FORM 10-K

               SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549


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

For the fiscal year ended
June 30, 1998

[    ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ____________________to____________________

Commission File Number              0-5896


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

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


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


Company's telephone number, including area code:        (516) 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]

         The aggregate  market value of Common Stock held by  non-affiliates  of
the Company,  computed by reference to the closing  price on September 23, 1998
was $10,527,674.

         Number of shares  outstanding  of each  class of  Common  Stock,  as of
September  23, 1998:  3,661,221  shares  (excluding  404,500  shares of treasury
stock).

                        DOCUMENTS INCORPORATED BY REFERENCE:

Part     III:  Definitive  Proxy  Statement to be filed on or before October 28,
         1998,  under  Regulation  14A, in connection  with the  Company's  1998
         Annual Meeting of Shareholders.





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                                     PART I

Item 1.  Business

         Jaco  Electronics,  Inc.,  a New  York  corporation  organized  in 1961
(collectively  with all of its subsidiaries,  unless otherwise noted,  "Jaco" or
the "Company").

General

         Jaco markets and distributes  passive and active electronic  components
to original equipment  manufacturers  ("OEMs")  throughout the United States and
Canada from two distribution  centers located on the East and West coasts and 14
sales offices  located  throughout  the United States.  The Company  distributes
products  such  as  semiconductors,  capacitors,  resistors,  electro-mechanical
devices, flat panels,  computers and computer subsystems,  which are used in the
manufacture  and assembly of  electronic  products.  The Company also provides a
variety of value-added services including  configuring complete computer systems
to  customers'  specifications,  kitting the component  requirements  of certain
customers and furnishing contract manufacturing  services.  Value-added services
are intended to attract new customers and increase sales to existing  customers.
In addition,  these  services  are  designed to respond to an industry  trend of
outsourcing,  in which  purchasing  and  warehousing  functions  are  shifted by
customers  to the most  efficient  provider.  The Company  entered the  contract
manufacturing  business in March 1994,  when it acquired all of the  outstanding
capital  stock of Nexus Custom  Electronics,  Inc.  ("Nexus"),  a  Vermont-based
turnkey contract manufacturer of printed circuit boards. Management believes the
acquisition  of Nexus has enabled,  and will continue to enable,  the Company to
expand and broaden its range of value-added service  capabilities (See Note K of
the Notes to the Consolidated Financial Statements).

         The  Company's  core  customer  base  consists  primarily  of small and
medium-sized  OEMs that produce  electronic  equipment used in a wide variety of
industries,  including  manufacturers of telecommunication,  computer,  computer
peripheral,   medical  and   aerospace   equipment   and  several   Fortune  500
manufacturers.  In the fiscal year ended June 30, 1998, the Company  distributed
electronic  components  to thousands of  customers,  none of which  individually
represented more than 4.1% of net sales.

         Jaco is a  service-oriented  company,  built  on  strong  customer  and
supplier  relationships.  The Company's  inventory  management  and  information
systems assist its customers in controlling  material  costs,  in reducing cycle
times and in keeping pace with rapidly occurring technological developments. The
Company  utilizes  a  computerized  inventory  control  system  to assist in the
marketing of its products and coordinate  purchases from suppliers with sales to
customers. During the fiscal year ended June 30 1998, Jaco also added




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several strategic suppliers to its line card including  Telefunken and Siliconix
(subsidiaries  of  Vishay),   Communications  Instruments  Inc.  (CII),  Samsung
Electronics'   and  CTX  Opto's  LCD  flat  panel  monitor  lines,   and  Lambda
Electronics'  power  supply  line,  a new product for Jaco.  Lamda is one of the
world's leading  manufacturers of power supplies.  The Company's computer system
provides  detailed  on-line  information   regarding  the  availability  of  the
Company's entire inventory located at its stocking facilities as well as on-line
access to the inventories of some of the Company's major suppliers.  Through the
Company's integrated real-time information system, customers' orders can readily
be tracked through the entire process of entering the order,  reserving products
to fill the  order,  ordering  components  from  suppliers,  if  necessary,  and
shipping  products to customers on scheduled  dates. The Company is thus able to
provide the type of distributor  service required by its OEM customers that have
adopted the "just-in-time" method of inventory  procurement.  The "just-in-time"
method is utilized in an effort to operate more  efficiently  and  profitably by
relying on scheduled  deliveries of such  components at the time they are needed
in the production process and thereby reducing inventories of components.

         The Company provides  additional  customer support through  technically
competent  product   managers,   field  engineers,   value-added   services  and
communication  with  customers  from computer to computer or through  electronic
data interchange ("EDI").


Industry Overview

         The  electronics  distribution  industry  has  become  an  increasingly
important sales channel for the electronics  industry  because  distributors can
market  component  manufacturers'  products to a broader range of OEMs than such
manufacturers   could   economically  serve  with  their  direct  sales  forces.
Historically, manufacturers of electronic components have sold directly to large
OEMs and relied upon distributors to serve small customers.  Today, distributors
have become more of an extension of component  manufacturers'  product  delivery
channels by providing  value-added  services and technical support to customers,
by stocking sufficient  inventory to ensure timely delivery of components and by
managing  customer  credit.  Distributors  also work  with  OEMs to ensure  that
manufacturers' components are integrated into the design of new products.

         According  to the National  Electronics  Distributors  Association,  an
industry  trade  association,  in 1997  the  electronics  distribution  industry
recorded  approximately  $26.9 billion in sales.  Of these sales,  approximately
$7.9 billion of industry sales consisted of sales of  interconnect  (connectors,
sockets),   electromechanical   (relays,   switches)  and  passive   (resistors,
capacitors) components, which products accounted for approximately $72.5 million
of the Company's net distribution sales for the fiscal year ended June 30, 1998.
Approximately   $18.1   billion  of  industry   sales   consisted  of  sales  of
semiconductors and



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 computer  products,  which  accounted  for  approximately  $65.6 million of the
Company's net distribution sales for the fiscal year ended June 30, 1998.

Products

         The Company currently  distributes over 60,000 stock items.  Management
believes  that it is necessary  for the Company to carry a wide variety of items
in order to fully  service its  customers  requirements  and, in addition,  many
suppliers require the Company to carry their full product line.

         The components  distributed by the Company are used in the assembly and
manufacture of electronic  equipment such as computers,  data  transmission  and
telecommunications equipment and transportation equipment,  including electronic
signals and aircraft,  and a broad  variety of other  electronic  products.  The
Company's  products fall into two broad  categories:  "passive"  components  and
"active" components.

         Passive components  consist primarily of capacitors,  electromechanical
devices,  and resistors.  Passive products  accounted for approximately 48%, 51%
and 52% of the Company's net  distribution  sales in the fiscal years ended June
30, 1996, June 30, 1997 and June 30, 1998, respectively.

         Active  components  include  semiconductors  and  computer  subsystems.
Semiconductors  consist  of such  items  as  integrated  circuits  and  discrete
components,  transistors,  diodes,  dynamic  RAMs,  static RAMs,  video RAMs and
MOSFETs.  Computer  subsystems  are an integral  part of personal  computers and
computer  workstations and incorporate  such items as disk drives,  tape drives,
flat  panels  and flat  panel  monitors,  floppy  disks and  controllers.  These
products  represented  approximately  52%,  49%  and  48% of the  Company's  net
distribution  sales in the fiscal years ended June 30,  1996,  June 30, 1997 and
June 30, 1998, respectively.

Value-Added Services

         The  Company  provides  a number  of  value-added  services  which  are
intended to attract new  customers,  to maintain and increase  sales to existing
customers  and,  where  feasible,  to generate  additional  revenues and improve
margins from sales of components. Value-added services include:

                  Configuring  Computer  Systems.  Subsystem  integration  is  a
                  service  offered  by  the  Company  where  it  offers  turnkey
                  solutions to customers'  computer  requirements by integrating
                  such  components  as disks,  tapes and floppy disk drives with
                  other  components,   including  power  suppliers,  enclosures,
                  interface   electronic   cables  and   converters  and  active
                  components to configure  complete computer systems to customer
                  specifications, both in tower and desktop configurations.



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<PAGE>




                  Kitting. Kitting of customer component product requirements is
                  provided to fill a segment or a complete  order of products to
                  a select  customer base.  Kitting  consists of assembling to a
                  customer's  specifications two or more of the Company's 60,000
                  stock  items  into  pre-packaged  kits  ready  for  use in the
                  customer's assembly line.

                  Contract  Manufacturing.  The Company also  furnishes  turnkey
                  contract  manufacturing  printed  circuit boards  ("PCBs") for
                  OEMs  using  both  conventional  pin-through-hole  and,  on an
                  increasing  basis,  more advanced surface mount  technologies.
                  Contract  manufacturing  operations involve assembling PCBs to
                  customer  specifications  utilizing  components from suppliers
                  with whom the Company has  distribution  agreements  and other
                  suppliers.  As a turnkey  contract  manufacturer  of PCBs, the
                  Company  procures the required raw materials  and  components,
                  manages the  assembly  and test  operations,  and supplies the
                  PCBs in accordance with the customer's  delivery  schedule and
                  quality requirements for the finished product.

Sales and Marketing

         Management  believes  the  Company  has  developed  valuable  long-term
customer relationships and an in-depth understanding of its customers' needs and
purchasing  patterns.  Jaco serves a broad range of customers  in the  computer,
computer-related,  telecommunications,  data transmission,  defense,  aerospace,
medical  equipment  and  other  industries.  None  of  the  Company's  customers
individually represented more than approximately 2%, 3% and 4% respectively,  of
net sales in the fiscal  years ended June 30,  1996,  June 30, 1997 and June 30,
1998, respectively.

         The  Company's  sales  personnel  are trained to identify the Company's
customers' requirements and to actively market the Company's entire product line
to satisfy  those  needs.  For  example,  the  Company's  sales  staff and field
engineers  regularly  meet with  customers'  engineers  and designers to discuss
prospective  needs and potential  design or procurement  problems and enable the
sales   personnel  to  understand   which  products  will  meet  the  customers'
performance  criteria,  are  cost-effective and target  specifically  identified
problems.

         Sales are made  throughout  the United States and Canada from the sales
departments  maintained at the Company's two distribution  facilities located on
the East and West  Coasts of the United  States in  California  and New York and
from 14  additional  sales offices  located in  California,  Florida,  Maryland,
Massachusetts,  Minnesota, North Carolina,  Oregon, Texas, Washington,  Arizona,
Alabama and Illinois.  Sales are made primarily  through  personal visits by the
Company's employees and by a staff of trained



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 telephone sales  personnel who answer  inquiries and receive and process orders
from customers.  In addition,  the Company  utilizes the services of independent
sales  representatives  whose  territories  include parts of the United  States,
Canada, and several foreign countries. These sales representatives operate under
agreements   which  are  terminable  by  either  party  upon  30  days'  notice.
Independent sales  representatives are authorized to solicit sales of all of the
Company's product lines and are prohibited from  representing  competing product
lines.

         In the fiscal year ended June 30, 1998, 94% of the Company's sales were
produced by Company sales personnel and 6% by independent sales representatives.
No one sales  representative  produced more than 2% of the Company's  sales. The
Company  believes that the termination of any independent  sales  representative
would not have a material adverse effect upon its business.

Backlog

         As the trend toward outsourcing increases, customers have been entering
into just-in-time  contracts with  distributors,  instead of placing orders. The
Company's backlog was $27.1 million at June 30, 1997,  compared to $27.4 million
at June 30, 1998.  Backlog  consists of purchase  orders received from customers
for  products  scheduled  for  delivery  within the next twelve  months.  Orders
constituting the Company's backlog are subject to delivery  rescheduling,  price
negotiations  and  cancellations by the customer,  sometimes  without penalty or
notice. Backlog is not necessarily indicative of future sales for any particular
period  and,  therefore,  the  Company  expects  that in the  normal  course  of
business, less than all backlogged orders will be filled.

Operations

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

         The  Company's  central  computer  system  facilitates  the  control of
purchasing  and  inventory,   accounts  payable,  shipping  and  receiving,  and
invoicing and collection information of Jaco's distribution  business.  Jaco has
completed the redesign and development of an entirely new Distribution  Software
System.  All of the dates in this new database are 8  characters,  including the
century.  The system has been  tested and has been in place since  September  1,
1998. The system includes financial systems,  Electronic Data Interchange (EDI),
customer order entry,  purchase order entry to  manufacturers,  warehousing  and
inventory  control.  Each of the  Company's  sales  departments  and  offices is
electronically  linked to the Company's  central computer systems which provides
fully integrated on-line real-time data with respect to the Company's  inventory
levels. The Company's  inventory  management system was developed  internally by
Jaco and is considered  proprietary.  Inventory turns are tracked by vendor, and
the Company's  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.  The Company's  inventory
management system also uses bar-code technology along



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 with scanning devices, which are supplied by Jaco to certain customers,  and is
networked to the  facilities  of such  customers.  In some cases,  customers use
computers  that  interface  directly  with the  Company's  computers to identify
available  inventory and rapidly process orders. This system enables the Company
to more effectively manage its inventory and to respond more quickly to customer
requirements  for timely and  reliable  delivery of  components.  The  Company's
inventory  turnover was  approximately  3.5 times for the fiscal year ended June
30, 1998.

         Approximately 81% of the Company's component  distribution inventory is
maintained at its East Coast distribution center in Hauppauge, New York. Most of
the remaining  inventory is maintained at the Company's  West Coast  facility in
Westlake Village,  California. The Company also monitors supplier stock rotation
programs,  inventory  price  protection,  rejected  material  and other  factors
related to inventory quality and quantity.

         Contract Manufacturing. The Company conducts its contract manufacturing
operations through Nexus at an approximately 32,600 square foot facility located
in Brandon, Vermont. Nexus provides turnkey and consigned contract manufacturing
of PCBs for OEMs.  "Turnkey"  is an  industry  term that  describes  a  contract
manufacturer that buys customer-specified  components from suppliers,  assembles
the  components  onto finished PCBs and performs  post-assembly  testing,  while
"consigned"  refers to a contract  manufacturer  that  provides the assembly and
testing elements only. OEMs then incorporate the PCBs into finished products. In
assembling PCBs, Nexus is capable of employing both pin-through-hole ("PTH") and
surface mount technologies  ("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.  The SMT process
allows for more  miniaturization,  cost savings and shorter  lead paths  between
components  (which results in greater  signal  speed).  In the fiscal year ended
June 30, 1998,  the Company  invested  approximately  $681,000  primarily in SMT
machinery  and  equipment,  as part of the Company's  ongoing  program to expand
Nexus' operations.

         Nexus  maintains  strict quality  control  procedures for its products,
including use of total quality management ("TQM") systems. Incoming raw material
and components are checked by the Nexus quality  control  personnel.  During the
production stage, quality control personnel check the work in process at several
points in the production process.
Finally,  after the assembly  stage,  Nexus conducts  random testing of finished
products.

         Nexus' manufacturing  facility has earned ISO 9002 certification by the
Geneva-based  organization  dedicated to the development of worldwide  standards
for quality management  guidelines and quality assurance.  Nexus' receipt of ISO
9002  certification  demonstrates  that  Nexus'  manufacturing  operations  meet
established world standards. Management believes sophisticated customers



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increasingly  are requiring their  manufacturers  to be ISO  9002-certified  for
purposes of quality assurance.

Acquisition of Q.P.S. Electronics,  Inc. On August 2, 1996, the Company acquired
the operating  assets of Q.P.S.  Electronics,  Inc.  ("QPS"),  a distributor  of
quality active and passive electronic components based in Schaumburg,  Illinois.
Management believes that the acquisition of QPS has contributed to the expansion
of the Company's national, dedicated distribution network by firmly establishing
the Company's presence in the Midwest marketplace.

         Acquisition  of Corona  Electronics,  Inc.  On January  21,  1997,  the
Company  acquired  all of the  outstanding  shares  of  capital  stock of Corona
Electronics,  Inc. ("Corona"),  an electronics  component distributor located in
Orange County,  California.  Management  believes that the acquisition of Corona
has strengthened the Company's presence in the Southern California marketplace.

Suppliers

         Manufacturers   of  passive  and  active   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, the Company has non-exclusive  distribution
agreements with many manufacturers, including Epson America, Inc., International
Resistive   Company,   Inc.,   Johanson   Dielectric  Inc.,  Kemet   Electronics
Corporation, Mitel Inc., Rohm Company, Limited, Samsung Semiconductor, Inc., TDK
Corporation of America, Vishay Intertechnology,  Inc. and Zetex, Inc. Management
continuously  seeks to identify  potential new  suppliers and obtain  additional
distributorships  for new  lines of  products.  Management  believes  that  such
expansion  and  diversification  will  increase the  Company's  sales and market
share.

         In the fiscal  year  ended  June 30,  1998,  of the  Company's  top ten
suppliers,  only Kemet and Samsung  accounted for more than 10% of net sales and
the remaining eight each accounted for between 8.7% and 1.5% of net sales. As is
common in the electronics  distribution industry,  from time to time the Company
has experienced termination of relationships with suppliers which may affect its
results of operations in post-termination fiscal periods.

         The Company generally purchases products from manufacturers pursuant to
non-exclusive distributor agreements.  Selection as an authorized distributor is
a valuable marketing tool for the



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 Company  because  customers  receive  warranty   protection  and  support  from
manufacturers  when they purchase  products  from the Company.  As an authorized
distributor,  the Company is able to offer  customers  marketing and engineering
support from the product manufacturers,  which enhances the Company's ability to
attract new customers and close sales.

         Most of the Company's  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 the
distributor  for any  inventory in the  distributor's  possession  for which the
manufacturer  reduces its prices.  Stock rotation privileges typically allow the
Company  to  exchange  inventory  in an  amount  up to  5% of a  prior  period's
purchases.  Upon  termination  of a distributor  agreement,  the right of return
typically requires the manufacturer to repurchase the Company's inventory at the
Company's adjusted purchase price. The Company believes that the above-described
provisions of its distributorship agreements generally have served to reduce the
Company's  exposure to loss from unsold inventory.  As such price protection and
stock rotation  privileges are limited in scope, there can be no assurances that
the Company will not experience  significant losses from unsold inventory in the
future.

Competition

         The electronics distribution industry is highly competitive,  primarily
with respect to price and product  availability.  The Company  believes that the
breadth of customer  base,  services and product  lines,  its level of technical
expertise  and the  quality  of its  services  generally  are also  particularly
important.  The Company competes with large national  distributors such as Arrow
Electronics,   Inc.  and  Avnet,   Inc.,  as  well  as  regional  and  specialty
distributors,  many of whom distribute the same or competitive products. Many of
the  Company's  competitors  have  significantly  greater name  recognition  and
greater financial and other resources than those of the Company.

         The PCB 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, where the finished product often requires a greater
amount of overall labor.

         The Company believes that contract  manufacturers  which are affiliated
or integrated with electronics  distributors  have  competitive  advantages over
comparably-sized,  stand-alone contract  manufacturers.  Distributors can reduce
the  risk of  inventory  obsolescence  through  stock  rotation  privileges  and
inventory price  protection and can also take advantage of material  acquisition
skills, just-in-time delivery expertise and broad supplier relationships.




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Employees

         At August 31, 1998, the Company had a total of 392 employees,  of which
122  were  employed  by  Nexus.   Of  total   employees,   11  were  engaged  in
administration,  58 were managerial and supervisory employees, 125 were in sales
and 198 performed  warehouse,  manufacturing  and clerical  functions.  Of these
employees,  Nexus employed 1 in administration,  9 in management and supervisory
positions,  2  in  sales  and  110  in  warehouse,  manufacturing  and  clerical
functions.  There are no  collective  bargaining  contracts  covering any of the
Company's employees. The Company believes its relationship with its employees is
satisfactory.

Item 2.    Properties

         All of the Company's  facilities are leased except for the Brandon,  VT
property which is owned by Nexus. Jaco currently leases 16 facilities located in
the  States  of  Alabama,  Arizona,  California,  Colorado,  Florida,  Illinois,
Maryland, Massachusetts,  Minnesota, New York, North Carolina, Oregon, Texas and
Washington,  three of which are  multipurpose  facilities  used  principally  as
administrative,  sales, and purchasing offices,  as well as warehouses,  and the
remainder  of  which  are used  exclusively  by Jaco as  sales  offices.  Jaco's
satellite  sales  offices  range in size from  approximately  185 square feet to
approximately  4,000  square  feet.  Base rents for such  properties  range from
approximately $400 per month to approximately $9,000 per month. Depending on the
terms of each  particular  lease,  in  addition  to base rent,  Jaco 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 Jaco's Hauppauge,  New York headquarters.  The following paragraphs
set forth certain information regarding Jaco's two principal leased facilities:

         (i) Jaco leases from Bemar Realty Company, a partnership  consisting of
Messrs. Joel H. Girsky and Charles B. Girsky,  approximately  72,000 square feet
of office and warehouse space at 145 Oser Avenue, Hauppauge, New York. The lease
provides  for a current  monthly base rent of  approximately  $46,000 net of all
expenses,  including taxes, utilities,  insurance,  maintenance and repairs, and
has a term which expires on December 31, 2003. In Fiscal 1996, Jaco negotiated a
renewal of the lease and the current  rental  rate is similar to that  currently
being charged for comparable properties in the area. Approximately 26,000 square
feet of space is sublet by Jaco to an  unaffiliated  third party. In addition to
its  headquarters,  Jaco  maintains  purchasing  and sales offices and warehouse
facilities at its Hauppauge location.




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         (ii) Jaco leases through April 30, 2003,  from an  unaffiliated  party,
approximately  10,000  square  feet of office and  warehouse  space in  Westlake
Village,  California for a base rent of  approximately  $10,550 per month.  Jaco
maintains  both a  purchasing  and  sales  office at this  location,  as well as
warehouse facilities.

         Nexus currently owns and occupies a 32,000 square foot facility located
in Brandon,  Vermont, that is used for manufacturing,  storage and office space.
The  building  was  acquired  by the  Company  on March 11,  1994 as part of the
acquisition of all of the outstanding shares of capital stock of Nexus.

         The Company  believes that its present  facilities  will be adequate to
meet its needs for the foreseeable future.

Item 3.  Legal Proceedings.


                  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.


Item 4.  Submission of Matters To A Vote of Security Holders.

         No response to this Item is required.






                                       11
<PAGE>




                                     PART II

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

         (a) The  Company's  common stock (the "Common  Stock") is traded on The
Nasdaq  National  Market under the symbol "JACO".  The stock prices listed below
represent the high and low closing sale prices of the Common Stock,  as reported
by The Nasdaq National Market,  for each fiscal quarter beginning with the first
fiscal quarter of 1997.

                  Fiscal Year 1997:                                             High             Low
<S>                                             <C> <C>                         <C>              <C>
                  First quarter ended September 30, 1996                        $10.38          $ 6.25
                  Second quarter ended December 31, 1996                        $ 9.50          $ 7.75
                  Third quarter ended March 31, 1997                            $ 9.12          $ 7.00
                  Fourth quarter ended June 30, 1997                            $ 8.00          $ 6.38
                  Fiscal Year 1998:                                             High             Low
                  First quarter ended September 30, 1997                        $ 8.12          $ 7.25
                  Second quarter ended December 31, 1997                        $ 7.31          $ 6.00
                  Third quarter ended March 31, 1998                            $ 7.50          $ 6.12
                  Fourth quarter ended June 30, 1998                            $ 7.00          $ 5.62
</TABLE>

         (b) As of September  23, 1998 there were  approximately  160 holders of
record of the Company's Common Stock who management  believes held for more than
1,500 beneficial owners.
         (c) The Company has never declared or paid cash dividends on its Common
Stock.  The  Company  intends to retain  its  earnings,  if any,  for use in its
business and to support growth and does not anticipate  paying cash dividends in
the  foreseeable  future.  In addition,  the  agreement  governing the Company's
credit facility (the "Credit  Facility")  contains  provisions that prohibit the
Company from paying cash dividends on its Common Stock.




                                       12
<PAGE>




 .
<TABLE>
<CAPTION>

                                                                           Year ended June 30,
                                                1994             1995             1996             1997             1998
                                               -------         --------         --------         --------         ------
                                                                 (in thousands, except per share data)

Statement of operations data
<S>                                           <C>              <C>              <C>              <C>           <C>
   Net sales                                  $105,213         $138,683         $167,149         $155,098      $   153,674
   Cost of goods sold                           83,038          109,902          133,105          122,993          121,796
                                              --------          -------          -------          -------        ---------

     Gross profit                               22,175           28,781           34,044           32,105           31,878

   Selling, general and administrative
     expenses                                   19,155           23,552           26,247           27,640           28,707
                                              --------         --------         --------         --------      -----------

     Operating profit                            3,020            5,229            7,797            4,465            3,171

   Interest expense                              1,117            2,010            1,347              971            1,140
                                             ---------        ---------        ---------       ----------     ------------

     Earnings before income taxes and
       cumulative effect of a change
       in accounting for income taxes            1,903            3,219            6,450            3,494            2,031

   Income tax expense                              714            1,303            2,600            1,415               847
                                            ----------        ---------        ---------        ---------     -------------

     Earnings before cumulative
       effect of a change in accounting
       for income taxes                          1,189            1,916            3,850            2,079            1,184

   Cumulative effect of a change in
     accounting for income taxes                  241


     NET EARNINGS                           $    1,430       $    1,916       $    3,850       $    2,079     $       1,184
                                             =========        =========        =========        =========      ============


Earnings per common share*
   Earnings per common share before
    cumulative effect of a change in
    accounting                                    $.47             $.78            $1.11             $.53             $.31
   Cumulative effect of a change in
     accounting                                    .10

     Net earnings per common share                $.57             $.78            $1.11             $.53             $.31
                                                   ===              ===             ====              ===              ===

Earnings per common share -
   assuming dilution
     Earnings per common share before
       cumulative effect of a change in
       accounting                                 $.47             $.78            $1.08             $.53             $.30
     Cumulative effect of a change in
       accounting                                  .09

         Net earnings per common share            $.56             $.78            $1.08             $.53             $.30
                                                   ===              ===             ====              ===              ===

   Weighted average common and
     common equivalent shares
     outstanding
       Basic                                 2,505,409        2,440,841        3,479,707        3,899,181        3,836,700
                                             =========        =========        =========        =========        =========

       Diluted                               2,551,173        2,461,091        3,554,018        3,947,687        3,921,518
                                             =========        =========        =========        =========        =========

Balance sheet data
   Working capital                           $  15,160        $  30,741        $  36,964        $  41,146        $  42,481
   Total assets                                 45,685           56,323           61,143           69,996           73,419
   Long-term obligations                         9,694           23,666            8,791           15,553           17,037
   Shareholders' equity                         11,202           13,227           34,304           35,892           36,625

</TABLE>

*  All per share  information  has been  restated  to give effect to a 10% stock
   dividend  paid on March 10,  1995 and a 4-for-3  stock split  distributed  to
   shareholders  of record as of September 22, 1995.  In addition,  all earnings
   per common share amounts for all periods have been restated to conform to the
   SFAS No. 128 computation.





                                       13
<PAGE>




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

     Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:  Statements  in this  filing,  and  elsewhere,  which look forward in time
involve  risks  and  uncertainties  which  may  effect  the  actual  results  of
operations. The following important factors, among others, have affected and, in
the future,  could affect the Company's actual results:  dependence on a limited
number of suppliers for products  which  generate a  significant  portion of the
Company's  sales, the effect upon the Company of increases in tariffs or duties,
changes in trade treaties,  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,  and  general  economic
downturns in the  electronics  distribution  industry  which may have an adverse
economic  effect upon  manufacturers,  end-users of  electronic  components  and
electronic component distributors.

General

         Jaco is a distributor of electronic components and provider of contract
manufacturing  and value-added  services.  Products  distributed by Jaco include
semiconductors,  capacitors,  resistors,  electromechanical  devices  flat panel
displays and monitors, and power supplies used in the assembly and manufacturing
of electronic equipment.

         The  Company's   customers   are  primarily   small  and  medium  sized
manufacturers.  The  trend  for  these  customers  has  been  to  shift  certain
manufacturing  functions to third parties (outsourcing).  The Company intends to
seek to  capitalize  on this trend toward  outsourcing  by  increasing  sales of
products  enhanced  by  value-added  services.  Value-added  services  currently
provided by Jaco consist of configuring  complete  computer  systems to customer
specifications both in tower and desktop configurations, kitting (e.g. supplying
sets of specified  quantities of products to a customer that are prepackaged for
ease of feeding the customer's  production  lines),  and contract  manufacturing
through Nexus.
         During August 1996 and January 1997, the Company acquired the operating
assets of QPS  Electronics,  Inc.  and all of the  outstanding  common  stock of
Corona Electronics,  Inc., respectively,  both of which are electronic component
distributors.  Aggregate  consideration  paid for the acquisitions  approximated
$4.7 million,  of which  $157,500 was paid through the issuance of 20,000 shares
of the  Company's  common  stock  (See Note J of the  Notes to the  Consolidated
Financial  Statements).  The  addition of these two  companies  strengthens  the
Company's  position  in Southern  California  and the  Midwest.  The Company has
consolidated  the  operations  of these  acquired  companies  in order to reduce
operating costs and create a stronger sales organization.




                                       14
<PAGE>






         The  Company's  sales  from  value-added   services  represented  $18.2
million,  or 11.8% of net sales in the fiscal  year ended June 30,  1998,  $15.7
million,  or 10.1% of net sales in the fiscal year ended June 30, 1997 and $18.0
million,  or 11% of net sales in the fiscal year ended June 30,  1996.  Of these
sales,  sales from contract  manufacturing  were $16.4 million,  or 10.7% of net
sales in the fiscal  year ended June 30,  1998,  $10.0  million,  or 6.4% of net
sales in fiscal  year ended June 30,  1997,  and $10.8  million,  or 6.5% of net
sales in the fiscal year ended June 30, 1996.

Results of Operations

         The following table sets forth certain items in the Company's statement
of earnings as a percentage of net sales for the periods shown:
<TABLE>
<CAPTION>

                                                                              1996            1997            1998
                                                                              ----            ----            ----
<S>                                                                          <C>            <C>              <C>
Net sales                                                                    100.0%         100.0%            100.0%
Cost of goods sold                                                             79.6           79.3             79.3
                                                                               ----           ----             ----
Gross profit                                                                   20.4           20.7             20.7
Selling, general and administrative expenses                                   15.7           17.8             18.7
                                                                               ----           ----             ----
Operating profit                                                                4.7            2.9              2.0
Interest expense                                                                 .8             .6               .7
                                                                               ----           ----             ----
Earnings before income taxes                                                    3.9            2.3              1.3
Income tax expense                                                              1.6            1.0               .5
                                                                               ----           ----             ----
NET EARNINGS                                                                   2.3%           1.3%              .8%
                                                                               ====           ====             ====
</TABLE>

COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1998  ("FISCAL  1998") WITH FISCAL YEAR
ENDED JUNE 30, 1997 ("FISCAL 1997")

         Net  sales  for  the  fiscal  year  ended  June  30,   1998   decreased
approximately 1.0% to $153,674,000 as compared to $155,098,000  reported for the
same  Fiscal  1997   period.   Fiscal  1998  results   reflect  the   continuing
industry-wide  pressures  on pricing,  compounded  by the  softening  demand for
electronic  components.  The decrease in component  sales  through the Company's
distribution operations was partially offset by a $6.8 million, or 68%, increase
in




                                       15
<PAGE>




 sales  from  contract  manufacturing.  The  Company's  long term plan  includes
optimizing  value-added  services,  such as Flat  Panel  Displays  and  contract
manufacturing.
         Gross profit margins,  as a percentage of net sales,  remained constant
at 20.7% in Fiscal 1998,  compared to Fiscal 1997. While unit pricing  continued
to decline  during  Fiscal 1998, as a result of price  protection  and inventory
rotation  extended  to the  Company by its  suppliers,  the  Company was able to
maintain gross profit margins.
         Selling,  General  and  Administrative  expenses  ("SG&A")  were  $28.7
million in Fiscal 1998, an increase of $1.1 million,  or 3.9% from $27.6 million
in Fiscal 1997. The Company's addition of sales and sales management  personnel,
the  expansion  of the Field  Application  Engineering  (FAE)  Program,  and the
addition of the Flat Panel  Display  Group have  contributed  to the increase in
SG&A expenses.  Due to the continuing weakness in the electronics industry,  the
Company is closely reviewing SG&A and anticipates  implementing cost containment
measures in the fiscal year ending June 30, 1999,  which, it believes,  will not
have a negative impact on sales.
         Interest  expense  increased  to  approximately  $1.1 million in Fiscal
1998, as compared to approximately $1.0 million in Fiscal 1997. The 17% increase
in interest expense was primarily the result of additional  borrowings under the
credit facility for the acquisition of new inventory as further  franchises were
added in Fiscal  1998.  The Company  believes  that the addition of such product
lines will have a favorable impact on sales during future periods. The Company's
acquisition of approximately  $700,000 of new equipment to support the growth in
contract manufacturing also contributed to the increase in interest expense.
         Net earnings for Fiscal 1998 were $1.2 million,  or approximately  $.30
per share diluted,  as compared to $2.1 million, or approximately $.53 per share
diluted  for Fiscal  1997.  During the last  fiscal  year,  the  decrease in net
earnings  was  primarily  attributable  to the  increase  in SG&A.  The  Company
believes  it is better  positioned  for  future  growth  and will  benefit  from
expenditures made during the fiscal year ended June 30, 1998.




                                       16
<PAGE>






COMPARISON  OF FISCAL  YEAR ENDED JUNE 30,  1997 WITH FISCAL YEAR ENDED JUNE 30,
1996 ("FISCAL 1996")

         Net sales for the fiscal  year ended June 30,  1997  decreased  7.2% to
$155,098,000,  as compared  to  $167,149,000  reported  for the same Fiscal 1996
period. During Fiscal 1997, the decrease in sales was primarily the result of an
overall industry weakness as it relates to component pricing. The Company sold a
greater  number of  components  than were sold in its last fiscal year,  but has
been  unable to offset the price  reductions  that have  occurred.  The  Company
completed  two  acquisitions  during Fiscal 1997 (See Note J of the Notes to the
Consolidated  Financial  Statements) that expanded its market penetration in the
Midwest and Southern California.  Additionally,  the Company continued to expand
its  marketing  efforts in flat panel  devices and field  application  engineers
("FAE's").  FAE's assist in  designing  components  for  approval by  customer's
engineering   departments.   Sales  from  contract  manufacturing  decreased  by
approximately  $.8 million during Fiscal 1997,  compared to Fiscal 1996.  During
the Fiscal 1997 Nexus  shifted  its sales  effort to surface  mount  technology,
compared to the older pin-through-hole technology. The Company believed that the
shift in technology  should produce  increases in contract  manufacturing  sales
during future periods.

         Gross profit margins, as a percentage of net sales,  increased slightly
from  20.4% in Fiscal  1996 to 20.7% in Fiscal  1997.  Though  unit  pricing  of
components  declined during Fiscal 1997, both price  protection  provided to the
Company by its suppliers and increases in the sale of passive components,  which
historically  have  maintained a slightly higher gross profit margin as compared
to active components, resulted in the increase in gross profit margin.

         Selling,  general  and  administrative  expenses  ("SG&A")  were  $27.6
million in Fiscal 1997, an increase of $1.4 million,  or 5.3% from $26.2 million
in Fiscal 1996. The Company's addition of sales and sales management  personnel,
the  expansion  of the FAE  program and the  addition of the flat panel  display
group have  contributed  to the  increase  in SG&A.  Additionally,  the  Company
acquired QPS  Electronics,  Inc. and Corona  Electronics  Inc. during the Fiscal
1997.

         Interest expense  decreased to $1.0 million in Fiscal 1997, as compared
to $1.3 million in Fiscal 1996.  The 28% decrease was  primarily the result of a
reduction in borrowings,  as a result of the reduction in indebtedness under the
Company's  credit  facility  by the  application  of the net  proceeds  of $17.1
million from the public offering  completed  during the second quarter of Fiscal
1996.   Borrowings  under  the  credit  facility  include  funds  used  for  the
acquisition  of  Corona  and QPS (See  Note J of the  Notes to the  Consolidated
Financial Statements) during Fiscal 1997.




                                       17
<PAGE>






         Net earnings for Fiscal 1997 were $2.1 million,  or $.53 per share,  as
compared to $3.8 million,  or $1.08 per share  diluted,  during Fiscal 1996. The
decrease  in net  earnings  was  attributable  to the  decrease in sales and the
increase in SG&A.  The Company  believes that the additional  expenses  incurred
during  Fiscal  1997  will  provide  the  infrastructure  necessary  for  future
increases in sales.

Liquidity and Capital Resources

         On October  20,  1995,  the  Company  completed  a public  offering  of
1,600,000 shares of its common stock at $12.75 per share. The offering consisted
of 1,325,000  shares  offered by the Company and an aggregate of 275,000  shares
offered by certain  officers and directors of the Company.  On December 8, 1995,
the   underwriters  of  the  public  offering   exercised  a  portion  of  their
overallotment option for an additional 160,000 shares at a price per share equal
to that of the public  offering.  The  Company's  net  proceeds  from the public
offering  of  approximately  $17,140,000,   after  deducting  the  underwriters'
commission  and  cost of the  public  offering,  were  used to  reduce  its bank
indebtedness.  In connection with the public  offering,  the Company also issued
stock warrants,  to the  representative  underwriters,  to purchase up to 70,000
shares  of common  stock at an  exercise  price  per share  equal to 180% of the
public offering price, which expire on October 20, 1999.

         The  Company's  agreement  with its banks,  as  amended,  provides  the
Company with a $30,000,000 term loan and revolving line of credit facility based
principally on eligible  accounts  receivable and  inventories of the Company as
defined in the agreements  expiring September 13, 2000. The interest rate of the
credit  facility  is based on the  average 30 day LIBOR rate plus 3/4% to 1-1/4%
depending on the Company's performance for the immediately preceding four fiscal
quarters measured by a certain  financial ratio, and may be adjusted  quarterly.
The outstanding balance on the revolving line of credit facility was $15,308,260
at June 30, 1998.  The term loan,  with a remaining  balance of $589,282 at June
30, 1998, requires monthly principal payments of $17,857, together with interest
through  September  13, 2000,  with a final payment of $107,146 due on September
13, 2000. Borrowings under this facility are collateralized by substantially all
of the assets of the Company.  The agreement contains provisions for maintenance
of certain financial  ratios,  all of which the Company is in compliance with at
June 30, 1998, and prohibits the payment of cash dividends.




                                       18
<PAGE>






         During  Fiscal  1998,  the  Company's  net cash  provided by  operating
activities was approximately  $1.6 million,  as compared to net cash provided by
operating  activities of approximately $1.3 million for Fiscal 1997, an increase
of  approximately  $.3 million.  The increase is primarily  attributable  to the
increase in accounts  payable by $.8 million for Fiscal  1998,  as compared to a
$.6 million (net of liabilities  acquired from business  acquisitions)  decrease
during Fiscal 1997. In addition,  inventory increased by $2.4 million for Fiscal
1998,  as compared  to a $1.8  million  (net of assets  acquired  from  business
acquisitions) increase during Fiscal 1997. Net cash used in investing activities
decreased  to $1.3  million for Fiscal  1998,  as  compared to $5.9  million for
Fiscal 1997, a decrease of $4.6 million.  The two acquisitions  completed during
Fiscal 1997 required  approximately $4.7 million,  and were financed principally
through the Company's line of credit. Additionally,  in Fiscal 1998, the Company
increased its borrowings by approximately $2.4 million principally to finance an
increase in inventory. Fiscal 1996 reflects the proceeds of the Company's public
offering,  which reduced cash provided by financing activities by application of
such  proceeds  against  the  Company's  bank  borrowings.  The  Company's  cash
expenditures may vary  significantly  from current levels,  based on a number of
factors, including, but not limited to, future acquisitions, if any.


         For Fiscal 1997 and Fiscal 1998,  inventory turnover was 3.9x and 3.5x,
respectively.  The average of the Company's accounts receivable at both June 30,
1998  and  June  30,  1997  was 52 days.  The  Company  did not  experience  any
significant trade collection difficulties during Fiscal 1998.

         The Board of Directors of the Company has authorized the purchase of up
to  250,000  shares  of its  common  stock  under  a stock  repurchase  program.
Subsequent to year end, the Board of Directors  authorized  the repurchase of up
to an additional 400,000 shares of the Company's common stock. The purchases may
be made by the  Company  from time to time on the open  market at the  Company's
discretion  and will be dependent on market  conditions.  Through  September 23,
1998, the Company has purchased 404,500 shares of its common stock for aggregate
consideration of $2,176,342 under this program.




                                       19
<PAGE>






         The Company believes that cash flow from operations and funds available
under its credit facility will be sufficient to fund the Company's capital needs
for at least the next twelve months.

Year 2000 Compliance

         The year 2000 ("Y2K") issue is the result of computer  programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems  will be unable to  interpret  dates  beyond the year 1999,  which could
cause a system  failure or other  computer  errors,  leading to  disruptions  in
operations.  In April 1996, the Company developed a three-phase  program for Y2K
information systems compliance. Phase I was to identify those systems with which
the  Company  has  exposure  to Y2K  issues.  Phase II was the  development  and
implementation  of action  plans to be Y2K  compliant in all areas by late 1998.
Phase  III,  to be fully  completed  by mid  1999,  is the final  major  area of
exposure to ensure  compliance.  The Company  has  identified  three major areas
determined  to be critical for  successful  Y2K  compliance:  (1)  financial and
informational system applications,  (2) manufacturing applications and (3) third
party relationships.

         As  of  September  1,  1998,   Jaco  has  completed  the  redesign  and
development of an entirely new distribution software system. All of the dates in
this new database are 8 characters,  including the century.  The system has been
tested and has been in production as of September 1, 1998.  The systems  include
customer  order  entry,  purchase  order entry to the  Company's  manufacturers,
warehousing and inventory control.

         The financial  systems,  Accounts  Payable and General Ledger have been
Y2K compliant since April 1997. The Accounts  Receivable system is Y2K compliant
as of September 1, 1998.

     Jaco's  distribution  facilities:  warehouse,  shipping and other  physical
handling have been tested and are Y2K compliant.

         The Company, as it relates to the contract manufacturing  operations in
accordance  with Phase I of the  program,  is in the  process of  conducting  an
internal  review  of all  systems  and  contacting  all  software  suppliers  to
determine  major  areas  of  exposure  to  Y2K  issues.  In  the  financial  and
information  system area a number of  applications  have been  identified as Y2K
compliant due to their recent  implementation.  The contract  manufacturing core
financial  and  reporting  systems are not Y2K compliant but are scheduled to be
complete and fully tested by mid 1999. In the third party area,  the Company has
contacted most of its major third parties.  These parties state that they intend
to be Y2K compliant by the year 2000.

         The Company believes it will cost approximately $1.5 million to replace
the core financial,  reporting and distribution  software  systems.  The Company
utilized  outside  consultants  to undertake a portion of the work.  The Company
does not expect the cost that will be incurred to be material in connection with
the contract manufacturing area and the third party area.




                                       20
<PAGE>






 Inflation

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

Item 8.   Financial Statements and Supplementary Data.

         For an index to the financial  statements and  supplementary  data, see
Item 14(a).

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

         No response to this Item is required.






                                       21
<PAGE>




                                    PART III

Item 10.   Directors and Executive Officers of the Company.

         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, 1998.

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, 1998.

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

         Incorporated herein by reference is the information to appear under the
caption  "Principal  Shareholders;  Shares 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,
1998.

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, 1998.





                                       22
<PAGE>



<TABLE>
<CAPTION>

                                                       PART IV

Item 14. 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
                  Consolidated Statements of Earnings                                                  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-27

(a)      (2)      Financial Statement Schedule included in Part IV of this Report:
                  Report of Independent Certified Public Accountant on Schedule II                     F-28
                  Schedule II - Valuation and Qualifying Accounts                                      F-29
</TABLE>

Other  schedules are omitted  because of the absence of  conditions  under which
they are required or because the required  information is given in the financial
statements or notes thereto. Exhibit No.

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.

3.1.1    Certificate 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.




                                       23
<PAGE>






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.

10.3      Employment  Agreement between Joel Girsky and the Company,  dated
          December 29, 1989,  incorporated by reference to the Company's  Annual
          Report on Form 10-K for the year ended June 30,  1990 ("the  Company's
          1990 10-K"), Exhibit 10.3 pages 47-52.

10.4     1980 Stock Incentive  Plan,  incorporated by reference to the Company's
         Registration  Statement on Form S-1, Commission File No. 2-91547, filed
         June 9, 1984, Exhibit 10.4, pages 168-172.

10.5      Restated  1981  Incentive  Stock  Option Plan,  incorporated  by
          reference to the Company's 1987 10-K, Exhibit 10.1.

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).

10.7     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.

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.

10.9     Employment Agreement between Joel Girsky and the Company, dated October
         5, 1994,  incorporated  by reference to the Company's  Annual Report on
         Form 10-K for the year ended June 30, 1994, Exhibit 10.9.

10.10    Authorized 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.




                                       24
<PAGE>






10.11    Electronics 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.

10.12    Restricted  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
         No333-49877, filed April 10, 1998, Exhibit 4.4.
    

21.1     Subsidiaries of the Company.

23.1     Consent of Grant Thornton LLP.

27.      Financial Data Schedule.

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




                                       25
<PAGE>




 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.

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.  (b)  Reports on Form 8-K filed
         during last quarter of the period covered by this Report:

                  None.




                                       26
<PAGE>




                              INDEX TO CONSOLIDATED
                        FINANCIAL STATEMENTS AND SCHEDULE




<TABLE>
<CAPTION>
                                                                                                                Page


<S>                                                                                                                  <C>
Report of Independent Certified Public Accountants                                                                 F-2


Financial Statements

      Consolidated Balance Sheets                                                                                  F-3

      Consolidated Statements of Earnings                                                                          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-27

      Report of Independent Certified Public Accountants
         on Schedule                                                                                               F-28

      Schedule II - Valuation and Qualifying Accounts                                                              F-29

</TABLE>


                                      F-1
<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, 1997 and 1998
and the related  consolidated  statements of earnings,  changes in shareholders'
equity,  and cash flows for each of the three years in the period ended June 30,
1998.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our 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, 1997 and 1998, and the consolidated results
of their  operations  and their  consolidated  cash  flows for each of the three
years in the period ended June 30, 1998 in conformity  with  generally  accepted
accounting principles.




GRANT THORNTON LLP

Melville, New York
August 21, 1998





                                      F-2
<PAGE>




                       Jaco Electronics, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    June 30,

<TABLE>
<CAPTION>


                                    ASSETS                                               1997                  1998
                                                                                     -------------            --------

CURRENT ASSETS
<S>                                                                                   <C>                  <C>
    Cash                                                                              $     463,352        $     562,556
    Marketable securities                                                                   627,179              764,810
    Accounts receivable, less allowance for doubtful
       accounts of $846,000 in 1997 and $1,268,000
       in 1998                                                                           22,008,210           21,887,618
    Inventories                                                                          33,311,201           35,737,288
    Prepaid expenses and other                                                            1,359,617            1,203,198
    Prepaid income taxes                                                                    528,243              610,132
    Deferred income taxes                                                                   750,000              772,500
                                                                                       ------------         ------------

         Total current assets                                                            59,047,802           61,538,102




PROPERTY, PLANT AND EQUIPMENT - AT COST, NET                                              5,009,045            6,102,445




DEFERRED INCOME TAXES                                                                       244,000              333,000




EXCESS OF COST  OVER NET  ASSETS  ACQUIRED,  less  accumulated  amortization  of
    $501,000 in 1997
    and $719,000 in 1998                                                                  4,151,574            3,776,912




OTHER ASSETS                                                                              1,543,257            1,668,830
                                                                                        -----------          -----------

                                                                                        $69,995,678          $73,419,289
                                                                                         ==========           ==========
</TABLE>




The accompanying notes are an integral part of these statements.




                                      F-3
<PAGE>




                                         Jaco Electronics, Inc. and Subsidiaries

                                         CONSOLIDATED BALANCE SHEETS (continued)

                                                        June 30,

<TABLE>
<CAPTION>


                                LIABILITIES AND
                              SHAREHOLDERS' EQUITY                                        1997                  1998
                                                                                      -------------           ---------

 CURRENT LIABILITIES
<S>                                                                                     <C>                   <C>
    Accounts payable                                                                    $15,833,198           $16,633,389
    Current maturities of long-term debt and
       capitalized lease obligations                                                        599,239               663,198
    Accrued expenses                                                                      1,468,929             1,760,862
                                                                                        -----------           -----------

         Total current liabilities                                                       17,901,366            19,057,449


 LONG-TERM DEBT AND CAPITALIZED LEASE
    OBLIGATIONS                                                                          15,552,549            17,036,593


 DEFERRED COMPENSATION                                                                      650,000               700,000


 COMMITMENTS AND CONTINGENCIES


 SHAREHOLDERS' EQUITY
    Preferred stock - authorized, 100,000 shares, $10
       par value;  none issued
    Common  stock -  authorized,  10,000,000  shares,  $.10  par  value;  issued
       3,975,721 and 4,065,721 shares, respectively, and 3,888,221 and 3,866,221
       shares
       outstanding, respectively                                                            397,572               406,572
    Additional paid-in capital, net                                                      22,180,295            22,396,295
    Unrealized gain on marketable securities                                                120,200               164,385
    Retained earnings                                                                    13,893,696            15,077,957
    Treasury stock - 87,500 and 199,500 shares, respectively,
      at cost                                                                              (700,000)           (1,419,962)
                                                                                       ------------           -----------

                                                                                         35,891,763            36,625,247
                                                                                         ----------            ----------

                                                                                        $69,995,678           $73,419,289
                                                                                         ==========            ==========


</TABLE>


The accompanying notes are an integral part of these statements.




                                      F-4
<PAGE>




                                     Jaco Electronics, Inc. and Subsidiaries

                                       CONSOLIDATED STATEMENTS OF EARNINGS

                                              Year ended June 30,
<TABLE>
<CAPTION>





                                                                     1996                 1997                 1998
                                                                --------------        -------------           --------

<S>                                                               <C>                  <C>                  <C>
Net sales                                                         $167,149,385         $155,097,745         $153,674,226
Cost of goods sold                                                 133,105,227          122,993,172          121,796,083
                                                                   -----------          -----------          -----------

       Gross profit                                                 34,044,158           32,104,573           31,878,143

 Selling, general and administrative expenses                       26,246,741           27,639,567           28,706,520
                                                                  ------------         ------------         ------------

       Operating profit                                              7,797,417            4,465,006            3,171,623

Interest expense                                                     1,347,639              971,253            1,140,362
                                                                 -------------       --------------        -------------

       Earnings before income taxes                                  6,449,778            3,493,753            2,031,261

Income tax provision                                                 2,600,000            1,415,000              847,000
                                                                 -------------        -------------       --------------

       NET EARNINGS                                             $    3,849,778       $    2,078,753       $    1,184,261
                                                                 =============        =============        =============


Net earnings per common share
    Basic                                                               $1.11                $0.53                $0.31
                                                                         ====                 ====                 ====
    Diluted                                                             $1.08                $0.53                $0.30
                                                                         ====                 ====                 ====


Weighted-average common shares and common
    equivalent shares outstanding
      Basic                                                          3,479,707            3,899,181            3,836,700
                                                                     =========            =========            =========
      Diluted                                                        3,554,018            3,947,687            3,921,518
                                                                     =========            =========            =========




</TABLE>







The accompanying notes are an integral part of these statements.




                                      F-5
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

                        CONSOLIDATED STATEMENT OF CHANGES
                             IN SHAREHOLDERS' EQUITY

                    Years ended June 30, 1996, 1997 and 1998


<TABLE>
                                                                                               Unrealized
                                                                              Additional        gain on
                                                                                paid-in        marketable          Retained
                                               Shares          Amount           capital        securities          earnings
                                              --------        --------       ------------- ------------------- ----------------
<S>             <C>                          <C>              <C>          <C>                              <C>
Balance at July 1, 1995                      2,464,384        $246,438     $  5,013,663                     $  7,966,431

Issuance of common stock for cash            1,485,000         148,500       16,991,466
Exercise of stock options                        6,415             642           19,658
Payment for fractional shares resulting
from
   4-for-3 stock split                             (78)             (8)               8                           (1,266)
Unrealized gain on marketable securities                                                     $  68,245
- net
Net earnings                                                                                                   3,849,778
                                            --------------- -------------  ---------------- -------------     -----------


Balance at June 30, 1996                     3,955,721         395,572       22,024,795         68,245        11,814,943

Issuance of common stock in connection
with
   acquisition                                  20,000           2,000          155,500
Purchase of treasury stock
Unrealized gain on marketable
securities - net                                                                                51,955
Net earnings                                                                                                   2,078,753
                                            --------------- -------------  --------------- --------------     -----------


Balance at June 30, 1997                     3,975,721         397,572       22,180,295        120,200        13,893,696

Issuance of restricted  stock                   90,000           9,000          621,000
Deferred compensation expense
Purchase of treasury stock
Unrealized gain on marketable
   securities - net                                                                             44,185
Net earnings                                                                                                   1,184,261
                                            --------------- -------------  ---------------- -------------     -----------


Balance at June 30, 1998                     4,065,721        $406,572      $22,801,295       $164,385       $15,077,957
                                             =========         =======       ==========        =======        ==========

</TABLE>

<TABLE>
<CAPTION>





                                      F-6
<PAGE>




                                                             Deferred          Total
                                              Treasury        compen-       shareholders'
                                               stock          sation           equity
                                              --------        --------       ----------------

<S>             <C>                          <C>              <C>          <C>
Balance at July 1, 1995                                                    $13,226,532

Issuance of common stock for cash                                           17,139,966
Exercise of stock options                                                       20,300
Payment for fractional shares resulting
from
   4-for-3 stock split                                                          (1,266)
Unrealized gain on marketable securities                                         68,245
- net
Net earnings                                                                  3,849,778
                                            --------------- -------------  ---------------


Balance at June 30, 1996                                                     34,303,555

Issuance of common stock in connection
with
   acquisition                                                                  157,500
Purchase of treasury stock                $   (700,000)                        (700,000)
Unrealized gain on marketable
securities - net                                                                 51,955
Net earnings                                                                  2,078,753
                                            --------------- -------------  ----------------


Balance at June 30, 1997                      (700,000)                       35,891,763

Issuance of restricted  stock                                 $(540,000)          90,000
Deferred compensation expense                                   135,000          135,000
Purchase of treasury stock                    (719,962)                         (719,962)
Unrealized gain on marketable
   securities - net                                                               44,185
Net earnings                                                                    1,184,261
                                            --------------- -------------  -----------------


Balance at June 30, 1998                   $(1,419,962)       $(405,000)     $36,625,247
                                             =========         =======       =============


</TABLE>


The accompanying notes are an integral part of this statement.


                                       


                                      F-7
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended June 30,
<TABLE>
<CAPTION>

                                                                         1996                 1997                1998
                                                                      ------------       -------------        --------

Cash flows from operating activities
<S>                                                                <C>                  <C>                 <C>
   Net earnings                                                    $     3,849,778      $     2,078,753     $     1,184,261
   Adjustments to reconcile net earnings to net cash
     provided by (used in) operating activities
       Depreciation and amortization                                       719,899            1,050,666           1,356,457
       Deferred compensation                                                50,000               50,000             185,000
       Deferred income tax benefit                                        (158,000)            (119,000)             33,000
       Loss on sale of equipment                                             8,793                9,941               2,717
       Provision for doubtful accounts                                     761,190              255,931             475,816
       Changes in operating assets and liabilities, net of
         effects of acquisitions
          (Increase) decrease in accounts receivable                    (2,540,656)           1,603,022            (355,660)
           Increase in inventories                                      (3,435,627)          (1,767,196)         (2,426,087)
           Decrease (increase) in prepaid expenses and other               516,789             (615,364)            156,419
           Increase (decrease) in accounts payable                      (1,237,895)            (594,557)            800,191
           Increase (decrease) in accrued expenses                        (124,638)             235,950             291,933
           Decrease in income taxes payable                                (91,732)            (902,545)            (81,889)
                                                                  ----------------      ---------------    ----------------
       Net cash provided by (used in) operating activities              (1,682,099)           1,285,601           1,622,158
                                                                    --------------       --------------      --------------
Cash flows from investing activities
   Increase in marketable securities                                      (379,036)             (59,943)            (68,049)
   Capital expenditures                                                   (789,635)            (943,352)         (1,068,775)
   Proceeds from the sale of equipment                                      12,047               42,867             120,515
   Business acquisitions, net of cash acquired                                               (4,742,249)
   Decrease in due from officers, net                                      309,808
   Increase in other assets                                                  (6,328)           (176,728)           (258,905)
                                                                  -----------------     ---------------     ---------------
       Net cash used in investing activities                              (853,144)          (5,879,405)         (1,275,214)
                                                                   ---------------       --------------      --------------
Cash flows from financing activities
   Proceeds from public offering - net                                  17,139,966
   Borrowings from line of credit                                      173,061,732          161,931,215         152,258,926
   Payments of line of credit                                         (179,449,087)        (155,834,207)       (151,076,073)
   Principal payments under equipment financing                           (251,626)            (289,727)           (586,345)
   Payments under term loans                                            (8,214,286)            (214,286)           (214,286)
   Purchase of treasury stock                                                                  (700,000)           (719,962)
   Proceeds from issuance of restricted stock                                                                        90,000
   Proceeds from exercise of stock option                                   20,300
   Payments for fractional shares                                           (1,266)
                                                                    --------------       --------------    -----------------
       Net cash (used in) provided by financing activities               2,305,733            4,892,995            (247,740)
                                                                    --------------       --------------     ---------------
       NET INCREASE (DECREASE) IN CASH                                    (229,510)             299,191              99,204
Cash at beginning of year                                                  393,671              164,161             463,352
                                                                   ---------------      ---------------     ---------------
Cash at end of year                                               $        164,161     $        463,352    $        562,556
                                                                   ===============      ===============     ===============
Supplemental cash flow disclosures:
   Interest paid                                                   $     1,472,000     $        815,000     $     1,301,000
   Income taxes paid                                                     2,882,000            2,502,000             929,000
Supplemental schedule of noncash financing and investing activities:
     Equipment under capital leases                               $                    $        531,561     $     1,165,781
                                                                       -

</TABLE>

The accompanying notes are an integral part of these statements.




                                      F-8
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 1996, 1997 and 1998



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Jaco  Electronics,  Inc.  and  Subsidiaries  (the  "Company")  is primarily
engaged  in  the   distribution  of   semiconductors,   capacitors,   resistors,
electromechanical  devices, flat panel displays,  power supplies,  computers and
computer  subsystems,  produced by others,  for the  manufacture and assembly of
electronic products.  In addition,  the Company provides contract  manufacturing
services.

     Electronics  parts  distribution  sales include exports made principally to
customers located in Western Europe. For the years ended June 30, 1996, 1997 and
1998,  export  sales  amounted  to  approximately  $4,963,000,   $4,102,000  and
$4,537,000, 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.  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  gains of  approximately  $188,200  and $257,782 in 1997 and
         1998,  respectively.  Changes in the fair value of "available  for sale
         securities"  are  classified as a separate  component of  shareholders'
         equity, net of any related deferred tax effects.

     4.  Inventories

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
determined using the first-in, first-out and average cost methods.





                                      F-9
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     5.  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 will be amortized on a
          straight-line  basis over the  estimated  useful life of the software,
          which  will be five to seven  years.  Amortization  will  begin in the
          period in which the software is available for use.

     6.  Excess of Cost Over Net Assets Acquired

         The excess of cost over net assets  acquired is amortized  over periods
         of ten to forty  years  using the  straight-line  method.  The  Company
         periodically  reviews and evaluates  whether there has been a permanent
         impairment in the value of its intangibles.  Factors  considered in the
         valuation  include current  operating  results,  trends and anticipated
         undiscounted future cash flows.

     7.  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  has  been   established   to  reduce   deferred  tax  assets
         attributable to a subsidiary of the Company,  as it is more likely than
         not that all, or some portion,  of such deferred tax assets will not be
         realized.  The  effect  on  deferred  taxes of a change in tax rates is
         recognized in income in the period that includes the enactment date.

     8.  Earnings Per Common Share

          In fiscal 1998,  the Company  adopted the  provisions  of Statement of
     Financial  Accounting  Standards  No. 128 ("SFAS No.  128"),  "Earnings per
     Share." SFAS No. 128 replaces the  calculation of primary and fully diluted
     earnings  per share  with basic and  diluted  earnings  per  share.  Unlike
     primary earnings per share,  basic earnings per share excludes any dilutive
     effects






                                      F-10
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         of options,  warrants and convertible securities.  Diluted earnings per
         share is very similar to the previously reported fully diluted earnings
         per share.  All  earnings  per share  amounts for all periods have been
         presented, and, where appropriate, restated to conform to the SFAS No.
         128 computation.

     9.  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, as a  consequence,  believes
         that its accounts receivable credit risk exposure is limited.

         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,  expiring on September 13, 2000,  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,
         1998, the Company's top three suppliers  accounted for 16%, 13% and 9%,
         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.





                                      F-11
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    10.  Use of Estimates

         In preparing financial statements in conformity with generally accepted
         accounting  principles,  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.  Actual results could differ from
         those estimates.

    11.  Accounting Pronouncements Not Yet Adopted

     In July 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting  Comprehensive  Income" and Statement No. 131, "Disclosure About
Segments of an Enterprise and Related Information". Statement No.130, which must
be adopted by the Company in fiscal  year 1999,  establishes  standards  for the
reporting and display of  comprehensive  income and its components in a complete
set of financial  statements.  Statement No. 131,  which must also be adopted by
the Company in fiscal year 1999, changes the way segment information is reported
and establishes  standards for related  disclosures about products and services,
geographic areas, and major customers.

         The adoption of these new standards will not have a material  impact on
the Company's financial position or results of operations.


NOTE B - INVENTORY
<TABLE>
<CAPTION>

     Inventories consist of the following:

                                                                                                June 30,
                                                                                    1997                     1998

<S>                                                                                <C>                      <C>
        Finished goods and goods held for resale                                   $30,129,201              $30,490,288
        Work-in-process                                                                455,000                  555,000
        Raw materials                                                                2,727,000                4,692,000
                                                                                   -----------              -----------

                                                                                   $33,311,201              $35,737,288
                                                                                    ==========               ==========


</TABLE>





                                      F-12
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998

<TABLE>
<CAPTION>


NOTE C - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of:


                                                                         Useful                        June 30,
                                                                          life                 ---------------------
                                                                        in years            1997                1998
                                                                      ----------        ------------        --------

<S>                                                                     <C>   <C>         <C>                 <C>
         Land, building and improvements                                10 to 30          $1,468,708          $1,468,708
         Machinery and equipment                                         3 to 8            4,698,011           6,028,756
         Internally developed software costs                             5 to 7              549,159           1,123,897
         Transportation equipment                                        3 to 5               51,050              32,063
         Leasehold improvements                                          5 to 10             569,515             599,757
                                                                                          ----------          ----------

                                                                                           7,336,443           9,253,181

         Less accumulated depreciation and amortization
             (including $272,500 in 1997 and $326,134
             in 1998 of capitalized lease amortization)                                    2,327,398           3,150,736
                                                                                           ---------           ---------

                                                                                          $5,009,045          $6,102,445
                                                                                           =========           =========
</TABLE>

     Included in machinery and equipment are assets  recorded under  capitalized
leases at June 30, 1997 and 1998 for $949,695 and $1,789,913, respectively.


 NOTE D - INCOME TAXES

     The components of the Company's provision for income taxes is as follows:
<TABLE>
<CAPTION>

                                                                                     June 30,

                                                                1996                    1997                  1998
                                                            -------------          -------------           -------

        Federal
<S>                                                            <C>                    <C>                     <C>
           Current                                             $2,176,000             $1,262,000              $663,000
           Deferred                                              (158,000)              (119,000)               33,000
                                                               ----------             ----------              --------

                                                                2,018,000              1,143,000               696,000

        State                                                     582,000                272,000               151,000
                                                               ----------             ----------               -------

                                                               $2,600,000             $1,415,000              $847,000
                                                                =========              =========               =======


</TABLE>




                                      F-13
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE D - INCOME TAXES (continued)

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

                                                                                           June 30,
                                                                         --------------------------------------------
                                                                           1996               1997               1998
                                                                          ------            --------           ------

<S>                                                                       <C>                 <C>                <C>
        Statutory Federal tax rate                                        34.0%               34.0%              34.0%
        State income taxes, net of Federal tax benefit                     6.0                 5.1                5.0
        Sales expense for which no tax
           benefit arises                                                   .1                 1.8                2.4
        Other                                                               .2                 (.4)                .3
                                                                        ------              ------             ------

        Effective tax rate                                                40.3%               40.5%              41.7%
                                                                          ====                ====               ====
</TABLE>

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

                                                                                       1997                    1998
                                                                                   -------------           ------------

         Deferred tax assets
<S>                                                                                  <C>                    <C>
              Net operating loss carryforwards                                       $   409,000            $   260,000
              Allowance for bad debts                                                    308,000                463,000
              Inventory valuation                                                        691,000                874,000
              Deferred compensation                                                      237,000                255,000
              Other deferred assets                                                       65,000                198,500
                                                                                     -----------             ----------

                                                                                       1,710,000              2,050,500

         Deferred tax liabilities
             Depreciation                                                               (104,000)              (458,000)
             Other                                                                       (50,000)               (68,000)
             Unrealized gain on marketable securities
                available for sale                                                       (68,000)               (94,000)
                                                                                     -----------            -----------

                                                                                       1,488,000              1,430,500

         Valuation allowance                                                            (494,000)              (325,000)
                                                                                      ----------             ----------

         Net deferred tax asset                                                      $   994,000             $1,105,500
                                                                                      ==========              =========


</TABLE>





                                      F-14
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE D - INCOME TAXES (continued)

     At June 30, 1998,  the Company,  through an  acquisition,  has  available a
     Federal net operating loss carryforward of approximately $713,000. Such net
     operating  loss is subject to certain  limitations  and  expires in varying
     amounts during the fiscal years 2007 through 2009. Further, the Company has
     established  a valuation  allowance  with  respect to the net  deferred tax
     assets  attributable  to this  acquired  subsidiary.  During  fiscal  1998,
     $169,000 of such net  deferred tax asset was  recognized  as a reduction of
     the excess of cost over net assets  acquired  attributable  to the acquired
     subsidiary.  The  subsequent  realization  of such  deferred tax asset will
     result in the reduction of the excess of cost over net assets acquired.






                                      F-15
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998

<TABLE>
<CAPTION>


NOTE E - EARNINGS PER COMMON SHARE

                                                                  For the year ended June 30,
                                                      1996                                          1997
                                    ----------------------------------------      ----------------------------------------
                                       Income           Shares          Per          Income           Shares          Per
                                       (Numer-         (Denomi-        Share         (Numer-         (Denomi-        Share
                                        ator)           nator)        Amount          ator)           nator)        Amount
                                     ---------        ---------      -------       ---------        ---------      -------

       Basic earnings per share;
         income available to
<S>                                 <C>               <C>              <C>        <C>               <C>              <C>
         common shareholders        $3,849,778        3,479,707        $1.11      $2,078,753        3,899,181        $0.53

       Effect of dilutive
       securities
         Stock options                                   74,311                                        48,506
                                  ---------------   -----------                 ----------------  -----------


       Diluted earnings per
         share; income
         available
         to common shareholders
         plus assumed
         conversions                $3,849,778        3,554,018        $1.08      $2,078,753        3,947,687        $0.53
                                     =========        =========                    =========        =========
</TABLE>

<TABLE>
<CAPTION>

                                        For the year ended June 30,
                                                  1998
                                    ----------------------------------------
                                       Income           Shares          Per
                                       (Numer-         (Denomi-        Share
                                        ator)           nator)        Amount
                                     ---------        ---------       -------

       Basic earnings per share;
         income available to
<S>                                 <C>               <C>              <C>
         common shareholders        $1,184,261      3,836,700        $0.31

       Effect of dilutive
       securities
         Stock options                                84,818
                                  ---------------   -----------                 -


       Diluted earnings per
         share; income
         available
         to common shareholders
         plus assumed
         conversions                $1,184,261      3,921,518        $0.30
                                     =========      =========
</TABLE>
     Options to  purchase  217,631  shares of common  stock at a price  range of
     $7.00 to $12.75 and warrants to purchase  70,000  shares of common stock at
     $22.95  were  outstanding  during the year.  They were not  included in the
     computation of diluted  earnings per share because the exercise prices were
     greater than the average market price of the common shares.







                                      F-16
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998


<TABLE>
<CAPTION>

NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS

     Debt and capitalized lease obligations are as follows:

                                                                                                    June 30,
                                                                                        1997                      1998
                                                                                     ------------             -----------

<S>                                                                                   <C>                     <C>
       Term loans and revolving line of credit (a)                                    $14,821,883             $15,897,542
       Other term loans (b)                                                               358,073                 133,863
       Equipment notes (c)                                                                250,165                 115,998
       Capitalized lease obligations (d)                                                  847,328               1,825,066
                                                                                     ------------             -----------

                                                                                       16,277,449              17,972,469

       Less amounts representing interest on capitalized
           leases                                                                         125,661                 272,678
                                                                                     ------------            ------------

                                                                                       16,151,788              17,699,791

       Less current maturities                                                            599,239                 663,198
                                                                                     ------------            ------------

                                                                                      $15,552,549             $17,036,593
                                                                                       ==========              ==========
</TABLE>

     (a)   Term Loans and Revolving Line of Credit Facility

           The  Company's  agreement  with its banks,  as amended,  provides the
           Company with a  $30,000,000  term loan and  revolving  line of credit
           facility  based  principally  on  eligible  accounts  receivable  and
           inventories  of  the  Company  as  defined  in  the  agreements.  The
           agreement  was amended to: (i) extend the maturity  date to September
           13,  2000,  (ii)  change  the  interest  rate to a rate  based on the
           average  30 day  LIBOR  rate plus  3/4% to  1-1/4%  depending  on the
           Company's  performance  for the  immediately  preceding  four  fiscal
           quarters measured by a certain financial ratio, and (iii) changed the
           requirements of certain financial covenants.  The applicable interest
           rate may be adjusted quarterly and borrowings under this facility are
           collateralized by substantially all of the assets of the Company. The
           outstanding  balance on the  revolving  line of credit  facility  was
           $15,308,260  at June 30, 1998,  with an  associated  interest rate of
           6.91%. Pursuant to the same agreement,  at June 30, 1998, a term loan
           with a  remaining  balance of  $589,282  requires  monthly  principal
           payments of $17,857,  together  with interest  through  September 13,
           2000, with a final payment of $107,146 due on September 13, 2000. The
           agreement  contains  provisions for maintenance of certain  financial
           ratios, all of which the Company is in compliance with, and prohibits
           the payment of cash dividends.






                                      F-17
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998

<TABLE>
<CAPTION>


NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued)

     (b)   Other Term Loans

           Other term loans as of June 30, 1998 are as follows:

                                                                                                         Monthly
                Date of loan                                  Balance              Term                  payment

<S>                   <C> <C>                                <C>                 <C>                      <C>
                March 16, 1995                               $  23,070           60 months                $1,160
                March 16, 1995                                 110,793           84 months                 2,730
                                                               -------

                                                              $133,863
</TABLE>


           The above loans are collateralized by the related equipment acquired,
           having a carrying  value of  approximately  $331,000 at June 30, 1998
           and $422,000 at June 30, 1997.  The agreements  contain,  among other
           things,  restrictive covenants on one of the Company's  subsidiaries,
           which  place   limitations  on:  (i)   consolidations,   mergers  and
           acquisitions,   (ii)  additional   indebtedness,   encumbrances   and
           guarantees, (iii) loans to shareholders,  officers or directors, (iv)
           dividends  and  stock   redemptions,   and  (v)   transactions   with
           affiliates, all as defined in the agreements. The loans bear interest
           payable monthly, at 6% and 5.5%, respectively.

     (c)   Equipment Notes

           The  equipment  notes are payable  through  September  1999,  bearing
           implicit  interest rates from 7.55% to 9.68%, and are  collateralized
           by the related equipment.

     (d)   Capitalized Lease Obligations

           The Company leases certain  equipment under agreements  accounted for
           as  capital  leases.   During  fiscal  1998,  the  Company   acquired
           approximately  $1,166,000 of equipment  through capital  leases.  The
           obligations  for the  equipment  require the Company to make  monthly
           payments through July 2003, with implicit interest rates from 7.0% to
           8.5%.







                                      F-18
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998


<TABLE>
<CAPTION>

NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued)

     The following is a summary of the aggregate  annual  maturities of debt and
capitalized lease obligations as of June 30, 1998:

                                                                                                          Capitalized
                                                                                       Debt                   leases

        Year ending June 30,
<S>          <C>                                                                    <C>                      <C>
             1999                                                                   $     357,850            $   406,439
             2000                                                                         261,211                407,189
             2001                                                                      15,504,324                407,189
             2002                                                                          24,018                366,828
             2003                                                                                                218,869
             2004                                                                                                 18,552
                                                                                       ----------              ---------

                                                                                      $16,147,403             $1,825,066
                                                                                       ==========              =========
</TABLE>


NOTE G - COMMITMENTS AND CONTINGENCIES

<TABLE>
<CAPTION>

     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,
<S>                             <C>                                                    <C>
                                1999                                                   $1,117,447
                                2000                                                    1,084,685
                                2001                                                      949,898
                                2002                                                      922,080
                                2003                                                      897,361
                                Thereafter                                                354,589
                                                                                       ----------

                                                                                       $5,326,060
                                                                                       ==========
</TABLE>




                                      F-19
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE G - COMMITMENTS AND CONTINGENCIES (continued)
<TABLE>
<CAPTION>

         In addition,  the Company leases office and warehouse facilities from a
         partnership  owned by two  officers and  directors of the Company.  The
         lease  expires in  December  2003 and  requires  minimum  annual  lease
         payments as follows:

                            Year ending June 30,
<S>                             <C>                                                   <C>
                                1999                                                  $   569,550
                                2000                                                      598,000
                                2001                                                      627,900
                                2002                                                      659,327
                                2003                                                      692,293
                                Thereafter                                                354,589
                                                                                       ----------


                                                                                       $3,501,659
                                                                                       ==========
</TABLE>
         The  Company's  rent expense was  approximately  $528,000,  $602,00 and
         $602,000   for  the  years  ended  June  30,   1996,   1997  and  1998,
         respectively, in connection with the above lease.

         Rent expense on office and  warehouse  facilities  leases for the years
         ended June 30, 1996, 1997 and 1998 was approximately  $846,000 $962,000
         and $1,033,000,  respectively,  net of sublease income of approximately
         $120,000, $115,000 and $115,000, respectively.

     2.  Other Leases

         The Company also leases various office equipment and automobiles  under
         noncancellable  operating  leases  expiring  through  April  2003.  The
         minimum rental commitments required under these leases at June 30, 1998
         are as follows:

<TABLE>
<CAPTION>

                            Year ending June 30,
<S>                             <C>                                                      <C>
                                1999                                                     $219,448
                                2000                                                      128,922
                                2001                                                       29,613
                                2002                                                       15,096
                                2003                                                        8,659
                                                                                        ---------

                                                                                         $401,738
                                                                                        =========

</TABLE>




                                      F-20
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE G - COMMITMENTS AND CONTINGENCIES (continued)

     3.  Employment Agreement

         Effective  July  1,  1993,  the  Company  entered  into  an  employment
         agreement  with its Chairman  which  expired July 1, 1997,  pursuant to
         which the  Chairman  received  a base  annual  salary of  $325,000.  In
         addition,  the  Chairman was entitled to an annual bonus equal to 4% of
         earnings before income taxes, if earnings for a particular  fiscal year
         exceed  $1,000,000 or 6% if earnings  before income taxes are in excess
         of $2,500,000.  The agreement also provided for the continuation of the
         deferred  compensation  arrangement  first  established in fiscal 1985,
         whereby  $50,000 per year has been  accrued and becomes  payable in its
         entirety no later than January 15 of the year next  following  the last
         to occur of the following events: (1) the Chairman's  attainment of age
         60 (fiscal 1999) or (2) cessation of the Chairman's  employment with or
         without  cause after July 1, 1993.  In the event of a change in control
         resulting in  termination of the  Chairman's  employment,  the Chairman
         will receive  between  $450,000  and $600,000  depending on the date of
         termination.  For the years ended June 30, 1996, 1997 and 1998, bonuses
         of approximately  $387,000,  $210,000 and $81,000,  respectively,  were
         earned pursuant to the Chairman's employment agreement.  Presently, the
         Company is operating pursuant to the terms of the expired agreement and
         is in negotiations with its Chairman to extend his employment agreement
         under terms substantially similar to the above.

     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.







                                      F-21
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE H - 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,  1996,  1997 and 1998,  the  Company
     contributed  to this plan  approximately  $104,000,  $91,000 and  $132,000,
     respectively.


NOTE I - SHAREHOLDERS' EQUITY

     On October 20, 1995, the Company  completed a public  offering of 1,600,000
     shares of its common stock at $12.75 per share.  The offering  consisted of
     1,325,000  shares  offered by the  Company and  275,000  shares  offered by
     certain  officers and  directors of the Company.  On December 8, 1995,  the
     underwriters  of  the  public   offering   exercised  a  portion  of  their
     overallotment  option for an additional 160,000 shares at a price per share
     equal to that of the public  offering.  The Company's net proceeds from the
     public   offering  of  $17,139,966,   after  deducting  the   underwriters'
     commission and costs of the public  offering,  were used to reduce its bank
     indebtedness.  In  connection  with the public  offering,  the Company also
     issued stock warrants, to the representative  underwriters,  to purchase up
     to 70,000  shares of common  stock at an exercise  price per share equal to
     180% of the public offering price, which expire on October 20, 1999.

     The Company has stock option plans which  provide for the granting of stock
options to employees,  directors and officers  under the following  stock option
plans:

     In  November  1981,  the  Company  approved  the  adoption  of a  qualified
     incentive  stock option plan,  hereinafter  referred to as the "1981 Plan."
     The stock options  granted under the 1981 Plan were  generally  exercisable
     for a period of five years at a price not less than the market value on the
     date of grant.  The 1981 Plan terminated in November 1991.  Options granted
     prior to expiration of the 1981 Plan which,  by their terms,  do not expire
     until after November 1991 remain outstanding in accordance with their terms
     until  their  individual   expiration   dates.   During  fiscal  1996,  all
     outstanding options under the 1981 Plan had been exercised.





                                      F-22
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE I - SHAREHOLDERS' EQUITY (continued)

     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 of and price 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 600,000 from 293,333, of which 290,833 are outstanding.

     In October  1993,  the Board of Directors  approved the adoption of a stock
     option plan for outside directors, known as the "1993 Stock Option Plan for
     Outside  Directors,"  hereinafter  referred  to as the  "Outside  Directors
     Plan." Each  outside  director  who was serving as of December 31, 1993 was
     granted a  nonqualified  stock  option  to  purchase  14,667  shares of the
     Company's common stock at the fair market value on the date of grant.  Each
     outside  director  who was  serving on December  31 of each  calendar  year
     subsequent  to 1993 was  granted  options to purchase  2,933  shares of the
     Company's  common stock  annually.  The Outside  Directors  Plan expired on
     January  1,  1998,  with a total of  55,731  options  outstanding.  Granted
     options shall expire upon the earlier of five years after the date of grant
     or one year  following  the date on which the  outside  director  ceases to
     serve in such capacity.

     In June 1997, the Company  appointed an additional  outside director to the
     Board of Directors  who received  10,000  options to purchase the Company's
     common stock at the fair market value on the date of grant.  These  options
     were not granted  pursuant to any of the  Company's  existing  stock option
     plans.






                                      F-23
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE I - SHAREHOLDERS' EQUITY (continued)

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

                                                                                                                   Weighted
                                                      Incentive                       Nonqualified                  average
                                                    stock options                     stock options                exercise
                                             Price range          Shares       Price range          Shares           price

<S>                         <C> <C>            <C>                <C>        <C>         <C>       <C>             <C>
        Outstanding at June 30, 1995           $1.02              2,750      $  4.77 -   5.80      135,300         $  5.06

        Granted                                                              $ 11.50 -  12.75       68,366           12.64
        Exercised                              $1.02             (2,750)     $  4.77                (3,666)           4.77
                                                                 ------                          ---------

        Outstanding at June 30, 1996                             -           $  4.77 - 12.75       200,000            7.65

        Granted                                                              $  7.00 -  8.50       150,265            7.15
        Exercised

        Outstanding at June 30, 1997                             -           $  4.77 - 12.75       350,265            7.44

        Granted                                                              $  6.25                 8,799            6.25
        Expired                                                              $ 12.75                (2,500)          12.75
                                                            ------------                         ---------           -----

        Outstanding at June 30, 1998                             -           $  4.77 - 12.75       356,564            7.37
                                                            ============                           =======

        Amounts exercisable at
            June 30, 1998                                        -           $  4.77 - 12.75       356,564            7.37
                                                            ============                           =======

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

</TABLE>
<TABLE>
<CAPTION>

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

<S>          <C>     <C>                                            <C>               <C>                      <C>
             $4.77 - $  9.00                                        290,698           29 months                $  6.18

             $9.01 - $12.75                                          65,866           29 months                 $12.64


</TABLE>




                                      F-24
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE I - SHAREHOLDERS' EQUITY (continued)

     The  weighted-average  option fair value on the grant date was $3.10, $1.82
     and $1.88 for options issued during the years ended June 30, 1996, 1997 and
     1998, respectively.

     The Company has adopted the disclosure provisions of Statement of Financial
     Accounting  Standards No. 123,  "Accounting for  Stock-Based  Compensation"
     ("SFAS No.  123");  it applies APB Opinion  No. 25,  "Accounting  for Stock
     Issued to  Employees,"  and related  interpretations  in accounting for the
     Plan and does not  recognize  compensation  expense  for such Plan.  If the
     Company had elected to recognize  compensation  expense based upon the fair
     value at the grant dates for awards under these plans  consistent  with the
     methodology prescribed by SFAS No. 123, the Company's reported net earnings
     and earnings  per share would be reduced to the pro forma amount  indicated
     below for the years ended June 30:
<TABLE>
<CAPTION>

                                                                         1996                 1997                 1998
                                                                    ---------------      ---------------      ---------

        Net earnings
<S>                                                                     <C>                  <C>                  <C>
            As reported                                                 $3,849,778           $2,078,753           $1,184,261
            Pro forma                                                    3,639,117            1,805,602            1,167,761
        Net earnings per common share  - basic
            As reported                                                     $1.11                 $.53                 $.31
            Pro forma                                                        1.05                  .46                  .30
        Net earnings per common share - diluted
            As reported                                                     $1.08                 $.53                 $.30
            Pro forma                                                        1.02                  .46                  .30

</TABLE>

     These pro forma  amounts may not be  representative  of future  disclosures
     because they do not take into effect 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, 1996, 1997 and 1998, respectively: expected volatility of 25%, 25%
     and 35%;  risk-free  interest rates of 5.67%,  6.32% and 5.42% and expected
     term of 3 years for all years.

     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.




                                      F-25
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE I - SHAREHOLDERS' EQUITY (continued)

     The Board of Directors of the Company has  authorized the purchase of up to
     250,000  shares  of its  common  stock  under a stock  repurchase  program.
     Subsequent to year-end, the Board of Directors authorized the repurchase of
     up to an  additional  400,000  shares of the Company's  common  stock.  The
     purchases  may be made by the Company  from time to time on the open market
     at the Company's discretion and will be dependent on market conditions.  To
     date,  the Company has  purchased  404,500  shares of its common  stock for
     aggregate consideration of $2,176,342 under this program.

     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 has issued 90,000 shares of common stock to certain
     employees  at a purchase  price of $1.00 per share.  Shares  purchased  are
     subject to a four-year vesting period and the Company  recognized  $135,000
     of compensation expense during fiscal 1998 in connection with this plan.


NOTE J - ACQUISITIONS

     During August 1996 and January 1997, the Company purchased QPS Electronics,
     Inc.  and  Corona  Electronics,  Inc.,  respectively,  both  of  which  are
     electronic  component  distributors.  Aggregate  consideration paid for the
     acquisitions  approximated  $4,700,000,  of which $157,500 was paid through
     the  issuance  of  20,000  shares  of the  Company's  common  stock.  These
     acquisitions  have been accounted for by the purchase  method and, as such,
     the fair value of the assets and liabilities acquired have been recorded on
     the date of the respective  acquisitions.  The respective  results of their
     operations  are  included  with  those  of the  Company  from  the  date of
     acquisition.  The excess of the  purchase  price over the fair value of the
     assets  acquired,  approximately  $3,053,000,  is being amortized using the
     straight-line  method over a period of twenty years.  Pro forma  historical
     results of  operations  are not  presented,  as such  results  would not be
     materially different from the historical results of the Company.






                                      F-26
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE K - SEGMENT INFORMATION

     The Company has two business  segments:  electronics parts distribution and
     contract manufacturing. The following is a summary of selected consolidated
     information  for  the  electronics  components  distribution  and  contract
     manufacturing segments.
<TABLE>
<CAPTION>

                                                                                    Year ended June 30,
                                                                           ------------------------------------
                                                                      1996                  1997                 1998
                                                                   ---------             ---------              -------
                                                                                      (in thousands)

       Sales
<S>                                                                 <C>                   <C>                  <C>
           Electronics components distribution                      $156,303              $145,091             $137,297
           Contract manufacturing                                     10,846                10,007               16,377
                                                                    --------              --------             --------

                                                                    $167,149              $155,098             $153,674
                                                                     =======               =======              =======

       Operating profit
           Electronics components distribution                    $    7,640            $    3,994           $    2,251
           Contract manufacturing                                        157                   471                  921
                                                                  ----------            ----------           ----------

                                                                  $    7,797            $    4,465           $    3,172
                                                                   =========             =========            =========

       Identifiable assets
           Electronics components distribution                     $  53,600             $  61,515            $  60,929
           Contract manufacturing                                      7,543                 8,481               12,490
                                                                   ---------             ---------             --------

                                                                   $  61,143             $  69,996            $  73,419
                                                                    ========              ========             ========

       Capital expenditures
           Electronics components distribution                   $       524           $       810           $    1,002
           Contract manufacturing                                        266                   133                   67
                                                                  ----------            ----------          -----------

                                                                 $       790            $      943           $    1,069
                                                                  ==========             =========            =========

       Depreciation and amortization
           Electronics components distribution                   $       422           $       742          $       913
           Contract manufacturing                                        298                   309                  443
                                                                  ----------            ----------           ----------

                                                                 $       720            $    1,051           $    1,356
                                                                  ==========             =========            =========


</TABLE>




                                      F-27
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                          June 30, 1996, 1997 and 1998



NOTE L - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL
                  DATA (UNAUDITED)
<TABLE>
<CAPTION>

                                                                           Quarter ended
                                               September 30,        December 31,          March 31,          June 30,
                                                   1997                 1997                1998               1998

<S>                                            <C>                 <C>                  <C>                 <C>
      Net sales                                $36,878,534         $39,787,894          $38,334,936         $38,672,862
      Gross profit                               7,817,154           8,198,631            7,913,643           7,948,715
      Net earnings                                 398,030             463,183              262,859              60,189

      Earnings per common share
         Net earnings per common
           share - basic and diluted                  $.10         $.12                        $.07                $.02
                                                       ===          ===                         ===                 ===


</TABLE>
<TABLE>
<CAPTION>

                                                                           Quarter ended
                                               September 30,      December 31,           March 31,           June 30,
                                                   1996              1996                  1997                1997

<S>                                             <C>               <C>                  <C>                  <C>
      Net sales                                 $38,321,790       $38,194,939          $38,661,610          $39,919,406
      Gross profit                                8,115,502         8,011,793            7,863,345            8,113,933
      Net earnings                                  787,641           621,281              347,338              322,493

      Earnings per common share
         Net earnings per common
           share - basic and diluted                   $.20             $.16                  $.09                 $.08
                                                        ===              ===                   ===                  ===



</TABLE>



<PAGE>






                         REPORT OF INDEPENDENT CERTIFIED
                         PUBLIC ACCOUNTANTS ON SCHEDULE




Board of Directors and Shareholders
    Jaco Electronics, Inc.


In connection with our audit of the  consolidated  financial  statements of Jaco
Electronics,  Inc. and  Subsidiaries  referred to in our report dated August 21,
1998, 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,  1998.  In
our opinion,  this  schedule  presents  fairly,  in all material  respects,  the
information required to be set forth therein.





GRANT THORNTON LLP


Melville, New York
August 21, 1998






                                      F-28
<PAGE>




                     Jaco Electronics, Inc. and Subsidiaries

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                    Years ended June 30, 1996, 1997 and 1998


<TABLE>
<CAPTION>



             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, 1996             $610,000          $761,000        $153,000 (a)       $766,000 (b)     $   758,000
                                          =======           =======         =======            =======          ==========

    Year ended June 30, 1997             $758,000          $256,000       $  95,000 (a)(c)    $263,000 (b)     $   846,000
                                          =======           =======        ========            =======          ==========

    Year ended June 30, 1998             $846,000          $476,000        $226,000 (a)       $280,000 (b)      $1,268,000
                                          =======           =======         =======            ========          =========


</TABLE>


(a)  Recoveries of accounts.
(b)  Represents  write-offs  of  uncollectible  accounts.  (c) Includes  balance
attributable to acquired subsidiary.

                                      F-29
<PAGE>


                                                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.


Date:    September 28, 1998                  By: Joel H. Girsky
                                             --------------------
                                             Joel H. Girsky, Chairman of the
                                             Board, President and Treasurer
                                             (Principal Executive Officer)

         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.

Date:    September 28, 1998                   Joel H. Girsky
                                              ---------------------
                                              Joel H. Girsky, Chairman of the
                                              Board, President and Treasurer
                                              (Principal Executive Officer)

Date:    September 28, 1998                   Jeffrey D. Gash
                                              ---------------------
                                              Jeffrey D. Gash, Vice President
                                              Finance
                                              Principal Financial and Accounting
                                              Officer)

Date:    September 28, 1998                   Stephen A. Cohen
                                              ---------------------
                                              Stephen A. Cohen, Director


Date:    September 28, 1998                   Edward M. Frankel
                                              ---------------------
                                              Edward M. Frankel, Director


Date:    September 28, 1998                   Charles B. Girsky
                                              ---------------------
                                              Charles B. Girsky, Executive
                                              Vice President and Director


Date:    September 28, 1998                   Joseph F. Hickey, Jr.
                                              -------------------------------
                                              Joseph F. Hickey, Jr., Director