SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
              ACT OF 1934 For the fiscal year ended June 30, 2003

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

            For the transition period from __________ to __________


                         Commission File Number 0-5896
                                ----------------


                             JACO ELECTRONICS, INC.
             (Exact name of registrant as specified in its charter)

                        New York                        11-1978958
            --------------------------------    -------------------------------
            (State or other jurisdiction    (I.R.S. Employer Identification No.)
            of incorporation or organization)

                     145 Oser Avenue, Hauppauge, New York 11788
           ------------------------------------ ---------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (631) 273-5500


        Securities registered pursuant to Section 12(b) of the Act: None


          Securities registered pursuant to Section 12(g) of the Act:


                          Common Stock, $0.10 per share
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                           Yes: X            No:


     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]


      Indicate by check mark whether the registrant is an accelerated filer
                    (as defined in Exchange Act Rule 12b-2).

                     Yes:                       No: X


     The aggregate  market value of voting common equity held by  non-affiliates
of the  registrant,  computed by reference to the closing  price on December 31,
2002 was $12,592,390. The registrant has no non-voting common equity.


     Number of shares outstanding of each class of Common Stock, as of September
22, 2003: 5,927,082 shares (excluding 659,900 treasury shares).








<PAGE>





                      DOCUMENTS INCORPORATED BY REFERENCE:

         Part III: Definitive Proxy Statement to be filed on or before October
         28, 2003, under Regulation 14A, in connection with the registrant's
         2003 Annual Meeting of Shareholders.

Forward-Looking Statements

         This report contains forward-looking statements with respect to the
financial condition, results of operations and business of Jaco Electronics,
Inc. You can find many of these statements by looking for words like "believes,"
"expects," "anticipates," "estimates" or similar expressions in this document or
in documents incorporated by reference.

         These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by the forward-looking statements include,
among others, the following:

     o    Dependence  on a  limited  number  of  suppliers  for  products  which
          generate a significant portion of our sales.

     o    Absence of long-term contracts.

     o    Strikes or delays in air or sea  transportation  and  possible  future
          United States legislation with respect to pricing and/or import quotas
          on products imported from foreign countries.

     o    Terrorist attacks which may create  instability and uncertainty in the
          electronic components industry.

     o    General economic downturns in the electronic components industry which
          may have an adverse economic effect upon  manufacturers,  end-users of
          electronic components and electronic components distributors.

     o    Volatile pricing of electronic components.

     o    Competitive pressures in the industry which may increase significantly
          through industry consolidation and entry of new competitors.

     o    Costs or  difficulties  related to the  integration of  newly-acquired
          businesses which may be greater than expected.

     o    Limited   allocation  of  products  by  suppliers   which  may  reduce
          availability of certain products.

     o    Adverse changes which may occur in the securities markets.



         Because forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by them. You are cautioned not to place undue reliance on these
statements, which speak only as of the date of this report.

         We do not undertake any obligation to release publicly any revisions to
any forward-looking statements to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events.










                                       2
<PAGE>



                                    PART I

Item 1.  Business.

     Jaco Electronics,  Inc. was organized in the State of New York in 1961. Our
principal executive offices are located at 145 Oser Avenue,  Hauppauge, New York
11788, and our telephone number is (631) 273-5500.

Our Company

         We are a leading distributor of electronic components to industrial
OEMs and contract manufacturers throughout North America. We also provide
contract manufacturing services to our industrial OEM customers. We distribute
products such as semiconductors, capacitors, resistors, electromechanical
devices, flat panel displays and monitors and power supplies, which are used in
the manufacture and assembly of electronic products, including:


o telecommunications equipment             o computers and office equipment
o medical devices and instrumentation      o industrial equipment and controls
o military/aerospace systems               o automotive and consumer electronics

         We have two distribution centers and 17 strategically located sales
offices throughout the United States. We distribute more than 45,000 products
from over 100 vendors, including such market leaders as Kemet Electronics
Corporation, Samsung Semiconductor, Inc. and Vishay Intertechnology, Inc., to a
base of over 7,500 customers through a dedicated and highly motivated sales
force. To enhance our ability to distribute electronic components, we provide a
variety of value-added services including automated inventory management
services, integrating and assembling various custom components with flat panel
displays to customer specifications, assembling stock items for our customers
into pre-packaged kits, providing contract manufacturing services and
programming and testing of power supplies and crystal oscillators. Our core
customer base consists primarily of small and medium-sized manufacturers that
produce electronic equipment used in a wide variety of industries.

Our Industry

         The electronic components distribution industry has become an
increasingly important sales channel for component manufacturers. Electronic
components distributors relieve component manufacturers of a portion of the
costs and personnel needed to warehouse and sell their products. Distributors
market manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces. Today,
distributors have become an integral part of their customers' purchasing and
inventory process. Distributors offer their customers the ability to outsource
their purchasing and warehousing responsibilities. Electronic Data Interchange
("EDI") permits distributors to receive timely scheduling of component
requirements from customers enabling them to better provide these value-added
services. Distributors also work with their suppliers to ensure that
manufacturers' components are integrated into the design of new products.


                                       3
<PAGE>



Products

         We currently distribute over 45,000 stock items. Our management
believes that it is necessary for us to carry a wide variety of items in order
to fully service our customers' requirements. Our products fall into two broad
categories: "active" and "passive" components. Active components represented
approximately 68% and 59% of our net distribution sales, and passive components
represented approximately 32% and 41% during the fiscal years ended June 30,
2003 and 2002, respectively.

         We consider active components to be principally semiconductors and
liquid crystal digital displays. Semiconductors consist of such items as
integrated circuits, microprocessors, transistors, diodes, dynamic random access
memory ("RAM"), static RAMs, video RAMs and metal oxide field effect
transistors. Computer subsystems are an integral part of personal computers and
computer workstations and incorporate such items as flat panels and flat panel
monitors, touchscreens and controllers. Passive components consist primarily of
capacitors, electromechanical devices and resistors.

Value-Added Services

         We also provide a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
in the case of flat panel system integration and contract manufacturing, to
generate revenues from new customers. Value-added services include:

o                 Automated Inventory Management Services. We offer
                  comprehensive, state-of-the-art solutions that effectively
                  manage our customers' inventory reordering, stocking and
                  administration functions. These services reduce paperwork,
                  inventory, cycle time and the overall cost of doing business
                  for our customers.

o                 Flat Panel Systems Integration. Our display sales specialists
                  and corporate product engineers configure highly customized
                  solutions to meet specific flat panel display requirements. We
                  provide technical services and integrate, test and deliver
                  complete flat panel display products for both business and
                  consumer applications.

o                 Kitting. Kitting consists of assembling to a customer's
                  specifications two or more of our 45,000 stock items into
                  pre-packaged kits ready for use in the customer's assembly
                  line. Kitting services allow us to provide a partial or
                  complete fill of a customer's order and enable the customer to
                  more efficiently manage its inventory.

o                 Contract Manufacturing. We also provide contract manufacturing
                  services to our OEM customers which include procurement of
                  customer specified components and raw materials from our
                  network of suppliers and other suppliers, assembly of
                  components on printed circuit boards ("PCBs"), and post
                  assembly testing. Our manufacturing process consists of both
                  advanced surface mount technology ("SMT") as well as
                  conventional pin-through-hole ("PTH") interconnection
                  technologies. The SMT process allows for more miniaturization,
                  cost savings and shorter lead paths between components (which
                  results in greater signal speed).

                                       4
<PAGE>




o                 Programming. We offer both Field Programming Instruments, as
                  well as volume production capabilities performed in house. All
                  standard surface mount and dip packages are available. We
                  provide custom oscillators, at a user specified frequency. In
                  addition, we offer configurable modular power supplies
                  featuring the flexibility of 10 wide-range outputs, with the
                  best technical specifications in its class. This configurable
                  power supply series offers quick turnaround and fully-tested
                  units in Medical, Test and Measurement, Industrial and Datacom
                  applications.

Sales and Marketing

         We believe we have developed valuable long-term customer relationships
and an in-depth understanding of our customers' needs and purchasing patterns.
Our sales personnel are trained to identify our customers' requirements and to
actively market our entire product line to satisfy those needs. We serve a broad
range of customers in the computer, computer-related, telecommunications, data
transmission, defense, aerospace, medical equipment and other industries. We
have established specific sales and marketing programs to address the unique
needs of the contract manufacturing sector. None of our customers individually
represented more than 15% of net sales in any of the fiscal years ended June 30,
2003, 2002 and 2001.

         As an authorized distributor for key manufacturers, we are able to
offer our customers engineering support as well as a variety of supply chain
management programs. Engineering, support and supply chain management services
enhance our ability to attract new customer contracts. Many of today's services
revolve around the use of software automation and computer to computer
transactions through EDI and internet based solutions and through technically
competent product managers and a team of display sales specialists and field
application engineers. We provide design support and technical assistance to our
customers with detailed data solutions employing the latest technologies.

         Sales are made throughout North America from the sales departments
maintained at our two distribution facilities located on the East and West
Coasts of the United States in New York and California and from 17 strategically
located sales offices. Sales are made primarily through personal visits by our
employees and by a staff of trained telephone sales personnel who answer
inquiries and receive and process orders from customers. In addition, we utilize
the services of independent sales representatives whose territories include
parts of North America and several foreign countries. These independent sales
representatives operate under agreements which are terminable by either party
upon 30 days notice and prohibit them from representing competing product lines.
Independent sales representatives are authorized to solicit sales of all of our
product lines.

Suppliers

         Manufacturers of electronic components are increasingly relying on the
marketing, customer service and other resources of distributors who market their
product lines to customers not normally served by the manufacturer, and to
supplement the manufacturer's direct sales efforts in other accounts often by
providing value-added services not offered by the manufacturer. Manufacturers
seek distributors who have strong relationships with desirable customers, are
financially strong, have the infrastructure to handle large volumes of products
and can assist customers in the design and use of the manufacturers' products.
Currently, we have

                                       5
<PAGE>



non-exclusive distribution or master inventory agreements
with many manufacturers, including Dallas Semiconductor Corporation, Johanson
Dielectrics, Inc., Kemet Electronics Corporation, Samsung Semiconductor, Inc., 3
M Touch Systems, Inc., Vishay Intertechnology, Inc., Vitesse Semiconductor
Corporation, Datel Incorporated and Epson Electronics America, Inc. We
continuously seek to identify potential new suppliers and obtain additional
distributorships for new lines of products. We believe that such expansion and
diversification will increase our sales and market share. During the year ended
June 30, 2003, products purchased from two suppliers accounted for 24% and 14%,
respectively, of net sales. As is common in the electronics distribution
industry, from time to time we have experienced terminations of relationships
with suppliers. There can be no assurance that, in the event a supplier
cancelled its distributor agreement with us, we will be able to replace the
sales with sales of other products.

         We generally purchase products from manufacturers pursuant to
non-exclusive distributor agreements. As an authorized distributor, we are able
to offer our suppliers marketing support and technical assistance regarding
product knowledge through our FAE program. This program is a technical resource
that allows us the opportunity to work with our customers' engineers to design
our more advanced products. These products typically have higher average selling
prices than commodity components and there is limited competition for the sale
of these products.

         Most of our distributor agreements are cancelable by either party,
typically upon 30 to 90 days notice. These agreements typically provide for
price protection, stock rotation privileges and the right to return inventory.
Price protection is typically in the form of a credit to us for any inventory in
our possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow us to exchange inventory in an amount up to five
percent of a prior period's purchases. Upon termination of a distributor
agreement, the right of return typically requires the manufacturer to repurchase
our inventory at our adjusted purchase price. We believe that the
above-described provisions of our distributorship agreements generally have
served to reduce our exposure to loss from unsold inventory. Because price
protection, stock rotation privileges and the right to return inventory are
limited in scope, there can be no assurances that we will not experience
significant losses from unsold inventory in the future.

Acquisitions

         In June 2003, we acquired certain assets of the electronics
distribution business of Reptron Electronics, Inc. ("Reptron"), located in
Florida. We believe that this acquisition will expand our core customer and
supplier base. In addition, we expect to recognize certain benefits relating to
expected synergies in operations and the improved quality of the management
team. The total purchase price, including transaction costs, was approximately
$9,536,000, of which approximately $5,577,000 was paid in cash and the remaining
portion resulted in our assumption of certain liabilities of Reptron. A portion
of the purchase price is being held in escrow pending the satisfaction of
certain conditions.

         In June 2000, we acquired Interface. We paid $15.4 million in cash and
assumed $3.3 million in bank debt and were obligated to make deferred payments
during the two year period following June 2000, which totaled $5.0 million.
Interface is a distributor of electronic components, primarily in the Northeast
and Southeast United States. As a result of the Interface acquisition, we
acquired distribution rights for certain significant vendor lines in the United
States.


                                       6
<PAGE>



Operations

         Component Distribution. Inventory management is critical to a
distributor's business. We constantly focus on a high number of resales or
"turns" of existing inventory to reduce exposure to product obsolescence and
changing customer demand.

         Our central computer system facilitates the control of purchasing and
inventory, accounts payable, shipping and receiving, and invoicing and
collection information of our distribution business. Our distribution software
system includes financial systems, EDI, customer order entry, purchase order
entry to manufacturers, warehousing and inventory control. Each of our sales
departments and offices is electronically linked to our central computer systems
which provide fully integrated on-line real-time data with respect to our
inventory levels. Our inventory management system was developed internally and
is considered proprietary. We track inventory turns by vendor and by product,
and our inventory management system provides immediate information to assist in
making purchasing decisions and decisions as to which inventory to exchange with
suppliers under stock rotation programs. Our inventory management system also
uses bar-code technology. In some cases, customers use computers that interface
directly with our computers to identify available inventory and rapidly process
orders. Our computer system also tracks inventory turns by customer. We also
monitor supplier stock rotation programs, inventory price protection, rejected
material and other factors related to inventory quality and quantity. This
system enables us to more effectively manage our inventory and to respond
quickly to customer requirements for timely and reliable delivery of components.
Our inventory turnover was approximately five times for the fiscal year ended
June 30, 2003.

         Contract Manufacturing. We conduct our contract manufacturing
operations through our wholly owned subsidiary Nexus Custom Electronics, Inc.,
at two locations. The first location is an approximately 32,000 square foot
facility located in Brandon, Vermont. The second location is an approximately
30,000 square foot facility located in Woburn, Massachusetts. Nexus provides
contract manufacturing services to OEM customers, which includes procurement of
customer specified components and raw materials from our network of suppliers
and other suppliers, assembly of components on PCBs and post-assembly testing.
OEMs then incorporate the PCBs into finished products. In assembling PCBs, Nexus
is capable of employing both PTH and SMT. PTH is a method of assembling PCBs in
which component leads are inserted and soldered into plated holes in the board.
SMT is a method of assembling PCBs in which components are fixed directly to the
surface of the board, rather than being inserted into holes.

         Both Nexus' Brandon, Vermont and Woburn, Massachusetts manufacturing
facilities are ISO 9002 certified by the Geneva-based organization dedicated to
the development of worldwide standards for quality management guidelines and
quality assurance. Management believes sophisticated customers are requiring
their manufacturers to be ISO 9002-certified for purposes of quality assurance.

Competition

         The electronic components distribution industry is highly competitive,
primarily with respect to price and product availability. We believe that the
breadth of our customer base, services and product lines, our level of technical
expertise and the quality of our services generally are also particularly
important. We compete with large national distributors such as Arrow
Electronics, Inc. and Avnet, Inc., as well as regional and specialty
distributors, such as All

                                       7
<PAGE>



American Semiconductor, Inc., many of whom distribute
the same or competitive products. Many of our competitors have significantly
greater name recognition and greater financial and other resources than we do.

         The electronics contract manufacturing industry is highly fragmented
and is characterized by relatively high levels of volatility, competition and
pricing and margin pressure. Many large contract manufacturers operate
high-volume facilities and primarily focus on high-volume product runs. In
contrast, certain contract manufacturers, such as Nexus, focus on low-to-medium
volume and service-intensive products.

Backlog

         The trend over the last couple of years has been toward outsourcing,
and more customers have entered into just-in-time contracts with distributors,
instead of placing orders with long lead times. Orders constituting our backlog
are subject to delivery rescheduling and cancellations by the customer,
sometimes without penalty or notice. Therefore, our backlog is not necessarily
indicative of future sales for any particular period.

Employees

         At June 30, 2003, we had a total of 388 employees, of which 108 were
employed by Nexus. Of our total employees, 14 were engaged in administration, 50
were managerial and supervisory employees, 185 were in sales and 139 performed
warehouse, manufacturing and clerical functions. Of these employees, Nexus
employed three in administration, eight in management and supervisory positions,
two in sales and 95 in warehouse, manufacturing and clerical functions. There
are no collective bargaining contracts covering any of our employees. We believe
our relationship with our employees is satisfactory.

Item 2.  Properties.

         All of our facilities are leased except for the Brandon, Vermont
property which is owned by Nexus. We currently lease 20 facilities strategically
located throughout the United States, two of which are multipurpose facilities
used principally as administrative, sales and purchasing offices, as well as
warehouses, one of which is used for contract manufacturing and the remainder of
which are used principally by us as sales offices. Our satellite sales offices
range in size from approximately 1,500 square feet to approximately 10,000
square feet. Base rents for such properties range from approximately $1,400 per
month to approximately $7,500 per month. Depending on the terms of each
particular lease, in addition to base rent, we may also be responsible for
portions of real estate taxes, utilities and operating costs, or increases in
such costs over certain base levels. The lease terms range from month to month
to as long as five years. All facilities are linked by computer terminals to our
Hauppauge, New York headquarters. The following table sets forth certain
information regarding our four principal leased facilities:


                                       8
<PAGE>

<TABLE>

                                                                                                          Lease
                                             Base Rent                                                 Expiration
               Location                      Per Month         Square Feet             Use                Date
               --------                      ---------         -----------             ---                ----

<S>           <C>                             <C>                 <C>                                   <C>   <C>
Hauppauge, NY (1)                             $59,100             72,000       Administrative,          12/31/03
                                                                               Sales and
                                                                               Warehouse

Franklin, MA                                  $19,000             11,700       Sales                     3/31/05

Woburn, MA                                    $14,300             30,000       Manufacturing             7/31/05

Westlake Village, CA                          $10,600             11,000       Administrative,           4/30/06
                                                                               Sales and
                                                                               Warehouse

</TABLE>


(1)      Leased from a partnership owned by Joel H. Girsky, Chairman and
         President of the Company, and Charles B. Girsky, his brother, at a
         current monthly rent which the Company believes represents the fair
         market value for such space.
--------------------------------------------------------------------------------

         Nexus owns and occupies an approximately 32,000 square foot facility
located in Brandon, Vermont, that is used for manufacturing, storage and office
space.

         We believe that our present facilities will be adequate to meet our
needs for the foreseeable future.

Item 3.  Legal Proceedings.

         We are a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to have a
material adverse effect on our results of operations or financial position.

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

         No response to this Item is required.





                                       9
<PAGE>




                                     PART II

Item 5.  Market For the  Company's  Common  Stock and  Related  Security  Holder
Matters.

     (a)  Our common  stock is traded on the Nasdaq  National  Market  under the
          symbol  "JACO". The stock prices  listed below  represent the high and
          low sale  prices  of the  common  stock,  as  reported  by the  Nasdaq
          National  Market,  for each fiscal  quarter  beginning  with the first
          fiscal quarter of the fiscal year ended June 30, 2002.

<TABLE>

                                                                                 High                    Low
                                                                                 ----                    ---

Fiscal Year 2002:
<S>                                    <C> <C>                                    <C>                    <C>
         First quarter ended September 30, 2001.....................              $ 6.39                 $ 3.25
         Second quarter ended December 31, 2001.....................                5.98                   3.51
         Third quarter ended March 31, 2002.........................                6.74                   4.66
         Fourth quarter ended June 30, 2002.........................                6.56                   4.70

Fiscal Year 2003:
         First quarter ended September 30, 2002....................                $5.39                 $ 2.11
         Second quarter ended December 31, 2002.....................                3.87                   2.01
         Third quarter ended March 31, 2003.........................                3.15                   2.05
         Fourth quarter ended June 30, 2003.........................                5.15                   2.65

Fiscal Year 2004:
         (through September 22, 2003)...............................               $6.49                  $4.50
</TABLE>


          (b)  On  September  22,  2003,  the last  reported  sales price of our
               common stock on the Nasdaq  National  Market was $6.19 per share.
               As of September 22, 2003, there were approximately 144 holders of
               record of our common stock.  We believe our stock is held by more
               than 2,600 beneficial owners.

          (c)  We have never  declared or paid any cash  dividends on our common
               stock.  We intend  for the  foreseeable  future to retain  future
               earnings for use in our business.  The amount of dividends we pay
               in the future,  if any, will be at the discretion of our Board of
               Directors and will depend upon our financial condition, operating
               results  and  other  factors  as the Board of  Directors,  in its
               discretion,  deems  relevant.  In addition,  our credit  facility
               prohibits us from paying cash dividends on our common stock.




                                       10
<PAGE>



Equity Compensation Plan Disclosure

         The following table summarizes equity compensation plans approved by
security holders and equity compensation plans that were not approved by
security holders as of June 30, 2003:

<TABLE>
                                                                                                             (c)
                                                 (a)                                                Number of Securities
                                         Number of Securities                (b)                   Remaining Available for
                                          To be Issued Upon           Weighted-Average          Future Issuance Under Equity
                                       Exercise of Outstanding        Exercise Price of         Compensation Plans (Excluding
                                        Options, Warrants and       Outstanding Options,                 Securities
Plan category                                   Rights               Warrants and Rights          Reflected in Column (a))
-----------------------------------    -------------------------   ------------------------   ----------------------------------
Equity compensation plans (stock
<S>                                           <C>                           <C>                            <C>
options) approved by stockholders             1,094,750                     $3.96                          82,750

Equity compensation plans not
approved by stockholders                         22,500                     $2.75                            -0-
                                       -------------------------   ------------------------   ----------------------------------

Total                                         1,117,250                     $3.94                          82,750
                                       =========================   ========================   ==================================
</TABLE>

         See Note J - Shareholders' Equity, to the Consolidated Financial
Statements of the Company and its Subsidiaries included under Item 15 of this
report, for a description of certain options granted to two outside directors of
the Company in September 1998, which options were not granted pursuant to a plan
approved by stockholders.


Item 6.   Selected Consolidated Financial Data.

The selected consolidated financial data set forth below contains only a portion
of our financial statements and should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Report. The historical results are not necessarily indicative
of results to be expected for any future period. The share and per share data
have been adjusted to give effect to a 3-for-2 stock split which was effective
on July 24, 2000.

<TABLE>


                                                                            Year Ended June 30,
                                                      ----------------------------------------------------------------
                                                          2003         2002         2001         2000         1999
                                                          ----         ----         ----         ----         ----
                                                                   (in thousands, except per share data)
Consolidated Statement of Operations Data:
<S>                                                     <C>          <C>          <C>          <C>          <C>
Net sales.........................................      $217,985     $194,106     $350,222     $209,325     $140,711
Cost of goods sold................................       191,815      166,133      283,382      162,443      113,335
                                                         -------      -------      -------      -------      -------

Gross profit......................................        26,170       27,973       66,840       46,882       27,376
Selling, general and administrative expenses......        29,223       33,562       46,098       34,523       27,642
                                                          ------       ------       ------       ------       ------

  Operating (loss) profit.........................       (3,053)      (5,589)       20,742       12,359        (266)
Interest expense..................................         1,442        2,223        4,120        1,559        1,309
                                                           -----        -----        -----        -----        -----

  (Loss) earnings before income taxes.............       (4,495)      (7,812)       16,622       10,801      (1,575)
Income tax (benefit) provision                           (1,510)      (2,768)        6,772        4,425        (418)
                                                         ------       ------         -----        -----        ----

Net (loss) earnings...............................    $  (2,985)   $  (5,044)      $ 9,850      $ 6,376    $ (1,157)
                                                      =========    =========       =======      =======    ========
Net (loss) earnings per common share
  Basic...........................................      $ (0.52)     $ (0.88)       $ 1.74       $ 1.16     $ (0.21)
                                                        =======      =======        ======       ======     =======
  Diluted.........................................      $ (0.52)     $ (0.88)       $ 1.59       $ 1.11     $ (0.21)
                                                        =======      =======        ======       ======     =======
Weighted average number of common and
common equivalent shares outstanding
Basic.............................................         5,783        5,713        5,670        5,498        5,547
Diluted...........................................         5,783        5,713        6,179        5,766        5,547


                                       11
<PAGE>



                                                                                At June 30,
                                                                                -----------
                                                         2003         2002         2001         2000         1999
                                                         ----         ----         ----         ----         ----
                                                                              (in thousands)
Consolidated Balance Sheet:

Working capital...................................      $ 46,920     $ 52,134   $  78,308    $  58,384      $ 41,998

Total assets......................................       114,212      110,635      136,315      126,329       72,931

Short-term debt...................................           680          897       1,082           807          792

Long-term debt....................................        35,860       34,880      56,128        40,941       18,886

Shareholders' equity..............................        45,568       48,668      53,251        42,790       34,868

</TABLE>



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of  Operations.

Critical Accounting Policies

         Financial Reporting Release No. 60 recommends that all companies
include a discussion of critical accounting policies used in the preparation of
their financial statements. The Securities and Exchange Commission defines
critical accounting policies as those that are, in management's view, most
important to the portrayal of the Company's financial condition and results of
operations and those that require significant judgments and estimates.

         The preparation of these consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities at the date of our financial statements. We
base our estimates on historical experience, actuarial valuations and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Some of
those judgments can be subjective and complex and, consequently, actual results
may differ from these estimates under different assumptions or conditions. While
for any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements. The
accounting principles we utilized in preparing our consolidated financial
statements conform in all material respects to generally accepted accounting
principles in the United States of America.


                                       12
<PAGE>


         The accounting policies identified as critical are as follows:

Valuation of Receivables - The Company performs ongoing credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customer's current credit worthiness. The Company continuously monitors payments
from customers and a provision for estimated uncollectible amounts is maintained
based upon historical experience and any specific customer collection issues,
which have been identified. While such uncollectible amounts have historically
been within the Company's expectations and provisions established, if a
customer's financial condition were to deteriorate, additional reserves may be
required. Concentration of credit risk with respect to accounts receivable is
generally mitigated due to the large number of entities comprising the Company's
customer base, their dispersion across geographic areas and industries, along
with the Company's policy of maintaining credit insurance.

Valuation of Inventories - Inventories are valued at the lower of cost or
market. Cost is determined by using the first-in, first-out and average cost
methods. The Company's inventories are comprised of high technology components
sold to rapidly changing and competitive markets whereby such inventories may be
subject to early technological obsolescence.

The Company evaluates inventories for excess, obsolescence or other factors
rendering inventories as unsellable at normal gross profit margins. Write-downs
are recorded so that inventories reflect the approximate market value and take
into account the Company's contractual provisions with its suppliers governing
price protections and stock rotations. Due to the large number of transactions
and complexity of managing the process around price protections and stock
rotations, estimates are made regarding the valuation of inventory at market
value.

In addition, assumptions about future demand, market conditions and decisions to
discontinue certain product lines can impact the decision to write-down
inventories. If assumptions about future demand change and/or actual market
conditions are different than those projected by management, additional
write-downs of inventories may be required. In any case, actual results may be
different than those estimated.

Goodwill and Other Intangible Assets - The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to
allocate the excess of the purchase price over the fair value of identifiable
net assets of acquired companies allocated to goodwill. Other intangible assets
primarily represent franchise agreements and non-compete covenants.

We evaluate long-lived assets used in operations, including goodwill and
purchased intangible assets. The allocation of the acquisition cost to
intangible assets and goodwill has a significant impact on our future operating
results as the allocation process requires the extensive use of estimates and
assumptions, including estimates of future cash flows expected to be generated
by the acquired assets. An impairment review is performed whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include, but are not limited to, significant under-performance relative
to historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for our overall business,
and significant industry or economic trends.

                                       13
<PAGE>


When impairment  indicators  areidentified  with respect to previously  recorded
intangible  assets,  the values of the assets are  determined  using  discounted
future cash flow techniques.  Significant management judgment is required in the
forecasting of future operating results which are used in the preparation of the
projected  discounted  cash  flows  and  should  different  conditions  prevail,
material write downs of net intangible assets and goodwill could occur.

New Accounting Standards

In June 2002, the FASB issued  Statement of Financial  Accounting  Standards No.
146 ("SFAS No. 146"),  "Accounting  for Costs  Associated  with Exit or Disposal
Activities,"  which addresses  accounting for  restructuring  and similar costs.
SFAS No. 146  supersedes  previous  accounting  guidance,  principally  Emerging
Issues Task Force Issue No. 94-3.  SFAS No. 146 requires  that the liability for
costs  associated  with an exit or  disposal  activity  be  recognized  when the
liability is incurred.  SFAS No. 146 also  establishes that the liability should
initially be measured and recorded at fair value.  Accordingly  SFAS No. 146 may
affect  the  timing of  recognizing  future  restructuring  costs as well as the
amount  recognized.  SFAS no. 146 is effective  for exit or disposal  activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 has had
no material impact on the Company's consolidated financial position,  results of
operations or cash flows.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002 and the interim disclosure provisions are effective for interim periods
beginning after December 15, 2002. The Company currently plans to continue to
apply the intrinsic-value based method to account for stock options and has
complied with the new disclosure requirements beginning with its quarter ended
March 31, 2003.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. SFAS No. 149 is generally effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. Management does not expect the adoption of SFAS 149 to have a material
impact on its consolidated financial position, results of operations or cash
flows.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of Both  Liabilities  and Equity"
("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments
that,  under  previous  guidance,  issuers could account for as equity.  The new
Statement  requires  that those  instruments  be classified  as  liabilities  in
statements  of financial  position.  SFAS No. 150 is effective for all financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003.  Management  does not expect the  adoption  of SFAS 150 to have a material
impact on its  consolidated  financial  position,  results of operations or cash
flows.


                                       14
<PAGE>



In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN No. 46"),
"Consolidation of Variable Interest Entities." In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in activities on behalf of another company. Until now, a company
generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. FIN No. 46 changes
that by requiring a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both. FIN No. 46's consolidation requirements apply
immediately to variable interest entities created or acquired after January 31,
2003. The consolidation requirements apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply to all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
does not have any variable interest entities which would require consolidation
under FIN No. 46. Accordingly, the adoption of FIN No. 46 has had no effect on
the Company's consolidated financial position, results of operations or cash
flows.

Results of Operations


         The following table sets forth certain items in our statement of
operations as a percentage of net sales for the periods shown:
<TABLE>

                                                          2003            2002           2001
                                                          ----            ----           ----
<S>                                                        <C>            <C>             <C>
Net Sales.........................................         100.0%         100.0%          100.0%
Cost of goods sold................................          88.0           85.6             80.9
                                                            ----           ----             ----

Gross profit......................................          12.0           14.4            19.1
Selling, general and administrative expenses......          13.4           17.3             13.2
                                                            ----           ----             ----

Operating (loss) profit...........................          (1.4)          (2.9)            5.9
Interest expense..................................           0.7            1.1             1.2
                                                             ---            ---             ---

(Loss) earnings before income taxes...............          (2.1)          (4.0)            4.7
Income tax (benefit) provision                              (0.7)          (1.4)            1.9
                                                            ----           ----             ---

Net (loss) earnings...............................          (1.4)%         (2.6)%           2.8%
                                                            ====           ====             ===

</TABLE>


Comparison of Fiscal Year Ended June 30, 2003  ("Fiscal  2003") with Fiscal Year
Ended June 30, 2002 ("Fiscal 2002")

         Net sales for Fiscal 2003 were $218.0 million, an increase of 12.3%, as
compared to $194.1 million for Fiscal 2002. We have seen an increase in net
sales to certain customers where inventory management programs have been
implemented. It has been our focus to offer value-added services to enhance
value. Although there are indications of improvement, including certain
customers in different industry segments who have seen their business improve,
it is too early to be certain when this will lead to a general recovery in our
industry. On June 13, 2003, the Company acquired certain assets of the
electronics distribution operations of Reptron. Sales


                                       15
<PAGE>


included  in  Fiscal  2003   associated  with  the  Reptron   acquisition   were
approximately  $3.4 million.  For Fiscal 2003 flat panel  display  ("FPD") sales
represented   approximately  10%  of  our  total  distribution  sales.   Passive
components  represented  approximately 32% of our distribution  sales and active
components,  including FPD's, represented  approximately 68% of our distribution
sales during Fiscal 2003.

         Gross profit was $26.2 million, or 12.0% for Fiscal 2003, as compared
to $28.0 million, or 14.4% for Fiscal 2002. The Fiscal 2003 gross profit
includes inventory write-downs of approximately $2.8 million, of which
approximately $1.9 million was provided for in the fourth quarter of Fiscal
2003. Pricing of components continues to be highly competitive due to the
availability of product. Our sales growth has been through the automated
inventory programs, which have a high concentration of semiconductors that sell
at lower margins. We do anticipate our margins to improve slightly due to sales
associated with the Reptron acquisition, which historically have been at higher
margins than ours.

         Selling, general and administrative ("SG&A") expenses were $29.2
million in Fiscal 2003, a decrease of $4.3 million, or 12.9% compared to $33.6
million in Fiscal 2002. We continue to strive to operate more efficiently. We
continue to eliminate discretionary spending, while being careful not to impact
our ability to service customers. We do anticipate our SG&A expenses to increase
due to the Reptron acquisition.

         Interest expense decreased to $1.4 million in Fiscal 2003, as compared
to $2.2 million in Fiscal 2002, representing a decrease of $0.8 million, or
35.1%. The decrease can be attributed to a reduction of the average long-term
debt balance for Fiscal 2003 as compared to Fiscal 2002. We do expect an
increase in interest expense as a result of additional borrowings due to the
Reptron acquisition.

         Net loss for Fiscal 2003 was $3.0 million, or $0.52 per diluted share,
compared to a net loss during Fiscal 2002 of $5.0 million, or $0.88 per diluted
share. As a result of our decrease in SG&A expenses and interest expense, we
were able to reduce our net loss 40.8% for Fiscal 2003, as compared to Fiscal
2002.

Comparison of Fiscal 2002 with Fiscal Year Ended June 30, 2001 ("Fiscal 2001")

         Net sales for Fiscal 2002 were $194.1 million, a decrease of 44.6%, as
compared to $350.2 million for Fiscal 2001. The electronics industry continued
to be impacted by weak demand for components worldwide. Our customers had not
increased their production to levels that would utilize the excess inventory
maintained by such customers. For Fiscal 2002 FPD sales represented
approximately 14% of our total distribution sales. Passive components
represented approximately 41% of our distribution sales and active components,
including FPD's, represented approximately 59% of our distribution sales during
Fiscal 2002.

         Gross profit was $28.0 million, or 14.4% for Fiscal 2002, as compared
to $66.8 million, or 19.1% for Fiscal 2001. The Fiscal 2002 gross profit
included inventory write-downs of approximately $2.1 million, of which
approximately $1.1 million was provided for in the fourth quarter of Fiscal
2002. The gross profit margin decrease reflected both the continued pressure on
component pricing due to weak demand throughout the industry allowing customers
to negotiate lower prices and a higher percentage of sales of product that
historically sold at lower margins.


                                       16
<PAGE>



         SG&A expenses were $33.6 million in Fiscal 2002, a decrease of $12.5
million, or 27.2% compared to $46.1 million in Fiscal 2001. The decrease is
attributable to a reduction in the number of employees, discretionary spending
and a decrease in variable costs. We have implemented a plan to reduce costs
while business conditions do not improve. Variable costs have been reduced as a
result of the reduction in sales and gross profit since most of our sales
personnel receive a portion of their compensation based upon a percentage of
gross profit.

         Interest expense decreased to $2.2 million in Fiscal 2002, as compared
to $4.1 million in Fiscal 2001, representing a decrease of $1.9 million, or 46%.
The reduction reflected lower borrowing levels as a result of decreases in
accounts receivable and inventory. Additionally, interest rates declined during
the fiscal year.

         Net loss for Fiscal 2002 was $5.0 million, or $0.88 per diluted share,
compared to net earnings during Fiscal 2001 of $9.9 million, or $1.59 per
diluted share. The net loss was primarily attributable to the weak condition of
the electronics industry resulting in a decrease in net sales. The reduction in
net sales was partially offset by a decrease in SG&A expenses and interest
expense.

Liquidity and Capital Resources

     Our agreement  with our banks,  as amended,  provides us with a $45,000,000
revolving line of credit facility.  The credit facility is based  principally on
our eligible  accounts  receivable and  inventories as defined in the agreement.
The  agreement was amended on September 23, 2002 to (i) extend the maturity date
to March 14, 2004,  (ii) reduce the credit facility line from $70 million to $45
million, and (iii) change the requirements of certain financial  covenants.  The
agreement  was amended on May 12, 2003 to extend the  maturity  date to June 30,
2004. The agreement was subsequently amended on September 19, 2003 to extend the
maturity date to October 1, 2004, and waive noncompliance of a certain financial
covenant.  The agreement  also requires us to maintain an $800,000  compensating
balance  arrangement with our banks in an interest  bearing  account,  which was
funded during the quarter ended  December 31, 2002.  The interest rate was based
on the average 30-day LIBOR plus 1% to 2.25%  depending on our  performance  for
the immediately preceding four fiscal quarters measured by a specified financial
ratio. Effective October 1, 2002, the rate converted to the average 30-day LIBOR
plus 2.25% to 2.75%.  Effective  September 19, 2003,  the rate  converted to the
higher of the prime rate plus 0.75% or the  federal  funds rate plus  1.25%.  In
addition,  the rate will  convert to the higher of the prime rate plus 2% or the
federal  funds rate plus 2.50% if certain  terms under the agreement are not met
by December 31, 2003.  Borrowings  under this  facility  are  collateralized  by
substantially all of our assets.  The outstanding  balance on the revolving line
of credit facility was $35,482,921 at June 30, 2003, with an associated interest
rate of 3.924%. The agreement contains provisions for the maintenance of certain
financial  covenants,  and prohibits the payment of cash  dividends.  Failure to
remain in compliance  with these  covenants could trigger an acceleration of our
obligation to repay all outstanding borrowings under our credit facility.

         For Fiscal 2003, our net cash provided by operating activities was
approximately $7.9 million, as compared to $21.9 million for the same period
last fiscal year. The decrease in net cash provided is primarily attributable to
a smaller decrease in our inventory and an increase in our accounts receivable
for the fiscal year ended June 30, 2003 as compared to the same period in our
last fiscal year. This was partially offset by an increase in our accounts
payable for the fiscal year ended June 30, 2003. Net cash used in investing
activities increased to $7.9 million


                                       17
<PAGE>


for the fiscal year ended June 30, 2003, as
compared to $0.3 million for the fiscal year ended June 30, 2002. The increase
is primarily attributable to the acquisition of certain operating assets of
Reptron, representing a net cash outlay of $5.6 million. The increase is also
attributable to deferred payments of $2.1 million for the fiscal year ended June
30, 2003 related to our acquisition in June 2000 of Interface, as compared to
deferred payments of $0.2 million for the fiscal year ended June 30, 2002. Net
cash used in financing activities was $0.1 million for the fiscal year ended
June 30, 2003 as compared to $21.3 million for the same period in our last
fiscal year. The decrease in net cash used is primarily attributable to net
borrowings under our credit facility of approximately $1.7 million for the
fiscal year ended June 30, 2003, as compared to net payments of $20.7 million
for the fiscal year ended June 30, 2002.

         For Fiscal 2003 and Fiscal 2002, our inventory turnover was 4.8x and
3.2x, respectively. The average days outstanding of our accounts receivable at
June 30, 2003 was 47 days, as compared to 58 days at June 30, 2002.

         We believe that cash flow from operations and funds available under our
credit facility will be sufficient to fund our capital needs for the foreseeable
future. However, our cash expenditures may vary significantly from current
levels, based on a number of factors, including, but not limited to future
acquisitions, if any. Historically, we have been able to obtain amendments to
our existing credit facility to satisfy financial covenants. While there can be
no assurances that such financing or future amendment, if needed, will be
available, management believes we will be able to continue to obtain financing
on acceptable terms.

Off-Balance Sheet Arrangements

         We do not have any off-balance sheet debt, nor do we have any
transactions, arrangements or relationships with any special purpose entities.

Contractual Obligations

         This table summarizes our known contractual obligations and commercial
commitments at June 30, 2003.
<TABLE>

                                 Total        <   1 Year      1 to 3 Years    3 to 5 Years      > 5 Years
                             --------------- --------------- --------------- ---------------- --------------

<S>                              <C>                 <C>          <C>
         Long Term Debt          35,551,495          68,574       35,482,921
         Capital Lease            1,048,099         660,929          387,170
         Operating Lease          2,879,202       1,610,812        1,268,390
                             --------------- --------------- --------------- ---------------- --------------

         Total                   39,478,796       2,340,315       37,138,481               0              0
                             =============== =============== =============== ================ ==============
</TABLE>


Inflation

         Inflation has not had a significant impact on our operations during the
last three fiscal years.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

         We are exposed to interest rate changes with respect to borrowings
under our credit facility which bears interest at the higher of the prime rate
plus 0.75% or the federal funds rate


                                       18
<PAGE>


plus 1.25%. At August 31, 2003,  $37.7 million was outstanding  under the credit
facility.  Changes in the prime  interest  rate or the federal funds rate during
Fiscal  2004 will have a positive or negative  effect on our  interest  expense.
Each 1.0%  fluctuation in the prime interest rate or the federal funds rate will
increase or decrease interest expense for us by approximately $0.4 million based
on outstanding borrowings at August 31, 2003.

         The impact of interest rate fluctuations on other floating rate debt is
not material.

Item 8.  Financial Statements and Supplementary Data.

         For an index to the financial statements and supplementary data, see
Item 15.

Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

         No response to this Item is required.

Item 9A.  Controls and Procedures

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Principal Executive Officer
and Principal Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based
upon that evaluation, the Principal Executive Officer and Principal Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or other factors that
could significantly affect those controls since the date of the Company's
evaluation and there were no significant deficiencies or material weaknesses in
such controls and, therefore, there were no corrective actions taken.





                                       19
<PAGE>




                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

         Incorporated herein by reference is the information to appear under the
caption "Election of Directors" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2003.

Item 11.  Executive Compensation.

         Incorporated herein by reference is the information to appear under the
caption "Executive Compensation" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2003.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

         Incorporated herein by reference is the information to appear under the
caption "Principal Shareholders; Share Held by Management" in the Company's
definitive proxy statement for its Annual Meeting of Shareholders which will be
filed with the Securities and Exchange Commission not later than October 28,
2003.

Item 13.  Certain Relationships and Related Transactions.

         Incorporated herein by reference is the information to appear under the
caption "Certain Transactions" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2003.

Item 14.  Principal Accounting Fees and Services.

     Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A),
the  disclosure  requirements  of this Item are not  effective  until the Annual
Report on Form 10-K for the first fiscal year ending after December 15, 2003.




                                       20
<PAGE>


<TABLE>


PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

                                                                                        Page
                                                                                        ----

(a) (1) Financial Statements included in Part II, Item 8, of this Report:

<S>                                                                                       <C>
       Index to Consolidated Financial Statements and Schedule                          F-1

       Report of Independent Certified Public Accountants                               F-2

       Consolidated Balance Sheets                                                F-3 - F-4

       Consolidated Statements of Operations                                            F-5

       Consolidated Statement of Changes in Shareholders' Equity                        F-6

       Consolidated Statements of Cash Flows                                            F-7

       Notes to Consolidated Financial Statements                                 F-8 - F-34


         (2) Financial Statement Schedule included in Part IV of this Report:

                  Report of Independent Certified Public Accountant on Schedule II      F-35

                  Schedule II - Valuation and Qualifying Accounts                       F-36



</TABLE>



                                       21
<PAGE>




Exhibit No.       Exhibit

3.1  Restated Certificate of Incorporation adopted November,  1987, incorporated
     by reference to the Company's  definitive  proxy  statement  distributed in
     connection  with the  Company's  annual  meeting  of  shareholders  held in
     November,  1987,  filed with the SEC on November  3, 1986,  as set forth in
     Appendix A to the aforesaid proxy statement.

3.1.1Certificate  of  Amendment of the  Certificate  of  Incorporation,  adopted
     December, 1995, incorporated by reference to the Company's Annual Report on
     Form 10-K for the year ended June 30,  1996 ("the  Company's  1996  10-K"),
     Exhibit 3.1.1.

3.2  Restated  By-Laws  adopted June 18, 1987,  incorporated by reference to the
     Company's Annual Report on Form 10-K for the year ended June 30, 1987 ("the
     Company's 1987 10-K"), Exhibit 3.2.

4.1  Form  of  Common  Stock  Certificate,  incorporated  by  reference  to  the
     Company's  Registration Statement on Form S-1, Commission File No. 2-91547,
     filed June 9, 1984, Exhibit 4.1.

10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty
     Company),  incorporated by reference to the Company's Annual Report on Form
     10-K for the year ended June 30, 1983, Exhibit 10(1), pages 48-312.

10.2 Amendment No. 1 to Lease  between the Company and Bemar Realty  Company (as
     assignee of Hi-Tech  Realty  Company),  incorporated  by  reference  to the
     Company's  Registration Statement on Form S-1, Commission File No. 2-91547,
     filed June 9, 1984,  Exhibit  10.2.  10.2.2  Lease  between the Company and
     Bemar Realty Company,  dated January 1, 1996,  incorporated by reference to
     the Company's 1996 10-K, Exhibit 10.2.2.

10.6 1993  Non-Qualified  Stock  Option  Plan,incorporated  by  reference to the
     Company's 1993 10-K, Exhibit 10.6.

10.6.1 1993  Non-Qualified  Stock Option Plan, as amended (filed as Exhibit A to
     the Company's  Definitive Proxy  Statement,  dated November 3, 1997 for the
     Annual Meeting of Shareholders held on December 9, 1997.

10.6.2 1993  Non-Qualified  Stock Option Plan, as amended (filed as Exhibit A to
     the Company's  Definitive Proxy  Statement,  dated November 2, 1998 for the
     Annual Meeting of Shareholders held on December 7, 1998.

10.7 Stock  Purchase  Agreement,  dated as of  February 8, 1994 by and among the
     Company and Reilrop,  B.V. and Guaranteed by Cray Electronics Holdings PLC,
     incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     dated March 11, 1994.


                                       22
<PAGE>



10.8 1993 Stock Option Plan for Outside Directors,  incorporated by reference to
     the Company's  Annual Report on Form 10-K for the year ended June 30, 1994,
     Exhibit 10.8.

10.10Authorized Electronic Industrial Distributor Agreement,  dated as of August
     24, 1970 by and between AVX and the Company,  incorporated  by reference to
     the Company's  Annual Report on Form 10-K for the year ended June 30, 1995,
     Exhibit 10.10.

10.11Electronics Corporation Distributor Agreement,  dated November 15, 1974, by
     and  between  KEMET  and the  Company,  incorporated  by  reference  to the
     Company's  Annual  Report on Form 10-K for the year  ended  June 30,  1995,
     Exhibit 10.11.

10.12Restricted  Stock  Plan  (filed as  Exhibit B to the  Company's  Definitive
     Proxy  Statement,  dated  November  3,  1997  for  the  Annual  Meeting  of
     Shareholders held on December 9, 1997).

10.12.1 Form of Escrow Agreement under the Restricted  Stock Plan,  incorporated
     by  reference to the  Company's  Registration  Statement  on Form  S-8/S-3,
     Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.2.

10.12.2 Form of Stock  Purchase  Agreement  under  the  Restricted  Stock  Plan,
     incorporated by reference to the Company's  Registration  Statement on Form
     S-8/S-3, Commission File No. 333 - 49877, filed April 10, 1998 Exhibit 4.3.

10.12.3 Form  of  Stock  Option  Agreement,  incorporated  by  reference  to the
     Company's Registration  Statement on Form S-8/S-3,  Commission File No. 333
     -49877, filed April 10, 1998 Exhibit 4.4.

10.12.4 Restricted  Stock Plan (filed as Exhibit B to the  Company's  Definitive
     Proxy  Statement,  dated  November  2,  1998  for  the  Annual  Meeting  of
     Shareholders held on December 7, 1998).

10.13Employment  agreement between Joel Girsky and the Company,  incorporated by
     reference to the  Company's  Quarterly  Report on Form 10-Q for the quarter
     ended September 30, 1998, Exhibit 10.13.

10.13.1  Amendment  No. 1 to  Employment  Agreement  between Joel Girsky and the
     Company,  incorporated by reference to the Company's  Annual Report on Form
     10-K for the year ended June 30, 2001, Exhibit 10.13.1.

10.14Employment  agreement between Charles Girsky and the Company,  incorporated
     by reference to the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 30, 1998, Exhibit 10.14.

10.15Employment agreement between Jeffrey D. Gash and the Company,  incorporated
     by reference to the Company's Quarterly Report on Form 10-Q for the quarter
     ended September 30, 1998, Exhibit 10.15.


                                       23
<PAGE>



10.15.1 Amendment No. 1 to the Employment  Agreement between Jeffrey D. Gash and
     the Company,  incorporated  by reference to the Company's  Annual Report on
     Form 10-K for the year ended June 30, 2001, Exhibit 10.15.1.

10.16Employment  Agreement,  dated June 6, 2000,  between the Company and Joseph
     Oliveri,  incorporated by reference to the Company's Current Report on Form
     8-K, filed June 12, 2000, Exhibit 10.16.

10.16.1 Amendment No. 1 to the Employment  Agreement  between Joseph Oliveri and
     the Company,  incorporated  by reference to the Company's  Annual Report on
     Form 10-K for the year ended June 30, 2001, Exhibit 10.16.1.

10.17Stock  Purchase  Agreement by and among Jaco  Electronics,  Inc. and all of
     the  Stockholders of Interface  Electronics  Corporation as of May 4, 2000,
     incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed May 15, 2000, Exhibit 2.1.

10.17.1  Amendment  No. 1 to the Stock  Purchase  Agreement  by and  among  Jaco
     Electronics,  Inc. and all of the  Stockholders  of  Interface  Electronics
     Corp. as of May 4, 2000,  dated June 6, 2000,  incorporated by reference to
     the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 2.2.

10.18Agreement between the Company and Gary Giordano,  incorporated by reference
     to the  Company's  Annual  Report on Form 10-K for the year  ended June 30,
     2001, Exhibit 10.18.

10.19Employment  Agreement between Joel H. Girsky and the Company,  incorporated
     by reference to the Company's Annual Report on Form 10-K for the year ended
     June 30, 2001, Exhibit 10.19.

10.20Employment  Agreement between Charles Girsky and the Company,  incorporated
     by reference to the Company's Annual Report on Form 10-K for the year ended
     June 30, 2001, Exhibit 10.20.

10.21Asset  Purchase  Agreement  dated  as of May 19,  2003 by and  between  the
     Company and Reptron  Electronics,  Inc.,  incorporated  by reference to the
     Company's Current Report on Form 8-K, filed June 26, 2003, Exhibit 2.1.

10.21.1 First Amendment to the Asset Purchase Agreement dated as of June 2, 2003
     by and between the Company and Reptron Electronics,  Inc.,  incorporated by
     reference to the Company's Current Report on Form 8-K, filed June 26, 2003,
     Exhibit 2.2.

21.1 Subsidiaries of the Company.

23.1 Consent of Grant Thornton LLP.

31.1 Certification  of President and  Principal  Executive  Officer  pursuant to
     Section 302 of the Sarbanes-Oxley Act of 2002.


                                       24
<PAGE>



31.2 Certification  of Chief  Financial  Officer  pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002.

32.1 Certifications  of  President  and  Principal  Executive  Officer and Chief
     Financial  Officer  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of
     2002.

32.2 Certification  of Chief  Financial  Officer  pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.

99.1 General Loan and Security  Agreement  dated  January 20, 1989,  between the
     Company  as  borrower  and The  Bank  of New  York  Commercial  Corporation
     ("BNYCC") as secured  party,  incorporated  by  reference to the  Company's
     Current Report on Form 8-K, filed January 31, 1989, Exhibit 28(1).

99.2 Loan and Security  Agreement - Accounts  Receivable  and  Inventory,  dated
     January 20, 1989, between the Company and BNYCC,  incorporated by reference
     to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit
     28(2).

99.3 Letter of Credit and Security  Agreement,  dated January 20, 1989,  between
     the Company and BNYCC,  incorporated by reference to the Company's  Current
     Report on Form 8-K filed January 31, 1989, Exhibit 28(3).

99.4 Amendment to Term Loan Notes (the "Term Notes")  executed by the Company in
     favor of BNYCC dated  January 13,  1992,  together  with  Letters from R.C.
     Components,  Inc., Quality  Components,  Inc.,  Micatron,  Inc. and Distel,
     Inc.,  each a subsidiary of the Company and a guarantor of the  obligations
     evidenced by the Term Notes,  to BNYCC  acknowledging  the amendment to the
     Term  Notes for the  extension  of the  maturity  date of each  such  note,
     incorporated by reference to the Company's 1992 10-K, Exhibit 28.4.

99.5 Amendment  Nos.  1 through 4 to Loan and  Security  Agreement  between  the
     Company and BNYCC, incorporated by reference to the Company's Annual Report
     on Form 10-K for the year ended June 30, 1994. Exhibit 99.5.

99.6 $1,500,000  Additional Term Loan Note,  executed by the Company in favor of
     BNYCC,  dated March 11, 1994,  incorporated  by reference to the  Company's
     Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit 99.5.

99.7 Restated  and Amended Loan and  Security  Agreement,  dated April 25, 1995,
     among the Company, Nexus and BNYCC, together with an Amendment to Term Loan
     Note executed by the Company in favor of BNYCC and Letter  executed by R.C.
     Components,  Inc., Quality Components,  Inc., Micatron,  Inc., Distel, Inc.
     and Jaco Overseas,  Inc., incorporated by reference to the Company's Annual
     Report on Form 10-K for the year ended June 30, 1995, Exhibit 99.7.

99.8 Second Restated and Amended Loan and Security Agreement dated September 13,
     1995 among the Company,  Nexus Custom Electronics,  Inc., BNYCC and NatWest
     Bank,  N.A.  ("Second  Restated and Amended Loan and Security  Agreement"),
     incorporated by reference to the Company's  Registration  Statement on Form
     S-2, Commission File No. 33-62559, filed October 13, 1995, Exhibit 99.8.


                                       25
<PAGE>



99.8.1 Amendment to the Second Restated and Amended Loan and Security Agreement,
     dated as of April 10, 1996, incorporated by reference to the Company's 1996
     10-K, Exhibit 99.8.1.

99.8.2 Amendment to the Second Restated and Amended Loan and Security Agreement,
     dated as of August 1, 1997,  incorporated  by  reference  to the  Company's
     Annual  Report  on Form  10-K for the year  ended  June 30,  1998,  Exhibit
     99.8.2.

99.8.3 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated July 1, 1998,  incorporated  by reference to the Company's  Quarterly
     Report on Form 10-Q for the  quarter  ended  September  30,  1998,  Exhibit
     99.8.3.

99.8.4 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated  September  21,  1998  incorporated  by  reference  to the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  September  30, 1998,
     Exhibit 99.8.4.

99.8.5 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated  October  26,  1999,  incorporated  by  reference  to  the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  September  30, 1999,
     Exhibit 99.8.5.

99.8.6 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated  December  31,  1999,  incorporated  by  reference  to the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  December  31,  1999,
     Exhibit 99.8.6.

99.8.7 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated June 6, 2000,  incorporated  by  reference  to the  Company's  Annual
     Report  on Form 10-K for the  fiscal  year  ended  June 30,  2000,  Exhibit
     99.8.7.

99.8.8 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated  September  28, 2000,  incorporated  by  reference  to the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  September  30, 2000,
     Exhibit 99.8.8.

99.8.9 Amendment to Second  Restated  and Amended  Loan and  Security  Agreement
     dated  January  29,  2001,  incorporated  by  reference  to  the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  December  31,  2000,
     Exhibit 99.8.9.

99.8.10  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated June 12, 2001,  incorporated  by reference  to the  Company's  Annual
     Report on Form 10-K for the year ended June 30, 2001, Exhibit 99.8.10.

99.8.11  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated July 1, 2001,  incorporated  by  reference  to the  Company's  Annual
     Report on Form 10-K for the year ended June 30, 2001, Exhibit 99.8.11.

99.8.12  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated  November  14,  2001,  incorporated  by  reference  to the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  September  30, 2001,
     Exhibit 99.8.12.


                                       26
<PAGE>


99.8.13  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated  February  6,  2002,  incorporated  by  reference  to  the  Company's
     Quarterly  Report on Form 10-Q for the quarter  ended  December  31,  2001,
     Exhibit 99.8.13.

99.8.14  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated September 23, 2002.

99.8.15  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated May 12, 2003,  incorporated  by reference to the Company's  Quarterly
     Report on Form 10-Q for the quarter ended March 31, 2003, Exhibit 99.8.15.

99.8.16  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated June 5, 2003,  incorporated  by  reference to the  Company's  Current
     Report on Form 8-K, filed June 26, 2003, Exhibit 99.8.16.

99.8.17  Amendment to Second  Restated  and Amended Loan and Security  Agreement
     dated September 19, 2003.

(b) Reports on Form 8-K

          (1)  On April  17,  2003,  a  Current  Report on Form 8-K was filed to
               announce  the  Company's  results  for its third  quarter  of the
               fiscal year ending June 30, 2003.

          (2)  On May 19,  2003,  a  Current  Report  on Form  8-K was  filed to
               announce the Company's  proposed  acquisition of the  electronics
               distribution operations of Reptron Electronics, Inc.

          (3)  On June 26,  2003,  a  Current  Report  on Form 8-K was  filed to
               announce  the  closing  of  the  Company's   acquisition  of  the
               electronics distribution operations of Reptron Electronics, Inc.

          (4)  On  August  27,  2003,  a  Current  Report  on Form 8-K was filed
               amending the Company's  Current Report on Form 8-K filed June 26,
               2003.






                                       27
<PAGE>


                                INDEX TO CONSOLIDATED
                        FINANCIAL STATEMENTS AND SCHEDULE




                                                                          Page



Report of Independent Certified Public Accountants                        F-2


Financial Statements

      Consolidated Balance Sheets                                     F-3 - F-4

      Consolidated Statements of Operations                               F-5

      Consolidated Statement of Changes in Shareholders' Equity           F-6

      Consolidated Statements of Cash Flows                               F-7

      Notes to Consolidated Financial Statements                      F-8 - F-34

      Report of Independent Certified Public Accountants
         on Schedule                                                      F-35

      Schedule II - Valuation and Qualifying Accounts                     F-36





<PAGE>








               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors and Shareholders
    Jaco Electronics, Inc.


We have audited the accompanying consolidated balance sheets of Jaco
Electronics, Inc. and Subsidiaries (the "Company") as of June 30, 2003 and 2002
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
2003. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jaco Electronics,
Inc. and Subsidiaries as of June 30, 2003 and 2002, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended June 30, 2003 in conformity with accounting principles
generally accepted in the United States of America.



/s/Grant Thornton LLP
---------------------
GRANT THORNTON LLP

Melville, New York
September 19, 2003





                                      F-2
<PAGE>


<TABLE>


                     Jaco Electronics, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    June 30,



                                     ASSETS                                                2003                  2002
                                                                                      --------------        ---------

CURRENT ASSETS
<S>                                                                                   <C>                   <C>
    Cash and cash equivalents                                                         $      157,467        $      324,447
    Restricted cash                                                                          800,000
    Marketable securities                                                                    652,608               650,267
    Accounts receivable, less allowance for doubtful accounts
       of $1,361,000 in 2003 and $1,609,000 in 2002                                       31,997,984            29,095,269
    Inventories                                                                           40,493,508            42,611,225
    Prepaid expenses and other                                                             1,036,856             1,183,043
    Prepaid and refundable income taxes                                                    1,059,897             2,440,055
    Deferred income taxes                                                                  2,555,000             2,017,000
                                                                                       -------------         -------------

         Total current assets                                                             78,753,320            78,321,306



PROPERTY, PLANT AND EQUIPMENT - AT COST, NET                                               5,559,122             6,708,828



DEFERRED INCOME TAXES                                                                        431,000               434,000



GOODWILL                                                                                  25,599,082            22,363,296



OTHER ASSETS                                                                               3,869,254             2,807,451
                                                                                       -------------         -------------

                                                                                        $114,211,778          $110,634,881
                                                                                         ===========           ===========




The accompanying notes are an integral part of these statements.
</TABLE>



                                      F-3
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS (continued)

                                    June 30,



                                 LIABILITIES AND
                              SHAREHOLDERS' EQUITY                                         2003                  2002
                                                                                      --------------        ---------

 CURRENT LIABILITIES
<S>                                                                                    <C>                   <C>
    Accounts payable                                                                   $  28,282,577         $  20,818,256
    Current maturities of long-term debt and
       capitalized lease obligations                                                         679,552               897,419
    Accrued compensation                                                                   1,309,868               998,927
    Accrued expenses                                                                       1,561,799             1,372,808
    Deferred acquisition costs                                                                                   2,099,563
                                                                                   -------------------       -------------

         Total current liabilities                                                        31,833,796            26,186,973


 LONG-TERM DEBT AND CAPITALIZED LEASE
    OBLIGATIONS                                                                           35,860,325            34,879,766


 DEFERRED COMPENSATION                                                                       950,000               900,000


 COMMITMENTS AND CONTINGENCIES


 SHAREHOLDERS' EQUITY
    Preferred stock - authorized, 100,000 shares, $10
       par value; none issued
    Common stock - authorized, 20,000,000 shares, $.10 par value; 6,425,732
       shares issued and 5,765,832 and 5,807,432 shares
       outstanding, respectively                                                             642,573               642,573
    Additional paid-in capital                                                            25,152,010            25,152,010
    Retained earnings                                                                     22,117,967            25,102,628
    Accumulated other comprehensive loss                                                     (30,327)              (24,554)
    Treasury stock - 659,900 and 618,300 shares,
      respectively, at cost                                                               (2,314,566)           (2,204,515)
                                                                                       -------------         -------------

                                                                                          45,567,657            48,668,142
                                                                                        ------------          ------------

                                                                                        $114,211,778          $110,634,881
                                                                                         ===========           ===========




The accompanying notes are an integral part of these statements.
</TABLE>



                                      F-4
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended June 30,





                                                                         2003                2002               2001
                                                                     -------------      -------------       --------

<S>                                                                   <C>                <C>                 <C>
Net sales                                                             $217,984,915       $194,106,208        $350,222,202
Cost of goods sold                                                     191,814,930        166,132,892         283,382,288
                                                                      ------------       ------------         -----------

       Gross profit                                                     26,169,985         27,973,316          66,839,914

 Selling, general and administrative expenses                           29,222,500         33,562,394          46,098,155
                                                                      ------------       ------------        ------------

       Operating (loss) profit                                          (3,052,515)        (5,589,078)         20,741,759

Interest expense                                                         1,442,146          2,222,893           4,119,362
                                                                     -------------      -------------       -------------

       (Loss) earnings before income taxes                              (4,494,661)        (7,811,971)         16,622,397

Income tax (benefit) provision                                          (1,510,000)        (2,768,000)          6,772,000
                                                                     -------------      -------------       -------------

       NET (LOSS) EARNINGS                                          $   (2,984,661)    $   (5,043,971)      $   9,850,397
                                                                     =============      =============        ============


Net (loss) earnings per common share:
    Basic                                                                  $(0.52)            $(0.88)              $1.74
                                                                            =====              =====                ====
    Diluted                                                                $(0.52)            $(0.88)              $1.59
                                                                            =====              =====                ====

Weighted-average common shares and common equivalent shares outstanding:
      Basic                                                              5,783,275          5,713,365           5,669,560
                                                                         =========          =========           =========
      Diluted                                                            5,783,275          5,713,365           6,178,653
                                                                         =========          =========           =========



The accompanying notes are an integral part of these statements.
</TABLE>


                                      F-5
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

                        CONSOLIDATED STATEMENT OF CHANGES
                             IN SHAREHOLDERS' EQUITY

                    Years ended June 30, 2003, 2002 and 2001



                                                                               Additional
                                                       Common stock              paid-in        Retained
                                                Shares         Amount           capital          Earnings
                                                --------       --------         -------------- ----------------
<S>             <C>                            <C>             <C>           <C>             <C>
Balance at July 1, 2000                        6,252,259       $625,226      $24,041,301     $20,296,761

Net earnings                                                                                   9,850,397
Unrealized loss on marketable
   securities - net of deferred taxes
Exercise of stock options                         63,500          6,350          430,275
Stock options income tax benefits                                                111,890
Restricted stock plan income tax benefits                                         32,400
Payment of fractional shares                                                                        (559)
Deferred compensation expense
                                              -------------- ------------   ---------------- --------------- ---


Balance at June 30, 2001                       6,315,759        631,576       24,615,866      30,146,599


Net loss                                                                                      (5,043,971)
Unrealized loss on marketable
   securities - net of deferred taxes
Exercise of stock options                        109,973         10,997          480,564
Stock options income tax benefits                                                 55,580
                                              -------------- ------------    -----------     ---------------


Balance at June 30, 2002                       6,425,732        642,573       25,152,010      25,102,628


Net loss                                                                                      (2,984,661)
Unrealized loss on marketable
   securities - net of deferred taxes
Purchase of treasury stock
                                              -------------- ------------   ---------------- ---------------


Balance at June 30, 2003                       6,425,732       $642,573      $25,152,010     $22,117,967
                                               =========        =======       ==========      ==========




                                                  Accumulated
                                                     other                        Deferred         Total
                                                 comprehensive      Treasury       compen-     shareholders'
                                                income (loss)       stock         sation         equity
                                                ----------------- ---------      ---------     ---------

Balance at July 1, 2000                          $ 166,669      $(2,204,515)    $(135,000)     $42,790,442

Net earnings                                                                                     9,850,397
Unrealized loss on marketable
   securities - net of deferred taxes             (105,562)                                       (105,562)
Exercise of stock options                                                                          436,625
Stock options income tax benefits                                                                  111,890
Restricted stock plan income tax benefits                                                           32,400
Payment of fractional shares                                                                          (559)
Deferred compensation expense                                                     135,000          135,000
                                                -----------     ---------------  --------     ------------


Balance at June 30, 2001                            61,107       (2,204,515)         -          53,250,633


Net loss                                                                                        (5,043,971)
Unrealized loss on marketable
   securities - net of deferred taxes              (85,661)                                        (85,661)
Exercise of stock options                                                                          491,561
Stock options income tax benefits                                                                   55,580
                                                ------------    ---------------------------  -------------


Balance at June 30, 2002                           (24,554)      (2,204,515)         -          48,668,142


Net loss                                                                                        (2,984,661)
Unrealized loss on marketable
   securities - net of deferred taxes               (5,773)                                         (5,773)
Purchase of treasury stock                                         (110,051)                      (110,051)
                                                -----------      -----------   ------------     -----------

Balance at June 30, 2003
                                                  (30,327)      $(2,314,566)   $               $45,567,657
                                                =========        ==========     ======          ==========


                                                The accompanying notes are an integral part of this statement.




</TABLE>


                                      F-6
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended June 30,

                                                                          2003                  2002                 2001
                                                                       ------------         ------------         --------

Cash flows from operating activities
<S>                                                                 <C>                  <C>                 <C>
   Net (loss) earnings                                              $    (2,984,661)     $    (5,043,971)    $     9,850,397
   Adjustments to reconcile net (loss) earnings to net cash
     provided by (used in) operating activities
       Depreciation and amortization                                      2,135,461            2,331,684           3,223,205
       Deferred compensation                                                 50,000               50,000             185,000
       Deferred income tax expense (benefit)                               (532,783)             225,402            (803,402)
       Stock options income tax benefits                                                          55,580             111,890
       Restricted stock plan income tax benefits                                                                      32,400
       Gain on sale of equipment                                             (5,000)              (3,100)
       Provision for doubtful accounts                                      822,500              418,300           1,397,601
       Changes in operating assets and liabilities, net of
         effects of acquisitions
           (Increase) decrease in accounts receivable                    (3,725,215)           8,307,377           2,736,517
           Decrease (increase) in inventories                             6,617,717           19,451,304          (8,951,107)
           Decrease (increase) in prepaid expenses and other                146,187             (329,215)             (9,558)
           Decrease (increase) in prepaid and refundable income  taxes    1,380,158           (1,953,730)           (486,325)
           Increase (decrease) in accounts payable                        4,604,915             (217,385)        (14,310,658)
           Increase (decrease) in accrued compensation                      310,941           (1,336,687)            143,921
           Decrease in accrued expenses                                    (910,387)             (34,995)           (244,216)
           Decrease in income taxes payable                                                                       (1,575,319)
                                                                   -------------------  -------------------   --------------


       Net cash provided by (used in) operating activities                7,909,833           21,920,564          (8,699,654)
                                                                       ------------        -------------      --------------

Cash flows from investing activities
   Purchase of marketable securities                                        (10,331)             (14,924)            (56,692)
   Capital expenditures                                                    (248,755)            (205,256)         (1,997,194)
   Proceeds from the sale of equipment                                        5,000               61,473
   Business acquisition                                                  (5,577,002)
   Business acquisitions - deferred payments                             (2,099,563)            (243,297)         (3,810,000)
   Decrease (increase) in other assets                                        1,197                54,451           (327,264)
                                                                   ----------------     -----------------     --------------

       Net cash used in investing activities                             (7,929,454)            (347,553)         (6,191,150)
                                                                    ----------------     ----------------     --------------

Cash flows from financing activities
   Borrowings from line of credit                                       207,569,803          161,505,349         324,090,871
   Payments of line of credit                                          (205,894,585)        (182,254,268)       (309,269,516)
   Funding of compensating balance                                         (800,000)
   Principal payments under equipment financing                            (795,898)            (941,242)           (733,983)
   Payments under term loan                                                (116,628)            (139,487)           (160,714)
   Purchase of treasury stock                                              (110,051)
   Proceeds from exercise of stock options                                                       491,561             436,625
   Payment of fractional shares                                                                                         (559)
                                                                   -------------------  -------------------     -------------


       Net cash (used in) provided by financing activities                 (147,359)         (21,338,087)         14,362,724
                                                                        ------------      ---------------      -------------

       NET (DECREASE) INCREASE IN CASH                                     (166,980)             234,924            (528,080)

Cash and cash equivalents at beginning of year                              324,447                89,523            617,603
                                                                    ---------------     -----------------    ---------------

Cash and cash equivalents at end of year                           $         157,467    $         324,447   $          89,523
                                                                    ================     ================    ================

Supplemental disclosures of cash flow information: Cash paid during the year
   for:
     Interest                                                      $      1,341,000     $      2,223,000     $     4,120,000
     Income taxes                                                            35,000              275,000           9,493,000
Supplemental schedule of non-cash financing and investing activities:
       Liabilities assumed in connection with a business            $     3,608,784
   acquisition
       Deferred acquisition costs                                                        $      2,099,563    $       225,000
     Equipment acquired capital leases and note payable                                          396,685           1,535,169


The accompanying notes are an integral part of these statements.

</TABLE>


                                      F-7
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 2003, 2002 and 2001



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
     engaged, principally in the United States, in the distribution of
     electronic components, including semiconductors, capacitors, resistors,
     electromechanical devices, flat panel displays and monitors, and power
     supplies, which are used in the manufacture and assembly of electronic
     products. In addition, the Company provides contract manufacturing
     services.

     Electronic components distribution sales include exports made principally
     to customers located in Western Europe, Canada, Mexico, and the Far East.
     For the years ended June 30, 2003, 2002 and 2001, export sales amounted to
     approximately $57,787,000, $32,211,000 and $52,358,000, respectively.

     A summary of the significant accounting policies applied in the preparation
     of the accompanying consolidated financial statements follows:

     1.  Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of Jaco Electronics, Inc. and its subsidiaries, all of which are
         wholly-owned. All significant intercompany balances and transactions
         have been eliminated.

     2.  Revenue Recognition

         The Company recognizes revenue as products are shipped and title passes
         to customers.

     3.  Cash and Cash Equivalents

         For purposes of the statements of cash flows, the Company considers
         cash instruments with original maturities of less than three months to
         be cash equivalents.

     4.  Investments in Marketable Securities

         Investments in marketable securities consist of investments in mutual
         funds. Such investments have been classified as "available-for-sale
         securities" and are reported at fair market value, which is inclusive
         of unrealized losses of $48,915 and $40,924 in 2003 and 2002,
         respectively. Changes in the fair value of available-for-sale
         securities are included in accumulated other comprehensive loss, net of
         the related deferred tax effects.




                                      F-8
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

5.       Accounts Receivable

         The Company's accounts receivable are due from a broad range of
         customers in the computer, computer-related, telecommunications, data
         transmission, defense aerospace, medical equipment and other
         industries. The Company extends credit based upon ongoing evaluations
         of a customer's financial condition and payment history and generally,
         collateral is not required. Accounts receivable are generally due
         within 30 days and are stated at amounts due from customers net of an
         allowance for doubtful accounts. Accounts outstanding longer than the
         contractual payment terms are considered past due. The Company
         determines its allowance by considering a number of factors, including
         the length of time trade accounts receivable are past due, the
         Company's previous loss history, the customer's current ability to pay
         its obligation to the Company, and the condition of the general economy
         and the industry as a whole. The Company writes-off accounts receivable
         when they become uncollectible, and payments subsequently received on
         such receivables are credited to the allowance for doubtful accounts.
         While such uncollectible amounts have historically been within the
         Company's expectations and provisions established, if a customer's
         financial condition were to deteriorate, additional reserves may be
         required.

     6.  Inventories

         Inventories are stated at the lower of cost or estimated market value.
         Cost is determined using the first-in, first-out and average cost
         methods. A provision to reduce inventories to their estimated market
         value has been provided for.

     7.  Property, Plant and Equipment

         Property, plant and equipment are stated at cost. Depreciation is
         provided for using the straight-line method over the estimated useful
         life of the assets. The Company capitalizes costs incurred for
         internally developed software where economic and technological
         feasibility has been established. These capitalized software costs are
         being amortized on a straight-line basis over the estimated useful life
         of seven years. Significant improvements are capitalized if they extend
         the useful life of the asset. Routine repairs and maintenance are
         expensed when incurred.





                                      F-9
<PAGE>






                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



     NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


     8.  Goodwill And Other Intangible Assets

         Goodwill and other intangible assets represent the excess of the
         aggregate price paid by the Company over the fair market value of the
         tangible assets acquired in business acquisitions accounted for as a
         purchase.

         During the year ended June 30, 2002, the Company adopted the provisions
         of Statement of Financial Accounting Standards ("SFAS") No. 141,
         "Business Combinations," and SFAS No. 142, "Goodwill and Other
         Intangible Assets." The new standards require that all business
         combinations initiated after June 30, 2001 be accounted for under the
         purchase method. In addition, all intangible assets acquired that are
         obtained through contractual or legal right, or are capable of being
         separately sold, transferred, licensed, rented or exchanged shall be
         recognized as an asset apart from goodwill. Goodwill and intangibles
         with indefinite lives will no longer be subject to amortization, but
         will be subject to at least an annual assessment for impairment by
         applying a fair value-based test. Intangible assets with finite lives
         will continue to be amortized over their estimated useful lives. Those
         intangible assets are reviewed for impairment under SFAS No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets."

         Included in other assets on the accompanying balance sheets are the
         costs of identifiable intangible assets, net of accumulated
         amortization, aggregating $1,973,000 and $910,000 at June 30, 2003 and
         2002, respectively. Such assets consist of franchise agreements and a
         non-compete agreement and are being amortized on a straight-line basis
         over ten and five years, respectively.

         Expected amortization expense related to intangible assets for the next
         five years is as follows:


                        Year ending June 30,

                      2004              $ 308,000
                      2005                297,000
                      2006                171,000
                      2007                171,000
                      2008                171,000





                                      F-10
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     9.  Impairment of Long-Lived Assets

         The Company evaluates long-lived assets, including identifiable
         intangible assets, for impairment whenever events or changes in
         circumstances indicate that the carrying value of an asset may not be
         recoverable. Recoverability of assets to be held and used is measured
         by a comparison of the carrying amount of an asset to future expected
         undiscounted cash flows attributable to that asset. The amount of any
         impairment is measured as the difference between the carrying value and
         the fair value of the impaired asset. Fair value is determined
         generally based on discounted cash flows. Assets to be disposed of are
         reported at the lower of the carrying amount or fair value less costs
         to sell.

     10. Income Taxes

         Deferred income taxes are recognized for temporary differences between
         financial statement and income tax bases of assets and liabilities and
         net operating loss carryforwards for which income tax expenses or
         benefits are expected to be realized in future years. A valuation
         allowance is established when necessary to reduce deferred tax assets
         to the amount more likely than not to be realized.

     11. Earnings (Loss) Per Common Share

         Basic earnings per share are determined by dividing the Company's net
         earnings by the weighted average shares outstanding. Diluted earnings
         per share include any dilutive effects of outstanding stock options.

    12.  Financial Instruments and Business Concentrations

         Financial instruments, which potentially subject the Company to
         concentration of credit risk, consist principally of accounts
         receivable. Concentration of credit risk with respect to accounts
         receivable is generally mitigated due to the large number of entities
         comprising the Company's customer base, their dispersion across
         geographic areas and industries, along with the Company's policy of
         maintaining credit insurance. The Company routinely addresses the
         financial strength of its customers and, historically, its accounts
         receivable credit risk exposure is limited. Two customers within the
         electronics components distribution segment of the Company accounted
         for approximately 15% and 10% of net sales for the fiscal year ended
         June 30, 2003.

         Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
         "Fair Value of Financial Instruments," requires disclosure of the
         estimated fair value of an entity's financial instrument assets and
         liabilities. The Company's principal financial instrument consists of a
         revolving credit facility,



                                      F-11
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         expiring on October 1, 2004, with two participating banks. The Company
         believes that the carrying amount of such debt approximates the fair
         value as the variable interest rate approximates the current prevailing
         interest rate.

         The Company generally purchases products from manufacturers pursuant to
         nonexclusive distributor agreements. During the year ended June 30,
         2003, products purchased from two suppliers accounted for 24% and 14%,
         respectively, of net sales. As is common in the electronics
         distribution industry, from time to time the Company has experienced
         terminations of relationships with suppliers. There can be no assurance
         that, in the event a supplier cancelled its distributor agreement with
         the Company, the Company will be able to replace the sales with sales
         of other products.

    13.  Use of Estimates

         In preparing financial statements in conformity with accounting
         principles generally accepted in the United States of America,
         management is required to make estimates and assumptions that affect
         the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the financial
         statements, as well as the reported amounts of revenues and expenses
         during the reporting period. During the fourth quarter of the year
         ended June 30, 2003, the Company recorded an additional provision for
         excess and slow moving inventory of approximately $1,600,000 based upon
         management's current estimate of the estimated market value of such
         inventory. Actual results could differ from those estimates.

14.       Comprehensive Income (Loss)

         Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
         "Reporting Comprehensive Income," establishes rules for reporting and
         display of comprehensive income and its components in financial
         statements. Comprehensive income (loss) consists of net earnings (loss)
         and unrealized gains and losses on available-for-sale securities and is
         presented in the consolidated statement of changes in shareholders'
         equity, net of applicable taxes.




                                      F-12
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    15.  Segment Reporting

         Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
         "Disclosures About Segments of an Enterprise and Related Information,"
         requires that the Company disclose certain information about its
         operating segments defined as "components of an enterprise about which
         separate financial information is available that is evaluated regularly
         by the chief operating decision maker in deciding how to allocate
         resources and in assessing performance." Generally, financial
         information is required to be reported on the basis that it is used
         internally for evaluating segment performance and deciding how to
         allocate resources to segments.The Company has two reportable segments,
         consisting of electronics components distribution and contract
         manufacturing, as defined by the provisions of SFAS No. 131.

    16.  Shipping and Handling Fees

         Shipping and handling fees charged to customers are included in net
         sales. Shipping and handling expenses paid are included as a component
         of cost of good sold.

    17.  Advertising

         Advertising costs are expensed as incurred and totaled $97,288,
         $158,791 and $175,954 for the years ended June 30, 2003, 2002 and 2001,
         respectively.



                                      F-13
<PAGE>






                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


    18.  Stock Compensation

         In accordance with the provisions of Statement of Financial Accounting
         Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
         Compensation", the Company has elected to apply APB Opinion No. 25,
         "Accounting for Stock Issued to Employees," and related interpretations
         in accounting for its employee and director stock-based awards, and
         does not recognize compensation expense for such awards. If the Company
         had elected to recognize compensation expense based upon the fair value
         at the grant dates for such awards consistent with the methodology
         prescribed by SFAS No. 123, the Company's reported net earnings (loss)
         and earnings (loss) per share would be reduced (increased) to the pro
         forma amounts indicated below for the years ended June 30:
<TABLE>

                                                                          2003                2002                 2001
                                                                     --------------      --------------         -----------
      Net (loss) earnings
<S>                                                                    <C>                  <C>                   <C>
          As reported                                                  $(2,984,661)         $(5,043,971)          $9,850,397
          Pro forma                                                     (3,191,618)          (5,568,933)           8,732,958
      Net (loss) earnings per common share  - basic
          As reported                                                      $(0.52)              $(0.88)               $1.74
          Pro forma                                                         (0.55)               (0.97)                1.54
      Net (loss) earnings per common share - diluted
          As reported                                                      $(0.52)              $(0.88)               $1.59
          Pro forma                                                         (0.55)               (0.97)                1.41
</TABLE>


         These pro forma amounts may not be representative of future disclosures
         because they do not take into account pro forma compensation expense
         related to grants made before fiscal 1996. The fair value of these
         options was estimated at the date of grant using the Black-Scholes
         option-pricing model with the following weighted-average assumptions
         for the fiscal years ended June 30, 2003 and 2001, respectively:
         expected volatility of 81% and 93%; risk-free interest rates of 2.85%
         and 5.33%; and expected terms of 5 and 3 years. There were no options
         granted during the fiscal year ended June 30, 2002.



                                      F-14
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



         NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


         The Black-Scholes option valuation model was developed for use in
         estimating the fair value of traded options which have no vesting
         restrictions and are fully transferable. In addition, option valuation
         models require the use of highly subjective assumptions including the
         expected stock price volatility. Because the Company's employee stock
         options have characteristics significantly different from those of
         traded options, and because changes in the subjective assumptions can
         materially affect the fair value estimate, in management's opinion, the
         existing models do not necessarily provide a reliable single measure of
         the fair value of its employee stock options.

    19.  Impact of Recently Issued Accounting Pronouncements

         In June  2002,  the FASB  issued  Statement  of  Financial  Accounting
         Standards No. 146 ("SFAS No. 146"),  "Accounting for Costs  Associated
         with Exit or Disposal  Activities,"  which  addresses  accounting  for
         restructuring  and similar  costs.  SFAS No. 146  supersedes  previous
         accounting guidance,  principally Emerging Issues Task Force Issue No.
         94-3.  SFAS No. 146 requires that the  liability for costs  associated
         with an exit or disposal  activity be recognized when the liability is
         incurred.  SFAS No. 146 also  establishes  that the  liability  should
         initially be measured and recorded at fair value. Accordingly SFAS No.
         146 may affect the timing of recognizing future restructuring costs as
         well as the amount  recognized.  SFAS no. 146 is effective for exit or
         disposal  activities  that are initiated  after December 31, 2002. The
         adoption of SFAS No. 146 has had no material  impact on the  Company's
         consolidated financial position, results of operations or cash flows.

        In December 2002, the FASB issued SFAS No. 148 "Accounting for
        Stock-Based Compensation - Transition and Disclosure, an amendment of
        FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting
        for Stock-Based Compensation," to provide alternative methods of
        transition for a voluntary change to the fair value based method of
        accounting for stock-based employee compensation. In addition, SFAS No.
        148 amends the disclosure requirements of SFAS No. 123 to require
        prominent disclosures in both annual and interim financial statements
        about the method of accounting for stock-based employee compensation and
        the effect of the method used on reported results. The provisions of
        SFAS 148 are effective for fiscal years ending after December 15, 2002
        and the interim disclosure provisions are effective for interim periods
        beginning after December 15, 2002. The Company currently plans to
        continue to apply the intrinsic-value based method to account for stock
        options and has complied with the new disclosure requirements beginning
        with its quarter ended March 31, 2003.


                                      F-15
<PAGE>



                    Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


         In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
         Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
         amends and clarifies accounting for derivative instruments, including
         certain derivative instruments embedded in other contracts, and for
         hedging activities under SFAS 133. SFAS No. 149 is generally effective
         for contracts entered into or modified after June 30, 2003 and for
         hedging relationships designated after June 30, 2003. Management does
         not expect the adoption of SFAS 149 to have a material impact on its
         consolidated financial position, results of operations or cash flows.

         In May 2003, the FASB issued Statement No. 150, "Accounting for
         Certain Financial Instruments with Characteristics of Both Liabilities
         and Equity" ("SFAS 150"). SFAS 150 improves the accounting for certain
         financial instruments that, under previous guidance, issuers could
         account for as equity. The new Statement requires that those
         instruments be classified as liabilities in statements of financial
         position. SFAS No. 150 is effective for all financial instruments
         entered into or modified after May 31, 2003, and otherwise is effective
         at the beginning of the first interim period beginning after June 15,
         2003. Management does not expect the adoption of SFAS 150 to have a
         material impact on its consolidated financial position, results of
         operations or cash flows.

          In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN No.
         46"), "Consolidation of Variable Interest Entities." In general, a
         variable interest entity is a corporation, partnership, trust, or any
         other legal structure used for business purposes that either (a) does
         not have equity investors with voting rights or (b) has equity
         investors that do not provide sufficient financial resources for the
         entity to support its activities. A variable interest entity often
         holds financial assets, including loans or receivables, real estate or
         other property. A variable interest entity may be essentially passive
         or it may engage in activities on behalf of another company. Until now,
         a company generally has included another entity in its consolidated
         financial statements only if it controlled the entity through voting
         interests. FIN No. 46 changes that by requiring a variable interest
         entity to be consolidated by a company if that company is subject to a
         majority of the risk of loss from the variable interest entity's
         activities or entitled to receive a majority of the entity's residual
         returns or both. FIN No. 46's consolidation requirements apply
         immediately to variable interest entities created or acquired after
         January 31, 2003. The consolidation requirements apply to older
         entities in the first fiscal year or interim period beginning after
         June 15, 2003. Certain of the disclosure requirements apply to all
         financial statements issued after January 31, 2003, regardless of when
         the variable interest entity was established. The Company does not have
         any variable interest entities which would require consolidation under
         FIN No. 46. Accordingly, the adoption of FIN No. 46 has had no effect
         on the Company's consolidated financial position, results of operations
         or cash flows.



                                      F-16
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001




NOTE B - INVENTORY

     Inventories consist of the following:

                                                                                                   June 30,
                                                                                                   --------
                                                                                           2003                2002
                                                                                      -------------       ---------

<S>                                                                                      <C>                <C>
      Finished goods and goods held for resale                                           $34,930,984        $36,382,922
      Work-in-process                                                                        687,023            502,936
      Raw materials                                                                        4,875,501          5,725,367
                                                                                         -----------        -----------

                                                                                         $40,493,508        $42,611,225
                                                                                          ==========         ==========


NOTE C - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of:

                                                                         Useful
                                                                          Life                      June 30,
                                                                                       ---------------------
                                                                        in years           2003               2002
                                                                       --------------- -------------      --------

       Land, building and improvements                                  10 to 30        $  1,513,446       $  1,513,446
       Machinery and equipment                                           3 to 7           12,775,826         12,030,190
       Internally developed software costs                                 7               2,008,850          1,977,583
       Transportation equipment                                          3 to 5              138,212            126,676
       Leasehold improvements                                            5 to 10           1,293,424          1,293,424
                                                                                         -----------        -----------

                                                                                          17,729,758         16,941,319

       Less accumulated depreciation and amortization (including
          $1,456,135 in 2003 and $1,440,944 in 2002 of
          capitalized lease amortization)                                                 12,170,636         10,232,491
                                                                                          ----------         ----------

                                                                                        $  5,559,122       $  6,708,828
                                                                                         ===========        ===========

     Included in machinery and equipment are assets recorded under capitalized
     leases at June 30, 2003 and 2002 for $2,761,515 and $3,502,364,
     respectively. Accumulated amortization of internally developed software
     costs at June 30, 2003 and 2002 aggregated $1,220,048 and $934,959,
     respectively.



</TABLE>



                                      F-17
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS

     The Company has adopted, as of July 1, 2001, the provisions of SFAS Nos.
     141 and 142. Accordingly, annual and quarterly amortization of goodwill of
     $1,200,000 and $300,000, respectively, are no longer recognized. The
     Company has performed a fair value-based impairment test and has determined
     that no impairment of goodwill existed as of June 30, 2003.

     The following table presents a reconciliation of net earnings (loss) and
     earnings (loss) per share amounts, as reported in the financial statements,
     to those amounts adjusted for goodwill amortization determined in
     accordance with the provisions of SFAS No. 142.

<TABLE>



                                                                         Year Ended June 30,
                                                                       ----------------------
                                                                 2003             2002              2001
                                                            -------------    -------------    --------------

<S>                                                         <C>              <C>              <C>
      Reported net earnings (loss) ......................   $  (2,984,661)   $  (5,043,971)   $    9,850,397
         Add back: goodwill amortization ................                                            980,092
                                                            -------------    -------------    --------------

      Adjusted net earnings (loss) ......................   $  (2,984,661)   $  (5,043,971)   $   10,830,489
                                                            =============    =============    ==============

      Basic earnings (loss) per share
         Reported net (loss) earnings ...................   $     (0.52)     $      (0.88)     $        1.74
         Goodwill amortization ..........................                                               0.17
                                                            -------------    -------------    --------------

         Adjusted net earnings (loss) ...................   $     (0.52)     $      (0.88)     $        1.91
                                                            =============    =============    ==============

      Diluted earnings (loss) per share
         Reported net (loss) earnings ...................   $     (0.52)     $      (0.88)     $        1.59
         Goodwill amortization ..........................                                               0.16
                                                            -------------    -------------    --------------

         Adjusted net earnings (loss) ...................   $     (0.52)     $      (0.88)     $        1.75
                                                            =============    =============    ==============
</TABLE>




                                      F-18
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



 NOTE E - INCOME TAXES

     The components of the Company's (benefit) provision for income taxes are as
follows:

                                                                               Year Ended June 30,
                                                           --------------------------------------------------------
                                                                2003                  2002                   2001
                                                           --------------        --------------            ---------
      Federal
<S>                                                           <C>                   <C>                    <C>
         Current                                              $(1,025,000)          $(2,737,000)           $5,853,000
         Deferred                                                (533,000)              225,000              (803,000)
                                                             -------------          -----------            ----------

                                                               (1,558,000)           (2,512,000)            5,050,000

      State                                                        48,000              (256,000)            1,722,000
                                                                ---------           ------------            ---------

                                                              $(1,510,000)          $(2,768,000)           $6,772,000
                                                               ==========            ==========             =========

</TABLE>

     The Company's effective income tax rate differs from the statutory U.S.
     Federal income tax rate as a result of the following:
<TABLE>


                                                                                      Year Ended June 30,
                                                                         -------------------------------------------
                                                                           2003               2002              2001
                                                                         --------           ---------         ------

<S>                                                                      <C>                <C>                <C>
      Statutory Federal tax rate                                         (34.0)%            (34.0)%            34.0%
      State income taxes, net of Federal tax benefit                      (0.8)              (3.3)              6.7
      Sales expense for which no tax benefit arises                        0.8                0.8               1.0
      Other                                                                0.4                1.1              (1.0)
                                                                        ------             ------             -----

      Effective tax rate                                                 (33.6)%            (35.4)%            40.7%
                                                                         =====              =====              ====

</TABLE>




                                      F-19
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



 NOTE E - INCOME TAXES (continued)

     Deferred income tax assets and liabilities resulting from differences
     between accounting for financial statement purposes and tax purposes are
     summarized as follows:
<TABLE>

                                                                                        2003                   2002
                                                                                     -----------           --------

       Deferred tax assets
<S>                                                                                   <C>                    <C>
            Net operating loss and other carryforwards                                $   530,000            $   424,000
            Allowance for bad debts                                                       517,000                611,000
            Inventory valuation                                                         2,092,000              1,554,000
            Deferred compensation                                                         412,000                346,000
            Unrealized loss on marketable securities
               available for sale                                                          18,000                 16,000
            Other deferred tax assets                                                     107,000                331,000
                                                                                       ----------             ----------

                                                                                        3,676,000              3,282,000

       Deferred tax liabilities
           Depreciation                                                                  (690,000)              (758,000)
           Other                                                                                                 (73,000)
                                                                                  ---------------            -----------

       Net deferred tax asset                                                          $2,986,000             $2,451,000
                                                                                        =========              =========

     At June 30, 2003, the Company, through an acquisition, has available a
     Federal net operating loss carryforward of approximately $213,000. Such net
     operating loss is subject to certain limitations and expires in varying
     amounts during the fiscal years 2007 through 2010. In addition, the Company
     has current year net operating losses of approximately $3,054,000 that will
     be carried back for Federal tax refund purposes. Since most states do not
     permit loss carrybacks, the state effect of the current year loss is
     included in the deferred tax asset.



</TABLE>



                                      F-20
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE F - (LOSS) EARNINGS PER COMMON SHARE

                                              Year ended June 30,                          Year ended June 30,
                                                     2003                                         2002
                                    --------------------------------------        --------------------------------------
                                       Loss           Shares          Per            Income          Shares         Per
                                      (numer-        (denomi-        share           (numer-        (denomi-       share
                                       ator)          nator)        amount            ator)          nator)       amount
                                    ---------       ---------      -------        ----------       ---------     -------



     Basic earnings (loss) per
<S>                                <C>              <C>             <C>          <C>              <C>             <C>
       common share                $(2,984,661)     5,783,275       $(0.52)      $(5,043,971)     5,713,365       $(0.88)

     Effect of dilutive
       securities stock options
                                  --------------- --------------                --------------- --------------                 -


     Diluted earnings (loss)
       per common share            $(2,984,661)     5,783,275       $(0.52)      $(5,043,971)     5,713,365       $(0.88)
                                    ==========      =========                     ==========      =========



                                         Year ended June 30,
                                                 2001
                                 -------------------------------------
                                   Income         Shares         Per
                                   (numer-       (denomi-       share
                                    ator)         nator)       amount
                                 ----------     ---------     -------

Basic earnings (loss) per        $9,850,397     5,669,560       $1.74

  common share
                                                  509,093
Effect of dilutive              -------------- ----------
  securities stock options


                                 $9,850,397     6,178,653       $1.59
Diluted earnings (loss)           =========     =========
  per common share

          Excluded from the calculation of earnings (loss) per share are options
          to purchase,  1,117,250,  844,548 and 90,688  common  shares in fiscal
          2003, 2002 and 2001, respectively,  as their inclusion would have been
          antidilutive.

</TABLE>



                                      F-21
<PAGE>


<TABLE>


                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001


NOTE G - DEBT AND CAPITALIZED LEASE OBLIGATIONS

     Debt and capitalized lease obligations are as follows:

                                                                                                 June 30,
                                                                                        2003                    2002
                                                                                   --------------          ---------

<S>                                                                                   <C>                    <C>
     Term loan and revolving line of credit (a)                                       $35,482,921            $33,807,703
     Other term loan (b)                                                                   68,574                185,202
     Capitalized lease obligations (c)                                                  1,048,099              1,947,496
                                                                                      -----------            -----------

                                                                                       36,599,594             35,940,401

     Less amounts representing interest on capitalized
         lease obligations                                                                 59,717                163,216
                                                                                      -----------           ------------

                                                                                       36,539,877             35,777,185

     Less current maturities                                                              679,552                897,419
                                                                                     ------------           ------------

                                                                                      $35,860,325            $34,879,766
                                                                                       ==========             ==========
</TABLE>

     (a)   Term Loan and Revolving Line of Credit Facility

     The Company's  agreement with its banks,  as amended,  provides the Company
     with a $45,000,000  revolving line of credit facility.  The credit facility
     is based principally on eligible accounts receivable and inventories of the
     Company as defined in the agreement. The agreement was amended on September
     23, 2002 to (i) extend the maturity date to March 14, 2004, (ii) reduce the
     credit facility line from $70 million to $45 million,  and (iii) change the
     requirements of certain financial  covenants.  The agreement was amended on
     May 12, 2003 to extend the maturity date to June 30, 2004. On June 5, 2003,
     the  agreement  was  amended to consent to the  Company's  purchase  of the
     electronics   distribution  business  of  Reptron  Electronics,   Inc.  The
     agreement  was  subsequently  amended on  September  19, 2003 to extend the
     maturity date to October 1, 2004.  The agreement  also requires the Company
     to maintain a $800,000  compensating  balance arrangement with its banks in
     an interest  bearing  account,  which was funded  during the quarter  ended
     December 31, 2002.  The interest rate was based on the average 30-day LIBOR
     plus 1% to 2.25% depending on the Company's performance for the immediately
     preceding four fiscal  quarters  measured by a specified  financial  ratio.
     Effective  October 1, 2002,  the rate converted to the average 30-day LIBOR
     plus 2.25% to 2.75%.  Effective  September 19, 2003,  the rate converted to
     the  higher of the prime  rate plus  0.75% or the  federal  funds rate plus
     1.25%.  In addition,  the rate will convert to the higher of the prime rate
     plus 2% or the  federal  funds rate plus 2.50% if certain  terms  under the
     agreement are not met by December 31, 2003.  Borrowings under this facility
     are  collateralized by substantially  all of the assets of the Company.  In
     addition, the agreement



                                      F-22
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE G - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued)


           prohibits the payment of cash dividends. The outstanding balance on
           the revolving line of credit facility was $35,482,921 at June 30,
           2003, with an associated interest rate of 3.924%. The agreement also
           provided a waiver for noncompliance of a certain financial covenant
           for the quarter ended June 30, 2003.


     (b)   Other Term Loan

           The Company has a term loan which requires monthly payments of $9,829
           through January 31, 2004. The loan, which bears interest at 1% per
           annum, is collateralized by the related equipment acquired, having a
           carrying value of approximately $186,000 at June 30, 2003 and
           $261,000 at June 30, 2002. The agreement contains, among other
           things, restrictive covenants on one of the Company's subsidiaries,
           which place limitations on significant changes in the business and
           additional indebtedness.

     (c)   Capitalized Lease Obligations

           The Company leases certain equipment under agreements accounted for
           as capital leases. The aggregate obligations for the equipment
           require the Company to make monthly payments through March 2005, with
           implicit interest rates from 7.0% to 8.1%.

     The following is a summary of the aggregate annual maturities of debt and
     capitalized lease obligations as of June 30, 2003:

                                                                 Capitalized
                                             Debt                  leases
                                             ----                  ------

           Year ending June 30,
               2004                      $    68,574           $   660,929
               2005                        35,482,921              387,170
                                           ----------           ----------

                                          $35,551,495           $1,048,099
                                           ==========            =========





                                      F-23
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE H - COMMITMENTS AND CONTINGENCIES

     1.  Leases

         The Company leases certain office and warehouse facilities under
         noncancellable operating leases. The leases also provide for the
         payment of real estate taxes and other operating expenses of the
         buildings. The minimum annual lease payments under such leases are as
         follows:

                          Year ending June 30,
                              2004                   $1,486,030
                              2005                      869,481
                              2006                      288,345
                                                     ----------

                                                     $2,643,856
                                                     ==========

         Included in the above is office and warehouse facilities leased from a
         partnership owned by two officers and directors of the Company. The
         lease expires in December 2003 and requires minimum lease payments of
         $354,589 during the fiscal year ended June 30, 2004.

         The Company's rent expense was approximately $602,000 for each of the
         years ended June 30, 2003, 2002 and 2001, respectively, in connection
         with the above lease.

         Rent expense on office and warehouse facilities leases for the years
         ended June 30, 2003, 2002 and 2001 was approximately $2,041,000,
         $2,049,000 and $1,826,000, respectively, net of sublease income of
         approximately $115,000 for the year ended June 30, 2001.






                                      F-24
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE H - COMMITMENTS AND CONTINGENCIES (continued)

     2.  Other Leases

         The Company also leases various office equipment and automobiles under
         noncancellable operating leases expiring through June 2006. The minimum
         rental commitments required under these leases at June 30, 2003 are as
         follows:

                          Year ending June 30,
                              2004                         $  124,782
                              2005                             87,725
                              2006                             22,839
                                                             --------

                                                            $ 235,346
                                                            =========

     3.  Employment Agreements

         The Company has entered into employment agreements with three executive
         officers which provide for annual base salaries aggregating $785,000
         through June 30, 2006 and contain provisions for severance payments in
         the event of change of control as defined in the agreements. The
         Company's agreements with its Chairman and Executive Vice President
         provide for cash bonuses equal to 4% and 2%, respectively, of the
         Company's earnings before income taxes for each fiscal year in which
         such earnings are in excess of $1,000,000 or 6% and 3%, respectively,
         of the Company's earnings before income taxes if such earnings are in
         excess of $2,500,000 up to a maximum annual cash bonus of $720,000 and
         $360,000, respectively. In addition, the Company's agreement with its
         Chairman provides for deferred compensation which accrues at a rate of
         $50,000 per year and becomes payable in its entirety no later than
         January 15 of the year next following his cessation of employment for
         any reason.

         The Company is obligated to provide health insurance to the Chairman,
         Executive Vice President, and their respective spouses commencing upon
         their termination of employment with Jaco and ending on the later to
         occur of (i) their death or (ii) the death of their respective spouses.
         The Company has adopted Statement of Financial Accounting Standards No.
         106, "Employer's Accounting for Postretirement Benefits Other Than
         Pension," which requires the Company to recognize the cost of providing
         postretirement benefits over the employees' service periods. The
         recorded liabilities for these postretirement benefits, none of which
         has been funded, amounted to $97,800 at June 30, 2003. The
         weighted-average discount rate used in determining the liability was
         5.5%, and the annual percentage increase in health costs was 7%.





                                      F-25
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE H - COMMITMENTS AND CONTINGENCIES (continued)

     4.  Other Matters

         The Company is a party to legal matters arising in the general conduct
         of business. The ultimate outcome of such matters is not expected to
         have a material adverse effect on the Company's results of operations
         or financial position.


NOTE I - RETIREMENT PLAN

     The Company maintains a 401(k) Plan that is available to all employees, to
     which the Company contributes up to a maximum of 1% of each employee's
     salary. For the years ended June 30, 2003, 2002 and 2001, the Company
     contributed to this plan approximately $78,000, $144,000 and $175,000,
     respectively.


NOTE J - SHAREHOLDERS' EQUITY


     In December 1992, the Board of Directors approved the adoption of a
     nonqualified stock option plan, known as the "1993 Non-Qualified Stock
     Option Plan," hereinafter referred to as the "1993 Plan." The Board of
     Directors or Plan Committee is responsible for the granting and pricing of
     these options. Such price shall be equal to the fair market value of the
     common stock subject to such option at the time of grant. The options
     expire five years from the date of grant and are exercisable over the
     period stated in each option. In December 1997, the shareholders of the
     Company approved an increase in the amount of shares reserved for the 1993
     plan to 900,000 from 440,000, of which 577,500 are outstanding at June 30,
     2003.


     In June 1997, the Company appointed an additional outside director to the
     Board of Directors who received 15,000 options to purchase the Company's
     common stock at the fair market value on the date of grant. In September
     1998, two outside directors were each granted 11,250 options to purchase
     the Company's common stock at the fair market value on the date of grant.
     These 37,500 options, of which 22,500 are outstanding at June 30, 2003,
     were not granted pursuant to any of the Company's existing stock option
     plans.



                                      F-26
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE J - SHAREHOLDERS' EQUITY (continued)

     In October 2000, the Board of Directors approved the adoption of the "2000
     Stock Option Plan," hereinafter referred to as the "2000 Plan." The 2000
     Plan provides for the grant of incentive stock options ("ISOs") and
     nonqualified stock options ("NQSOs") to employees, officers, directors,
     consultants and advisers of the Company. The Board of Directors or Plan
     Committee is responsible for the granting and pricing of these options.
     Such price shall be equal to the fair market value of the common stock
     subject to such option at the time of grant. In the case of ISOs granted to
     shareholders owning more than 10% of the Company's voting securities, the
     exercise price shall be no less than 110% of the fair market value of the
     Company's common stock on the date of grant. All options shall expire ten
     years from the date of grant of such option (five years in the case of an
     ISO granted to a 10% shareholder) or on such earlier date as may be
     prescribed by the Committee and set forth in the option agreement, and are
     exercisable over the period stated in each option. The 2000 Plan reserves
     600,000 shares of the Company's common stock, of which 517,250 are
     outstanding at June 30, 2003.

     Outstanding options granted to employees, directors and officers for the
     last three fiscal years are summarized as follows:


<TABLE>
                                                                                                                Weighted-
                                                                                                                 average
                                                                            Nonqualified                        exercise
                                                                            stock options                        price
                                                                  --------------------------------          ---------------
                                                                    Price range            Shares
                                                                    -----------            ------

<S>                       <C> <C>                                   <C>     <C>            <C>                   <C>
      Outstanding at June 30, 2000                                  $1.79 - $13.71         790,420               3.74
                                                                                          --------

      Granted                                                      $6.01 - $8.00           238,250               7.91
      Exercised                                                    $2.50 - $8.50           (63,500)              6.88
                                                                                         ---------

      Outstanding at June 30, 2001                                  $1.79 - $13.71         965,170               4.56
                                                                                           -------

      Granted                                                      $2.50 - $4.67          (109,973)              4.47
      Exercised                                                    $8.00 - $13.71          (10,649)              9.05
                                                                                         ---------

      Outstanding at June 30, 2002                                  $1.79 - $13.71         844,548               4.52

      Granted                                                        $2.35                 290,000               4.52
      Expired                                                      $4.17 - $8.00           (17,298)              5.65
                                                                                           --------

      Outstanding at June 30, 2003                                  $1.79 - $13.71       1,117,250               3.94
                                                                                         =========

      Amounts exercisable at June 30, 2003                          $1.79 - $13.71         827,250               4.49
                                                                                           =======

</TABLE>



                                      F-27
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001

<TABLE>


NOTE J - SHAREHOLDERS' EQUITY (continued)


     The following table summarizes information concerning currently outstanding
     and exercisable nonqualified stock options:

                                                Options outstanding                         Options exercisable
                                      ----------------------------------------    -----------------------------
                                                       Weighted-                                 Weighted-
                                                        average      Weighted-                    average      Weighted-
                                                       remaining      average                    remaining      average
                                        Number        contractual     exercise      Number      contractual     exercise
       Range of exercise prices       outstanding    life (months)      price    exercisable   life (months)      Price
       ------------------------       -----------    -------------  ----------   -----------   -------------  ---------

<S>        <C>     <C>                 <C>                <C>         <C>          <C>                <C>       <C>
           $1.79 - $3.25               848,750            44          $  2.39      558,750            9         $  2.41

           $6.01 - $8.00               227,250            89          $  7.94      227,250           89         $  7.94

           $13.71                       41,250            23           $13.71       41,250           23          $13.71

     The weighted-average option fair value on the grant date was $1.55 and
     $4.82 for options issued during the years ended June 30, 2003 and 2001,
     respectively. There were no options issued during the year ended June 30,
     2002.

</TABLE>




                                      F-28
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE J - SHAREHOLDERS' EQUITY (continued)



     The Board of Directors of the Company had authorized the purchase of up to
     375,000 shares of its common stock under a stock repurchase program. In
     fiscal 1998, the Board of Directors authorized the repurchase of up to an
     additional 600,000 shares of the Company's common stock. The purchases were
     made by the Company from time to time on the open market at the Company's
     discretion and were dependent on market conditions. The Company had made
     purchases of 618,300 shares of its common stock from July 31, 1996 through
     September 13, 2000 for aggregate consideration of $2,204,515. On September
     14, 2000, the Board of Directors passed a resolution to terminate the stock
     repurchase program.

     On September 18, 2001, the Company announced that its Board of Directors
     authorized the repurchase of up to 250,000 shares of its outstanding common
     stock. Purchases may be made from time to time in market or private
     transactions at prevailing market prices. The Company made purchases of
     41,600 shares of its common stock for aggregate consideration of $110,051
     during fiscal 2003.

     In June 1997, the Company's Board of Directors approved the adoption of a
     restricted stock plan, which was subsequently ratified by shareholders
     during the Company's December 1997 annual meeting. The plan enables the
     Board of Directors or Plan Committee to have sole discretion and authority
     to determine who may purchase restricted stock, the number of shares, the
     price to be paid and the restrictions placed upon the stock. Pursuant to
     this plan, the Company issued 135,000 shares of common stock to certain
     employees at a purchase price of $.67 per share. Shares purchased are
     subject to a four-year vesting period and the Company recognized $135,000
     of compensation expense during fiscal 2001 in connection with this plan.




                                      F-29
<PAGE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001
<TABLE>



NOTE K - COMPREHENSIVE (LOSS) INCOME

     Total comprehensive (loss) income and its components for the years ended
     June 30, 2003, 2002 and 2001 are as follows:

                                                                        2003               2002              2001
                                                                     ------------     --------------     --------


<S>                                                                   <C>                <C>                <C>
       Net (loss) earnings                                            $(2,984,661)       $(5,043,971)       $9,850,397
       Unrealized loss on marketable securities                            (7,991)          (136,063)         (166,240)
       Deferred tax benefit                                                 2,218             50,402            60,678
                                                                       ----------        -----------       -----------

       Comprehensive (loss) income                                    $(2,990,434)       $(5,129,632)       $9,744,835
                                                                       ==========         ==========         =========

      Accumulated other comprehensive (loss) income is comprised of unrealized
      gains and losses on marketable securities, net of the related tax effect.
</TABLE>


NOTE L - ACQUISITION

     On June 13, 2003, the Company acquired certain assets of the electronics
     distribution business of Reptron Electronics, Inc. ("Reptron"), located in
     Florida. The Company believes that this acquisition will expand the
     Company's core customer and supplier base. In addition, the Company expects
     to recognize certain benefits relating to expected synergies in operations
     and the improved quality of the management team. The total purchase price,
     including transaction costs, was approximately $9,536,000, of which
     approximately $5,577,000 was paid in cash and the remaining portion
     resulted in the Company's assumption of certain liabilities of Reptron. A
     portion of the purchase price is being held in escrow pending the
     satisfaction of certain conditions.

     The acquisition has been accounted for as a purchase and the operations of
     Reptron have been included in the Company's Statement of Operations since
     the date of acquisition. Included in other assets are the costs of the
     identifiable intangible assets acquired, principally franchise agreements
     which will be amortized on a straight-line basis over ten years. The excess
     of the purchase price and related expenses over the net tangible and
     identifiable intangible assets acquired amounted to approximately
     $3,236,000, all of which is expected to be tax deductible. The following
     table summarizes the estimated fair values of the assets acquired and
     liabilities assumed at the date of acquisition. The Company is in the
     process of finalizing certain purchase adjustments, as defined by the
     purchase agreement, thus the allocation of the purchase price is subject to
     adjustment.



                                      F-30
<PAGE>


<TABLE>



                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001


NOTE L - ACQUISITION (continued)


<S>                                                                                       <C>
                    Current assets                                                        $4,500,000
                    Property, plant and equipment                                            600,000
                    Intangible assets                                                      1,200,000
                    Goodwill                                                               3,236,000
                                                                                        ------------

                            Total assets acquired                                          9,536,000
                                                                                          ----------


                   Liabilities assumed                                                    (3,609,000)
                   Transaction costs                                                        (350,000)
                                                                                     ----------------

                                                                                          (3,959,000)


                   Net assets acquired                                                   $ 5,577,000
                                                                                          ==========


     Summarized below are the unaudited pro forma results of operations of the
     Company as if Reptron had been acquired at the beginning of the fiscal
     periods presented:

                                                               Pro forma years ended June 30,
                                                                2003                       2002
                                                             --------------             ---------
                                                           (in thousands, except per share amounts)


             Net sales                                            $302,763                $334,283
             Net loss                                             (34,918)                (16,093)

             Net loss per share:
             Basic                                                  (6.04)                  (2.82)
             Diluted                                                (6.04)                  (2.82)

     The pro forma financial information presented above is not necessarily
     indicative of either the results of operations that would have occurred had
     the acquisition taken place at the beginning of the periods presented or of
     future operating results of the combined companies.
</TABLE>


                                      F-31
<PAGE>



                   Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE M - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION

     The Company has two reportable segments: electronics components
     distribution and contract manufacturing. The Company's primary business
     activity is conducted with small and medium size manufacturers, located in
     North America, that produce electronic equipment used in a variety of
     industries. Information pertaining to the Company's operations in different
     geographic areas for fiscal years 2003, 2002 and 2001, is not considered
     material to the financial statements.

     The Company's chief operating decision maker utilizes net sales and net
     earnings (loss) information in assessing performance and making overall
     operating decisions and resource allocations. The accounting policies of
     the operating segments are the same as those described in the summary of
     significant accounting policies. The Company accounts for intersegment
     sales as if the sales were to third parties, that is, at current market
     prices. Information about the Company's segments is as follows:

<TABLE>


                                                                                Year ended June 30,
                                                                   ----------------------------------------------
                                                                      2003                 2002              2001
                                                                   ---------            ---------         -------
                                                                                     (in thousands)

     Net sales from external customers
<S>                                                                 <C>                  <C>               <C>
         Electronics components distribution                        $202,656             $175,949          $321,124
         Contract manufacturing                                       15,329               18,157            29,098
                                                                   ---------            ---------         ---------

                                                                    $217,985             $194,106          $350,222
                                                                     =======              =======           =======

     Intersegment net sales
         Electronics components distribution                      $      615           $      268       $       992
         Contract manufacturing                                           26                   10
                                                                 -----------          -----------       -----------

                                                                  $      641           $      278       $       992
                                                                   =========            =========        ==========

     Operating (loss) profit
         Electronics components distribution                       $  (2,447)           $  (5,380)        $  19,167
         Contract manufacturing                                         (606)                (209)            1,575
                                                                   ---------            ---------         ---------

                                                                   $  (3,053)           $  (5,589)        $  20,742
                                                                    =========            =========         ========

</TABLE>



                                      F-32
<PAGE>


<TABLE>


                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE M - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (continued)

                                                                                   Year ended June 30,
                                                                   ----------------------------------------------
                                                                      2003                 2002              2001
                                                                   ---------            ---------         -------
                                                                                     (in thousands)

     Interest expense
<S>                                                               <C>                  <C>               <C>
         Electronics components distribution                      $    1,025           $    1,683        $    3,457
         Contract manufacturing                                          417                  540               662
                                                                  ----------           ----------        ----------

                                                                  $    1,442           $    2,223        $    4,119
                                                                   =========            =========         =========

     Income tax (benefit) provision
         Electronics components distribution                      $   (1,166)          $   (2,503)        $   6,400
         Contract manufacturing                                         (344)                (265)              372
                                                                    --------           ----------        ----------

                                                                  $   (1,510)          $   (2,768)        $   6,772
                                                                   =========            =========          ========


     Identifiable assets
         Electronics components distribution                      $  103,228            $  97,412          $117,069
         Contract manufacturing                                       10,984               13,223            19,246
                                                                   ---------            ---------          --------

                                                                    $114,212             $110,635          $136,315
                                                                     =======              =======           =======

     Capital expenditures
         Electronics components distribution                     $       136          $       174       $     1,238
         Contract manufacturing                                          113                   31               759
                                                                  ----------           ----------        ----------

                                                                  $      249           $      205        $    1,997
                                                                   =========            =========         =========

     Depreciation and amortization
         Electronics components distribution                      $    1,292           $    1,439        $    2,297
         Contract manufacturing                                          843                  893               926
                                                                  ----------           ----------        ----------

                                                                  $    2,135           $    2,332        $    3,223
                                                                   =========            =========         =========

</TABLE>




                                      F-33
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 2003, 2002 and 2001



NOTE N - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                         Quarter ended
                                                                       December
                                         June 30,      March 31,          31,         September 30,
                                            2003           2003           2002             2002
                                         ----------     ----------     ----------      -----------

<S>                                     <C>            <C>            <C>              <C>
     Net sales                          $55,355,477    $59,405,669    $54,180,114      $49,043,655

     Gross profit                         5,753,159      7,154,504      6,914,858        6,347,464

     Net loss                            (1,196,768)      (259,664)      (541,019)        (987,210)

     Net loss per common share
        Basic                                $(0.21)        $(0.05)        $(0.09)          $(0.17)
        Diluted                               (0.21)         (0.05)         (0.09)           (0.17)



                                                         Quarter ended

                                     June 30,        March 31,    December 31,      September 30,
                                       2002            2002          2001               2001
                                   ----------       ----------   -------------        --------

Net sales                         $52,972,961      $49,297,412      $42,405,312       $49,430,523

Gross profit                        6,159,286        7,196,967        6,601,562         8,015,501

Net loss                           (1,545,878)        (674,550)      (1,320,995)       (1,502,548)

Net loss per common share
   Basic                               $(0.27)          $(0.12)          $(0.23)           $(0.26)
   Diluted                              (0.27)           (0.12)           (0.23)            (0.26)




</TABLE>






                                      F-34
<PAGE>






                         REPORT OF INDEPENDENT CERTIFIED
                         PUBLIC ACCOUNTANTS ON SCHEDULE




Board of Directors and Shareholders
    Jaco Electronics, Inc.


In connection with our audits of the consolidated financial statements of Jaco
Electronics, Inc. and Subsidiaries for the years ended June 30, 2003 and 2002
referred to in our report dated September 19, 2003, which is included in this
annual report on Form 10-K, we have also audited Schedule II for each of the
three years in the period ended June 30, 2003. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.




/s/ Grant Thornton LLP
----------------------
GRANT THORNTON LLP

Melville, New York
September 19, 2003




                                      F-35
<PAGE>


<TABLE>

                     Jaco Electronics, Inc. and Subsidiaries

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                    Years ended June 30, 2003, 2002 and 2001





              Column A                    Column B                  Column C                  Column D            Column E
              --------                    --------         ----------------------------       --------            --------
                                                                    Additions
                                                           ---------------------------
                                                              (1)             (2)
                                                                            Charged to
                                         Balance at        Charged to          other                              Balance
                                         beginning         costs and        accounts -        Deductions -       at end of
            Description                   of period         expenses         describe           describe           period
            -----------               ------------------   ----------     ------------        -----------        --------

Allowance for doubtful accounts
<S>                 <C> <C>             <C>              <C>               <C>              <C>                  <C>
    Year ended June 30, 2003            $1,609,000       $  822,000        $444,000 (a)     $ 1,514,000 (b)      $1,361,000
                                         =========        ==========        =======          ==========           =========

    Year ended June 30, 2002            $1,695,000      $   418,000         $79,000 (a)     $   583,000 (b)      $1,609,000
                                         =========       ==========          ======          ==========           =========

    Year ended June 30, 2001            $1,111,000       $1,398,000         $25,000 (a)     $   839,000 (b)      $1,695,000
                                         =========        =========          ======          ==========           =========


Reserve for slow-moving and
   obsolete inventory
    Year ended June 30, 2003            $3,091,000       $2,849,000                         $   979,000 (c)      $4,961,000
                                         =========        =========                          ==========           =========

    Year ended June 30, 2002            $2,291,000       $2,098,000                          $1,298,000 (c)     $ 3,091,000
                                         =========        =========                           =========          ==========

    Year ended June 30, 2001            $2,406,000      $   865,000                         $   980,000 (c)      $2,291,000
                                         =========       ==========                          ==========           =========

</TABLE>


(a) Recoveries of accounts.
(b) Represents write-offs of uncollectible accounts.
(c) Disposal and sale of slow-moving and obsolete inventory.






                                      F-36
<PAGE>








<TABLE>



                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                             JACO ELECTRONICS, INC.
                             By:/s/ Joel H. Girsky
                             ---------------------
                         Joel H. Girsky, Chairman of the
                         Board, President and Treasurer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                 Name                                    Title                                  Date
                 ----                                    -----                                  ----

<S>                                                                                                <C> <C>
/s/ Joel Girsky                          Chairman of the Board,                          September 29, 2003
-------------------------------------
Joel H. Girsky                           President and Treasurer
                                         (Principal Executive Officer)

/s/ Jeffrey D. Gash                      Executive Vice President-                       September 29, 2003
-------------------------------------
Jeffrey D. Gash                          Finance and Secretary
                                         (Principal Financial and
                                         Accounting Officer)

/s/ Joseph F. Oliveri                    Vice Chairman of the Board                      September 29, 2003
-------------------------------------
Joseph F. Oliveri                        and Executive Vice President

/s/ Charles B. Girsky                    Executive Vice President and                    September 29, 2003
-------------------------------------
Charles B. Girsky                        Director

/s/ Stephen A. Cohen                                                                     September 29, 2003
-------------------------------------
Stephen A. Cohen                         Director

/s/ Edward M. Franel                     Director                                        September 29, 2003
-------------------------------------
Edward M. Frankel

/s/ Joseph F. Hickey, Jr.                Director                                        September 29, 2003
-------------------------------------
Joseph F. Hickey, Jr.



</TABLE>