items
distribution   industry  is  highly  fragmented  and  in  the  early  stages  of
consolidation.  The  Company  intends to  continue  to attempt to acquire  other
distributors  of  fasteners  and other C  inventory  items in order to enter new
industries  and  markets,  increase  sales in certain  industries  it  currently
serves,  develop  new  customer  relationships  with  major  OEM's,  expand  the
geographical  reach  of the  Company,  and  expand  its  range of  products  and
services.  Potential acquisition candidates will be evaluated on the strength of
management,  profitability,  quality of customer base and service,  and industry
orientation. The Company believes it will continue to be regarded by acquisition
candidates  as an  attractive  acquirer  because of (i) its  ability to create a
professionally  managed  value-added   distributor  of  fasteners  and  other  C
inventory  items  to  OEMs;  (ii)  its  ability  to  acquire  businesses  with a
combination  of cash and publicly  traded stock;  (iii) the Company's  access to
financial  resources  as a  public  company  to  support  growth;  and  (iv) the
potential for increased  profitability of the acquired company due to purchasing
economies,   centralization  of  administrative   functions,   enhanced  systems
capabilities and access to increased marketing resources.

           To date,  management of the  companies  acquired in 1997 and 1998 has
been instrumental in identifying future acquisition  candidates.  Several of the
principals of such acquired  companies  have held  leadership  roles in industry
trade associations, which has enabled these individuals to develop relationships
with the owners of  numerous  acquisition  candidates  across the  country.  The
Company expects that the visibility of these  individuals and the Company within
the industry will increase the awareness and interest of acquisition  candidates
in the  Company  and  its  acquisition  program.  The  Company  has  engaged  in
preliminary discussions with a number of potential acquisition candidates.  Such
discussions are in various stages and, other than the definitive agreement dated
as of March 11, 1999 with respect to the acquisition of Metro Form  Corporation,
d.b.a. Olympic Fasteners and Electronic Hardware  ("Olympic"),  none have as yet
resulted in any binding agreements, understandings,  arrangements or commitments
with respect to any such potential acquisitions. The purchase price for Olympic,
which had  revenues of $10  million in 1998,  is $9  million,  consisting  of $8
million in cash and the balance in shares of Questron  common stock.  Additional
purchase consideration of up to $1 million may be paid based on future operating
results.  The  acquisition is subject to financing and other  customary  closing
conditions.  As consideration  for future  acquisitions,  the Company  primarily
intends  to  use  various  combinations  of  cash  and  its  common  stock.  The
consideration  for each future  acquisition  will vary on a case-by-case  basis,
with the major  factors in  establishing  the  purchase  price being  historical
operating results, future prospects of the acquisition candidate and the ability
of the candidate to provide entry to new markets or OEM customers.

Products
--------

           The Company  distributes over 100,000 different fasteners and other C
inventory items,  generally  denoted by a unique standard  identifier known as a
Stockkeeping Unit ("SKU"). The SKUs fall into two general categories:  fasteners
and other C inventory items.

                                       5
<PAGE>


           Fasteners sold by QDL include screws,  bolts, nuts,  washers,  rings,
pins,  rivets and staples.  These items come in a variety of  materials,  sizes,
platings,  and  shapes.  The item sold is driven by the end-use  requirement  or
specification  of the  fastener,  such as  strength,  resistance  to  corrosion,
reusability, and many other factors. QDL's sales and purchasing departments have
extensive knowledge of the available products offered by fastener manufacturers,
and play an  important  role in  assisting  OEMs in  selecting  the  appropriate
fastener for a given application.

           QDL also  distributes  a number of other C inventory  items  commonly
referred to as "C" inventory  items used by OEMs to manufacture  their products.
These items include spacers,  standoffs,  inserts,  clamps,  springs,  brackets,
connectors,  small molded parts,  cable ties, plugs,  hoses,  fittings and other
products.  Like fasteners,  these parts come in many shapes, sizes and materials
depending upon the designated end-use. OEMs are increasingly requesting that the
Company provide these parts because they are often used during the manufacturing
or assembly process in conjunction with the fasteners supplied by QDL.

Services
--------

           In connection with its sale of fasteners and other C inventory items,
the Company  also  provides a wide range of  value-added  services to OEMs.  The
OEMs' demand for these  services is driven by the reduction in costs  achievable
through the outsourcing of such  functions.  Such cost reductions are achievable
as a result of the Company's ability to derive scale economies by providing such
services to many customers,  which economies the OEM is unable to achieve on its
own. These value-added  services also benefit the Company by further integrating
the Company into its customers' internal manufacturing process.

           Increasingly,   manufacturers   are   outsourcing   their   inventory
management needs to distributors  like QDL. These services range from installing
a simple  inventory bin card system to developing a complete  turnkey  inventory
management system with full-time staff.  These inventory systems are designed to
meet the specific needs of QDL's customers.  They range in  sophistication  from
helping the OEM set appropriate  order  quantities and frequencies to delivering
the correct fastener or related product to the assembly floor on a JIT basis. In
some cases, the Company utilizes computer systems deployed at the OEM's sites to
facilitate  the  management  of  the  fastener  and  other  C  inventory   items
inventories. Inventory replenishment services and product consolidation services
decrease the number of invoices and vendors,  lower inventory carrying cost, and
allow customers to focus on their key competency, manufacturing.

           OEMs have  reduced  their  operating  costs by reducing the number of
suppliers they use. QDL provides a wide array of fasteners and other C inventory
items and will, upon a customer's request,  stock additional parts. As a result,
QDL's customers are able to reduce the number of suppliers, distributors as well
as manufacturers, that they utilize.

           Often OEMs request that QDL package several fasteners or parts into a
package  or  "kit." A common  use of this  service  is to supply  fastener  kits
included with products the retail  consumer is required to assemble.  The use of
kits  has  also  expanded  into  the  manufacturing  environment.  Manufacturers
frequently  desire to have several related fasteners or components arrive at the
assembly 

                                       6
<PAGE>


line in a single package;  this ensures that all of the parts arrive at the same
time and that no part will be missed in the  manufacturing  process.  This "kit"
process aids the  manufacturer by decreasing the number of suppliers  needed and
improves  productivity  by having the  fasteners  delivered to the assembly line
with  the  other  related  parts.   Kit  services  improve  the  efficiency  and
effectiveness of the manufacturing line and decrease the number of stockouts and
subsequent manufacturing line stoppages.

           Quality  assurance  services  provided  by QDL involve the testing of
fasteners  to ensure they meet the  specifications  required by the OEM customer
and stated by the  manufacturer.  Many OEMs require strict quality  control with
respect to fasteners.  QDL has installed specialized equipment and hired trained
technicians to perform quality  control tests on some of its fastener  products.
QDL is SSQA compliant  (SEMATECH  Quality  Standard),  and ISO 9002 certified or
compliant (International Standards Organization), becoming certified as required
by its customers on a branch location basis.

           In  order  to  meet  the  exacting  requirements  of  customers,  QDL
maintains  relationships  with  vendors that provide  plating,  galvanizing  and
coating services.  These services are used to meet the specific  requirements of
its OEM and other customers.

Competition
-----------

           The  Company  is  engaged  in a  highly  fragmented  and  competitive
industry.  Competition  is based  primarily on service,  quality and  geographic
proximity.  The Company competes with a large number of fastener distributors on
a regional and local basis, some of which may have greater  financial  resources
than the Company and some of which are also public  companies  or  divisions  of
public  companies.  The Company may also face competition for acquisitions  from
these companies,  some of which have acquired fastener  distribution  businesses
during  the past  decade.  Other  smaller  fastener  distributors  may also seek
acquisitions from time to time.

           The  Company  believes  that it will be able to  compete  effectively
because  of  its  strategically   situated  locations,   geographic   diversity,
knowledgeable  and trained  sales  force,  integrated  computer  system,  modern
equipment, broad-based product line, long-term customer relationships,  combined
purchasing  volume,  operational  economies of scale, and expertise in acquiring
and integrating  businesses.  The Company believes that it differentiates itself
from its  competition  in terms of service  and  quality and by offering a broad
range of products and services.

Sales and Marketing
-------------------

           QDL utilizes a sales force comprised of both inside and outside sales
people.  QDL markets its products and services  primarily to OEMs. QDL generally
targets those OEMs that could achieve significant cost savings from the products
and  services  offered  by QDL.  These  would  include  OEMs  that (i)  maintain
substantial  inventories of fasteners and other C inventory items;  (ii) utilize
multiple  suppliers  and  wish  to  reduce  that  number;   (iii)  experience  a
significant  number  of  stockouts;  (iv)  desire to  improve  the  quality  and
reliability of their  products;  and/or (v) desire to improve the efficiency and
effectiveness of the manufacturing  process. QDL believes that its commitment to
consistent  quality and service has enabled it to develop and maintain long-term
relationships  with existing  customers,  while expanding its market penetration
through the use of its sales and marketing program.

                                       7
<PAGE>


Customers
---------

           QDL sells  fasteners  and other C inventory  items to more than 6,000
customers.  These  customers  include  leading  military  aerospace,  industrial
products,  commercial aerospace,  semiconductor fabrication equipment,  consumer
products,  telecommunications,  medical electronics,  contract manufacturing and
computer and computer networking manufacturing  companies.  QDL's contracts with
its customers  for the supply of fasteners  and other C inventory  items vary in
length up to five years and may be canceled by either party with proper  notice.
QDL accepts returns of fasteners and other C inventory items and issues a credit
in exchange for such returns.  Historically,  returns have not been of an amount
to materially  affect the Company's  business.  For the year ended  December 31,
1998,  the Company had reported net sales of $57.0  million (pro forma net sales
of $74.0 million).  The ten largest customers accounted for approximately 39% of
QDL's sales in 1998 (on a pro forma  basis),  with no one customer  contributing
more than 11%.

Suppliers
---------

           Over  1,000  suppliers  located  in  the  United  States  and  abroad
manufacture the fasteners and other C inventory items sold by QDL. QDL purchases
fasteners  and other C inventory  items  directly  from  manufacturers  or, to a
lesser degree, from authorized  distributors.  QDL's decision to purchase from a
specific supplier is based on product  specifications,  quality,  reliability of
delivery,  production lead times and price. In addition,  the Company  purchases
products   from  foreign   suppliers   when   favorable   pricing  is  available
(approximately 3% of purchases for 1998 were from foreign suppliers).

           QDL routinely  reviews its supplier base and believes that it is able
to  purchase  fasteners  and  other C  inventory  items  in  sufficient  volumes
necessary to achieve improved  service and pricing.  QDL believes that it is not
materially dependent on any single supplier and that it currently maintains good
relationships with all of its suppliers. The ten largest suppliers accounted for
approximately  20% of  QDL's  purchases  in  1998,  with  the  largest  supplier
accounting for approximately 4%.

Patent, Trademark, Copyright and Proprietary Rights
---------------------------------------------------

           The Company received  registrations from the United States Patent and
Trademark Office in 1997 for the marks "Questron Technology, Inc.(R)" and "Quest
Electronic Hardware, Inc.(R)" relating to certain of the Company's services. The
Company does not have any patent or copyright applications pending.

Management Information System
-----------------------------

           The Company operates a management  information system that is used to
purchase,  monitor and allocate inventory throughout its facilities. The Company
believes that its system enables it to manage inventory costs effectively and to
achieve appropriate inventory turnover rates. QDL's system includes computerized
order entry, sales analysis,  inventory status, invoicing and payment,  bar-code
tracking,  and EDI through  which the Company  offers its  customers a paperless
electronic  process  for  order  entry,  shipment  tracking,  customer  billing,
remittance  processing  and other routine  matters.  The  Company's  information
system  operates  over a wide-area  network.  The real-time  information  system
allows each sales and warehouse  center to share  information  and monitor daily
progress relating to sales activities,  

                                       8
<PAGE>


credit  approval,  inventory  levels,  stock  balancing,  vendor returns,  order
fulfillment,  and other measures of performance.  The Company's  computer system
and programs are prepared to handle all dating implications  associated with the
new millennium.

Government Regulation
---------------------

           The Fastener  Quality Act of 1991, as amended (the  "Fastener  Act"),
was signed into law on November 16, 1990 and was  subsequently  amended in March
1996 and August 1998. Due to a lack of accredited  testing  facilities  required
under the  Fastener  Act and other  factors,  the  implementation  date has been
delayed several times. The Fastener Act is intended to protect the public safety
by deterring the introduction of  non-conforming  fasteners into commerce and by
improving  the  traceability  of fasteners.  Generally,  the Fastener Act covers
fasteners  including  screws,  nuts,  bolts or studs with  internal  or external
threads and load  indicating  washers  with  nominal  diameters  of greater than
approximately one quarter inch, which contain metal or are held out as meeting a
standard or specification that requires through-hardening. The Fastener Act also
covers  fasteners  and  washers  that  are  marked  with a grade  identification
required by a  specification  or standard.  An estimated 25% to 55% of currently
available  fasteners  meet this  definition  and are  therefore  subject  to the
Fastener Act's requirement.

           Fastener distributors such as the Company are subject to the Fastener
Act.  The  Fastener  Act places  responsibility  on fastener  manufacturers  and
distributors   to  ensure  that   fasteners   conform  to  the   standards   and
specifications to which the manufacturer  represents they have been manufactured
by having them tested in a laboratory accredited under the Fastener Act. Persons
who  significantly  alter  fasteners  must  mark the  fasteners  so as to permit
identification  of the  source of the  alteration.  Further,  the  Fastener  Act
prohibits  manufacturers  and distributors  from commingling like fasteners from
more than two different lots in the same container during packaging.

           The  Company  currently  employs  quality  control  personnel  at its
facilities  and  believes  it will  not be  obligated  to make  any  significant
investment  to comply with the Fastener  Act. The Company  anticipates  that the
majority of any additional costs resulting from compliance with the Fastener Act
will be included in the prices to its customers

           The Company's  operations are subject to various  federal,  state and
local  laws and  regulations,  including  those  relating  to worker  safety and
protection of the environment.  The Company is a distributor and does not engage
in  manufacturing.  As a result,  environmental  laws  generally  have a minimal
effect on its operations.  The Company believes it is in substantial  compliance
with applicable regulatory requirements.

Integrated Material Systems, Inc.
---------------------------------

           IMS  is a  master  distributor  of  fasteners  based  in  Scottsdale,
Arizona.  The  addition  of IMS  brought to the  Company  expertise  in sourcing
products on a worldwide basis and additional  materials  management  skills. IMS
sells to distributors  nationwide,  no one of which contributed more than 37% of
IMS's 1998 sales. IMS purchases fasteners  principally from Taiwan and Japan, as
well as domestic  sources.  In 1998, IMS's two largest  suppliers  accounted for
approximately  19%  and  9%,  respectively,   of  its  total  purchases.   

                                       9
<PAGE>


Power Components, Inc.
----------------------

           PCI is a  distributor  of lithium  batteries  and  battery  packs and
assemblies  based in  Norristown,  Pennsylvania.  PCI sells to  distributor  and
end-user customers  nationwide,  no one of which contributed more than 7% of its
1998 sales. PCI purchases product from international and domestic  manufacturers
of batteries,  with one such supplier  accounting for  approximately  41% of its
1998 purchases.

Employees
---------

           At March 15,  1999,  the Company  had 266  full-time  employees.  The
Company is not a party to any  collective  bargaining  agreements.  The  Company
believes that its relationship with its employees is good.

Risk Factors
------------

Limited Combined Operating History; Recent Acquisitions.

           The Company has grown  significantly  in the past two years primarily
as a result of  acquisitions.  The Company has acquired  seven  companies  since
March 1997. As a result, the Company's  historical results of operations are not
necessarily  indicative of future  results.  Prior to the  acquisition  of these
companies,   they  were  each  private  companies  with  different   objectives,
management information systems and accounting and other standards. Consequently,
there is limited  information  about the  performance of the acquired  companies
under the Company's management which is available for evaluation.

           The acquisitions have been accounted for using the purchase method of
accounting and the total  purchase  prices have been allocated to the assets and
liabilities acquired,  based upon their respective fair values. As a result, the
Company has significant  non-cash  charges for  amortization  expense related to
goodwill.  In addition,  the Company has substantial  indebtedness in connection
with  the   acquisitions  for  which  it  will  have  significant  debt  service
requirements.

Risks Related to the Company's Acquisition Strategy.

           A disciplined  acquisition  program is part of the Company's business
strategy.  The success of this  program in the future  will depend upon  finding
strategic acquisition  candidates that would expand and complement the Company's
business at  attractive  prices.  The Company  expects to face  competition  for
acquisitions,  which may limit the number of acquisition  opportunities and lead
to higher acquisition prices. The Company can not assure that it will be able to
identify additional acquisition candidates on terms acceptable to the Company or
in a  timely  manner,  enter  into  acceptable  agreements  or  close  any  such
transactions.  In  addition,  the  Company  may not be able to  integrate  newly
acquired  businesses  successfully  without  unplanned  costs,  delays  or other
difficulties  and the Company may not be able to achieve its targeted  synergies
and cost savings.

           The  Company  may  finance  future  acquisitions  through  internally
generated  funds,  bank borrowings,  public  offerings or private  placements of
equity or debt  securities,  or a combination of these 

                                       10
<PAGE>


sources. The Company may not be able to obtain any required additional financing
on terms that are  acceptable  to the  Company and the Company may be limited in
its ability to issue  equity if the  Company's  common stock does not maintain a
sufficient market value or if potential acquisition  candidates are unwilling to
accept common stock in exchange for the sale of their businesses.  The Company's
inability to obtain the  necessary  funds to make such  acquisitions  may have a
material adverse effect on its ability to effect its acquisition strategy and to
continue to grow its business.

Challenges of Business  Integration  -- The Company May Not be Able to Integrate
its Acquired Businesses Successfully.

           Since March 1997, the Company has acquired seven businesses. Although
all acquisitions are subject to risks, the high number and aggregate size of the
acquisitions  the Company has completed  since March 1997 subject the Company to
greater  risks  than  usual.  In  particular,  successful  integration  of these
companies,  or any other  companies  that the Company may acquire in the future,
into the Company's  business  presents the Company with significant  challenges.
The process of integration  could divert  management's  attention from its daily
operation,   require  the   implementation  of  enhancements  to  the  Company's
operational and financial systems,  require additional  management,  operational
and  financial  resources,  and  place  significant  demands  on  the  Company's
management  and  infrastructure.  Successful  integration  will also depend on a
number of other factors, including the Company's ability to maintain the quality
of services it provides to its customers  and the  recruitment,  motivation  and
retention  of  qualified  personnel.  The Company can not assure that it will be
able to succeed with such  integration  or  effectively  manage  newly  acquired
businesses  or that such  business  will perform as expected.  In addition,  the
Company  can not assure that the  acquired  companies  will not have  additional
liabilities or contingencies  that the Company did not anticipate at the time of
the acquisitions.

The Company Faces the Pressures of Competitive Industries.

           The  Company  is  engaged  in a  highly  fragmented  and  competitive
industry.  Competition  is based  primarily on service,  quality and  geographic
proximity.  The Company competes with a large number of fastener distributors on
a regional and local basis, some of which have greater  financial  resources and
technical  expertise than the Company.  In addition,  these competitors may have
greater  established  customer  relationships  with certain  customers for whose
business the Company competes and may offer lower prices on competing  products.
Furthermore,  the potential  growth of the market in which the Company  competes
may attract new participants as they perceive opportunities. The Company can not
assure that it will be able to compete  successfully with its existing or future
competitors.

The Company Depends on Significant Customers.

           For the year ended  December  31,  1998,  on a pro forma  basis,  the
Company's ten largest  customers  accounted for  approximately 39% of its sales,
with no one customer  contributing  more than 11%. These sales  arrangements are
terminable  upon  short  notice  and none of these  customers  is  obligated  to
continue to use the Company's services,  or acquire the Company's  products,  at
all or at existing prices. The dependence on significant  customers subjects the
Company to  significant  financial  risk in the operation of its  business.  The
Company's  ability  to  maintain  these  customer  relationships  and  build new
customer  relationships  is dependent,  among other  things,  upon the Company's
ability to 

                                       11
<PAGE>


maintain  high quality  standards and  competitive  prices.  The Company  cannot
assure  that it will  maintain  these  relationships.  The  loss of any of these
significant  customers  or any other  significant  customer  for any reason or a
reduction in business with a significant customer for any reason could result in
a material loss of revenue or otherwise  have a material  adverse  effect on the
Company's  business.  In addition,  from time to time,  certain of the Company's
customers  may  seek to  implement  competitive  bidding  and  other  procedures
designed to reduce prices for fasteners and other C inventory  items,  which may
lower the Company's gross margins on sales to these customers.  The Company will
seek to mitigate any adverse  impact to gross margins in the future  through its
own cost reduction  initiatives  and by providing  additional  services to these
customers, however, the Company can not assure the timing or the extent to which
such mitigating efforts will offset lower margins, if at all.

Customer Industry Risks and Cyclicality.

           The Company sells a  significant  number of its products to customers
in  industries  that  experience  fluctuations  in demand  because of changes in
economic  conditions,  consumer  demand  and other  factors  beyond its or their
control.  As a result,  the Company may not be able to increase or maintain  its
level of sales in periods of economic  stagnation  or downturn in the  Company's
customers'  industries.   The  Company  expects  that  the  cyclicality  of  the
industries  could adversely  affect its sales and therefore  potentially  have a
material  adverse  effect on the Company's  financial  condition,  liquidity and
results of operations.

The Company Depends on its Information Systems.

           The Company operates a management  information system that is used to
purchase,  monitor and allocate inventory throughout its facilities. The Company
believes  that its  information  system is an integral  part of its business and
certain growth  strategies are contingent upon such system.  The Company depends
heavily on its management  information  system to provide real-time  information
used in  monitoring  progress  relating to sales  activities,  credit  approval,
inventory levels,  stock balancing,  vendor returns and order  fulfillment.  Any
disruption  in the  operation of the Company's  information  system  (including,
without  limitation,  as a result of Year 2000  issues)  could  have a  material
adverse effect on the Company's  financial  condition,  liquidity and results of
operations.  See "Risk  Factors - Year 2000  Issues  May  Negatively  Affect the
Company."

The Company Depends on Third-Party Suppliers and Manufacturers.

           The Company purchases substantially all of its products,  principally
fasteners  and  other  C  inventory  items,   from  third-party   suppliers  and
manufacturers.  Although  the  Company  believes  there are  numerous  available
sources of supply for most of its  products,  the Company is subject to the risk
of price fluctuations,  different product performance and quality,  and periodic
delays in the delivery of certain specialty fasteners and other products.

The Company Depends on Key Management.

           The Company's success depends largely upon the efforts, abilities and
expertise of its executive officers and other senior managers, including Dominic
A. Polimeni, its Chairman, President and Chief 

                                       12
<PAGE>


Executive Officer,  as well as the executive  management of its operating units.
In  addition,  the  Company  may  depend on the  management  of any  significant
business the Company acquires in the future.  The loss of the services of one or
more of such  individuals  could have a material adverse effect on the Company's
financial condition, liquidity and results of operations.

Management Control.

           Management owns approximately 39% of the Company's outstanding shares
of common stock.  Accordingly,  management has the ability to direct many of the
Company's  affairs and actions,  including actions requiring the approval of our
stockholders.

Government Regulation; Fastener Act.

           The Company's  operations are subject to various  federal,  state and
local  laws and  regulations,  including  those  relating  to worker  safety and
protection  of the  environment.  In addition,  the Fastener Act  regulates  the
manufacture,  importation  and  distribution  of certain  high-grade  industrial
fasteners in the United States. (See "Business - Government Regulation").  While
the implementation  date of the Fastener Act has been delayed,  the act requires
certain   testing,   certification   and   recordkeeping   requirements  by  the
manufacturers,  importers and distributors of such fasteners.  As a result,  the
Company and other  fastener  suppliers  are  required  to  maintain  records and
product tracking  systems.  The Company has tracking and  traceability  systems,
which, to date, have not materially increased expenses. However, the Company can
not assure that future regulations will not result in materially increased costs
for the Company.

Year 2000 Issues May Negatively Affect the Company.

           The  Company  is in the  process  of  evaluating  and  resolving  the
potential  impact  of the Year  2000  problem  on its  computerized  information
systems and other infrastructure that contain embedded technology. The Year 2000
problem  is the  result of  computer  programs  being  written  using two digits
(rather than four) to define the applicable year. Any of the Company's  programs
that have  time-sensitive  software may  recognize a date using "00" as the year
1900 rather than the year 2000, which could result in  miscalculations or system
failures.

           The  Company  believes  that  substantially  all of its  computerized
information  systems and other  infrastructure  that contain embedded technology
are already  Year 2000 ready or will be modified so as to become Year 2000 ready
by  mid-1999.  Based  on  preliminary  information,  the  incremental  costs  of
addressing  potential  problems  are not  currently  expected to have a material
adverse  impact on the Company's  financial  condition or results of operations.
However, if the Company, its customers or its vendors are unable to resolve such
processing issues in a timely manner or have not identified all of the Year 2000
associated  issues,  the Company's ability to conduct business may be materially
adversely  affected  and its  financial  condition,  liquidity  and  results  of
operations could be materially adversely impacted.

           The Company is currently  evaluating  its need to create  contingency
plans in the event that the Company  does not  complete  all of its  remediation
plans in a timely  manner or that third  parties who 

                                       13
<PAGE>


provide  the  Company  with goods or  services  fail to address  their Year 2000
issues appropriately.  These plans may include identifying alternative suppliers
and  service   providers,   depletion  of  safety   stocks  of   inventory   and
identification of important areas of record retention.  The Company is presently
formulating a survey and plan for working with key  third-parties  to understand
their ability to continue  providing services and products through the change to
2000.

                                       14
<PAGE>


Item 2.  Description of Properties.

           The Company is  headquartered  at 6400 Congress  Avenue,  Suite 200A,
Boca  Raton,  Florida  33487,   operating  from  eighteen  well-equipped  modern
facilities, all but one of which are leased, as follows:

           Boca Raton,  Florida  (Company  headquarters) - occupies 3,634 square
           feet of office space under a lease expiring May 31, 2000, which space
           is approximately 90% utilized;

           Anaheim,  California - occupies 2,500 square feet of office space and
           8,000 square feet of warehouse  space under a lease expiring March 1,
           2016, which space is approximately 90% utilized;

           Atlanta,  Georgia - occupies 2,780 square feet of warehouse space 
           under a lease expiring  January 31, 2000,  which space is
           approximately 60% utilized;

           Austin,  Texas - occupies  900 square feet of office  space and 8,100
           square feet of warehouse  space under a lease expiring  September 15,
           2000, which space is approximately 50% utilized;

           Boca Raton,  Florida - occupies  750 square feet of  warehouse  space
           under a  month-to-month  lease,  which  space  is  approximately  90%
           utilized;

           Colorado  Springs,  Colorado - occupies  1,000  square feet of office
           space and 4,000 square feet of warehouse  space under a lease,  which
           expired  November  30,  1998  (now  month-to-month),  which  space is
           approximately 80% utilized;

           Dallas, Texas - occupies 1,575 square feet of office space and 11,945
           square feet of warehouse  space under a lease  expiring  February 28,
           2003, which space is approximately 65% utilized;

           Forth Worth,  Texas - occupies 10,000 square feet of office space and
           12,000 square feet of warehouse space under a lease expiring June 30,
           2000, which space is approximately 95% utilized;

           Forth Worth,  Texas - occupies 10,000 square feet of office space and
           15,000 square feet of warehouse space under a lease expiring February
           28, 2000, which space is approximately 90% utilized;

           Hialeah,  Florida - occupies 750 square feet of warehouse space under
           a month-to-month lease, which space is approximately 90% utilized;

           Melbourne,  Florida - occupies  1,500 square feet of office space and
           1,000 square feet of warehouse  space under a lease expiring  January
           5, 2000, which space is approximately 90% utilized;

                                       15

<PAGE>


           Milpitas, California - occupies 3,000 square feet of office space and
           9,405 square feet of warehouse space under a lease expiring April 14,
           2002, which space is 90% utilized;

           Orlando,  Florida - occupies  4,000  square feet of office  space and
           6,000  square  feet of  warehouse  space in a  facility  owned by the
           Company, which space is approximately 70% utilized;

           Phoenix,  Arizona - occupies  1,000  square feet of office  space and
           11,000 square feet of warehouse space under a lease expiring  October
           31, 2000, which space is approximately 80% utilized;

           San Diego,  California  - occupies  2,600 square feet of office space
           and 19,300  square feet of  warehouse  space  under a lease  expiring
           February 29, 2004, which space is approximately 50% utilized;

           Scottsdale,  Arizona - occupies 1,000 square feet of office space and
           2,928 square feet of warehouse  space under a lease  expiring May 31,
           2000, which space is approximately 75% utilized;

           W. Conshohocken,  Pennsylvania - occupies 2,200 square feet of office
           and  3,800  square  feet of  warehouse  space  under a month to month
           lease, which space is approximately 66% utilized; and

           Winchester,  Massachusetts  - occupies  4,000  square  feet of office
           space  and  16,000  square  feet  of  warehouse  space  under a lease
           expiring March 31, 2000, which space is approximately 90% utilized.

           Total rent expense for the Company  amounted to $639,601 in 1998. The
aggregate minimum rental commitments under all  non-cancelable  operating leases
for the year ending December 31, 1999 is $941,182.

Item 3.  Legal Proceedings.

           On July 16, 1997, Unit  Instruments,  Inc., a California  corporation
("Unit"),  filed a complaint against California Fasteners,  Inc. ("Calfast") and
others in the Superior  Court of the State of California for Orange County (Case
No. 781801) (the "Complaint").  The Complaint alleges breach of contract, breach
of various  warranties  and  negligence.  The action  relates to certain  screws
allegedly  purchased by Unit from Calfast as a  distributor,  which Unit alleges
malfunctioned  thereby causing Unit to suffer damages.  Unit has claimed damages
in an  amount  to be  proved at  trial,  but  alleged  damages  of not less than
$1,000,000.  Calfast  filed an answer to the  complaint on  September  22, 1997,
which denies the  allegations  made therein and  asserted  cross-claims  against
certain of the other defendants in the action, including the manufacturer of the
screws. Calfast has referred this litigation to its insurance carrier, which has
assumed the defense of the case under a  reservation  of all rights.  The former
stockholders  of Calfast have provided the Company with certain  indemnities  in
connection with liabilities  arising out of this  litigation.  Management of the
Company  is unable to  predict  the  outcome  of this  litigation,  but does not
believe that this litigation will have a material adverse effect on its business
or financial condition.


                                       16


<PAGE>

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

           There were no matters submitted to shareholders for a vote during the
quarter ended December 31, 1998.

                                       17
<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

           The  Company's  common stock is included for  quotation on the NASDAQ
SmallCap Market under the symbol "QUST".

           The  following  table  sets  forth  the  reported  high  and  low bid
quotations  of the  common  stock for the  periods  indicated.  Such  quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.

                                                 Common Stock
                                   ---------------------------------------
                                           High                Low
           1997:
           First Quarter                  $ 6.75             $ 3.25
           Second Quarter                 $ 6.75             $ 4.75
           Third Quarter                  $ 8.44             $ 5.38
           Fourth Quarter                 $10.00             $ 7.13

           1998:
           First Quarter                  $ 9.00             $ 6.13
           Second Quarter                 $ 9.88             $ 6.38
           Third Quarter                  $ 8.25             $ 3.75
           Fourth Quarter                 $ 6.22             $ 3.50

           On March 9, 1999,  the  Company's  common  stock as  reported  on the
NASDAQ SmallCap Market system was $4.50 (closing bid price).  On that date there
were approximately  1,000 holders of record of common stock (including  entities
which hold stock in street name on behalf of other beneficial owners).

           The Company has not paid any cash  dividends  on its common  stock to
date. The Company  anticipates that for the foreseeable  future it will follow a
policy of  retaining  earnings,  if any, in order to finance the  expansion  and
development  of its  business.  Payment of common stock  dividends is within the
discretion  of the  Company's  board  of  directors  and  will  depend  upon the
earnings,  capital  requirements  and operating  and financial  condition of the
Company,  among other factors,  including  restrictions under the Company's loan
and security agreement with its lenders.

           The Series B Preferred  Stock was  entitled,  as and when declared by
the board of  directors,  to  receive,  in respect  of the two years  before the
Series B Preferred  Stock was  converted,  an annual  dividend per share payable
either in cash or shares of common stock, at the option of the Company, equal to
$0.115 or 2% of the $5.75 value of the Series B Preferred  Stock included in the
Units.  In March 1998,  the board of directors  voted to issue 17,344  shares of
common  stock to the  Series B  Preferred  Stockholders  in payment of the first
year's  dividend and also approved a proposal to accelerate the conversion  date
of the Series B Preferred Stock.

                                       18
<PAGE>


           On June 11, 1998,  the  shareholders  and the board of directors (the
"Board") of the Company  approved a proposed  amendment  to the  Certificate  of
Designation  of the  Company  (the  "Amended  Certificate  of  Designation")  to
accelerate the conversion date (the "Conversion Date") of the Company's Series B
Convertible  Preferred  Stock,  par value $.01 per share  ("Series  B  Preferred
Stock") into common stock, par value $.001 per share ("Common Stock"). The Board
established  July 2,  1998 as the  Conversion  Date  upon  which  the  Series  B
Preferred  Stock would be  automatically  converted into shares of Common Stock,
together  with the  payment  of the full  annual  dividend  that would have been
payable with respect thereto in 1999.

           On June 30,  1998,  the  Company  filed the  Amended  Certificate  of
Designation with the Secretary of State of the State of Delaware, providing that
(i) each share of the Series B Preferred Stock would automatically convert as of
the close of business on the Conversion Date,  without any action on the part of
the holder  thereof or the Company,  into 1.4375  shares of Common  Stock;  (ii)
holders of the Series B Preferred Stock would be entitled,  when and as declared
by the Board, to receive an annual dividend per share equal to $0.115 per share;
(iii) such  dividends  would  accrue  from March 4, 1997 and would be payable on
March 4, 1998 and on the Conversion  Date (payable with respect to a full year),
in cash or  shares  of  Common  Stock of the  Company;  (iv) the  aforementioned
dividends  would be  cumulative  and no dividends  would be paid or set apart in
respect of the Common Stock or any other class of securities  which ranks junior
to the  Series B  Preferred  Stock  unless  and until  all  accrued  and  unpaid
dividends upon such Series B Preferred Stock had been paid or set apart in full;
and (v) no interest would accrue with respect to dividends in arrears.

           On July 2, 1998, each share of Series B Preferred Stock was converted
into Common Stock at a rate of 1.4375 shares of Common Stock and received $0.115
per share in Common Stock for the related dividend.

           Other  than  the  foregoing,  the  Company  does not  anticipate  the
declaration or payment of any dividends in the foreseeable future.  There can be
no assurance that cash dividends of any kind will ever be paid.

                                       19
<PAGE>


Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

Results of Operations 
---------------------

For the year ended December 31, 1998 compared with 1997.
--------------------------------------------------------

           The results of  operations  through  December  31,  1998  include the
operating  results of the Company's  inventory  logistics  management  business,
Questron Distribution  Logistics,  Inc. ("QDL") (formerly named Quest Electronic
Hardware,  Inc.),  its master  distribution  of fasteners  business,  Integrated
Material Systems,  Inc. ("IMS") and its lithium battery  distribution  business,
Power  Components,  Inc.  (PCI").  QDL  includes the  operating  results of Webb
Distribution  ("Webb"), and California Fasteners,  Inc. ("Calfast"),  which were
acquired   in  1997,   and  the   operating   results   of   Fas-Tronics,   Inc.
("Fas-Tronics"),  Fortune  Industries,  Inc.  ("Fortune") and AFCOM,  which were
acquired in 1998.

           The Company's  revenues for the year ended December 31, 1998 amounted
to  $56,968,007,  which  represent a record  level of revenues  for the Company,
compared with  $25,710,194 for the year ended December 31, 1997. The significant
growth in the Company's  revenues in 1998 is primarily  attributable to the full
year results of Calfast in 1998 and the  acquisitions of Fas-Tronics and Fortune
during the year,  as well as the  internal  growth of the other QDL branches and
the  opening of a new QDL branch  during  the second  quarter of 1998.  Revenues
associated  with  Calfast,  Fas-Tronics  and Fortune  included in the  Company's
results for the year ended December 31, 1998 amounted to  $37,914,140,  compared
with revenues  associated with Calfast of $12,239,655  included in the Company's
results for the year ended December 31, 1997.

           The  Company's  operating  income was  $8,279,478  for the year ended
December 31, 1998,  compared with  operating  income of $3,302,403 for the prior
year.  The  increase in  operating  income for the year ended  December 31, 1998
compared with the prior year is primarily due to the increased  operating income
attributable  to the  acquired  businesses,  as  well  as  internal  growth.  In
addition,  operating  income as a percentage of sales  improved to 14.5% for the
year ended  December  31, 1998 from 12.8% for the year ended  December 31, 1997,
reflecting  a 1.7  percentage  point  improvement  in  operating  expenses  as a
percentage  of  sales.  This  improvement  is  attributable  to  the  successful
integration of the 1997 acquired  businesses and the resultant cost savings from
the combination of these businesses with the Company.

           Interest  expense  for the years  ended  December  31,  1998 and 1997
amounted to  $2,709,979  and  $513,406,  respectively.  The increase in interest
expense principally  reflects the cost of increased  borrowings  associated with
the acquisition of Calfast in September 1997 and the acquisitions of Fas-Tronics
and  Fortune as of July 1, 1998,  as well as  borrowings  associated  with QDL's
working capital needs.

           The provision for income taxes for the years ended  December 31, 1998
and 1997, respectively,  reflects a federal income tax provision at an effective
rate of 35% and 35.1%,  respectively,  and a state  income tax  provision  at an
effective rate of 6% and 6.2%, respectively, for the states in which the Company
does business.


                                       20
<PAGE>


           Net  income  for  the  year  ended  December  31,  1998  amounted  to
$3,286,004,  compared  with net income of  $1,637,141  for the prior year.  This
improvement reflects the increased operating income attributable to the acquired
businesses  and  continued  internal  growth,  partially  reduced  by  increased
corporate expenses, interest expense, and income taxes.

           Net income per share and net income per diluted  common share reflect
deductions for preferred stock dividends,  including imputed, non-cash dividends
associated  with the  issuance  of the  preferred  stock.  The  preferred  stock
converted  into common stock on July 2, 1998,  causing the  acceleration  of the
amortization  of the imputed  dividend as a one-time,  non-cash  dividend.  As a
result of this  conversion,  the common  stock into  which the  preferred  stock
converted (1,653,125 shares of common stock) is included for two quarters in the
weighted average number of common shares outstanding for the year ended December
31,  1998.  The effect of this  one-time,  non-cash  dividend is  anti-dilutive,
accordingly,  the  presentation  of net  income  per  diluted  common  share  is
presented  on the face of the income  statement as the same amount as net income
per common share. Excluding the one-time, non-cash preferred stock dividend, net
income per diluted common share was $.70 for the year ended December 31, 1998.

Liquidity and Capital Resources
-------------------------------

           At December  31,  1998,  the  Company  had  $229,285 in cash and cash
equivalents,  compared to $875,080 as of December 31,  1997.  As of December 31,
1998,  the Company had working  capital of  $22,627,028,  compared  with working
capital of $9,046,826 as of December 31, 1997.

           For the year  ended  December  31,  1998,  the net  cash  used in the
Company's operating  activities amounted to $3,067,063,  principally  reflecting
the increases in inventories and receivables, which working capital requirements
were funded in part by the profits of the Company and the  increases in accounts
payable and income taxes payable.

           For the year  ended  December  31,  1998,  the net  cash  used in the
Company's investing activities amounted to $24,398,544, including $23,472,714 of
net cash  consideration paid in connection with the acquisitions of Fas-Tronics,
Fortune,  and AFCOM and $600,000 net cash  consideration paid in connection with
the  deferred   purchase  price  of  Calfast.   The  Company  also  had  capital
expenditures of $325,830 for the  acquisition of fixed assets.  The Company does
not have  significant  commitments  for capital  expenditures as of December 31,
1998 and no significant commitments are anticipated for the next twelve months.

           For the year ended  December 31, 1998,  the net cash  provided by the
Company's  financing  activities  amounted  to  $26,819,812,  which  consists of
$30,000,000 of bank financing  associated  with the  acquisitions of Fas-Tronics
and Fortune and the refinancing of existing bank debt, a $5,000,000 note payable
to AFCOM, Inc.  (subsequently paid with proceeds from bank borrowings),  as well
as $5,294,519 of bank borrowings under the Company's  revolving credit facility,
reduced by long-term debt principal  payments of $9,583,334,  revolving facility
repayments of $1,425,000,  fees and expenses  associated with the bank financing
of $2,193,973, principal payments of $79,085 on various capital

                                       21
<PAGE>


leases,  payments of $37,744 in respect of the  exercise of put options and
principal payments of $155,571 on notes issued for acquired businesses.

           In connection with the  acquisitions of Fas-Tronics and Fortune,  the
Company entered into a $45,000,000 Loan and Security  Agreement with its lenders
providing for term debt of $30,000,000 and a revolving  facility of $15,000,000.
At December 31, 1998,  $5,294,519 was outstanding under the revolving  facility.
Of the remaining amount of the $15,000,000  revolving  facility,  $9,171,885 was
available  at  December  31,  1998 for future  working  capital  needs.  Amounts
outstanding  under the revolving  facility bear interest at a rate equal to 1.0%
above the  lender's  prime rate with a minimum rate of interest of 9% per annum.
As of March 9, 1999,  the interest rate under the revolving  facility was 9%. In
connection with its acquisition of AFCOM,  the Company entered into an amendment
to the Loan and Security Agreement in February 1999. The amendment increased the
credit facility to $51,000,000,  providing for an additional term loan amount of
$5,000,000 and an increase in the revolving facility to $16,000,000. In order to
secure the obligations of the Company and its  subsidiaries  under the revolving
facility and the related term loan  facility of the loan and security  agreement
with the lender,  the Company  entered  into a stock pledge  agreement  with the
lender whereby the Company  pledged to the lender the shares of capital stock of
each of its  subsidiaries  at the date of such  agreement  and any shares of its
subsidiaries  in which the  Company  may  thereafter  acquire  an  interest.  In
addition,  the  Company  and its  subsidiaries  granted a security  interest  in
substantially all of their assets to the lender.

           The Company  intends to continue to identify and  evaluate  potential
merger and acquisition  candidates  engaged in businesses  complementary  to its
business.  While certain of such additional potential acquisition  opportunities
are at various stages of consideration and evaluation, none is at any definitive
stage at this time,  other than the definitive  agreement  dated as of March 11,
1999 with  respect to the  acquisition  of the business and assets of Metro Form
Corporation,  d.b.a. Olympic Fasteners and Electronic Hardware ("Olympic").  The
purchase  price for Olympic,  which had  revenues of $10 million is 1998,  is $9
million,  consisting of $8 million in cash and the balance in shares of Questron
common stock.  Additional purchase consideration of up to $1 million may be paid
based on future operating  results.  The acquisition is subject to financing and
other  customary  closing  conditions.  Management  believes  that  its  working
capital,  funds available under its credit  agreement,  and funds generated from
operations will be sufficient to meet its obligations through 1999, exclusive of
cash requirements associated with any business acquisitions.

Readiness for Year 2000 Compliance
----------------------------------

           The Year 2000 presents  potential  concerns for business and consumer
computing.  The  consequences  of this issue may include  systems  failures  and
business  process  interruption.  It may also  include  additional  business and
competitive differentiation. Aside from the well-known calculation problems with
the use of 2-digit date formats as the year changes from 1999 to 2000,  the Year
2000  is a  special  case  leap  year  and in  many  organizations  using  older
technology, dates were used for special programmatic functions.

           The Year 2000  issue  may  affect  the  Company's  internal  systems,
including information  technology ("IT") and non-IT systems. While the Company's
IT system is prepared to handle all dating implications  associated with the new
millennium,  the  Company's  management  is  presently  engaged  in  

                                       22
<PAGE>


an ongoing  assessment of the readiness of all its systems for handling the Year
2000. Although the assessment is still underway,  management  currently believes
that  it  will  be  successful  in  identifying   and  resolving  any  potential
deficiencies  in its non-IT  systems with respect to the Year 2000 issue by June
1999 and that all such  material  systems will be compliant by the Year 2000 and
that the cost to address the issues is not material.  Nevertheless,  the Company
expects to assess its need to create  contingency  plans during 1999 for certain
internal systems in the event management  determines that such contingency plans
may become warranted.

           All  organizations  dealing with the Year 2000 issue must address the
effect this issue will have on their third-party supply chain. The Company plans
to also  undertake  steps to  identify  whether its  vendors  have  sufficiently
identified  and are taking steps to address the Year 2000 issue.  Management  is
presently  formulating a survey and plan for working with key  third-parties  to
understand their ability to continue providing services and products through the
change  to  2000.   The  Company  will  work  directly  with  its  key  vendors,
distributors,  and resellers, and coordinate its action with respect to the Year
2000 issue with them, if necessary, to avoid any business interruptions in 2000.
For these key third-parties, contingency plans may be required.

           The  Company's  management  believes the impact of the Year 2000 will
not cause any material  disruptions in the Company's  operations.  However,  the
impact of such potential disruptions is difficult to discern.

                                       23
<PAGE>


Item 7.  Financial Statements.

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Questron Technology, Inc.

           We have  audited  the  accompanying  consolidated  balance  sheet  of
Questron  Technology,  Inc. and  subsidiaries  as of December 31, 1998,  and the
related consolidated  statements of income, changes in shareholders' equity, and
cash  flows  for  the  year  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

           We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

           In our opinion,  the consolidated  financial  statements  referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Questron Technology, Inc. and subsidiaries at December 31, 1998, and
the  consolidated  results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles.




                                          ERNST & YOUNG LLP

New York, New York
March 1, 1999

                                       24
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Questron Technology, Inc.

           We have audited the accompanying  consolidated  statements of income,
changes in shareholders' equity, and cash flows of Questron Technology, Inc. and
its  subsidiaries  for  the  year  ended  December  31,  1997.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

           We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

           In our opinion,  the consolidated  financial  statements  referred to
above present fairly,  in all material  respects,  the  consolidated  results of
operations  of Questron  Technology,  Inc. and its  subsidiaries  and their cash
flows for the year  ended  December  31,  1997,  in  conformity  with  generally
accepted accounting principles.




                                        MOORE STEPHENS, P.C.
                                        Certified Public Accountants


New York, New York
February 24, 1998

                                       25
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEET
                              AT DECEMBER 31, 1998

                                     ASSETS

Current assets:
   Cash and cash equivalents                                    $      229,285
   Accounts receivable, less allowance for
      doubtful accounts of $186,256                                 11,279,876
   Other receivables                                                    70,412
   Inventories                                                      20,972,593
   Other current assets                                                345,814
                                                                --------------
   Total current assets                                             32,897,980

Property and equipment - net                                         2,042,786
Cost in excess of net assets of businesses acquired,
   less accumulated amortization of $1,165,977                      37,575,334
Deferred income taxes                                                2,848,497
Other assets                                                         2,360,656
                                                                --------------

      Total assets                                                 $77,725,253
                                                                ==============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                $ 5,328,023
   Accrued expenses                                                  1,415,626
   Income taxes payable                                              1,715,501
   Current portion of long-term debt                                 1,811,802
                                                                 -------------
   Total current liabilities                                        10,270,952
Deferred income taxes payable                                          364,639
Long-term debt                                                      39,285,698
                                                                 -------------
      Total liabilities                                             49,921,289
                                                                 -------------

Commitments and contingencies
Common stock subject to put option agreement 
Shareholders' Equity:                                                   339,697
  Common stock, $.001 par value; authorized 20,000,000
     Shares; issued 4,795,175 shares                                      4,795
   Additional paid-in capital                                        39,615,998
   Accumulated deficit                                             (11,801,048)
                                                                  -------------
                                                                     27,819,745
   Less: treasury stock, 11,849 shares of common stock, at cost       (355,478)
                                                                  -------------
   Total shareholders' equity                                        27,464,267
                                                                  -------------

   Total liabilities and shareholders' equity                       $77,725,253
                                                                  =============

                 See Notes to Consolidated Financial Statements.

                                       26
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                        CONSOLIDATED STATEMENT OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>
<S>                                                                                    <C>                     <C>    

                                                                                        1998                    1997
                                                                                -------------------    ------------------
Revenue:
   Sales                                                                             $56,968,007             $25,667,245
   Fee income                                                                                 --                  42,949
                                                                                -------------------    ------------------
                                                                                      56,968,007              25,710,194
                                                                                -------------------    ------------------

Operating costs and expenses:
   Cost of products and services sold                                                 34,319,326              15,486,763
   Selling, general & administrative expenses                                         13,385,018               6,512,757
   Depreciation and amortization                                                         984,185                 408,271
                                                                                -----------------      ------------------
                                                                                      48,688,529              22,407,791
                                                                                ----------------       ------------------

Operating income                                                                       8,279,478               3,302,403

Interest expense                                                                       2,709,979                 513,406
                                                                                ----------------       ------------------

Income before income taxes                                                             5,569,499               2,788,997
Provision for income taxes                                                             2,283,495               1,151,856
                                                                                ----------------       ------------------

Net income                                                                           $ 3,286,004             $ 1,637,141
                                                                                ================       ==================
                                                                                                                         

Net income                                                                           $ 3,286,004             $ 1,637,141
Deduct: Preferred Stock dividend                                                         165,310                  99,189
              Imputed non-cash Preferred Stock dividend                                1,075,988                 577,137
                                                                                ----------------       ------------------

Net income used in per common share calculation                                      $ 2,044,706             $   960,815
                                                                                ================       ==================

Net income per common share                                                          $       .60             $       .56
                                                                                ================       ==================
Net income per diluted common share                                                  $       .60             $       .47
                                                                                ================       ==================
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       27
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
                                     Preferred Stock               Common Stock       Additional     Accumulated      Treasury
                               ---------------------------   -------------------
                                  Shares          Amounts      Shares   Amounts     Paid in Capital    Deficit          Stock
                               --------------  -----------   --------- ---------     ---------------  -----------     ---------
<S>                                <C>            <C>       <C>           <C>        <C>             <C>             <C>

Balance -
January 1, 1997                        --      $   --       1,547,333     $1,547     $23,880,069     $(14,806,605)   $(355,478)
Issuance of securities:
  Series IV Warrants issued
     in connection with the
     acquisition of Webb               --          --              --         --          375,000              --            --
Preferred Stock Offering        1,150,000      11,500              --         --        5,623,412              --            --
In connection with
     the acquisition  of IMS           --          --          50,000         50          299,000              --            --
In connection with
     the acquisition of PCI            --          --          50,000         50          349,950              --            --
In connection with the
    acquisition of Calfast             --          --         475,106        475        2,357,956              --            --
Series B Preferred Stock
  dividend                             --          --              --         --               --         (99,189)           --
Imputed non-cash Series B
  Preferred Stock dividend             --          --              --         --               --        (577,137)           --
Accretion of Series B
  Preferred Stock                      --          --              --         --        (577,137)              --            --
Net Income for the Year                --          --              --         --               --       1,637,141            --
                                -----------  ----------  -------------   -------      -----------     -----------      --------
December 31, 1997               1,150,000      11,500       2,122,439      2,122       33,462,524     (13,845,790)     (355,478)
Issuance of securities:
In connection with
     the acquisition  of
Fas-Tronics:                            --          --       421,941         422        1,929,958              --            --
     Common stock                       --          --            --          --          119,500              --            --
     Stock options
In connection with
     the acquisition of Fortune         --          --       518,102         518        2,369,798              --            --
In connection with
     the acquisition of
     the assets of AFCOM                --          --        50,000          50          257,294              --            --
Series B Preferred Stock
  dividend                              --          --            --          --               --        (165,274)           --
Payment of Series B
  Preferred Stock dividend
  in common stock                       --          --        35,583          36          165,274              --            --

Imputed non-cash Series B
  Preferred Stock dividend              --          --            --          --               --      (1,075,988)           --
Accretion of Series B
  Preferred Stock                       --          --            --          --        1,075,988              --            --
Conversion of Series B
  Preferred Stock               (1,150,000)    (11,500)    1,653,125       1,653          (9,847)              --            --
Put Agreement exercised
  by former shareholders
  of Calfast                            --          --       (6,015)         (6)               --              --            --
Put Agreement declined
  by former shareholders
  of Calfast                            --          --           --          --           245,509              --            --
Net Income for the Year                 --          --           --          --                --        3,286,004           --
December 31, 1998               -----------  ---------   ----------  -----------     ------------     -------------    ----------
                                        --          --    4,795,175       $4,795      $39,615,998     $(11,801,048)    $(355,478)
                                ===========  =========   ==========  ===========     ============     =============    ==========
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       28
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>

                                                                                      1998                   1997
                                                                                ----------------        -------------
<S>                                                                             <C>                         <C>

Cash flows from operating activities:
  Net income                                                                    $   3,286,004           $   1,637,141
  Adjustments to reconcile net income to net cash (used in)
     provided by operating activities:
      Depreciation and amortization                                                   984,185                 408,271
      Provision for doubtful accounts                                                  26,695                  10,702
      Recognition of current year income tax benefit of net operating
        loss carryforward                                                             344,450                 807,053
  Change in assets and liabilities:
     (Increase) in accounts receivable                                             (3,135,956)             (1,265,885)
     Decrease in other receivables                                                      7,321                  43,323
     (Increase) in inventories                                                     (7,331,154)             (1,456,811)
     Decrease in prepaid expenses and other assets                                     71,243                 230,724
     Increase in accounts payable                                                   1,178,292                  73,587
     (Decrease) increase in accrued expenses                                         (194,254)                154,747
     Increase (decrease) in income taxes payable                                    1,514,024                (221,146)
     Increase in deferred income taxes payable                                        182,087                 143,329
                                                                                --------------            ------------
     Net cash (used in) provided by operating activities                           (3,067,063)                565,035
                                                                                --------------            ------------

Cash flows from investing activities:
  Net cash consideration paid for acquired businesses                             (24,072,714)            (12,641,922)
  Acquisition of property and equipment                                              (325,830)               (187,127)
                                                                                --------------            ------------
     Net cash used in investing activities                                        (24,398,544)            (12,829,049)
                                                                                --------------            ------------

Cash flows from financing activities:
  Proceeds from borrowings under revolving facility                                 5,294,519               1,425,000
  Repayment of revolving facilities                                                (1,425,000)             (2,158,387)
  Proceeds from long-term debt                                                     35,000,000              10,000,000
  Repayment of long-term debt                                                      (9,583,334)             (1,791,666)
  Fees and expenses associated with long-term debt financing                       (2,193,973)                      --
  Payments on capital leases                                                          (79,085)                      --
  Payments on exercise of put options                                                 (37,744)                      --
  Proceeds from Convertible Preferred Stock Unit Offering                                   --              6,900,000
  Costs associated with  Convertible Preferred Stock Unit Offering                          --             (1,265,188)
  Payments on notes issued for acquired business                                     (155,571)                (45,065)
                                                                                ---------------           ------------
     Net cash provided by financing activities                                      26,819,812             13,064,694
                                                                                ---------------           ------------

(Decrease) increase in cash and cash equivalents                                      (645,795)               800,680
Cash and cash equivalents at beginning of period                                       875,080                 74,400
                                                                                ---------------           ------------

Cash and cash equivalents at end of period                                       $    229,285             $   875,080
                                                                                ================          ============

Supplemental disclosure of cash flow information: Cash paid during the year for:
     Interest                                                                    $   2,166,687            $   398,904
                                                                                ================          ============
     Income taxes                                                                $     298,367            $    27,400
                                                                                ================          ============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       29
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

1.  Description of Business and Summary of Significant Accounting Policies

Description of Business

         Questron  Technology,  Inc.  ("Questron"  or  the  "Company")  provides
inventory  logistics  management  programs and is a value-added  distributor  of
fasteners and other small parts  (commonly  referred to as "C" inventory  items)
sold to original equipment  manufacturers ("OEM's") throughout the United States
through its subsidiary, Questron Distribution Logistics, Inc. ("QDL") (formerly
named Quest Electronic Hardware, Inc.). The Company is also a master distributor
of fasteners through its subsidiary  Integrated Material Systems,  Inc. ("IMS"),
and a distributor of lithium  batteries through its subsidiary Power Components,
Inc.  ("PCI").  QDL includes the  operations  of Comp Ware,  Inc.,  d.b.a.  Webb
Distribution ("Webb"), California Fasteners, Inc. ("Calfast"), Fas-Tronics, Inc.
("Fas-Tronics"), Fortune Industries, Inc. ("Fortune") and AFCOM.

Summary of Significant Accounting Policies

         Basis of  Presentation  - In 1998,  the Company  acquired  Fas-Tronics,
Fortune and the  business  and  operating  assets of AFCOM,  Inc.  ("AFCOM")  in
transactions accounted for under the purchase method of accounting. In 1997, the
Company  acquired Webb, IMS, PCI and Calfast also in transactions  accounted for
under the purchase method of accounting. Accordingly, the consolidated financial
statements  include  the  operations  of  the  acquired  businesses  from  their
respective dates of acquisition.

         Consolidation  - The  consolidated  financial  statements  include  the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany amounts are eliminated.

         Cash and Cash Equivalents - The Company considers certain highly liquid
investments  with  original  maturities  of  three  months  or  less  to be cash
equivalents.  The Company  maintains its cash and cash  equivalents  in accounts
which,  at times,  may exceed  federally  insured  limits.  The  Company has not
experienced  any losses in such  accounts  and believes it is not exposed to any
significant credit risk.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make certain  estimates  and  assumptions  that affect the  reported  amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported  amounts of revenue and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

         Concentration  of  Credit  Risk - The  Company  extends  credit  to its
customers which results in accounts  receivable arising from its normal business
activities.  The Company does not require  collateral  from its  customers,  but
routinely  assesses the  financial  strength of its  customers  and,  based upon
factors  surrounding  the  credit  risk  of its  customers,  believes  that  its
receivable  credit  risk  exposure is limited.  Such  estimate of the  financial
strength of customers may be subject to change in the near term. During 

                                       30
<PAGE>


                           QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

the years ended December 31, 1998 and 1997, sales to one customer of the Company
amounted  to   approximately   $7,660,392  and  $2,967,571,   respectively,   or
approximately 13.4% and 11.5% of revenue, respectively. Accounts receivable from
this customer amounted to approximately $1,121,125 at December 31, 1998.

           Inventories - Inventories, which consist solely of finished products,
are stated at the lower of cost or market.  Cost is  determined on the first-in,
first-out (FIFO) method.

           Property and Equipment - Property and equipment are recorded at cost.
Expenditures  for normal  repairs  and  maintenance  are  charged to earnings as
incurred. When assets are retired or otherwise disposed, their costs and related
accumulated  depreciation  are removed from the accounts and the resulting gains
or losses  are  included  in  operations.  Depreciation  is  recorded  using the
straight-line  method  over the  shorter of the  estimated  lives of the related
asset or the remaining lease term. Estimated useful lives are as follows:

              Building                                   30 Years
              Furniture and fixtures                      7 Years
              Computer equipment                          5 Years
              Office equipment                            5 Years
              Automobiles                                 5 Years
              Leasehold improvements                      5 Years

           Cost in Excess of Net  Assets of  Businesses  Acquired  - The cost in
excess of net assets of  businesses  acquired is being  amortized  on a straight
line basis over 40 years.  The Company has concluded  that the cost in excess of
net assets of businesses  acquired has an indeterminable life based on historic,
current  and  projected  operating  results  of  the  businesses  acquired.  The
Company's  policy is to record an impairment loss against the balance of the net
unamortized  cost in excess of net assets of  businesses  acquired in the period
when  it is  determined  that  the  carrying  amount  of the  asset  may  not be
recoverable. This determination is based on an evaluation of such factors as the
occurrence of a significant  event, a significant  change in the  environment in
which the businesses operate, or if the expected future non-discounted cash flow
of the businesses would become less than the carrying value of the asset.

           Stock Options and Similar Equity  Instruments - The Company  accounts
for stock options and similar equity instruments (collectively "Options") issued
to employees  and  directors in  accordance  with  Accounting  Principles  Board
("APB") Opinion No. 25,  "Accounting for Stock Issued to Employees," rather than
the fair value based method of  accounting  prescribed by Statement of Financial
Accounting   Standards   ("SFAS")   No.   123,   "Accounting   for   Stock-Based
Compensation."  The exercise price for Options issued to employees and directors
equals or exceeds the fair market  value of the  Company's  common  stock at the
date of grant and,  accordingly,  no compensation expense is recorded.  The fair
value  method  applies  to  transactions  in which an entity  issues  its equity
instruments to acquire goods and services from non-employees. Those transactions
are accounted for based on the fair value of the


                                       31
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

consideration  received  or the fair  value of the  equity  instruments  issued,
whichever is more reliably measurable.

2.  Earnings Per Share

    Earnings per share is based on the weighted  average number of shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that would occur if securities or other contracts to issue common stock
were exercised or converted into common stock.

           The  computation  of  diluted  earnings  per  share  does not  assume
conversion,  exercise,  or contingent  issuance of securities that would have an
anti-dilutive  effect on earnings per share (i.e. improving earnings per share).
The dilutive  effect of outstanding  options and warrants and their  equivalents
are reflected in dilutive  earnings per share by the application of the treasury
stock method,  which  recognizes the use of proceeds that could be obtained upon
exercise of options and warrants in  computing  diluted  earnings per share.  It
assumes that any proceeds would be used to purchase  common stock at the average
market price during the period. Options and warrants will have a dilutive effect
only when the average market price of the common stock during the period exceeds
the exercise  price of the options or warrants.  The following  table sets forth
the  computation  of earnings  per share and diluted  earnings per share for the
years ended December 31, 1998 and 1997:


<TABLE>
<CAPTION>
                                                                                    1998                            1997
                                                                                -------------------          ---------------
       <S>                                                                              <C>                      <C>    
       Numerator:
                Net income                                                              $ 3,286,004              $ 1,637,141
                Less: preferred stock dividends                                           1,241,298                  676,326
                                                                                -------------------          ---------------

                Numerator for net income per common share                                 2,044,706                  960,815
                   Effect of dilutive securities -
                   Preferred stock dividends                                              1,241,298                  676,326
                                                                                ===================          ==============
                Numerator for net income per diluted common
                   share                                                                $ 3,286,004              $ 1,637,141
                                                                                ===================          ===============
       Denominator:
                Denominator for net income per common share -
                   weighted-average shares                                                3,435,162                1,718,062
                                                                                -------------------          ---------------
                Effect of dilutive securities:
                   Options                                                                   79,693                  125,183
                   Warrants                                                                 374,884                  268,164
                   Convertible preferred stock                                              828,827                1,345,146
                                                                                -------------------          ---------------

                Dilutive potential common shares                                          1,283,404                1,738,493
                                                                                -------------------          ---------------
                Denominator for net income per diluted common
                    share                                                                 4,718,566                3,456,555
                                                                                ===================          ===============

                Net income per common share                                                    $.60                     $.56
                                                                                ====================         ===============

                Net income per diluted common share                                            $.60                     $.47
                                                                                ====================         ===============
</TABLE>

                                       32
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

           Net income per common  share and net income per diluted  common share
for the year ended  December 31, 1998 reflect  deductions  for  preferred  stock
dividends, including imputed, non-cash dividends associated with the issuance of
the preferred  stock. The preferred stock converted into common stock on July 2,
1998,  causing the acceleration of the amortization of the imputed dividend as a
one-time,  non-cash dividend.  As a result of this conversion,  the common stock
into which the preferred stock converted  (1,653,125  shares of common stock) is
included  for two  quarters  in the  weighted  average  number of common  shares
outstanding  for the year ended  December 31, 1998. The effect of this one-time,
non-cash dividend is anti-dilutive,  accordingly, the presentation of net income
per diluted common share is presented on the face of the income statement as the
same amount as net income per common share.  Excluding  the  one-time,  non-cash
preferred stock  dividend,  net income per diluted common share was $.70 for the
year ended December 31, 1998.

3.  Acquisitions of Distribution Businesses

           Effective as of March 1, 1997, the Company acquired 100% of the stock
of Webb, a privately owned  distributor of fasteners and related  products.  The
purchase price for Webb consisted of (i) $3,250,000 in cash;  (ii) Note A in the
amount of $375,000, with principal and interest at the rate of 10% per annum due
and payable 18 months from the  effective  date of the closing;  (iii) Note B in
the amount of $375,000, with principal and interest at the rate of 10% per annum
payable monthly over five years from the effective date of the closing; and (iv)
1,500,000 Series IV Warrants (the "Webb Warrants"),  valued at $375,000,  issued
to the majority  shareholder  of Webb as a down payment under the Stock Purchase
Agreement.  In  connection  with the sale of the Webb  Warrants by the  majority
shareholder of Webb, Note A (as described in (ii) above) was satisfied  pursuant
to the  terms  of the  Stock  Purchase  Agreement,  effectively  resulting  in a
$375,000 reduction in the cost of the acquisition. The Company accounted for the
Webb acquisition using the purchase method of accounting.

           Effective as of June 1, 1997, the Company  acquired 100% of the stock
of IMS, a privately  owned master  distributor of fasteners.  The purchase price
for IMS consisted of (i) 50,000 shares of the Company's  common stock,  having a
market value of $299,050,  issued to the  stockholders  of IMS; (ii)  additional
cash  consideration,  in each of the  five  years  from the  anniversary  of the
closing date,  based upon the annual pre-tax earnings of IMS, up to a maximum of
$300,000 per year  (maximum of  $1,500,000  over the five  years);  (iii) 75,000
shares of the Company's  common stock,  which shares shall be restricted and not
earned until the  attainment  of $500,000 of annual  pre-tax  income by IMS; and
(iv)  options to purchase  100,000  shares of the  Company's  common stock at an
exercise  price of $6.00 per share,  which options  become  exercisable  in five
equal annual  installments.  In 1998, $51,211 was paid with respect to the first
year's  additional cash  consideration  pursuant to (ii) above.  The Company has
accounted for the IMS acquisition using the purchase method of accounting.

           Effective as of September 1, 1997, the Company  acquired the business
and net  operating  assets of PCI,  a  privately  owned  distributor  of lithium
batteries,  through  a  simultaneously  acquired  wholly-owned  subsidiary.  The
purchase price for PCI consisted of (i) a cash payment of $900,000 plus the

                                       33
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

assumption of certain  liabilities;  (ii) 50,000 shares of the Company's  common
stock,  having a market value of $350,000,  issued to the  shareholders  of PCI;
(iii) a  promissory  note in the  amount  of  $250,000,  with 25  equal  monthly
principal payment installments commencing in April 1998, unless extended, but in
no event later than July 1998 and interest payable monthly at the rate of 8% per
annum; and (iv) 100,000 shares of the Company's common stock, which shares shall
vest during the three calendar years  immediately  following the Closing,  based
upon the attainment by PCI of certain pre-tax earnings amounts. In addition, the
Company has agreed to pay additional  cash  consideration,  in each of the three
calendar  years  following  the  closing  date,  based upon the  annual  pre-tax
earnings of PCI, up to a maximum of $300,000 per year  (maximum of $900,000 over
the  three  years).   For  the  first  year,  the  amount  of  additional   cash
consideration  paid  amounted  to $5,966.  The  Company  has  accounted  for the
acquisition of PCI using the purchase method of accounting.

           Effective as of September 1, 1997,  the Company also acquired 100% of
the stock of Calfast,  a privately  owned  distributor  of fasteners and related
products.  The purchase price for Calfast consisted of an initial purchase price
and a deferred  purchase  price.  The initial  purchase price consisted of (i) a
cash payment of  $6,594,441;  (ii) the  assumption  of $1,058,712 of debt net of
cash on hand; and (iii) 475,106 shares of common stock of the Company, valued at
$2,981,288.  The former  shareholders of Calfast were granted the option to sell
125,896  shares back to the Company on a monthly basis over a five-year  period.
Of the 125,896  shares,  the option to sell 6,015 shares back to the Company was
exercised in 1998 and the option was declined on 39,125 shares and 26,637 shares
in 1998 and 1997,  respectively.  The deferred  purchase price,  as amended,  is
based upon the earnings  before  interest and taxes  ("EBIT") of Calfast for the
year ended December 31, 1998, up to a maximum of  $4,295,559,  and is payable as
follows (i) cash payment of $600,000 paid on April 1, 1998; (ii) cash payment of
$450,000  paid on January 4, 1999;  (iii) cash  payment of 70.9% of the deferred
purchase  price of  $4,295,559  less  $600,000  advanced  on  April 1,  1998 and
$450,000  advanced  on  January  4, 1999 up to a maximum  additional  payment of
$1,995,559 (the "Deferred Cash  Consideration");  and (iv) delivery of shares of
the Company's common stock, the value of which shall equal the deferred purchase
price less the Deferred Cash  Consideration up to a maximum of $1,250,000.  As a
result of the EBIT of the Calfast branches for the year ended December 31, 1998,
the maximum  amount of $4,295,559  shall be paid to the former  shareholders  of
Calfast.  The Company  accounted for the Calfast  acquisition using the purchase
method of accounting.

           Effective as of July 1, 1998, the Company acquired 100% of the issued
and outstanding  capital stock of Fas-Tronics,  a privately owned distributor of
fasteners and related products.  The purchase price for Fas-Tronics consisted of
(i)  $7,422,803  in cash;  (ii) 421,941  shares of the  Company's  common stock,
valued at $1,930,380;  and (iii) up to $4,000,000 (80% in cash and 20% in shares
of the Company's  common stock) if Fas-Tronics  attains certain earnings targets
for the twelve months  ending June 30, 1999.  The Company has accounted for such
acquisition  using the purchase method of accounting.  In addition,  the Company
granted to the former  shareholders of Fas-Tronics and one key employee  options
to purchase an aggregate of 50,000 shares of the Company's common stock at $4.58
for five years.

                                       34
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

           Effective as of July 1, 1998,  the Company also  acquired 100% of the
issued and outstanding  capital stock of Fortune,  a privately owned distributor
of fasteners and related  products.  The purchase price for Fortune consisted of
(i)  $9,830,660  in cash;  (ii) 518,102  shares of the  Company's  common stock,
valued at $2,370,317;  and (iii) up to $2,000,000 (81% in cash and 19% in shares
of the Company's  common stock) if Fortune attains certain  earnings targets for
the year ended  December 31, 1998. The Company has not yet determined the amount
of the  purchase  price  to be paid in  respect  of the  attainment  of  certain
earnings targets for the year ended December 31, 1998. The Company has accounted
for such acquisition using the purchase method of accounting.

           Effective as of December 1, 1998,  the Company  acquired the business
and operating  assets of AFCOM, a privately  owned  distributor of fasteners and
related  products.  The purchase price for AFCOM  consisted of (i) $5,766,718 in
cash; (ii) 50,000 shares of the Company's  common stock valued at $257,344;  and
(iii) up to $1,500,000 in cash if AFCOM attains certain earnings targets for the
year ending  December 31, 1999.  The Company has accounted for such  acquisition
using the purchase method of accounting.

           In connection with certain of the above acquisitions, the Company may
be required to make additional  purchase price payments that are contingent upon
the achievement of specified  operating goals.  Such payments may be in the form
of cash  and/or  shares of common  stock of the  Company and will be recorded at
fair  market  value at the  time of  payment.  The  amounts  of such  additional
consideration,  if any,  will be  recorded  when  paid as cost in  excess of net
assets of  businesses  acquired and  amortized  over the  remaining  life of the
asset.

           The following  unaudited pro forma information  presents the combined
operating results of the Company, Webb, IMS, PCI, Calfast, Fas-Tronics,  Fortune
and AFCOM,  treating the acquired  companies as if they were subsidiaries of the
Company for the full years ended  December 31, 1998 and 1997.  The pro forma net
income per common  share and net income per diluted  common  share for both 1998
and 1997 assume that all shares of common  stock,  Series B Preferred  Stock and
Series IV  Warrants  of the Company  outstanding  as of  December  31, 1998 were
outstanding as of January 1, 1997. This pro forma  information  does not purport
to be indicative of what would have occurred had the acquisitions been completed
as of January 1, 1997 or results which may occur in the future:

                                       35
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                         --------------------------------------------
                                                                1998                     1997
                                                        ---------------------   --------------------
               <S>                                              <C>                    <C>    

               Sales                                           $ 74,399,173           $ 65,512,088
                                                          -----------------       ----------------

               Operating income                                  11,063,175              8,474,131
                                                          -----------------       ----------------

               Net income                                       $ 3,853,215            $ 2,494,085
                                                          =================       ================

               Net income                                       $ 3,853,215            $ 2,494,085
               Less:
                  Preferred stock dividends                         132,252                132,252
                  Imputed non-cash dividend                         872,625                780,500
                                                          -----------------       ----------------

               Net income used in per
                  common share calculation                      $ 2,848,338            $ 1,581,333
                                                          =================       ================

               Pro forma net income per common share            $       .72            $       .51
                                                          =================       ================

               Pro forma net income per diluted common
                  share                                         $       .72            $       .51
                                                          =================       ================

               Average number of common shares
                  outstanding                                     3,947,073              3,100,633
                                                          =================       ================

               Average number of diluted
                  common shares outstanding                       5,237,236               4,588,060
                                                          =================       =================
</TABLE>

           Pro forma net income  per  common  share and pro forma net income per
diluted  common  share for the years ended  December  31, 1998 and 1997  reflect
deductions for preferred stock dividends,  including imputed, non-cash dividends
associated  with the  issuance  of the  preferred  stock.  The  preferred  stock
converted  into common stock on July 2, 1998,  causing the  acceleration  of the
amortization  of the  imputed  dividend as a one-time,  non-cash  dividend.  The
effect of this one-time,  non-cash dividend is anti-dilutive,  accordingly,  the
presentation of pro forma net income per diluted common share is presented above
as the same  amount as net income  per common  share.  Excluding  the  one-time,
non-cash preferred stock dividend, pro forma net income per diluted common share
was $.74 and $.54 for the years ended December 31, 1998 and 1997, respectively.

           A summary of the allocation of the aggregate  consideration  paid for
the aforementioned  acquisitions to the fair market value of the assets acquired
and liabilities assumed is as follows:

                                       36
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<S>                                                                             <C>                         <C>
1997 Acquisitions:
-----------------
               Current assets:
                  Accounts receivable                                              $2,250,692
                  Inventories                                                       3,790,199
                  Other                                                               273,293               $ 6,314,184
                                                                        ----------------------

               Property, plant and equipment                                                                    510,466
               Cost in excess of net assets
                  of companies acquired                                                                      14,103,874
               Other assets                                                                                      18,097
                                                                                                   --------------------

                                                                                                             20,946,621
               Current liabilities:
                  Accounts payable and accrued
                     expenses                                                       2,307,151
                  Other                                                             1,367,210                 3,674,361
                                                                        ----------------------     --------------------

               Aggregate consideration paid                                                                $ 17,272,260
                                                                                                   ====================

1998 Acquisitions: 
-----------------
               Current assets:
                  Accounts receivable                                              $3,429,937
                  Inventories                                                       5,225,660
                  Other                                                             1,210,186               $ 9,865,783
                                                                        ----------------------

               Property, plant and equipment                                                                    802,506
               Cost in excess of net assets
                  of companies acquired                                                                      20,994,897
               Other assets                                                                                       8,489
                                                                                                   --------------------

                                                                                                             31,571,675
               Current liabilities:
                  Accounts payable and accrued
                     expenses                                                       2,690,325
                  Other                                                               232,086                 2,922,411
                                                                        ----------------------     --------------------

               Aggregate consideration paid                                                                $ 28,749,264
                                                                                                   ====================


</TABLE>

4.  Long-Term Debt

           Long-term debt at December 31, 1998 consisted of the following:


                                       37
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
    <S>                                                                                    <C>    


    Term loan A, due in quarterly  installments beginning March
         31, 1999 through  September  24, 2003,  with  interest
         payable monthly at the prime rate plus
         1.5% with a minimum rate of 9.5%                                                  $ 25,000,000
    Term loan B, due September 24, 2003, with
         interest payable monthly at the prime rate plus
         3% with a minimum rate of 11%                                                        5,000,000
    Amount payable to AFCOM, Inc., funded in  
         February  1999 by term loan C, due
         September 24, 2003, with interest payable monthly 
         at the prime rate plus 4% with a minimum rate of 12%                                 5,000,000
    Revolving facility, due on September 24, 2003,
         with interest payable monthly at the prime rate
         plus 1.0% with a minimum rate of 9%                                                  5,294,519
    Note payable to seller of Webb, due in equal
          monthly installments through March 4, 2002,
          with interest payable monthly at 10%                                                  264,365
    Note payable to sellers of PCI, due in equal monthly
          installments with interest payable monthly at 8%                                      160,000
    Other, primarily capitalized leases                                                         378,616
                                                                                  ---------------------

                                                                                             41,097,500
      Less installments due within one year                                                   1,811,802
                                                                                  ---------------------

                                                                                           $ 39,285,698
                                                                                  =====================
</TABLE>


           In  September  1998,  the Company  entered  into a loan and  security
agreement  with its lenders.  The agreement  provides for a  $45,000,000  credit
facility  consisting of a five-year term loan for  $30,000,000 and a $15,000,000
revolving  facility.  The  term  loan is  divided  into  two  notes:  Note A for
$25,000,000 and Note B for $5,000,000.  The loan agreement  includes a provision
for the  calculation  of a  borrowing  base,  which  determines  the  amount  of
borrowings  available  under the  revolving  facility.  At  December  31,  1998,
$5,294,519 was outstanding under the revolving facility. Of the remaining amount
of the $15,000,000 revolving facility,  $9,171,885 was available at December 31,
1998 for future working capital needs.  In each case, the minimum  interest rate
has been applied to the outstanding balances of the term notes and the revolving
facility as of December 31, 1998. In February 1999, the Company  entered into an
amendment to the loan and security agreement. The amendment increased the credit
facility to $51,000,000,  providing for a term loan Note C for $5,000,000 and an
increase in the revolving facility to $16,000,000.

           In order to secure  the  obligations  under the loan  agreement,  the
Company granted a security  interest in substantially  all of its assets and the
assets  of its  subsidiaries  to the  bank.  The loan  agreement  restricts  the
payments of cash  dividends by the Company and certain  other  payments,  limits
long-term and short-term borrowings of the Company, and requires that net worth,
earnings before interest,  taxes,  depreciation and amortization  (EBITDA),  the
ratio of senior debt to EBITDA, and the ratio of EBITDA

                                       38
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

to fixed charges be maintained at certain designated levels by the Company.  The
Company is in compliance with all such requirements of the loan agreement.

           The aggregate annual maturities of long-term debt, including the loan
and  security  agreement,  as amended,  for each of the five years in the period
ending December 31, 2003 are: 1999-$1,811,802; 2000-$2,773,024; 2001-$3,638,663;
2002-$4,471,753; and 2003-$28,402,257.

5.  Property and Equipment

           Property  and  equipment  at  December  31,  1998  consisted  of  the
following:


          Land                                                  $  24,000
          Building                                                341,625
          Furniture and fixtures                                  402,966
          Computer equipment                                    1,280,537
          Office equipment                                        381,192
          Autos and trucks                                        208,292
          Leasehold improvements                                  238,261
                                                    ---------------------
             Total                                              2,876,873
          Less: accumulated depreciation                          834,087
                                                    ---------------------

             Total                                            $ 2,042,786
                                                    =====================

           Depreciation  expense related to property and equipment for the years
ended December 31, 1998 and 1997 was $367,774 and $167,172, respectively.

6.  Shareholders' Equity

           As of  December  31,  1998,  the  Company  was  authorized  to  issue
20,000,000  shares of common  stock  and  10,000,000  of  preferred  stock.  The
outstanding shares of common stock are fully paid and non-assessable.

           On March 10,  1997,  the Company  completed  an offering of 1,150,000
Units (the  "Offering") at a price of $6.00 per unit. Each Unit consisted of one
share of the Company's  Series B Convertible  Preferred Stock and one redeemable
Series IV Common Stock  Purchase  Warrant of the  Company.  A portion of the net
proceeds of the Offering  ($3,250,000) were used by the Company to acquire Webb.
The  remaining  amount  of net  proceeds  ($2,353,000)  was  used to  repay  the
outstanding balance on the Company's revolving credit facility ($750,000) and to
repay the outstanding balance on Webb's revolving credit facility  ($1,000,000),
with the  remaining  balance  ($603,000)  retained  by the  Company  for working
capital.


                                       39
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

           Each share of the Series B Convertible Preferred Stock were converted
into  1.4375  shares  of the  Company's  common  stock  on  July 2,  1998.  Such
conversion ratio represented a 20% discount to the price of the Company's common
stock on the day immediately  preceding the effective date of the Offering.  The
amount of such discount,  $1,653,125,  has been amortized as an imputed non-cash
dividend to retained  earnings  over the period from March 1997 through the date
of conversion, July 2, 1998.

           In addition to the 1,150,000  Series IV Warrants issued in connection
with the  Offering,  the  Company  issued  1,500,000  Series IV  Warrants to the
majority  shareholder  of  Webb  as a down  payment  under  the  Stock  Purchase
Agreement and 1,250,000  Series IV Warrants to the former  shareholders of Quest
in connection with an exchange agreement. Each of the 3,900,000 Series IV Common
Stock Purchase  Warrants  becomes  exercisable  on the first  anniversary of the
effective date of the Offering,  is exercisable for the ensuing four years,  and
entitles the holder to purchase one share of the Company's common stock at $5.75
per share.

           In June 1997, in connection  with the acquisition of IMS, the Company
issued  50,000  shares of common  stock to the former  shareholders  of IMS.  In
September  1997, in connection  with the  acquisitions  of PCI and Calfast,  the
Company issued 50,000 shares of common stock to the former  shareholders  of PCI
and 475,106 shares to the former  shareholders of Calfast. In September 1998, in
connection with the acquisitions of Fas-Tronics and Fortune,  the Company issued
421,941 shares of common stock to the former  shareholders  of  Fas-Tronics  and
518,102  shares  of common  stock to the  former  shareholders  of  Fortune.  In
connection with the  acquisition of the business and operating  assets of AFCOM,
the Company issued 50,000 shares of common stock to the shareholders of AFCOM.

           Of the  475,106  shares of common  stock of the  Company,  the former
shareholders  of Calfast were granted the option to sell 125,896  shares back to
the Company on a monthly  basis as follows:  for each of the seven months during
the period  October  1997 through  April 1998,  an aggregate of 8,879 shares per
month valued at $6.275 per share,  or $55,714.29 per month,  and for each of the
53 months  during the period May through  September  2002, an aggregate of 1,203
shares per month  valued at $6.275 per share,  or  $7,547.17  per month.  During
1998,  the former  shareholders  of  Calfast  exercised  their  options on 6,015
shares.

           In 1998, the Company paid a dividend of one preferred  share purchase
right on each  outstanding  share of the Company's  common stock. The rights are
exercisable if a person or group acquires 15 percent or more of the  outstanding
shares of the  Company's  common  stock or announces or commences a tender offer
for 15 percent or more of such shares.  When a person or group  acquires such 15
percent,  each exercisable right will entitle its holder (other than such person
or group) to purchase,  at the right's  then-current  exercise price  (presently
$30), a number of the Company's  shares of common stock having a market value of
twice such price.  In addition,  if the Company is acquired in a merger or other
business combination  transaction after a person has acquired 15 percent or more
of the Company's outstanding common stock, each right will entitle its holder to
purchase, at the right's then-current exercise price, a

                                       40
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

number of the acquiring  company's  shares of common stock having a market value
of twice such price. Prior to the acquisition by a person or group of beneficial
ownership of 15 percent or more of the Company's  common  stock,  the rights are
redeemable  for $.01 per  right at the  option of the  board of  directors.  The
rights do not have voting  rights and will expire on November 16,  2008,  unless
otherwise extended by the Company's board of directors.

7.  Stock Options

1996 Stock Option Plan

           Under the terms of the 1996 Stock Option Plan,  as amended (the "1996
Plan"),  both  incentive  and  nonqualified  stock  options for an  aggregate of
500,000 shares of the Company's common stock were authorized for grant at prices
determined by the board of directors in its discretion. In the case of incentive
stock  options,  which may be granted  only to  employees of the Company and its
subsidiaries,  such options are to be granted at prices greater than or equal to
fair market value of the shares at date of grant. Options currently  outstanding
under the 1996 Plan were issued with an exercise  price equal to the fair market
value of the  common  stock on the date of  grant,  have  terms of ten years and
become  exercisable in three equal nine month  installments,  three equal annual
installments or three years from date of grant.

           The transactions  under the 1996 Plan during the years ended December
31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
                                                                     1998                                   1997
                                                        -----------------------------------  -----------------------------------
                                                                             Average                                Average
                                                                            Exercise                               Exercise
                                                           Shares             Price              Shares              Price
                                                        ----------------- -----------------  -----------------   ---------------

      <S>                                                    <C>                 <C>                 <C>               <C>    
      Options outstanding at beginning
         of year                                              159,450            $ 6.51                   --            $   --
      Granted                                                  10,300              4.80              159,450              6.51
      Exercised                                                    --                --                   --                --
      Canceled                                                (46,500 )            6.63                   --                --
                                                        ----------------- -----------------    ---------------   -------------
      Options outstanding at end of year                      123,250            $ 6.32              159,450            $ 6.51
                                                        ================= =================    ===============   =============

      Prices per share of options outstanding                                    $4.75-                                  $6.00-
                                                                                 $6.63                                   $6.63
                                                                          =================                      =============

      Options exercisable at end of year                       65,500           $ 6.53                   --             $   --
                                                        ================= =================    ===============   =============

      Options available for future grant
         at end of year                                       376,750                                 90,550
                                                        =================                      ===============
      Weighted average remaining
         life of options outstanding                        8.77 Yrs.                               9.70 Yrs
                                                        =================                      ===============
</TABLE>

                                       41
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Performance Options

           In connection with certain business acquisitions,  the Company agreed
to issue to the former  shareholders  of such  companies  acquired,  performance
options to purchase  shares of common  stock upon the  Company's  attainment  of
certain  pre-tax  income  targets.  Such options will be awarded  based upon the
following pre-tax income levels, with an exercise price equal to the fair market
value of the Company's common stock on the date that the options are granted:

                                            Pre-tax Income
          No. of Shares                     Of at least
          -----------------------------     ------------------------------
          166,667                           $2,500,000
          166,667                           $3,500,000
          631,666                           $4,500,000

The Company's  pre-tax income for the year ended December 31, 1997 exceeded $2.5
million, accordingly,  options to purchase 166,667 shares of common stock of the
Company at an  exercise  price of $7.75 per share were  granted.  The  Company's
pre-tax  income for the year ended  December  31, 1998  exceeded  $4.5  million,
accordingly,  options to purchase  798,333 shares of common stock of the Company
at an exercise price of $4.50 per share shall be granted.

Other Options

           In connection  with the early  termination of a consulting  agreement
with one of the  former  shareholders  of an  acquired  company  (see  Note 12),
options to purchase a total of  1,160,500  shares of common  stock at an average
exercise  price  of  $5.43  were  cancelled.  In  connection  with  the  revised
employment  agreement of the chief executive officer of the Company,  options to
purchase  1,100,000  shares of common  stock at an exercise  price of $4.50 were
granted.  In connection  with the acquisition of IMS, the Company granted to the
former shareholders of IMS options to purchase 100,000 shares of common stock at
an exercise price of $6.00 per share.  Such options vest and become  exercisable
in five equal annual installments commencing on June 1, 1998. In connection with
the acquisition of Fas-Tronics,  the Company granted to the former  shareholders
and one key employee of  Fas-Tronics  options to purchase an aggregate of 50,000
shares of common stock at an exercise  price of $4.50 per share.  In  connection
with the acquisition of the business of AFCOM, the Company granted to one of the
former  shareholders  of AFCOM options to purchase 20,000 shares of common stock
at an exercise price of $4.89.

1994 Director Non-qualified Stock Option Plan

Under the terms of the 1994 Director Non-qualified Stock Option Plan, as amended
(the "1994 Plan"),  options to purchase up to an aggregate of 150,000  shares of
the Company's common stock may be

                                       42
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

granted to non-employee  directors of the Company.  Under the 1994 Plan, options
are to be granted to each eligible  director at the rate of 5,000 per year at an
exercise  price equal to the fair market  value of the  underlying  stock on the
date of  grant,  are  immediately  exercisable,  and  have a term of ten  years.
Transactions  under the 1994 Plan during the years ended  December  31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>

                                                                      1998                                  1997
                                                       ----------------------------------   -----------------------------------
                                                                             Average                                Average
                                                                            Exercise                               Exercise
                                                           Shares             Price              Shares              Price
                                                       ----------------  ----------------   ------------------  ---------------
      <S>                                                      <C>               <C>                  <C>              <C>    

      Options outstanding at beginning
         of year                                               29,000            $ 8.77               12,000           $ 18.01
      Granted                                                  33,000              5.72               23,000              6.27
      Exercised                                                    --                --                   --                --
      Canceled                                                     --                --               (6,000)            17.67
                                                       --------------     -------------       ---------------     ------------
      Options outstanding at end of year                       62,000            $ 7.15               29,000             $8.77
                                                       ==============    ==============       ===============      ===========

      Prices per share of options outstanding                                    $3.88-                                 $3.88-
                                                                                 $24.08                                 $24.08
                                                                          =============                          =============

      Options exercisable at end of year                       62,000            $ 7.15               29,000             $8.77
                                                       ==============     =============      ================    =============

      Options available for future grant
         at end of year                                        88,000                                121,000
                                                       ==============                        ================
      Weighted average remaining
         life of options outstanding                        8.88 Yrs.                               9.16 Yrs
                                                       ==============                        ================
</TABLE>

Other

If the Company had  accounted  for the  issuance of all options  pursuant to the
fair value  based  method of SFAS No.  123,  the  Company  would  have  recorded
compensation  expense of $1,031,952  and $1,084,887 for the years ended December
31, 1998 and 1997, respectively, and the Company's net income and net income per
share would have been as follows:

                                       43
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                              1998                          1997
                                                                      ----------------------       ---------------------
          <S>                                                                   <C>                          <C>    

           Net income per common share:
           ----------------------------

           Net income used in per common share
               calculation as reported                                          $ 2,044,706                  $  960,815
                                                                      =====================      ======================
           Pro forma net income used in per common
               share calculation                                                $ 1,435,854                  $  323,986
                                                                      =====================      ======================

           Net income per common share as reported                                 $    .60                   $     .56
                                                                      =====================      ======================
           Pro forma net income per share                                          $    .42                   $     .19
                                                                      =====================      ======================

           Net income per diluted common share:
           ------------------------------------
           Net income as reported                                               $ 3,286,004                 $ 1,637,141
                                                                      =====================      ======================
           Pro forma net income                                                 $ 2,677,152                 $ 1,000,312
                                                                      =====================      ======================
           Net income per diluted common share as
                reported                                                           $    .60                   $     .47
                                                                      =====================      ======================
           Pro forma net income per diluted common
                share                                                              $    .42                   $     .19
                                                                      =====================      ======================
</TABLE>

           The fair value of options  at date of grant was  estimated  using the
fair value based method with the following weighted average  assumptions for the
years ended December 31, 1998 and 1997:

                                    December 31, 1998        December 31, 1997
                                    -----------------        -----------------

     Expected Life (Years)                 10                        10
     Interest Rate                       5.61%                     6.17%
     Annual Rate of Dividends             --                         --
     Volatility                         49.51%                   106.96%

           The weighted average fair value of options at date of grant using the
fair value based  method  during 1998 and 1997 is  estimated at $4.92 and $5.95,
respectively.

8.  Retirement Plan

           The Company has a defined  contribution plan for eligible  employees,
which qualifies under Section 401(k) of the Internal Revenue Code. The Company's
contribution to the plan,  which is based on a specified  percentage of employee
contributions, has been charged to selling, general & administrative expenses in
the amounts of $76,123 in 1998 and $60,886 in 1997.

           In 1997, the Board of Directors of the Company  approved the adoption
of a  noncontributory  employee stock  ownership plan which enables all eligible
employees to acquire shares of the Company's common stock. Contributions,  which
are  determined  by the Board of  Directors,  are in the form of common stock or
cash which is used to purchase the Company's common stock for the benefit of

                                       44
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

participating  employees.  The Company accrued $75,000 and $68,000 for the years
ended  December  31, 1998 and 1997,  respectively,  to fund the  purchase of the
Company's common stock pursuant to the plan.

9.  Lease Commitments

           The  Company  leases   certain  office  and  warehouse   space  under
non-cancelable  operating leases expiring at various dates through 2016.  Rental
expenses of all  non-cancelable  operating  leases  amounting  to  $639,601  and
$424,176  was charged to  operations  for the years ended  December 31, 1998 and
1997,   respectively.   Aggregate   minimum   rental   commitments   under   all
non-cancelable  operating leases approximate $3,964,129 as of December 31, 1998.
Such commitments on annual basis are as follows:

     Years ending December 31,
          1999                                                 $  941,182
          2000                                                    708,026
          2001                                                    499,904
          2002                                                    351,607
          2003                                                    268,407
          2004                                                    123,003
          2005 - 2015 ($96,000 per year)                        1,056,000
          2016                                                     16,000
                                                     ====================
                Total                                         $ 3,964,129
                                                     ====================

10.  Income Taxes

           The provision for income taxes for the years ended  December 31, 1998
and 1997 consisted of the following:



                                   1998                          1997
                           ---------------------       ---------------------
   Current
            Federal               $   1,450,861                  $    47,969
            State                       306,097                      153,508
                           --------------------        ---------------------
                                      1,756,958                      201,477
                           --------------------        ---------------------
   Deferred
            Federal                     498,464                      930,969
            State                        28,073                       19,410
                           --------------------        ---------------------
                                        526,537                      950,379
                           --------------------        ---------------------

                                  $   2,283,495                 $  1,151,856
                           ====================        =====================


           SFAS  No.  109,   "Accounting   for  Income   Taxes"   requires   the
establishment of a deferred tax asset for all deductible  temporary  differences
and operating loss  carryforwards,  and a deferred tax liability for all taxable
temporary  differences.  As a  result  of the  acquisitions  completed  in 1997,
principally Webb

                                       45
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

and Calfast,  and the 1997 and expected future combined  results of the Company,
the valuation  allowance  associated  with the deferred tax asset resulting from
net  operating  loss  carryforwards  was reduced and a deferred tax asset in the
amount of $4,000,000  was reflected on the Company's  balance  sheet.  Since the
reduction  in  such  valuation   allowance  was  a  direct  consequence  of  the
acquisitions  made in 1997, such reduction has been accounted for as a reduction
of cost in excess of net assets of  businesses  acquired.  At December 31, 1998,
the  balance  of the  deferred  tax asset  relating  to the net  operating  loss
carryforwards is $2,848,497,  after having been reduced by $344,450,  the amount
of  the  benefit  related  to  the  1998   utilization  of  net  operating  loss
carryforwards.  Deferred tax liabilities at December 31, 1998 relate principally
to differences in the book and tax basis of long-lived assets.

           A  reconciliation  of the  federal  statutory  rate to the  Company's
effective tax rate is as follows:


<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                    -----------------------------------------------
                                                                            1998                      1997
                                                                    ---------------------     ---------------------
<S>                                                                              <C>                       <C>    
     Federal statutory rate                                                      34.0%                     34.0%

     State income taxes                                                           6.0%                      6.2%

     Effect of permanent differences between
        financial statement treatment and tax
        treatment of certain items, primarily
        amortization of goodwill                                                  1.0%                      1.1%
                                                                     =================         =================

     Effective tax rate                                                           41.0%                     41.3%
                                                                     ==================        ==================
</TABLE>

           As of  December  31,  1998,  the  amount  of the net  operating  loss
carryforwards and their expiration dates are as follows:

                                                             Net
                                                       Operating Loss
     Expiring in Years Ending December 31,              Carryforwards
                                                   ------------------------

       2003                                                   $  1,241,813
       2004                                                      1,100,173
       2005                                                        579,718
       2006                                                        782,129
       2007                                                      2,945,421
       2008                                                      2,336,094
       2009                                                        591,906
       2010                                                        167,497
                                                   ========================

            Total                                             $  9,744,751
                                                   ========================

                                       46
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

11.  Fair Value of Financial Instruments

           The following table  summarizes  financial  instruments by individual
balance sheet accounts at December 31, 1998:

                                            Carrying
                                             Amount                Fair Value
                                       -----------------     ------------------

  Cash and cash equivalents                $  229,285               $  229,285
  Receivables                              11,279,876               11,279,876
  Accounts payable                          5,328,023                5,328,023
  Accrued expenses                          1,415,626                1,415,626
  Current portion of long-term debt         1,811,802                1,811,802
  Long-term debt                           39,285,698               39,285,698

           For  certain   financial   instruments,   including   cash  and  cash
equivalents,  trade receivables and payables,  and short-term debt, the carrying
amount  approximated  fair  value  because of the near term  maturities  of such
obligations.  The fair value of long-term debt was  determined  based on current
rates at which the Company could borrow funds with similar remaining maturities,
which  amount  approximates  its  carrying  value.  Fair value of the  financial
instruments disclosed in the balance sheet is not necessarily  representative of
the amount that could be realized  or  settled,  nor does the fair value  amount
consider the tax consequences of realization or settlement.

12.  Related Party Transactions

           In 1995, the Company entered into a five-year management advisory and
consulting  agreement with Gulfstream Financial Group, Inc.  ("Gulfstream"),  of
which the chairman,  president and chief  executive  officer of the Company is a
50% owner. Under the terms of such agreement, Gulfstream acted as an advisor and
consultant to the Company principally  concerning the expansion of the Company's
business through the identification of potential  acquisition  candidates.  This
agreement was terminated  effective  March 1, 1999,  more than one year prior to
its stated expiration.  Fees paid to Gulfstream in connection with the agreement
amounted to $305,000  and  $105,000  for the years ended  December  31, 1998 and
1997,  respectively.  Such fees have been included in the costs of the Company's
acquisitions in 1998 and 1997.  Gulfstream  presently owns 5.4% of the Company's
outstanding common stock.

           The Company  leases three of its  facilities  from entities  owned by
former stockholders of acquired businesses who are now employees of the Company.
Rent expense of $153,436  associated  with these  facilities has been charged to
selling, general & administrative expenses for the year ended December 31, 1998.
Management  believes  that the terms of such leases are no less  favorable  than
those which otherwise are available in the market for those facilities.


                                       47
<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

           Battle Fowler LLP, the law firm in which Mr. McSherry,  a director of
the Company,  is a partner,  provided  legal  services to the Company during the
year ended  December  31, 1998 and is  expected  to  continue  to provide  legal
services to the Company in the future.

13.  Contingencies

           The Company is subject to certain legal  proceedings and claims which
have arisen in the  ordinary  course of its  business  and have not been finally
adjudicated.  In the opinion of management,  settlement of these  actions,  when
ultimately concluded,  will not have a material adverse effect on the results of
operations, cash flows or the financial condition of the Company.

                                       48
<PAGE>


Item 8. Changes In and Disagreements With Accountants on Accounting and 
        Financial Disclosure.

     (a) As of October 7, 1998,  Moore  Stephens,  P.C.  ("Moore  Stephens") was
     terminated  as the  Company's  independent  accountant.  The  Company's new
     independent  accountant  is  Ernst & Young  LLP.  The  decision  to  change
     independent  accountants  was approved by the Board of Directors on October
     7, 1998.

     Moore Stephens'  report on the Company's  financial  statements for each of
     the two most recent  fiscal  years did not contain an adverse  opinion or a
     disclaimer of opinion, and was not qualified or modified as to uncertainty,
     audit scope or  accounting  principles.  During the two most recent  fiscal
     years preceding Moore Stephens'  termination,  there were no  disagreements
     with Moore  Stephens on any matter of  accounting  principles or practices,
     financial statement disclosure, or auditing scope or procedure, which would
     have  caused  it  to  make  a  reference  to  the  subject  matter  of  the
     disagreement  in  connection  with its report.  Furthermore,  there were no
     reportable  events during the two most recent fiscal years  preceding Moore
     Stephens'  termination  arising  from Moore  Stephens  having  advised  the
     Company (a) that the internal controls necessary for the Company to develop
     reliable  financial  statements do not exist; (b) that information has come
     to  its  attention  that  has  led it to no  longer  be  able  to  rely  on
     management's representations or that has made it unwilling to be associated
     with financial  statements  prepared by  management;  (c)(1) of the need to
     expand significantly the scope of its audit or that information has come to
     its attention that if further investigated may either (i) materially impact
     the  fairness  or  reliability  of a  previously  issued  audit  report  or
     underlying financial statements or the financial statements issued or to be
     issued covering the fiscal period subsequent to the date of the most recent
     financial  statements  covered  by an audit  report or (ii)  cause it to be
     unwilling to rely on management's representations or be associated with the
     Company's financial statements and (2) due to Moore Stephens'  termination,
     it did not so  expand  the  scope of its  audit  or  conduct  such  further
     investigation;  and (d)(1) that  information has come to its attention that
     it has concluded  materially  impacts the fairness or reliability of either
     (i)  a  previously   issued  audit  report  or  the  underlying   financial
     statements,  or  (ii)  the  financial  statements  issued  or to be  issued
     covering  the  fiscal  periods  subsequent  to the date of the most  recent
     financial  statements  covered by an audit  report  (including  information
     that, unless resolved to its satisfaction,  would prevent it from rendering
     an unqualified  audit report on those financial  statements) and (2) due to
     Moore  Stephens'  termination,  the  issue  has not  been  resolved  to its
     satisfaction prior to its termination.

     (b) Ernst & Young LLP has been  appointed  by the board of directors as the
     new independent accountant to the Company effective October 7, 1998. During
     the  Company's  two most recent  fiscal  years and the  subsequent  interim
     period prior to Moore  Stephens'  termination,  the Company did not consult
     with Ernst & Young LLP regarding the  application of accounting  principles
     to a  specified  transaction  or the type of audit  opinion  that  might be
     rendered on the Company's financial statements.

     (c) During the interim  period from the date of the Company's  last audited
     financial statements to the date hereof, there were no procedures performed
     by Moore  Stephens and the Company is not aware of any  disagreements  with
     Moore  Stephens  on any  matter  of  accounting  principles  or  practices,
     financial statement disclosure or auditing scope or procedure.


                                       49
<PAGE>


                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons; 
           Compliance with Section 16(a) of the Exchange Act.

A.         Directors and Executive Officers
           --------------------------------

           The  directors  and  executive  officers of the Company are set forth
herein.  All directors  serve until the next annual meeting of  stockholders  or
until their successors are duly elected and qualified. All officers serve at the
pleasure  of the  board  of  directors,  subject  to any  applicable  employment
agreements.

<TABLE>
<CAPTION>
Name                                                          Age      Position
----                                                          ---      --------
  <S>                                                          <C>     <C>    

  Dominic A. Polimeni...................................       52      Chairman, President and Chief Executive Officer

  Robert V. Gubitosi....................................       51      Director

  Milton M. Adler.......................................       71      Secretary, Treasurer and Director

  Frederick W. London...................................       47      Director

  William J. McSherry, Jr...............................       51      Director

  Douglas D. Zadow......................................       41      Vice President and President of Questron 
                                                                       Distribution Logistics, Inc.

  Philip W. Schwiebert..................................       60      Vice President and Western Regional Vice 
                                                                       President of Questron Distribution Logistics, 
                                                                       Inc.

  James W. Taylor.......................................       54      Vice President and President of Integrated 
                                                                       Material Systems, Inc.
</TABLE>

           Each of the  directors  of the Company  holds  office  until the next
annual  meeting of  stockholders,  or until  their  successors  are  elected and
qualified.  The  Company's  by-laws  currently  provide  for not less  than five
directors nor more than twelve directors. Currently, there are five directors of
the Company.  The by-laws  permit the board of directors to fill any vacancy and
such director may serve until the next annual meeting of  stockholders  or until
his successor is elected and qualified.  Officers serve at the discretion of the
board of directors.  There are no family relationships among any of the officers
or   directors  of  the  Company   except  that  Dominic  A.   Polimeni  is  the
brother-in-law of Robert V. Gubitosi.

           The principal occupation and business experience for each officer and
director of the Company for the last five years is as follows:

           Dominic A. Polimeni has been President, Chief Operating Officer and a
Director of the  Company  since March 1995,  and  Chairman  and Chief  Executive
Officer of the Company since February 1996.  


                                       50
<PAGE>


Since  September  1997, he has been a director of Nu Horizons,  Inc., a publicly
held company based in Melville,  New York,  which is a distributor of electronic
components.  Mr. Polimeni has been a Managing  Director of Gulfstream  Financial
Group,  Inc., a privately held financial  consulting and investment banking firm
since August 1990. Prior to that he held the position of Chief Financial Officer
of Arrow  Electronics,  Inc.  ("Arrow") for four (4) years. He also held several
other positions,  including  general  management  positions,  with Arrow over an
eight-year  period.  Mr.  Polimeni  has also  practiced  as a  Certified  Public
Accountant  for more than 12 years and was a Partner  in the New York  office of
Arthur Young & Company. Mr. Polimeni is the brother-in-law of Mr. Gubitosi.

           Robert V. Gubitosi has been a Director of the Company since  February
1996. Mr. Gubitosi has been a Managing  Director of Gulfstream  Financial Group,
Inc., a privately  held financial  consulting and investment  banking firm since
August  1990.  Prior to that he held the  position of General  Partner and Chief
Financial Officer of the Securities  Groups, a New York investment  banking firm
and primary dealer of U.S.  government  securities,  with responsibility for the
investment  banking  activities of the firm. In addition,  Mr. Gubitosi has held
managerial  positions at Goldman Sachs & Company and Oppenheimer & Company,  and
specialized  in brokerage  accounting and auditing at Haskins & Sells and Touche
Ross & Company. Mr. Gubitosi is the brother-in-law of Mr. Polimeni.

           Milton M. Adler has been a Director  of the  Company  since  February
1996,  Secretary of the Company since October 1993, and Treasurer of the Company
since  February 1992.  Since July 1997, he has been  President,  Secretary,  and
Treasurer of Judicate of Philadelphia, Inc., a former subsidiary of the Company.
Prior to October 1993, Mr. Adler was employed by Travelco,  a travel  consulting
firm, for more than 18 years in various capacities, the most recent of which was
Vice President of Administration. Mr. Adler is a Certified Public Accountant.

           Frederick  W. London has been a Director  of the Company  since April
1998.  Mr.  London  has been  Vice  President  and  Deputy  General  Counsel  of
Pinkerton's,  Inc., a provider of global  security  solutions  based in Westlake
Village, California, since February 1998. During the period January 1995 through
February 1998,  Mr. London was a partner of Gould & Wilkie,  a law firm based in
New York City.  Prior to that,  he was a partner of the law firm of  Dunnington,
Bartholow & Miller, also based in New York City.

           William J.  McSherry,  Jr. has been a Director of the  Company  since
February 1996. Mr.  McSherry has been a partner of Battle Fowler LLP, a law firm
with offices in New York City and Los Angeles, since July 1991. Battle Fowler is
legal counsel to the Company.  Prior to July 1991, Mr. McSherry was a partner in
the law firm of Bryan  Cave.  He is also  President  and a  director  of Playtex
Marketing  Corporation,  a privately-owned  corporation,  and, up to April 1998,
served as a trustee and as Deputy  Mayor of the Village of  Larchmont,  State of
New York.

           Douglas  D.  Zadow  has  been a Vice  President  of the  Company  and
President of QDL since May 1998 and  President of Calfast  since May 1995.  From
1987 to 1996,  he  served  as  President  of  All-Spec,  Inc.,  a  manufacturers
representative  of fastener products.  In 1986, Mr. Zadow served as President of
the Southwest Fastener Association.

                                       51
<PAGE>


           Phillip D.  Schwiebert  has been a Vice  President of the Company and
Western  Regional Vice  President of QDL since May 1998.  From March 1995 to May
1998, he was President of Quest  Electronic  Hardware,  Inc.,  which is now QDL.
From 1991 to 1995,  Mr.  Schwiebert  served as the Vice  President  and  General
Manager of the Fastener  Division of Arrow  Electronics,  Inc. Prior to that, he
held the position of Vice  President of Connector  Marketing  for Arrow and Vice
President of Marketing for Amphenol, a division of Allied Corporation.

           James W. Taylor has been a Vice  President  of the Company  since May
1998 and  President of IMS since its  inception in 1997.  From 1971 to 1996,  he
served as Executive Vice  President of Semblex  Corporation,  a manufacturer  of
fasteners.  From 1992 to 1995,  Mr.  Taylor  served as Chairman of the  National
Fastener Distributor Association and, from 1994 to 1997 he served as one of nine
industry  representatives  on the Public Law Task  Force,  a federal  government
committee for fastener regulation.

B.        Compliance with Section 16(a)
          ----------------------------

           Section  16(a) of the  Securities  Exchange Act of 1934  requires the
Company's  officers  and  directors,  and  persons  who own  more  than 10% of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership of equity  securities of the Company with the  Securities and Exchange
Commission  and  the  National  Association  of  Securities  Dealers.  Officers,
directors  and  greater-than-ten   percent  shareholders  are  required  by  SEC
regulation  to furnish the Company  with copies of all Section  16(a) forms that
they file.

           Based  solely  on a  review  of the  copies  of  Forms 3, 4 and 5 and
amendments  thereto furnished to the Company,  or written  representations  from
certain  reporting  persons  that such  persons have filed on a timely basis all
reports  required  by  Section 16 (a),  and  without  researching  or making any
inquiry regarding  delinquent Section 16(a) filings,  the Company believes that,
during the fiscal year ended December 31, 1998, all such reports were filed on a
timely basis,  other than with respect to Douglas D. Zadow,  a Vice President of
the Company and  President of QDL,  who has filed a  corrective  Form 5 in March
1999  reflecting  sales to the  Company  of 4,570  shares of common  stock  from
October 1998 through  December 1998,  pursuant to a serial-put  agreement  dated
September 22, 1997, by and between the Company and Mr. Zadow.

                                       52
<PAGE>


Item 10.  Executive Compensation.

           The following Summary  Compensation Table sets forth the compensation
of the named executive for the periods indicated.  No other executive officer of
the Company  received total annual salary and bonus greater than $100,000 during
the periods indicated.

<TABLE>
<CAPTION>

                                                               Annual Compensation
                                       ------------------------------------------------------------------
(a)                                         (b)           (c)         (d)                   (e)
Name and                                                                               Other Annual 
Principal Position                         Year          Salary       Bonus          Compensation ($)
------------------                        ------        -------       ------         ---------------- 
<S>                                        <C>        <C>             <C>                      <C>    

Dominic A. Polimeni                        1998       $182,800           --                    --
  Chairman, President and                  1997       $100,000           --                    --
  Chief Executive Officer                  1996       $100,000           --                    --

Douglas D. Zadow                           1998       $198,000           --                    --
  Vice President and                       1997        $60,000           --                    --
  President of Questron                    1996           --             --                    --
  Distribution Logistics, Inc.

Phillip D. Schwiebert                      1998       $106,000        $62,050                  --
  Vice President and                       1997       $106,000        $63,578                  --
  Western Regional Vice                    1996       $106,000        $56,760                  --
  President of Questron
  Distribution Logistics, Inc.

James W. Taylor                            1998       $156,000           --                    --
  Vice President and                       1997        $91,000           --                    --
  President of Integrated                  1996           --             --                    --
  Material Systems, Inc.
</TABLE>


                                       53

<PAGE>


<TABLE>
<CAPTION>
                                                                       Long-Term Compensation
                                                  -------------------------------------------------------
                                                                Awards                            Payouts
                                                 --------------------------------------  ----------------
 (a)                                 (b)               (f)                (g)                 (h)                 (i)
                                                   Restricted         Securities
 Name and                                             Stock           Underlying              LTIP             All other
 Principal Position                  Year          Awards ($)       Options/SARs(#)       Payouts ($)       Compensation ($)
--------------------------           ----          ----------       ---------------       -----------       ----------------
 <S>                                 <C>               <C>             <C>                      <C>                <C>
 Dominic A. Polimeni                 1998              --              1,100,000                 --                --  
   Chairman, President and           1997              --                     --                 --                --  
   Chief Executive Officer           1996              --                     --                 --                --  
                                                                                                                       
 Douglas D. Zadow                    1998              --                300,000                 --                --  
   Vice President and                1997              --                     --                 --                --  
   President of Questron             1996              --                     --                 --                --  
   Distribution Logistics, Inc.                                                                                        
                                                                                                                       
 Phillip D. Schwiebert               1998              --                333,333                 --                --  
   Vice President and                1997              --                196,667                 --                --  
   Western Regional Vice             1996              --                 30,000                 --                --  
   President of Questron                                                                                               
   Distribution Logistics, Inc.                                                                                        
                                                                                                                       
 James W. Taylor                     1998              --                 90,000                 --                --  
   Vice President and                1997              --                 90,000                 --                --  
   President of Integrated           1996              --                     --                 --                --  
   Material Systems, Inc.                                                                                          
</TABLE>


Employment Agreements

           Dominic A. Polimeni,  Chairman, Chief Executive Officer and President
of the Company, is a party to a five-year  employment agreement with the Company
effective  July 1,  1998.  Under the  terms of such  employment  agreement,  the
Company has agreed to compensate  Mr.  Polimeni a regular  salary at the rate of
$250,000 per annum and incentive  compensation  of up to $100,000 based upon the
attainment of certain operating and earnings targets.  Effective March 29, 1999,
options  to  purchase  1,100,000  shares of common  stock of the  Company  at an
exercise price of $4.50 per share were awarded to Mr.  Polimeni  pursuant to the
terms of the agreement.

           Mr. Polimeni is a 50% stockholder of Gulfstream Financial Group, Inc.
("Gulfstream"),  and shares  voting  and  investment  power with  respect to the
shares  of the  Company's  common  stock  owned  by  Gulfstream.  Pursuant  to a
Management  Advisory and  Consulting  Agreement,  dated as of November 29, 1994,
between  the  Company  and  Gulfstream,  Gulfstream  acted  as  an  advisor  and
consultant to the Company.  Such advisory and consulting  services were directed
principally   at  the   expansion  of  the   Company's   business   through  the
identification of potential acquisition candidates. The agreement was terminated
effective March 1, 1999,  more than one year prior to its stated  expiration and
options to  purchase  1,160,500  shares of common  stock at an average  exercise
price of $5.43 were cancelled.  Fees 

                                       54
<PAGE>


paid to Gulfstream in connection with the agreement and the termination  thereof
amounted to $305,000 in 1998 and $105,000 in 1997.  Pursuant to a  shareholders'
agreement,  Mr.  Polimeni  has agreed to share his  beneficial  ownership of the
options  received under his employment  agreement with the other 50% shareholder
of Gulfstream.

           In connection  with the  acquisition of Calfast,  the Company entered
into  a  five-year   employment  agreement  with  Douglas  D.  Zadow,  a  former
shareholder  and President of Calfast,  effective  September 1, 1997.  Under the
terms of such  employment  agreement,  the Company has agreed to compensate  Mr.
Zadow  with a regular  salary  at the rate of  $200,000  per year and  incentive
compensation  of up to $100,000  based on the  attainment  of certain  operating
goals.  In addition,  upon the  attainment of certain  earnings  targets for the
Company,  Mr.  Zadow is  entitled  to receive  options to purchase up to 300,000
shares of common  stock at an exercise  price equal to the fair market  value of
the common  stock at the date of grant.  Effective  March 31,  1999,  options to
purchase  300,000 shares of common stock at an exercise price of $4.50 per share
were awarded to Mr. Zadow pursuant to the terms of the agreement.

           QDL entered  into a five-year  employment  agreement  with Phillip D.
Schwiebert, its Western Regional Vice President, effective March 31, 1995. Under
the  terms of such  employment  agreement,  QDL has  agreed  to  compensate  Mr.
Schwiebert  with  regular  salary at the rate of $106,000  per year,  plus bonus
compensation  based on the attainment of certain  operating goals at the rate of
$15,000  per  quarter.  In  addition,  pursuant to an  Exchange Agreement  dated
November  8, 1996,  upon the  attainment  of certain  earnings  targets  for the
Company, Mr. Schwiebert is entitled to receive options to purchase up to 500,000
additional  shares of common stock at an exercise price equal to the fair market
value  of the  common  stock  at the  date of  grant  (See  Item 11 -  "Exchange
Agreement").  On February 24, 1998, options to purchase 166,667 shares of common
stock of the Company at an exercise price of $7.75 per share were awarded to Mr.
Schwiebert.  Effective  March 31, 1999,  options to purchase  333,333  shares of
common  stock at an  exercise  price of $4.50  per  share  were  awarded  to Mr.
Schwiebert pursuant to the terms of the Exchange Agreement.

           In connection with the acquisition of IMS, the Company entered into a
five-year  employment agreement with James W. Taylor, the former shareholder and
President of IMS,  effective  June 1, 1997.  Under the terms of such  employment
agreement,  the Company has agreed to compensate  Mr. Taylor with regular salary
at the  rate  of  $144,000  per  year,  plus  bonus  compensation  based  on the
attainment  of  certain  operating  goals at the rate of  $14,400  per year.  In
addition,  upon the attainment of certain earnings targets for the Company,  Mr.
Taylor is entitled to receive  options to purchase up to 90,000 shares of common
stock at an exercise price equal to the fair market value of the common stock at
the date of grant.  Effective March 31, 1999,  options to purchase 90,000 shares
of common  stock at an  exercise  price of $4.50 per share  were  awarded to Mr.
Taylor pursuant to the terms of the agreement.

Option/SAR Grants

           Effective  March 29,  1999,  pursuant  to the terms of the  Company's
employment agreement with Mr. Polimeni,  options to purchase 1,100,000 shares of
common  stock at an  exercise  price of $4.50  per  share  were  awarded  to Mr.
Polimeni.  Effective  March 31,  1999,  pursuant  to the terms of the  Company's
employment  agreement  with Mr.  Zadow,  options to purchase  300,000  shares of
common stock at an exercise  price of $4.50 per share were awarded to Mr. Zadow.
Pursuant to the terms of the  Exchange  

                                       55
<PAGE>


Agreement dated November 8, 1996, Mr. Schwiebert was granted options to purchase
30,000 shares of common stock at $3.75 per share.  Effective  May 31, 1997,  Mr.
Schwiebert  was granted  options to purchase  30,000  shares of common  stock at
$6.00 per share, such options vest and become exercisable as to 10,000 shares on
each of the first three anniversary dates of the date of the grant.  Pursuant to
the terms of the Exchange  Agreement,  on February 24, 1998, options to purchase
166,667  shares of common stock of the Company at an exercise price of $7.75 per
share were awarded to Mr.  Schwiebert and effective  March 31, 1999,  options to
purchase  333,333 shares of common stock at an exercise price of $4.50 per share
were awarded to Mr. Schwiebert.  Effective March 31, 1999, pursuant to the terms
of the  Company's  employment  agreement  with Mr.  Taylor,  options to purchase
90,000  shares  of common  stock at an  exercise  price of $4.50 per share  were
awarded to Mr. Taylor.

           For information relating to warrants issued to Gulfstream, a (company
owned by Dominic A. Polimeni and Joan R.  Gubitosi) and to Mr.  Schwiebert,  see
Item 11 - "Exchange Agreement."

Option/SAR Exercises

           Set forth below is information concerning exercises of options during
1998 and the year-end value of unexercised  options for the persons named in the
Summary Compensation Table:

<TABLE>
<CAPTION>
                    (a)                (b)             (c)                      (d)                                (e)
                                                                           Number of Securities
                                        Shares                             Underlying Unexercised        Value of Unexercised In-the
                                        Acquired                            Options/SAR's at Fiscal           -Money Options/SARs at
                                             on           Value                    Year End (#)                  Fiscal Year End ($)
Name                                    Exercise         Realized          Exercisable/Unexercisable       Exercisable/Unexercisable
-----------                             ---------        --------          -------------------------     ---------------------------
 
<S>                                   <C>              <C>                 <C>                                     <C>

Dominic A. Polimeni
  Chairman, President and
  Chief Executive Officer              --               --                 1,100,000 / --                           --

Douglas D. Zadow
  Vice President and
  President of Questron
  Distribution Logistics, Inc.         --               --                  300,000 / --                            --

Phillip D. Schwiebert
  Vice President and
  Western Regional Vice
  President of Questron
  Distribution Logistics, Inc.         --               --                540,000 / 20,000                       $22,500

James W. Taylor
  Vice President and
  President of Integrated
  Material Systems, Inc.               --               --                108,000 / 72,000                          --
</TABLE>


                                       56
<PAGE>


Compensation of Directors

           Other  than  the  1994  Director   Non-Qualified  Stock  Option  Plan
described  below,  the  Company  does  not  have  a  standard  policy  regarding
compensation of members of the board of directors. Other than as reported below,
the members of the board of  directors  did not receive  compensation  for their
services as such during the year ended December 31, 1998.

The 1994 Director Non-Qualified Stock Option Plan

           The 1994  Director  Non-qualified  Stock Option Plan, as amended (the
"1994 Plan"),  was approved by  shareholders at the annual meeting held June 11,
1998.  The 1994 Plan  provides  for options to purchase an  aggregate of 150,000
shares  of the  Company's  common  stock  that may be  granted  to  non-employee
directors of the Company.

           All non-employee  directors shall receive an option to purchase 5,000
shares of the common stock of the Company on the first  Wednesday of February in
each calendar year at an exercise price equal to the fair market value per share
of the common stock on that date. In addition, on September 8, 1998 Mr. McSherry
was awarded  options to purchase 20,000 shares of common stock of the Company at
an exercise  price equal to the fair market  value per share of the common stock
on that date and Mr.  London was  awarded  options to purchase  3,000  shares of
common stock of the Company at an exercise  price equal to the fair market value
per  share of the  common  stock on that  date.  Such  options  are  exercisable
immediately  for a period  of 10 years  from  date of  grant  unless  terminated
earlier pursuant to the terms of the Plan.  Under the 1994 Plan,  62,000 options
have been  granted to date at exercise  prices  ranging  from $3.88 per share to
$24.06 per share.

1996 Stock Option Plan

           The 1996 Stock  Option  Plan,  as  amended  (the  "1996  Plan"),  was
approved by  shareholders  at the annual  meeting held June 11, 1998.  Under the
1996 Plan, either Incentive Stock Options or Non-Qualified  Stock Options may be
granted; however, the former may be granted only to employees of the Company and
its subsidiaries. The 1996 Plan provides for options to purchase an aggregate of
500,000 shares of the Company's common stock that be granted to employees of the
Company and its subsidiaries.

           In 1998 and 1997,  the Company  granted to its  employees  options to
purchase 10,300 and 159,450 shares of the Company's common stock,  respectively.
In 1998,  options to purchase  46,500 shares of the Company's  common stock were
cancelled.  Options granted were issued with an exercise price equal to the fair
market value of the common stock on the date of grant. The options have terms of
ten years and become exercisable in three equal nine-month  installments,  three
equal  annual  installments  or three  years  from date of  grant.  Accordingly,
pursuant  to the  terms  of the 1996  Plan,  a total of  376,750  shares  of the
Company's  common stock are reserved and  available for  distribution  as awards
under the 1996 Plan.

                                       57
<PAGE>


Employee Stock Ownership Plan

           In 1997,  the  Board  approved  the  adoption  of an  Employee  Stock
Ownership  Plan  ("ESOP")  beginning  with the year ended  December 31, 1997. In
1998, the Company purchased 14,300 shares in respect of the 1997 contribution to
the ESOP.  For the year ended December 31, 1998 the Company  accrued  $75,000 to
fund the purchase of additional shares of the Company's common stock pursuant to
the ESOP.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

           The following table sets forth certain  information,  as of March 23,
1999,  known to the Company  regarding  beneficial  ownership  of the  Company's
common  stock by (i) any  holder of more than five  percent  of the  outstanding
shares;  (ii) the  Company's  directors;  and (iii) all  executive  officers and
directors as a group:


<TABLE>
<CAPTION>
                                                                                                                     % of 
                                                                                        Number of Shares of       Common Stock
          Name & Address                            Position With the Company             Common Stock
-------------------------------------    ----------------------------------------  --------------------------     ------------
<S>                                      <C>                                              <C>                      <C>       

Dominic A. Polimeni (1)                  Chairman, President and Chief                    2,374,957    (2)       34.51
                                         Executive Officer

Milton M. Adler (1)                      Director, Secretary, and Treasurer                   3,247    (3)       *

Robert V. Gubitosi (1)                   Director                                                --    (4)       --

Frederick W. London (1)                  Director                                             9,000    (5)       *

William J. McSherry, Jr. (1)             Director                                            79,984    (6)        1.65

Douglas D. Zadow                         Vice President and President of                    654,667    (7)       12.88
c/o Questron Distribution                Questron Distribution Logistics, Inc.,
      Logistics, Inc.                    a subsidiary of the Company
         321 N. Central Expressway
         McKinney, TX 75070

Phillip D. Schwiebert (8)                Vice President and Western Regional                903,339    (9)       16.21
c/o Questron Distribution                Vice President of Questron
      Logistics, Inc.                    Distribution Logistics, Inc., a
         386 Railroad Court              subsidiary of the Company
         Milpitas, CA 95035

                                       58
<PAGE>

Gulfstream Financial Group, Inc.                           --                             1,260,273   (10)       21.80
6400 Congress Ave., Suite 200A
Boca Raton, FL 33487

Joan R. Gubitosi (4)                                       --                             2,360,273   (11)       34.30
c/o Gulfstream Financial Group, Inc.
      6400 Congress Ave., Suite 200A
      Boca Raton, FL 33487

Malcolm A. Tallmon                       President and General Manager of                   436,476   (12)        9.12
c/o Fortune Industries, Inc.             Fortune Industries, Inc., a subsidiary
      3408 S. Jones                      of the Company
      Fort Worth, TX 76110

Gregory S. Fitzgerald                    President and General Manager of                   476,475   (13)        9.88
c/o Fas-Tronics, Inc.                    Fas-Tronics, Inc., a subsidiary of the
      4324 Garland Drive                 Company
      Fort Worth, TX 76117

Valerie L. Fitzgerald                    Operations Manager of Fas-Tronics,                 476,475   (13)        9.88
c/o Fas-Tronics, Inc.                    Inc., a subsidiary of the Company
      4324 Garland Drive
      Fort Worth, TX 76117

All officers and directors as a group                                                     4,263,239              53.04
      (eight persons)
----------------------------
*  Less than 1 %
</TABLE>


     1.              c/o Questron Technology, Inc., 6400 Congress Avenue, Suite 
                     200A, Boca Raton, FL 33487.

     2.              Consists  of 260,273  shares of common  stock and Series IV
                     Warrants to purchase 1,000,000 shares of common stock owned
                     by  Gulfstream,  and 14,684 shares of common stock owned by
                     Mr.  Polimeni and options to purchase  1,100,000  shares of
                     common  stock at an exercise  price of $4.50 per share that
                     were awarded to Mr.  Polimeni  pursuant to the terms of his
                     employment agreement. Pursuant to the terms of a Gulfstream
                     shareholder agreement,  beneficial interest in such options
                     is shared equally by Mr. Polimeni and Mrs. Gubitosi.

     3.              Includes options to purchase 3,000 shares of common stock.

                                       59
<PAGE>


     4.              Mr.   Gubitosi's   wife,  Joan  R.  Gubitosi,   has  shared
                     beneficial  ownership with Mr. Polimeni of 2,360,273 shares
                     of common stock (see Footnote 11). Mr.  Gubitosi  disclaims
                     beneficial ownership of such shares.

     5.              Consists of 500 shares of common stock, Series IV Warrants 
                     to purchase 500 shares of common stock and options to 
                     purchase 8,000 shares of common stock.

     6.              Includes   5,984  shares  of  common  stock  owned  by  Mr.
                     McSherry, options to purchase 43,000 shares of common stock
                     and Series IV Warrants to purchase  31,000 shares of common
                     stock.  These  amounts  do  not  include  7,900  Series  IV
                     Warrants, 2,500 Series IV Warrants and 886 shares of common
                     stock owned by his two adult sons, as to which Mr. McSherry
                     disclaims beneficial ownership.

     7.              The 654,667  shares  reported  above include  48,807 shares
                     subject to a serial put agreement dated September 22, 1997,
                     which gives Mr.  Zadow the option to sell the shares to the
                     Company  on a monthly  basis  during  the five year  period
                     ending  September 22, 2002 for a price of $6.275 per share,
                     and options to purchase  300,000  shares of common stock at
                     an exercise  price of $4.50 per share that were  awarded to
                     Mr. Zadow effective March 31, 1999 pursuant to the terms of
                     his employment agreement.

     8.              Pursuant  to the  terms  of  the  Exchange  Agreement,  Mr.
                     Schwiebert  is  entitled  to  receive  options  to  acquire
                     additional  shares of common stock upon the  attainment  of
                     certain earnings targets for the Company in any fiscal year
                     up to and including fiscal year 2001 as follows: options to
                     purchase  166,667  shares of common stock if pre-tax income
                     is at least  $2,500,000,  options to purchase an additional
                     166,667  shares of  common  stock if  pre-tax  income is at
                     least  $3,500,000,  and options to  purchase an  additional
                     166,667  shares of  common  stock if  pre-tax  income is at
                     least $4,500,000. On February 24, 1998, options to purchase
                     166,667  shares  of  common  stock  of  the  Company  at an
                     exercise  price of $7.75  per  share  were  awarded  to Mr.
                     Schwiebert and options to purchase 333,333 shares of common
                     stock at an exercise  price of $4.50 per share were awarded
                     effective March 31, 1998 to Mr. Schwiebert  pursuant to the
                     terms of the Exchange  Agreement. 

     9.              The shares  reported  above consist of 113,339 shares owned
                     by Mr.  Schwiebert,  options to purchase  540,000 shares of
                     common  stock and Series IV Warrants  to  purchase  250,000
                     shares  of  common  stock.  These  amounts  do not  include
                     options to purchase  20,000 shares of common stock at $6.00
                     per share granted  effective  May 31, 1997,  which vest and
                     become  exercisable  as to  10,000  shares  on  each of the
                     second  and  third  anniversary  dates  of the  date of the
                     grant. Also see footnote 8.

     10.             Consists  of 260,273  shares of common  stock and Series IV
                     Warrants to purchase 1,000,000 shares of common stock. Joan
                     R. Gubitosi and Dominic A. Polimeni are executive  officers
                     and the  stockholders  of  Gulfstream  and share voting and
                     investment  power  with  respect  to the  shares  owned  by
                     Gulfstream.


                                       60

<PAGE>

     11.             Consists  of  260,273  shares  and  Series IV  Warrants  to
                     purchase   1,000,000   shares  of  common  stock  owned  by
                     Gulfstream,  and  options to purchase  1,100,000  shares of
                     common stock,  at an exercise price of $4.50 per share,  in
                     which  beneficial   interest  is  shared  equally  by  Mrs.
                     Gubitosi  and  Mr.   Polimeni   pursuant  to  a  Gulfstream
                     shareholder agreement.

     12.             The 436,476  shares of common  stock  owned by Mr.  Tallmon
                     were  issued by the  Company  as partial  consideration  in
                     connection with the acquisition of Fortune Industries, Inc.

     13.             Of the 476,475  shares of common stock owned jointly by Mr.
                     and Mrs. Fitzgerald, 421,941 shares and options to purchase
                     40,000 shares of common stock were issued by the Company as
                     partial consideration in connection with the acquisition of
                     Fas-Tronics,  Inc.  In  addition,  Mr. and Mrs.  Fitzgerald
                     purchased  14,534  shares  of common  stock in open  market
                     transactions.

Exchange Agreement

           In connection with the Webb  acquisition and the related  Offering of
Units, Gulfstream and Philip D. Schwiebert, shareholders of the Company, entered
into  an  Exchange  Agreement  dated  as of  November  8,  1996  (the  "Exchange
Agreement") pursuant to which Gulfstream and Schwiebert agreed to exchange their
rights to receive  warrants to purchase up to 10% and 5%,  respectively,  of the
common stock  outstanding as of March 31, 1995.  Based upon the number of shares
of common stock outstanding on such date (after giving effect to the exercise of
all the outstanding options and warrants),  the foregoing  represented the right
of  Gulfstream  and  Schwiebert  to acquire up to 264,172 and 132,086  shares of
common stock, respectively, at $1.00 per share.

           The board of directors deemed it desirable to enter into the Exchange
Agreement by reason of the fact that the rights previously granted to Gulfstream
and  Schwiebert  would have  resulted in  substantial  charges to the  Company's
earnings by reason of accounting  rules now in effect and would have resulted in
substantial dilution to the other stockholders.  Under the options, warrants and
rights granted under the Exchange Agreement, no charge to earnings should result
as a result of their being  exercisable  at the fair market value at the date of
grant  in lieu of  $1.00  per  share.  In  addition,  pursuant  to the  Exchange
Agreement the Company substantially  increased the pre-tax income targets needed
to earn certain of the awards from $1.4 million,  $1.8 million, $2.2 million and
$2.6 million to $2.5  million,  $3.5 million and $4.5  million.  Under the prior
arrangements,  one half of the awards would have been earned upon  completion of
the acquisition of Webb,  thereby resulting in a substantial  charge to earnings
and  substantial  dilution to  stockholders.  Under the Exchange  Agreement,  no
awards which are  conditioned  on meeting the pre-tax  income  targets set forth
below will be earned  until the $2.5  million  pre-tax  income  target is met or
exceeded.  Finally,  although Gulfstream and Mr. Schwiebert have the opportunity
to earn a substantially  greater number of shares,  the amount of  consideration
which will have to be paid for such shares has substantially  increased as well.
Based upon current market  prices,  the price to be paid per share acquired will
have increased under the Exchange Agreement from $1.00 to at least $3.75.


                                       61
<PAGE>

           Pursuant  to  the  Exchange  Agreement,   Gulfstream  and  Schwiebert
received the following in exchange for the rights previously granted under their
agreements.

      Gulfstream:         1)   Options to acquire  120,000  shares of Common 
                               Stock for a per share  exercise  price equal to
                               $3.75; and

                          2)   Series IV Warrants to acquire 1,000,000 shares of
                               Common Stock.

      Schwiebert:         1)   Options to acquire  30,000  shares of Common  
                               Stock for a per share  exercise  price  equal to
                               $3.75; and

                          2)   Series IV Warrants to acquire 250,000 shares of
                               Common Stock.

           In addition,  Gulfstream and  Schwiebert  will be entitled to receive
options to acquire  additional shares of common stock at an exercise price equal
to the fair market value of the common stock at the date of grant if the pre-tax
income  targets set forth below are met or exceeded in any fiscal year up to and
including fiscal year 2001:

                               
                               No. of Additional 
   No. of Additional              Schwiebert          
   Gulfstream Shares                Shares               Pre-tax Income at Least
----------------------       ----------------------      -----------------------
        333,333                  166,667                    $2,500,000
        333,333                  166,667                    $3,500,000
        333,334                  166,668                    $4,500,000

           The  Company's  pre-tax  income for the year ended  December 31, 1997
exceeded  $2.5  million,  accordingly,  pursuant  to the  terms of the  Exchange
Agreement,  on February 24, 1998,  options to purchase  333,333 shares of Common
Stock of the  Company at an  exercise  price of $7.75 per share were  granted to
Gulfstream and options to purchase 166,667 shares of Common Stock of the Company
at an  exercise  price of $7.75  per  share  were  granted  to  Schwiebert.  The
Company's  pre-tax  income for the year ended  December 31, 1998  exceeded  $4.5
million, accordingly,  options to purchase 333,333 shares of common stock of the
Company at an exercise price of $4.50 were granted to Schwiebert effective March
31, 1999.  Effective March 1, 1999, the Company and Gulfstream  agreed to cancel
all the Gulfstream  options earned and to be earned pursuant to the terms of the
Exchange Agreement.  Accordingly,  options awarded to Gulfstream, on November 8,
1996, to acquire  120,000  shares of common stock at an exercise  price of $3.75
per share and options  awarded to Gulfstream,  on February 24, 1998, to purchase
333,333 shares of common stock at an exercise price of $7.75 per share have been
cancelled.

                                       62

<PAGE>


Item 12.  Certain Relationships and Related Transactions.

           Pursuant to a  Management  and  Advisory  Consulting  Agreement,  the
Company agreed to compensate  Gulfstream  for advisory and consulting  services.
This agreement,  which can be terminated by either party on 90 days notice,  was
to expire on March 31, 2000. The agreement,  was terminated  effective  March 1,
1999, more than one year prior to its stated expiration. Fees paid to Gulfstream
in  connection  with the  agreement  and the  termination  thereof  amounted  to
$305,000 in 1998 and $105,000 in 1997.

           Battle Fowler LLP, the law firm in which Mr. McSherry,  a director of
the Company,  is a partner,  provided  legal  services to the Company during the
year ended  December  31, 1998 and is  expected  to  continue  to provide  legal
services to the Company in the future.


                                       63

<PAGE>

Item 13.  Exhibits and Reports on Form 8-K.

     (a)  Financial Statements and Exhibits.

           1.  The financial  statements listed in the accompanying  index
               to  financial  statements  are filed as part of this annual
               report.

           2.  See Index to Exhibits on page 68.


     (b)  Report on Form 8-K.
<TABLE>

               Date of Report
               (Date of Earliest Event Reported)           Item Reported
               ---------------------------------           ---------------------------------------------------
               <S>                                         <C>
               October 8, 1998                             Acquisition of fastener distributors; included pro
               (amended December 8, 1998)                  forma  combined  statement  of  operations  for the
                                                           Company,  Fas-Tronics, Inc. and Fortune Industries,
                                                           Inc.,  for the six months  ended June 30,  1998 and
                                                           for the year ended  December 31, 1997,  and audited
                                                           balance  sheet  at  December  31,1997  and  audited
                                                           statements of operations,  stockholders equity, and
                                                           cash flows for the year ended December 31, 1997 for
                                                           Fas-Tronics, Inc. and Fortune Industries, Inc.
</TABLE>


<PAGE>


                            QUESTRON TECHNOLOGY, INC.
                                      INDEX
                             TO FINANCIAL STATEMENTS

                                  (Item 13 (a))


                                                                           Page

Report of Independent Auditors covering consolidated financial statements
   at December 31, 1998 and for the year then ended                          24

Report of Independent Auditors covering consolidated financial statements
   for the year ended December 31, 1997                                      25

Consolidated Balance Sheet as of December 31, 1998                           26


For the years ended December 31, 1998 and 1997:

          Consolidated Statement of Operations                               27

          Consolidated Statement of Changes in Stockholders' Equity          28

          Consolidated Statement of Cash Flows                               29


Notes to Consolidated Financial Statements at December 31, 1998 and
   1997 and for the years then ended                                         30

                                       65
<PAGE>


                                   SIGNATURES

           In  accordance  with  Section 13 or 15 (d) of the  Exchange  Act, the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                             QUESTRON TECHNOLOGY, INC.

                                             By:  /s/  Dominic A. Polimeni
                                                  ------------------------ 
                                                  Dominic A. Polimeni,
                                                  Chairman, President and Chief
                                                  Executive Officer

                                                Date:      March 31, 1999

           In  accordance  with the  Exchange  Act,  this report has been signed
below by the following persons on behalf of the registrant and in the capacities
indicated on March 31, 1999:

(1)  Principal Executive Officer:     (3)  A Majority of the Board of Directors:

      /s/  Dominic A. Polimeni              /s/  Milton M. Adler
      ------------------------              --------------------
      Dominic A. Polimeni,                  Milton M. Adler, Director
       Chief Executive Officer
                                            /s/  Robert V. Gubitosi
                                            -----------------------
                                            Robert V. Gubitosi, Director

(2)  Principal Financial and Accounting     /s/  Frederick W. London
                                            ------------------------
      Officer:                              Frederick W. London, Director

      /s/  Milton M. Adler                  /s/  William J. McSherry, Jr.
     -----------------------------          -----------------------------
     Milton M. Adler, Treasurer             William J. McSherry, Jr., Director

                                            /s/  Dominic A. Polimeni
                                            ------------------------
                                            Dominic A. Polimeni, Director


                                       66
<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   EXHIBITS TO
                                   FORM 10-KSB


(Mark One)
   X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
--------  EXCHANGE ACT OF 1934 (Fee Required)

                       For the fiscal year ended December 31, 1998
                                                 ------------------
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--------  EXCHANGE ACT OF 1934 (No Fee Required)

                       For the transition period from             to
                                                      -----------    -----------
                       Commission file number 0-13324
                                              -------
                            QUESTRON TECHNOLOGY, INC.
-------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

<TABLE>
<S>                                                                                              <C>    

                                Delaware                                                         23-2257354
-------------------------------------------------------------------------         ----------------------------------------------
     (State or other jurisdiction of incorporation or organization)                  (I.R.S. Employer Identification Number)

            6400 Congress Avenue, Suite 200A, Boca Raton, FL                                       33487
-------------------------------------------------------------------------         ----------------------------------------------
               (Address of principal executive offices)                                          (Zip Code)
</TABLE>

Issuer's telephone number:  (561) 241 - 5251
                            ----------------


<PAGE>


INDEX TO EXHIBITS
-----------------

           The  following  exhibits  are filed as part of this Annual  Report on
Form 10-KSB:

3.0        Certificate of  Incorporation,  incorporated  by reference to Exhibit
           3(i) to the  Company's  Form  10-KSB  filed with the  Securities  and
           Exchange Commission for the fiscal year ended December 31, 1987 (File
           No. 0-13324).

3.1        Certificate  of Amendment,  dated March 20, 1985, to  Certificate  of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           4.1 to Amendment  No. 1 of the  Company's  Registration  Statement on
           Form S-3 filed with the Securities  and Exchange  Commission on March
           9, 1995 (File No. 33-44331).

3.2        Certificate  of  Amendment,  dated June 9, 1989,  to  Certificate  of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           4.1 to Amendment  No. 1 of the  Company's  Registration  Statement on
           Form S-3 filed with the Securities  and Exchange  Commission on March
           9, 1995 (File No. 33-44331).

3.3        Certificate  of  Correction,  dated May 17, 1991, to  Certificate  of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           4.1 to Amendment  No. 1 of the  Company's  Registration  Statement on
           Form S-3 filed with the Securities  and Exchange  Commission on March
           9, 1995 (File No. 33-44331).

3.4        Certificate of Amendment,  dated December 20, 1993, to Certificate of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           3(i) to the  Company's  Form  10-KSB  filed with the  Securities  and
           Exchange Commission for the fiscal year ended December 31, 1993 (File
           No. 0-13324).

3.5        Certificate of Correction, dated December 22, 1993, to Certificate of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           3.3 to the  Company's  Form  10-KSB  filed  with the  Securities  and
           Exchange Commission for the fiscal year ended December 31, 1993 (File
           No. 0-13324).

3.6        Certificate  of  Correction,  dated July 19, 1994, to  Certificate of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           4.1 to Amendment  No. 1 to the  Company's  Registration  Statement on
           Form S-3 filed with the Securities  and Exchange  Commission on March
           9, 1995 (File No. 33-44331).

3.7        Certificate  of  Amendment,  dated April 2, 1996, to  Certificate  of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           3.5 to the  Company's  Form  10-KSB  filed  with the  Securities  and
           Exchange Commission for the fiscal year ended December 31, 1995 (File
           No. 0-13324).

3.8        Certificate of Amendment,  filed December 31, 1996, to Certificate of
           Incorporation  of the Company,  incorporated  by reference to Exhibit
           3.10 to  Amendment  No. 1 to the  Company's  Form SB-2 filed with the
           Securities  and  Exchange  Commission  on February 25, 1997 (File No.
           333-18243).

                                       68
<PAGE>


3.9        By-Laws of the Company,  incorporated  by reference to Exhibit 3b(ii)
           to the Company's  Form 10-KSB filed with the  Securities and Exchange
           Commission  for the fiscal  year ended  December  31,  1987 (File No.
           0-13324).

3.10       Amendment  to By-Laws of the  Company,  incorporated  by reference to
           Exhibit 3.4 of the  Company's  Form 10-KSB filed with the  Securities
           and Exchange  Commission  for the fiscal year ended December 31, 1992
           (File No. 0-13324).

4.0        Specimen  Common  Stock  Certificate,  incorporated  by  reference to
           Exhibit 4.0 to Amendment No. 1 to the Company's  Form SB-2 filed with
           the Securities and Exchange Commission on February 25, 1997 (File No.
           333-18243).

4.1        Form of Series IV Warrant  Agreement,  incorporated  by  reference to
           Exhibit 4.3 to Amendment No. 1 to the Company's  Form SB-2 filed with
           the Securities and Exchange Commission on February 25, 1997 (File No.
           333-18243).

4.2        Form of Series III Warrant  Agreement,  dated as of November 7, 1994,
           incorporated  by reference  to Exhibit  10.22 to the  Company's  Form
           10-KSB  filed with the  Securities  and Exchange  Commission  for the
           fiscal year ended December 31, 1994 (File No. 0-13324).

4.3        Form of Underwriters'  Purchase Option,  incorporated by reference to
           Exhibit 4.5 to Amendment No. 1 to the Company's  Form SB-2 filed with
           the Securities and Exchange Commission on February 25, 1997 (File No.
           333-18243).

4.4        Stock Purchase  Warrant  Certificate  for Purchase of Common Stock of
           Questron Technology,  Inc.,  incorporated by reference to Exhibit 4.6
           to  Amendment  No.  1 to the  Company's  Form  SB-2  filed  with  the
           Securities  and  Exchange  Commission  on February 25, 1997 (File No.
           333-18243).

4.5        Amended  Certificate of Designation  Establishing Series of Preferred
           Stock of Questron  Technology,  Inc.,  incorporated  by  reference to
           Exhibit 4.7 to the Company's  Quarterly Report on Form 10-QSB for the
           three month period ended June 30, 1998 filed with the  Securities and
           Exchange Commission on May 15, 1998 (File No. 0-13324).

4.6        Registration Rights Agreement, dated as of September 24, 1998, by and
           between the  Company  and the  persons  listed on Schedule A thereto,
           incorporated  by reference to the  Company's  Current  Report on Form
           8-K, filed with the Securities and Exchange  Commission on October 8,
           1998 (File No. 0-13324).

4.7        Certificate of Designation of Series A Junior Participating Preferred
           Stock of Questron Technology,  Inc., incorporated by reference to the
           Company's  Quarterly Report on Form 10-QSB for the three month period
           ended  September  30, 1998,  filed with the  Securities  and Exchange
           Commission on November 16, 1998 (File No. 0-13324).

10.1       The  Company's  1994  Director   Non-Qualified   Stock  Option  Plan,
           incorporated by reference to Exhibit 10.28 of the Company's Report on
           Form 10-KSB filed with the Securities and Exchange Commission for the
           fiscal year ended December 31, 1993 (File No. 0-13324).

                                       69
<PAGE>


10.2       Employment   Agreement,   dated  March  29,  1999  between   Questron
           Technology, Inc. and Dominic A. Polimeni.

10.3       Employment   Agreement,   dated  November  29,  1994,  between  Quest
           Electronic Hardware, Inc. and Phillip D. Schwiebert,  incorporated by
           reference to Exhibit  10.25 to the  Company's  Form 10-KSB filed with
           the  Securities  and  Exchange  Commission  for the fiscal year ended
           December 31, 1994 (File No. 0-13324).

10.4       Management  Advisory and Consulting  Agreement,  dated as of November
           29, 1994, between  Gulfstream  Financial Group, Inc. and the Company,
           incorporated  by reference  to Exhibit  10.26 to the  Company's  Form
           10-KSB  filed with the  Securities  and Exchange  Commission  for the
           fiscal year ended December 31, 1994 (File No. 0-13324).

10.5       Termination of Management Advisory and Consulting Agreement, dated as
           of March 1, 1999,  between  Gulfstream  Financial Group, Inc. and the
           Company.

10.6       Waiver,  dated as of March 31, 1995, by Gulfstream  Financial  Group,
           Inc. and Philip D.  Schwiebert,  incorporated by reference to Exhibit
           10.27 to the  Company's  Form 10-KSB  filed with the  Securities  and
           Exchange Commission for the fiscal year ended December 31, 1994 (File
           No. 0-13324).

10.7       Share  Acquisition  Agreement,  dated as of November 29, 1994, by and
           among Gulfstream Financial Group, Inc., Phillip D. Schwiebert,  Quest
           Electronic Hardware, Inc. and the Company,  incorporated by reference
           to  Exhibit  10.28  to the  Company's  Form  10-KSB  filed  with  the
           Securities and Exchange Commission for the fiscal year ended December
           31, 1994 (File No. 0-13324).

10.8       Purchase of Assets Agreement,  dated as of November 29, 1994, between
           Quest  Electronic  Hardware,   Inc.  and  Arrow  Electronics,   Inc.,
           incorporated  by reference  to Exhibit  10.29 to the  Company's  Form
           10-KSB  filed with the  Securities  and Exchange  Commission  for the
           fiscal year ended December 31, 1994 (File No. 0-13324).

10.9       Common  Stock  Purchase  Option,  dated as of  March  31,  1995,  for
           Biltmore Securities, Inc., incorporated by reference to Exhibit 10.35
           to the Company's  Form 10-KSB filed with the  Securities and Exchange
           Commission  for the fiscal  year ended  December  31,  1994 (File No.
           0-13324).

10.10      Letter  agreement,  dated December 29, 1995,  between the Company and
           Stephen J.  Drescher,  incorporated  by reference to Exhibit 10.28 to
           the  Company's  Form 10-KSB  filed with the  Securities  and Exchange
           Commission  for the fiscal  year ended  December  31,  1995 (File No.
           0-13324).

10.11      Letter  agreement,  dated December 29, 1995,  between the Company and
           Paul L. Burton,  incorporated  by  reference to Exhibit  10.29 to the
           Company's   Form  10-KSB  filed  with  the  Securities  and  Exchange
           Commission  for the fiscal  year ended  December  31,  1995 (File No.
           0-13324).

                                       70
<PAGE>


10.12      1996 Stock Option Plan, incorporated by reference to Exhibit 10.19 to
           Amendment No. 1 to the Company's  Form SB-2 filed with the Securities
           and Exchange Commission on February 25, 1997 (File No. 333-18243).

10.13      Exchange Agreement,  dated November 8, 1996 by and among the Company,
           Gulfstream   Financial   Group,   Inc.  and  Phillip  D.  Schwiebert,
           incorporated  by reference to Exhibit 10.21 to Amendment No. 1 to the
           Company's Form SB-2 filed with the Securities and Exchange Commission
           on February 25, 1997 (File No. 333-18243).

10.14      Stock  Purchase  Agreement  dated as of December 16, 1996 relating to
           Webb Distribution,  Inc., incorporated by reference to Exhibit 2.0 to
           Amendment No. 1 to the Company's  Form SB-2 filed with the Securities
           and Exchange Commission on February 25, 1997 (File No. 333-18243).

10.15      Form of Underwriting Agreement,  incorporated by reference to Exhibit
           2.0 to  Amendment  No. 1 to the  Company's  Form SB-2  filed with the
           Securities  and  Exchange  Commission  on February 25, 1997 (File No.
           333-18243).

10.16      Stock  Option  Grant  Agreement  between the  Company and  Gulfstream
           Financial  Group,  Inc. made as of November 8, 1996,  incorporated by
           reference to Exhibit  10.20 to the  Company's  Form 10-KSB filed with
           the  Securities  and  Exchange  Commission  for the fiscal year ended
           December 31, 1996 (File No. 0-13324).

10.17      Stock  Option  Grant  Agreement  between  the  Company and Phillip D.
           Schwiebert made as of November 8, 1996,  incorporated by reference to
           Exhibit 10.20 to the Company's  Form 10-KSB filed with the Securities
           and Exchange  Commission  for the fiscal year ended December 31, 1996
           (File No. 0-13324).

10.18      Stock Purchase  Agreement between Questron  Technology,  Inc. and the
           shareholders  of California  Fasteners,  Inc.  dated August 29, 1997,
           incorporated  by reference to Exhibit 2.0 to the Company's  Form 8-K,
           filed October 7, 1997 (File No. 0-13324).

10.19      Serial Put Agreement between Questron Technology, Inc. and Douglas D.
           Zadow and Terry Bastian dated  September  22, 1997,  incorporated  by
           reference to Exhibit 2.1 to the Company's  Form 8-K, filed October 7,
           1997 (File No. 0-13324).

10.20      Stock Purchase  Agreement,  dated as of June 12, 1998, by and between
           the Company,  Fortune  Industries,  Inc. and the  Stockholders of the
           Company  listed on Schedule 1.1 thereto (the "Fortune  Stock Purchase
           Agreement"),  incorporated  by  reference  to  Exhibit  10.1  to  the
           Company's  Quarterly Report on Form 10-QSB for the three-month period
           ended June 30, 1998 filed with the Securities and Exchange Commission
           on August 14, 1998 (File. No. 0-13324).

10.21      Stock Purchase  Agreement,  dated as of June 12, 1998, by and between
           the Company, Gregory Fitzgerald,  Valerie Fitzgerald and Fas-Tronics,
           Inc. (the "Fas-Tronics  Stock Purchase  Agreement"),  incorporated by
           reference to Exhibit 10.2 to the Company's  Quarterly  Report on Form
           10-QSB for the three-month  period ended June 30, 1998 filed with the
           Securities  and  Exchange  Commission  on August 14, 1998 (File.  No.
           0-13324).

                                       71
<PAGE>


10.22      Letter  Agreement,  dated July 29, 1998,  by and between the Company,
           Fortune Industries,  Inc. and the Stockholders listed on Schedule 1.1
           to the Fortune Stock Purchase Agreement, incorporated by reference to
           Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB for the
           three-month  period ended June 30, 1998 filed with the Securities and
           Exchange Commission on August 14, 1998 (File. No. 0-13324).

10.23      Letter  Agreement,  dated July 29, 1998 by and  between the  Company,
           Gregory  Fitzgerald,   Valerie  Fitzgerald  and  Fas-Tronics,   Inc.,
           incorporated by reference to Exhibit 10.4 to the Company's  Quarterly
           Report  on  Form  10-QSB  filed  with  the  Securities  and  Exchange
           Commission on August 14, 1998 (File No. 0-13324).

10.24      Second  Amendment  to  the  Fas-Tronics  Stock  Purchase   Agreement,
           incorporated by reference to the Company's Current Report on Form 8-K
           filed with the Securities and Exchange  Commission on October 8, 1998
           (File No. 0-13324).

10.25      Second   Amendment   to  the  Fortune   Stock   Purchase   Agreement,
           incorporated by reference to the Company's Current Report on Form 8-K
           filed with the Securities and Exchange  Commission on October 8, 1998
           (File No. 0-13324).

10.26      Rights Agreement,  dated as of October 23, 1998,  between the Company
           and  American  Stock  Transfer  & Trust  Company,  as  Rights  Agent,
           incorporated by reference to the Company's  Registration Statement on
           Form 8-A  filed  with  the  Securities  and  Exchange  Commission  on
           November 6, 1998 (File No. 0-13324).

10.27      Loan and Security  Agreement,  dated as of September 24, 1998, by and
           among the Company, Questron Distribution Logistics,  Inc., Integrated
           Material Systems, Inc., Power Components, Inc., California Fasteners,
           Inc., Comp Ware, Inc., Fas-Tronics,  Inc., Fortune Industries,  Inc.,
           each  of  the  signatures  which  is a  signatory  thereto,  Congress
           Financial  Corporation   (Florida),   as  administrative  agent,  and
           Madeleine L.L.C.,  as collateral agent,  incorporated by reference to
           Exhibit  10.17 to the Company's  Quarterly  Report on Form 10-QSB for
           the  three-month  period ended  September  30,  1998,  filed with the
           Securities  and  Exchange  Commission  on November 16, 1998 (File No.
           0-13324)

10.28      Amendment  Number  One to the  Loan  and  Security  Agreement,  dated
           November 2, 1998,  by and among the  Company,  Questron  Distribution
           Logistics, Inc., Integrated Material Systems, Inc., Power Components,
           Inc., California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc.,
           Fortune Industries, Inc., each of the signatures which is a signatory
           thereto,  Congress Financial Corporation (Florida), as administrative
           agent and Madeleine  L.L.C.,  as collateral  agent,  incorporated  by
           reference to Exhibit 10.18 to the Company's  Quarterly Report on Form
           10-QSB for the  three-month  period ended  September 30, 1998,  filed
           with the  Securities  and  Exchange  Commission  on November 16, 1998
           (File No. 0-13324).

10.29      Termination  of Management  Advisory and Consulting  Agreement,  made
           effective as of March 1, 1999,  between  Gulfstream  Financial Group,
           Inc. and Questron Technology, Inc.

10.30      Employment Agrement, dated March 29, 1999, between Questron
           Technology, Inc. and Dominic A. Polimeni.

21.1       Subsidiaries of the Company, as amended.

23.1       Consent of Ernst & Young L.L.P., dated March 29, 1999.

23.2       Consent of Moore Stephens, P.C., dated March 29, 1999.

                                       72