# SECURITIES
                      AND EXCHANGE COMMISSION

## Washington, D.C. 20549

# FORM 10-K

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

For the fiscal year ended
 ..........................................................................................................................................June 30, 2001

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

For the transition period from ______________________________________ to ________________________________

 Commission File Number 0-5896 
                                                                                 JACO ELECTRONICS, INC.                                                                      (Exact name of registrant as specified in its charter)

New York                                                                                                   11-1978958                        

(State or other jurisdiction 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:              (631) 273-5500
           Securities registered pursuant to Section 12(b) of the Act: None

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

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.

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.

The aggregate market value
of Common Stock held by non-affiliates of the Company, computed by reference to
       the closing price on Septermber 24 , 2001 was $17,556,293.

Number of shares outstanding of each class of Common Stock, as of September 24, 2001:
                                5,707,459 shares.

|Part | III: Definitive Proxy Statement to be filed on or before October 29, 2001, under
Regulation 14A, in connection with the Companys 2001 Annual Meeting of
Shareholders.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Forward-Looking
Statements

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

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

`o     Dependence  on a limited  number of  suppliers  for  products  which  generate a
            significant portion of our sales.
      o     Absence of long-term contracts.
      o     Strikes  or delays  in air or sea  transportation  and  possible  future  United
            States  legislation  with respect to pricing  and/or  import  quotas on products
            imported from foreign countries.
      o     Recent terroists attacks may create instability and uncertainty in the electronic
            components industry.
      o     General economic downturns in the electronic  components industry which may have
            an  adverse  economic  effect  upon   manufacturers,   end-users  of  electronic
            components and electronic components distributors.
      o     Volatile pricing of electronic components.
      o     Competitive  pressures  in  the  industry  may  increase  significantly  through
            industry consolidation and entry of new competitors.
      o     Costs or difficulties  related to the integration of  newly-acquired  businesses
            may be greater than expected.
      o     Limited  allocation of products by suppliers may reduce  availability of certain
            products.
      o     Adverse changes may occur in the securities markets.`

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

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

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

## Our Company

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

`o telecommunications equipment            o computers and office equipment

o medical devices and instrumentation     o industrial equipment and controls

o military/aerospace systems              o automotive and consumer electronics`

We
have two distribution centers and 20 strategically located sales offices
throughout the United States. We distribute more than 35,000 products from over
75 vendors, including such market leaders as Kemet Electronics Corporation,
Vishay Intertechnology, Inc., and Samsung Semiconductor, Inc., to a base of over
6,000 customers through a dedicated and highly motivated sales force. To enhance
our ability to distribute electronic components, we provide a variety of
value-added services including automated inventory management services,
assembling stock items for our customers into pre-packaged kits, integrating and
assembling various custom components with flat panel displays to customer
specifications and providing contract manufacturing services. Our core customer
base consists primarily of small and medium-sized manufacturers that produce
electronic equipment used in a wide variety of industries.

In
June 2000, we acquired Interface Electronics  Corp.("Interface").  We paid $15.4
million in cash and assumed $3.3 million in bank debt and are  obligated to make
deferred payments of up to approximately $6.6 million during the two year period
following June 2000 if certain  minimum  sales  levels are achieved.
For  the  period  ended  June  7,  2001,  Interface  met  certain  minimum
sales  levels, and we paid an amount equal to $3.76 million Interface is a
distributor of electronic  components,  primarily in the Northeast and Southeast
United  States.  As a result  of the  Interface  acquisition,  we have  acquired
distribution rights for certain significant vendor lines in the United States.

## Our Industry

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

## Products

We
currently distribute over 35,000 stock items. Our management believes that it is
necessary for us to carry a wide variety of items in order to fully service our
customers requirements. Our products fall into two broad categories:
active and passive components. Historically, active components and
passive components each represented approximately 50% of our net distribution
sales. With the additional suppliers added as a result of the azquistion of Interface,
active components represented approximately 60% of our net distribution sales and passive
components represented 40% during the current fiscal year.

Active
components principally include semiconductors. Semiconductors consist of such
items as integrated circuits, microprocessors, transistors, diodes, dynamic
random access memory (RAM), static RAMs, video RAMs and metal oxide
field effect transistors. Computer subsystems are an integral part of
personal computers and computer workstations and incorporate such items as flat
panels and flat panel monitors, touchscreens andcontrollers. Passive
components consist primarily of capacitors, electromechanical devices, and
resistors.

## Value-Added
Services

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

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

      o     Kitting.  Kitting consists of assembling to a customer's specifications two or
            more of our 35,000 stock items into pre-packaged kits ready for use in the
            customer's assembly line.  Kitting services allow us to provide a partial or
            complete fill of a customer's order and enable the customer to more efficiently
            manage its inventory.

      o     Flat Panel  System  Integration.  We provide  customized  hardware  and software
            solutions to meet  specific flat panel  display  requirements.  We can assemble,
            integrate, test and deliver complete flat panel display products.

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

## Sales and
Marketing

We
believe we have developed valuable long-term customer relationships and an
in-depth understanding of our customers needs and purchasing patterns. Our
sales personnel are trained to identify our customers requirements and to
actively market our entire product line to satisfy those needs. We serve a broad
range of customers in the computer, computer-related, telecommunications, data
transmission, defense, aerospace, medical equipment and other industries. None
of our customers individually represented more than seven percent of net sales
in any of the fiscal years ended June 30, 2001, 2000 and 1999.

As
an authorized distributor for key vendors, we are able to offer our customers
engineering support as well as warranty protection from the product
manufacturers which enhances our ability to attract new customers and close
sales. We provide additional customer support through communication with
customers from computer to computer or through EDI, and through technically
competent product managers and Field Application Engineers (FAEs).
Our FAEs provide design support and technical assistance to our customers with
detailed data solutions employing the latest technologies.

Sales
are made throughout North America from the sales departments maintained at our
two distribution facilities located on the East and West Coasts of the United
States in California and New York and from 20 strategically located sales
offices. Sales are made primarily through personal visits by our employees and
by a staff of trained telephone sales personnel who answer inquiries and receive
and process orders from customers. In addition, we utilize the services of
independent sales representatives whose territories include parts of North
America and several foreign countries. These independent sales representatives
operate under agreements which are terminable by either party upon 30 days
notice and prohibit them from representing competing product lines. Independent
sales representatives are authorized to solicit sales of all of our product
lines.

## Suppliers

Manufacturers
of electronic components increasingly rely on the marketing, customer service
and other resources of distributors who market their product lines to customers
not normally served by the manufacturer, and to supplement the
manufacturers direct sales efforts in other accounts often by providing
value-added services not offered by the manufacturer. Manufacturers seek
distributors who have strong relationships with desirable customers, are
financially strong, have the infrastructure to handle large volumes of products
and can assist customers in the design and use of the manufacturers
products. Currently, we have non-exclusive distribution agreements with many
manufacturers, including California Micro Devices Corporation, Dallas
Semiconductor Corporation, Epson Electronics America, Inc., Hynix Semiconductor
America, Inc., Johanson Dielectrics, Inc., Kemet Electronics Corporation, North
American Capacitor Company, Samsung Semiconductor, Inc., TDK Corporation of
America, and Vishay Intertechnology, Inc.We continuously seek to
identify potential new suppliers and obtain additional distributorships for new
lines of products. We believe that such expansion and diversification will
increase our sales and market share.

We
generally purchase products from manufacturers pursuant to non-exclusive
distributor agreements. As an authorized distributor, we are able to offer our
suppliers marketing support.

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

## Operations

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

Our
central computer system facilitates the control of purchasing and inventory,
accounts payable, shipping and receiving, and invoicing and collection
information of our distribution business. Our distribution software system
includes financial systems, EDI, customer order entry, purchase order entry to
manufacturers, warehousing and inventory control. Each of our sales departments
and offices is electronically linked to our central computer systems which
provides fully integrated on-line real-time data with respect to our inventory
levels. Our inventory management system was developed internally and is
considered proprietary. We track inventory turns by vendor and by product, and
our inventory management system provides immediate information to assist in
making purchasing decisions and decisions as to which inventory to exchange with
suppliers under stock rotation programs. Our inventory management system also
uses bar-code technology along with scanning devices, which we supply to certain
customers, and is networked to the facilities of such customers. In some cases,
customers use computers that interface directly with our computers to identify
available inventory and rapidly process orders. We also monitor supplier stock
rotation programs, inventory price protection, rejected material and other
factors related to inventory quality and quantity. This system enables us to
more effectively manage our inventory and to respond more quickly to customer
requirements for timely and reliable delivery of components. Our inventory
turnover was approximately 4.9 times for the fiscal year ended June 30,
2001.

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

Nexus
Vermont 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. Management believes
sophisticated customers increasingly are requiring their manufacturers to be ISO
9002-certified for purposes of quality assurance.

## Competition

The
electronic components distribution industry is highly competitive, primarily
with respect to price and product availability. We believe that the breadth of
our customer base, services and product lines, our level of technical expertise
and the quality of our services generally are also particularly important. We
compete with large national distributors such as Arrow Electronics, Inc. and
Avnet, Inc., as well as regional and specialty distributors, such as All
American Semiconductor, Inc. and Reptron Electronics, Inc., many of whom
distribute the same or competitive products. Many of our competitors have
significantly greater name recognition and greater financial and other resources
than we do.

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

## Backlog

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

## Employees

At
June 30, 2001, we had a total of 475 employees, of which 157 were employed by
Nexus. Of our total employees, 12 were engaged in administration, 56 were
managerial and supervisory employees, 199 were in sales and 208 performed
warehouse, manufacturing and clerical functions. Of these employees, Nexus
employed two in administration, 16 in management and supervisory positions, two
in sales and 137 in warehouse, manufacturing and clerical functions. There are
no collective bargaining contracts covering any of our employees. We believe our
relationship with our employees is satisfactory.

All
of our facilities are leased except for the Brandon, Vermont property which is
owned by Nexus. We currently lease 24 facilities strategically located
throughout the United States, two of which are multipurpose facilities used
principally as administrative, sales, and purchasing offices, as well as
warehouses, one of which is used for contract manufacturing and the remainder of
which are used principally by us as sales offices. Our satellite sales offices
range in size from approximately 500 square feet to approximately 4,000 square
feet. Base rents for such properties range from approximately $1,000 per month to
approximately $9,800 per month. Depending on the terms of each particular lease,
in addition to base rent, we may also be responsible for portions of real estate
taxes, utilities and operating costs, or increases in such costs over certain
base levels. The lease terms range from one year to as long as
five years. All facilities are linked by computer terminals to our
Hauppauge, New York headquarters. The following table sets forth certain
information regarding our four principal leased facilities:

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

Hauppauge, NY (1) ............   $53,600   72,000   Administrative,   12/31/03
                                                    Sales and
                                                    Warehouse

Franklin, MA .................   $18,100   11,700   Sales             3/31/05

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

Westlake Village,CA  ........... $10,000   11,000 Administrative,     4/30/03
                                                    Sales and
                                                    Warehouse`

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

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

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

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

No response to this Item is required.

# PART II

| | (a) Our common stock is traded on the Nasdaq National Market under the symbol
JACO. The stock prices listed below represent the high and low sale
prices of the common stock, as reported by the Nasdaq National Market, for each
fiscal quarter beginning with the first fiscal quarter of the fiscal year ended
June 30, 2000. Stock prices prior to July 25, 2000 have been adjusted to give
effect to a 3-for-2 stock split which was effective on July 24, 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`High           Low
                                                                 ----           ---
 Fiscal Year 2000:

First quarter ended September 30, 1999 .............        $    4.38     $    1.67

Second quarter ended December 31, 1999 .............             4.00          2.00

Third quarter ended March 31, 2000 .................             9.83          3.21

Fourth quarter ended June 30, 2000 .................            18.67          5.33

 Fiscal Year 2001:

First quarter ended September 30, 2000 .............        $   19.67     $   10.75

Second quarter ended December 31, 2000 .............            16.88          6.13

Third quarter ended March 31, 2001 .................            10.75          5.69

Fourth quarter ended June 30, 2001 .................             8.09          4.66

 Fiscal Year 2002:

(through September 24, 2001) .......................        $    6.39          $3.25`

| | (b)
On September 24, 2001, the last reported sale price of our common stock on the
Nasdaq National Market was $3.85 per share (which gives effect to the 3-for-2
stock split which was effective on July 24, 2000). As of August 30, 2001, there
were approximately 139 holders of record of our common stock. We believe our
stock is held by more than 1,800 beneficial owners.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

`Year Ended June 30
                                                                   ----------------------------------------------
                                                                   ----------------------------------------------
                                                           2001        2000       1999         1998       1997
                                                          --------    --------   --------     --------   --------
                                                                (in thousands, except per share data)
Consolidated Statement Of Operations Data:

Net sales .............................................  $350,222    $209,325   $140,711     $153,674   $155,098

Cost of goods sold ....................................   283,382     162,443    113,335      121,796    122,993
                                                         --------    --------   --------     --------   --------
Gross profit ..........................................    66,840      46,882     27,376       31,878     32,105

Selling, general and administrative expenses ..........    46,098      34,523     27,642       28,707     27,640
                                                                     --------   --------     --------   --------
  Operating profit (loss) .............................    20,742      12,359       (266)       3,171      4,465

Interest expense ......................................     4,120       1,559      1,309        1,140        971
                                                         --------    --------   --------     --------   --------
  Earnings (loss) before income taxes .................    16,622      10,801     (1,575)       2,031      3,494

Income tax expense (benefit) ..........................     6,772       4,425       (418)         847      1,415
                                                         --------    --------   --------     --------   --------
Net earnings (loss) ...................................  $  9,850    $  6,376   $ (1,157)    $  1,184   $  2,079
                                                         ========    ========   ========     ========   ========
Net earnings (loss) per common share     .............





Basic .................................................  $   1.74   $   1.16     $  (0.21)  $   0.21    $   0.36
                                                           ========   ========     ========   ========  ========


Diluted ..............................................  $   1.59    $   1.11   $  (0.21)    $   0.20   $   0.35
                                                         ========    ========   ========     ========   ========
Weighted average number of
common and common equivalent
shares outstanding ....................................     5,670       5,498      5,547        5,755      5,849
  Basic
  Diluted .............................................     6,179       5,766      5,547        5,882      5,922`

`At June 30
                                 ------------------------------------------------
                                       2001       2000     1999     1998     1997
                                    -------    -------   ------   ------   ------
Consolidated Balance Sheet Data:                     (in thousands)

Working capital .................$   78,308    $58,384  $41,998  $42,481  $41,146

Total assets ....................   136,315    126,329   72,931   73,419   69,996

Short-term debt .................     1,082        807      792      663      599

Long-term debt ..................    56,128     40,941   18,886   17,037   15,553

Shareholders' equity ............    53,251     42,790   34,868   36,625   35,892`

## Results of
Operations

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

`Year Ended June 30,
                                                --------------------------------
                                                  2001        2000        1999
                                                 ------      ------      ------
Net sales .................................       100.0%      100.0%      100.0%
                                                  ------      ------      ------
Cost of goods sold ........................        80.9        77.6        80.5
                                                  ------      ------      ------
Gross profit ..............................        19.1        22.4        19.5
Selling, general and administrative .......        13.2        16.5        19.7
                                                  ------      ------      ------
expenses
Operating profit (loss) ...................         5.9         5.9        (0.2)
Interest expense ..........................         1.2         0.8         0.9
                                                  ------      ------      ------
Earnings (loss) before income taxes .......         4.7         5.1        (1.1)
Income tax provision (benefit) ............         1.9         2.1        (0.3)
                                                  ------      ------      ------
Net earnings (loss) .......................         2.8%        3.0%       (0.8)%
                                                  ======      ======      ======`

## Comparison of
Fiscal Year Ended June 30, 2001 (Fiscal 2001) with Fiscal Year
Ended June30, 2000 (Fiscal 2000)

Net
sales for Fiscal 2001 were $350.2 million, an increase of 67.3%, as compared to
$209.3 million for Fiscal 2000. Our net sales benefited from both a strong demand for
components throughout the electronics industry for the first six months and additional sales generated
from the acquisition of Interface Electronics Corp.(Interface). Interface
brought a new customer base as well as additional suppliers to sell to our
existing customers. During the last two quarters of Fiscal 2001, the demand for
components was greatly reduced. As a result, we experienced a decrease in sales
sequentially. We believe net sales will continue to be impacted for the
foreseeable future until such time that the excess inventory at our customers
have been used.

Gross
Profit was $66.8 million in Fiscal 2001, an increase of $19.9 million, or 42.6%,
compared to Fiscal 2000. Gross profit margins as a percentage of net sales were
19.1% during Fiscal 2001 compared to 22.4% during Fiscal 2000. The decrease in
gross profit margins was as a result of the weakening in demand for electronic
components toward the end of Fiscal 2001 and an increase in semiconductor sales
due to the new suppliers that were added by the
acquisition of Interface.

Selling,
general and administrative (SG&A) expenses were $46.1 million in
Fiscal 2001, an increase of $11.6 million, or 33.5%, compared to $34.5 million
in Fiscal 2000. As a percentage of net sales, SG&A expenses decreased in
Fiscal 2001 to 13.2% compared to 16.5% in Fiscal 2000. The increase in spending
is attributable to higher staffing levels that was required to support the
increase in net sales, an increase in variable costs such as commissions paid to
sales personnel, and the additional costs associated with the acquisition of
Interface. The decrease in SG&A expenses as a percentage of net sales reflects operating
efficiencies realized by higher sales.

Interest
expense increased to $4.1 million in Fiscal 2001, as compared to $1.6 million in
Fiscal 2000. The increase was primarily attributable to the additional
borrowings needed for the acquisition of Interface, and capital required due
to the increase in accounts receivable and inventory that were necessary to
support the growth in sales.

Net
earnings for Fiscal 2001 were $9.9 million, or $1.59 per share diluted compared
to net earnings for Fiscal 2000 of $6.4 million, or $1.11 per share diluted. The
increase in net earnings was attributable to the increase in net sales, the
operating efficiencies realized by the increase in net sales, and the successful
integration of Interface during the fiscal year.

## Comparison of
Fiscal Year Ended June 30, 2000 with Fiscal Year Ended June 30, 1999 ("Fiscal 1999")

Net
sales for Fiscal 2000 were $209.3 million, an increase of $68.6 million, or
48.8%, as compared to $140.7 million reported for Fiscal 1999. Our net sales
benefited from strong demand for components throughout the electronics industry.
In addition, we have continued to experience strong demand for flat panels and
flat panel monitors. We have also made significant investments in sales
personnel and infrastructure, which has contributed to our sales growth. We
continue to enhance our sales by providing value-added services related to
assisting customers in procurement and inventory management.

Gross
profit was $46.9 million in Fiscal 2000, an increase of $19.5 million or 71.2%,
compared to $27.4 million in Fiscal 1999. Gross profit margins as a percentage
of net sales were 22.4% during Fiscal 2000 compared to 19.5% during Fiscal 1999.
The strong demand for electronic components is primarily responsible for the
increase in gross profit margins during Fiscal 2000.

Selling,
general and administrative (SG&A) expenses were $34.5 million in
Fiscal 2000, an increase of $6.9 million, or 24.9%, compared to $27.6 million in
Fiscal 1999. As a percentage of net sales, SG&A expenses decreased in Fiscal
2000 to 16.5% compared to 19.7% in Fiscal 1999. The increase in spending is
primarily attributable to expenses necessary to support the growth in sales.
These expenses include additional sales and marketing personnel, investments in
our infrastructure, and the additional costs associated with the acquisition of
substantially all the assets of PGI Industries Inc. ("PGI")and the acquisition of Interface.
The decrease as a percentage of net sales reflects operating
efficiencies realized by us with higher revenue levels.

Operating
profit (loss) for Fiscal 2000 was $12.4 million as compared to $(0.3) million
for Fiscal 1999. As a percentage of net sales, operating profit (loss) increased
in Fiscal 2000 to 5.9% as compared to (0.2)% in Fiscal 1999.

Interest
expense increased to $1.6 million in Fiscal 2000, as compared to $1.3 million in
Fiscal 1999. The 19.1% increase was primarily due to the additional net
borrowings of approximately $15 million to acquire Interface during the fourth
quarter of Fiscal 2000. We will continue to see increased interest expense to
the extent of higher borrowing levels.

Net
earnings for Fiscal 2000 were $6.4 million, or $1.11 per share diluted compared
to a net loss for Fiscal 1999 of $1.2 million, or $.21 per share diluted.
Diluted earnings per share includes the dilutive effect of outstanding stock
options. The increase in net earnings was attributable to the increase in net
sales, the increase in gross profit margins, the reduction in SG&A expenses
and the acquisition of Interface.

## Liquidity and
Capital Resources

Our
agreement with our banks, as amended, which expires on September 14, 2002,
provides us with a $80million revolving line of credit facility through
September 30, 2001, at which point it will revert back to $70 million. The
credit facility is based principally on eligible accounts receivable and
inventories as defined in the agreement. The interest rate of the credit
facility was based on the average 30-day LIBOR rate plus 1.75% through the
quarter ended September 30, 2000 and since October 1, 2000, the rate converted
to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance
for the immediately preceding four fiscal quarters measured by a certain
financial ratio, and is adjusted quarterly. The interest rate on the credit
facility for the quarter ended June 30, 2001 was the 30-day LIBOR rate plus
1.5%. The outstanding balance on the revolving line of credit facility was
$54,6 million at June 30, 2001. Borrowings under this facility are
collateralized by substantially all of our assets. The agreement contains
provisions for maintenance of certain financial ratios, all of which we were in
compliance with at June 30, 2001, and prohibits the payment of cash dividends.

For
Fiscal 2001, our net cash used in operating activities was approximately $8.8
million, as compared to net cash used in operating activities of $7.0 million
for Fiscal 2000. The increase in net cash used is primarily attributable to a
decrease in accounts payable during the fiscal year, partially offset by a
decrease in accounts receivable for Fiscal 2001. Net cash used in investing
activities decreased to $6.2 million for Fiscal 2001 as compared to $13.4
million for Fiscal 2000. The decrease is primarily attributable to the
acquisition of the operating assets of PGI and the purchase of Interface during
Fiscal 2000.

Our
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 2001 and Fiscal 2000, our inventory turnover was 4.9x and 3.7x,
respectively. The average days outstanding of our accounts receivable at June
30, 2001 was 42 days, as compared to 57 days at June 30, 2000.

We
believe that cash flow from operations and funds available under our credit
facility will be sufficient to fund our capital needs for at least the next
twelve months.

## Inflation

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

We
are exposed to interest rate changes with respect to our credit facility which
bears interest at the higher of the prime rate or the federal funds rate plus
0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus
1.0% to 2.25% depending on our performance for the immediately preceding four
fiscal quarters measured by a certain financial ratio, and may be adjusted
quarterly. At June 30, 2001, $54.6 million was outstanding under the credit
facility. Changes in the LIBOR interest rate during Fiscal 2001 will have a
positive or negative effect on our interest expense. Each 1.0% fluctuation in
the LIBOR interest rate will increase or decrease interest expense for us by
approximately $0.5 million based on outstanding borrowings at June 30, 2001.

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

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

# PART III

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 29, 2001.

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 29, 2001.

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 29, 2001.

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 29, 2001.

`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:
            Index to Consolidated Financial Statements and Schedule             F-1
            Report of Independent Certified Public Accountants                  F-2
            Consolidated Balance Sheets                                         F-3- F-4
            Consolidated Statements of Operations                               F-5
            Consolidated Statement of Changes in Shareholders' Equity           F-6
            Consolidated Statements of Cash Flows                               F-7
            Notes to Consolidated Financial Statements                          F-8- F-30

     (2)    Financial Statement Schedule included in Part IV of this Report:
            Report of Independent Certified Public Accountants on Schedule      F-31
            Schedule II - Valuation and Qualifying Accounts                     F-32`

`INDEX TO CONSOLIDATED
                         FINANCIAL STATEMENTS AND SCHEDULE




                                                                             Page


Report of Independent Certified Public Accountants                            F-2


Financial Statements

    Consolidated Balance Sheets                                             F-3 - F-4

    Consolidated Statements of Operations                                     F-5

    Consolidated Statement of Changes in Shareholders' Equity                 F-6

    Consolidated Statements of Cash Flows                                     F-7

    Notes to Consolidated Financial Statements                             F-8 - F-31

    Report of Independent Certified Public Accountants
      on Schedule                                                            F-32

    Schedule II - Valuation and Qualifying Accounts                          F-33`

We have audited the
accompanying consolidated balance sheets of Jaco Electronics, Inc. and
Subsidiaries (the Company) as of June 30, 2001 and 2000 and the
related consolidated statements of operations, changes in shareholders
equity, and cash flows for each of the three years in the period ended June 30,
2001. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Jaco Electronics, Inc. and Subsidiaries
as of June 30, 2001 and 2000, and the consolidated results of their operations
and their consolidated cash flows for each of the three years in the period
ended June 30, 2001 in conformity with accounting principles generally accepted
in the United States of America.

`Jaco Electronics, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    June 30,



                        ASSETS                                 2001          2000

CURRENT ASSETS
   Cash .............................................        $89,523       $617,603
   Marketable securities ............................        771,406        880,954
   Accounts receivable, less allowance for doubtful
     accounts of $1,695,000 in 2001 and $1,111,000
     in 2000 ........................................     37,820,946     42,179,468
   Inventories ......................................     62,212,121     53,415,793
   Prepaid expenses and other .......................        824,121        887,804
   Prepaid and refundable income taxes ..............        486,325
   Deferred income taxes ............................      2,190,000      1,975,000

      Total current assets ..........................    104,394,442     99,956,622



PROPERTY, PLANT AND EQUIPMENT - AT COST, NET ........      8,389,651      6,926,734



DEFERRED INCOME TAXES ...............................        436,000



GOODWILL, less accumulated amortization of $2,121,000
   in 2001 and $1,141,000 in 2000 ...................     20,095,844     16,600,432



OTHER ASSETS ........................................      2,998,902      2,845,305
                                                         -----------    -----------
                                                        $136,314,839   $126,329,093
                                                         ===========    ===========`

The accompanying notes are
an integral part of these statements.

`Jaco Electronics, Inc. and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS (continued)

                                    June 30,


                    LIABILITIES AND
                 SHAREHOLDERS' EQUITY                        2001           2000

 CURRENT LIABILITIES
   Accounts payable                                     $  21,035,641  $  35,346,299
   Current maturities of long-term debt and
     capitalized lease obligations                         1,081,905        807,444
   Accrued compensation                                    2,335,614      2,191,693
   Accrued expenses                                        1,632,803      1,652,019
   Income taxes payable                                                   1,575,319
                                                          ----------      ---------

       Total current liabilities                          26,085,963     41,572,774


 LONG-TERM DEBT AND CAPITALIZED LEASE
   OBLIGATIONS                                            56,128,243     40,940,877


 DEFERRED INCOME TAXES                                                      225,000


 DEFERRED COMPENSATION                                       850,000        800,000


 COMMITMENTS AND CONTINGENCIES


 SHAREHOLDERS' EQUITY
   Preferred stock - authorized, 100,000 shares, $10
     par value; none issued
   Common stock - authorized, 20,000,000 and
       10,000,000 shares, respectively, $.10
     par value; issued, 6,315,759 and 6,252,259
     shares,
     respectively, and 5,697,459 and 5,633,959 shares
     outstanding, respectively                               631,576        625,226
   Additional paid-in capital, net                        24,615,866     23,906,301
   Retained earnings                                      30,146,599     20,296,761
   Accumulated other comprehensive income                     61,107        166,669
   Treasury stock - 618,300 shares at cost                (2,204,515)    (2,204,515)
                                                         -----------     -----------
                                                          53,250,633     42,790,442
                                                         -----------     -----------
                                                        $136,314,839   $126,329,093
                                                         ===========    ===========

The accompanying notes are an integral part of these statements.`

`Jaco Electronics, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended June 30,





                                                  2001           2000              1999

Net sales ...................................  $350,222,202   $209,325,180    $140,710,825
Cost of goods sold ..........................   283,382,288    162,443,001     113,334,627
                                                -----------     -----------    -----------
     Gross profit ...........................    66,839,914     46,882,179      27,376,198

 Selling, general and administrative expenses    46,098,155     34,522,667      27,642,724
                                                 -----------     -----------    -----------
     Operating profit (loss) ................    20,741,759     12,359,512        (266,526)

Interest expense ............................     4,119,362      1,558,558       1,308,624
                                                  ---------      ---------       ----------

     Earnings (loss) before income taxes ....    16,622,397     10,800,954      (1,575,150)

Income tax provision (benefit)                    6,772,000      4,425,000        (418,000)
                                                  ---------      ---------       ----------

     NET EARNINGS (LOSS) ....................   $ 9,850,397    $ 6,375,954      $(1,157,150)
                                                  =========      =========        ==========

Net earnings (loss) per common share:
   Basic ....................................   $      1.74   $       1.16    $      (0.21)
   Diluted ..................................   $      1.59   $       1.11    $      (0.21)


Weighted-average common shares and common
   equivalent shares outstanding:
    Basic ...................................     5,669,560      5,497,866       5,547,405
    Diluted .................................     6,178,653      5,766,086       5,547,405



The accompanying notes are an integral part of these statements.`

`Jaco Electronics, Inc. and Subsidiaries

                        CONSOLIDATED STATEMENT OF CHANGES
                             IN SHAREHOLDERS' EQUITY

                    Years ended June 30, 2001, 2000 and 1999


                                                                                    Accumulated
                                                        Additional                      other                        Deferred        Total
                                   Common stock           paid-in        Retained   comprehensive     Treasury        compen-     shareholders'
                                 Shares    Amount        capital         earnings      income           stock         sation        equity


Balance at July 1, 1998 .....   4,065,721  $ 406,572    $22,801,295    $15,077,957   $ 164,385       $(1,419,962)   $(405,000)    $36,625,247

Net loss ....................                                           (1,157,150)                                                (1,157,150)
Unrealized gain on marketable
  securities - net of .......
  deferred taxes ............                                                           49,322                                        49,322
Deferred compensation expense                                                                                         135,000         135,000
Purchase of treasury stock                                                                              (784,553)                    (784,553)


Balance at June 30, 1999        4,065,721     406,572     22,801,295     13,920,807      213,707        (2,204,515)    (270,000)     34,867,866

Net earnings ................                                             6,375,954                                                    6,375,954
Unrealized loss on marketable
  securities - net of .......
  deferred taxes ............                                                           (47,038)                                        (47,038)
Exercise of stock options ...    102,482      10,248        860,760                                                                     871,008
Stock options income tax ....
benefits                                                    431,840                                                                     431,840
Restricted stock plan income
tax benefits                                                155,812                                                                     155,812
Effect of 3-for-2 stock split  2,084,056      208,406      (208,406)
Deferred compensation expense                                                                                          135,000          135,000

                              ----------   ----------     ----------    ----------     ----------     ----------    ----------        ----------
Balance at June 30, 2000 ....  6,252,259      625,226     24,041,301    20,296,761       166,669      (2,204,515)     (135,000)        42,790,442

Net earnings ................                                            9,850,397                                                     9,850,397
Unrealized loss on marketable
  securities - net of .......
  deferred taxes                                                                        (105,562)                                       (105,562)
Exercise of stock options ...     63,500        6,350        430,275                                                                     436,625
Stock options income tax ....
benefits                                                     111,890                                                                     111,890
Restricted stock plan income
tax benefits                                                  32,400                                                                      32,400
Payment of fractional shares                                                  (559)                                                         (559)
Deferred compensation expense                                                                                         135,000             135,000

                               ----------   ----------     ----------   ----------    ----------     ----------    ----------        ----------
Balance at June 30, 2001 ....   6,315,759   $ 631,576    $ 24,615,866  $ 30,146,599    $ 61,107     $(2,204,51)                      $ 53,250,633
                               ==========    ==========    ==========    ==========    =========     ==========    ==========         ============



The accompanying notes are an integral part of this statement.`

`Jaco Electronics, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended June 30,

                                                                        2001             2000              1999

Cash flows from operating activities
  Net earnings (loss) ..........................................   $   9,850,397      $   6,375,954    $ (1,157,150)

  Adjustments to reconcile net earnings
  (loss) to net cash provided by (used in) operating activities
     Depreciation and amortization .............................       3,223,205        1,868,420        1,587,766
     Deferred compensation .....................................         185,000          185,000          185,000
     Deferred income tax (benefit) expense .....................        (803,402)        (996,963)         351,000
     Gain on sale of equipment .................................                                              (918)
     Provision for doubtful accounts ...........................       1,397,601          597,694          981,622
     Changes in operating assets and
     liabilities, net of
      effects of acquisitions
        Decrease (increase) in accounts receivable..............       2,736,517      (14,659,938)      (2,502,904)
        (Increase) decrease in inventories .....................      (8,951,107)     (15,356,153)       2,512,569
        (Increase) decrease in prepaid expenses and other.......          (9,558)         (57,057)         542,416
        (Increase) decrease in prepaid and refundable income taxes..... (486,325)
        (Decrease) increase in accounts payable.................     (14,310,658)      10,630,824         (710,232)
        Increase (decrease) in accrued compensation.............         143,921        1,299,706          (61,188)
        (Decrease) increase in accrued expenses.................        (244,216)        540,639            12,488
        (Decrease) increase in income taxes payable.............      (1,575,319)       2,566,174          (380,723)
                                                                      ----------        ----------        ----------
     Net cash (used in) provided by operating activities.........     (8,843,944)       (7,005,700)       1,359,746
                                                                      ----------        ----------        ----------
Cash flows from investing activities
  Purchase of marketable securities ............................         (56,692)         (73,407)         (39,139)
  Capital expenditures .........................................      (1,997,194)        (892,149)      (1,603,361)
  Proceeds from the sale of equipment ..........................                          128,892                             9,689
  Business acquisitions, net of cash acquired ..................                      (14,877,230)
  Business acquisitions - deferred payments ....................      (3,810,000)
  (Increase) decrease in other assets ..........................        (327,264)       2,342,542           (7,834)

                                                                      ----------        ----------        ----------
     Net cash used in investing activities .....................      (6,191,150)      (13,371,352)      (1,640,645)
                                                                      ----------        ----------        ----------

Cash flows from financing activities
  Borrowings from line of credit ...............................     324,090,871       95,831,956       53,507,313
  Borrowings under term loan for equipment .....................                                           575,000
  Payments of line of credit ...................................    (309,269,516)     (76,391,130)     (51,851,995)
  Principal payments under equipment financing..................        (733,983)        (612,792)        (590,889)
  Payments under term loan .....................................        (160,714)        (214,286)        (214,286)
  Purchase of treasury stock ...................................                                          (784,553)
  Payment of fractional shares .................................            (559)
  Proceeds from exercise of stock options ......................         436,625          871,008
  Stock options income tax benefits ............................         111,890          431,840
  Restricted stock plan income tax benefits ....................          32,400          155,812
                                                                      ----------        ----------      -----------
     Net cash provided by financing activities..................      14,507,014        20,072,408          640,590
                                                                      ----------        ----------       -----------

     NET (DECREASE) INCREASE IN CASH ...........................        (528,080)        (304,644)          359,691

Cash at beginning of year ......................................         617,603          922,247           562,556
                                                                      ----------        ----------       -----------

Cash at end of year ............................................      $   89,523      $   617,603         $ 922,247
                                                                      ==========      ============        ==========

Supplemental disclosures of cash flow
information:
  Cash paid during the year for:
   Interest ....................................................    $  4,120,000       $  1,559,000       $ 1,310,000

   Income taxes ................................................       9,493,000          2,267,000            22,000
Supplemental schedule of non-cash financing
and investing activities:
        Accrued acquisition costs ................................       225,000
   Equipment under capital leases and note payable                     1,535,169            126,229           552,544


The accompanying notes are an integral part of these statements.`

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

Electronics parts distribution sales include exports made principally to
   customers located in Western Europe, Canada, Mexico, and the Far East.  For
   the years ended June 30, 2001, 2000 and 1999, export sales amounted to
   approximately $52,358,000, $8,170,000 and $4,810,000, respectively.

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

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.

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

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 $95,139 and $261,379 in 2001 and 2000, respectively.
      Changes in the fair value of available-for-sale securities are included in
      accumulated other comprehensive income, net of the related deferred tax
      effects.

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

Property, plant and equipment are stated at cost.  Depreciation is provided
      for using the straight-line method over the estimated useful life of the
      assets.

The Company capitalizes costs incurred for internally developed software
      where economic and technological feasibility has been established.  These
      capitalized software costs are being amortized on a straight-line basis
      over the estimated useful life of seven years.

Goodwill and other intangible assets represent the excess of the aggregate
      price paid by the Company over the fair market value of the tangible assets
      acquired in business acquisitions accounted for as a purchase.  Goodwill
      and other identifiable intangible assets have been amortized on a straight-line
      basis from five to forty years.

The Company has
     reviewed long-lived assets and certain identifiable  intangibles (including
     goodwill, property and equipment) for impairment whenever events or changes
     in circumstances  indicated that the carrying amount of an asset may not be
     recoverable.  An impairment  loss would have been recognized when estimated
     future  discounted  cash flows expected to result from the use of the asset
     and its eventual  disposition is less than its carrying amount. The Company
     has not identified such impairment losses.

On July 20, 2001, the
     Financial Accounting Standards Board (FASB) issued Statement of
     Financial   Accounting   Standards  No.  141  (SFAS  No.  141),
     Business  Combinations,  and Statement of Financial  Accounting
     Standards No. 142  (SFAS  No.  142),  Goodwill  and Other
     Intangible  Assets.  SFAS  No.  141 is  effective  for  all  business
     combinations  completed  after June 30, 2001. SFAS No. 142 is effective for
     fiscal years beginning after December 15, 2001. However, certain provisions
     of this statement  apply to goodwill and other  intangible  assets acquired
     between  July 1,  2001  and the  effective  date of SFAS No.  142.  The new
     standards require that all business  combinations  initiated after June 30,
     2001  be  accounted  for  under  the  purchase  method.  In  addition,  all
     intangible  assets acquired that are obtained through  contractual or legal
     right,  or are capable of being  separately  sold,  transferred,  licensed,
     rented or exchanged  shall be recognized  as an asset apart from  goodwill.
     Goodwill and intangibles with indefinite lives will no longer be subject to
     amortization,  but will be  subject  to at least an annual  assessment  for
     impairment by applying a fair value-based test.

The Company has adopted, as
     of July 1, 2001, the provisions of SFAS Nos. 141 and 142. Therefore, annual
     and quarterly  amortization  of goodwill of  approximately  $1,120,000  and
     $280,000, respectively, will no longer be recognized. By December 31, 2001,
     the Company will have completed a transitional fair value-based  impairment
     test of goodwill to  determine  if the fair value is less than the recorded
     value  at July 1,  2001.  Impairment  losses,  if any,  resulting  from the
     transitional  testing will be recognized in the quarter ended  December 31,
     2001  as  a  cumulative  effect  of  a  change  in  accounting   principle.

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 had been  established  to
     reduce  deferred tax assets  attributable  to a subsidiary  of the Company.
     During fiscal 2001, the Company  utilized a significant  portion of the net
     operating   loss   carryforwards   and  thus   eliminated   the   valuation
     allowance.

Earnings per share have been restated for all periods presented to give
      effect to a 3-for-2 stock split announced on June 26, 2000.

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

Financial instruments, which potentially subject the Company to
      concentration of credit risk, consist principally of accounts receivable.
      Concentration of credit risk with respect to accounts receivable is
      generally mitigated due to the large number of entities comprising the
      Company's customer base, their dispersion across geographic areas and
      industries, along with the Company's policy of maintaining credit
      insurance.  The Company routinely addresses the financial strength of its
      customers and, historically, its accounts receivable credit risk exposure
      is limited.  However, during the fourth quarter of fiscal 1999 the Company
      recorded approximately $630,000 of additional bad debt expense, relating to
      the bankruptcy of a customer.

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 14, 2002, 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, 2001,
      products purchased from three suppliers accounted for 14%, 12% and 10%,
      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.

In preparing financial statements in conformity with accounting
      principles generally accepted in the United States of America,
      management is required to make estimates and assumptions that affect the
      reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the financial statements, as well
      as the reported amounts of revenues and expenses during the reporting
      period.  Actual results could differ from those estimates.

In fiscal 1999, the Company adopted Statement of Financial Accounting
      Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income."  SFAS
      No. 130 established rules for the reporting and display of comprehensive
      income and its components; however, the adoption of SFAS No. 130 had no
      impact on the Company's earnings or shareholders' equity.  SFAS No. 130
      requires unrealized holding gains or losses on debt and equity securities
      available for sale, which prior to adoption were only reported separately
      in shareholders' equity to be included in comprehensive income and
      accumulated other comprehensive income.

In fiscal 1999, the Company adopted Statement of Financial Accounting
      Standards No. 131 (SFAS No. 131), "Disclosures About Segments of an
      Enterprise and Related Information."  SFAS No. 131 requires that the
      Company disclose certain information about its operating segments defined
      as "components of an enterprise about which separate financial information
      is available that is evaluated regularly by the chief operating decision
      maker in deciding how to allocate resources and in assessing performance."
      Generally, financial information is required to be reported on the basis
      that it is used internally for evaluating segment performance and deciding
      how to allocate resources to segments.

Advertising costs are expensed as incurred and totaled $175,954, $109,308
      and $250,198 for the years ended June 30, 2001, 2000 and 1999,
      respectively.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE B - INVENTORY

   Inventories consist of the following:

                                                                June 30,
                                                          2001             2000

    Finished goods and goods held for resale         $52,841,604      $48,609,676
    Work-in-process                                    1,401,102          885,688
    Raw materials                                      7,969,415        3,920,429
                                                      ----------        ---------
                                                     $62,212,121      $53,415,793
                                                     ===========      ===========

NOTE C - PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment consist of:

                                                 Useful
                                                  life              June 30,
                                                 in years      2001         2000

     Land, building and improvements            10 to 30  $1,482,419  $  1,482,419
     Machinery and equipment                     3 to 7   11,573,339     8,928,252
     Internally developed software costs           7       1,952,319     1,831,851
     Transportation equipment                    3 to 5      162,707        88,105
     Leasehold improvements                      5 to 10   1,293,424        601,218
                                                           ---------    -----------
                                                          16,464,208    12,931,845
                                                          ==========    ==========
     Less accumulated depreciation and
     amortization
        (including $1,378,070 in 2001 and
        $950,604 in 2000 of capitalized lease
        amortization)                                      8,074,557     6,005,111
                                                           ---------     ---------
                                                         $ 8,389,651  $  6,926,734
                                                           =========     =========`

Included in machinery and
equipment are assets recorded under capitalized leases at June 30, 2001 and 2000
for $3,967,825 and $2,468,686, respectively. Accumulated amortization of
internally developed software costs at June 30, 2001 and 2000 aggregated
$654,010 and $383,713, respectively.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



 NOTE D - INCOME TAXES

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

                                                         June 30,
                                            2001           2000            1999

    Federal
       Current                          $5,853,000     $3,448,000      $(887,000)
       Deferred                           (803,000)       (67,000)       351,000
                                         ---------      ---------       --------
                                         5,050,000      3,381,000       (536,000)

    State                                1,722,000      1,044,000        118,000
                                         ---------      ---------       --------
                                        $6,772,000     $4,425,000      $(418,000)
                                         =========      =========       ========

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

                                                                   June 30,
                                                         2001        2000          1999

    Statutory Federal tax rate                           34.0%       34.0%         (34.0)%
    State income taxes, net of Federal tax
    benefit                                               6.7         5.5            5.0
    Sales expense for which no tax benefit arises         1.0          .9            2.4
    Other                                                (1.0)         .6             .1
                                                         -----       -----         ------
    Effective tax rate                                   40.7%       41.0%         (26.5)%
                                                         =====       =====          ======`

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



 NOTE D - INCOME TAXES (continued)

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

                                                            2001           2000

     Deferred tax assets
        Net operating loss carryforwards               $   187,000    $   430,000
        Allowance for bad debts                            619,000        384,000
        Inventory valuation                              1,820,000      1,421,000
        Deferred compensation                              310,000        292,000
        Other deferred tax assets                          364,000        352,000

                                                         3,300,000      2,879,000

     Deferred tax liabilities
        Depreciation                                      (594,000)      (618,000)
        Unrealized gain on marketable securities
          available for sale                               (34,000)       (99,000)
        Other                                              (46,000)       (87,000)

                                                         2,626,000      2,075,000

     Valuation allowance                                                 (325,000)


     Net deferred tax asset                              $2,626,000    $1,750,000`

At June 30, 2001, the Company, through an acquisition, has available a Federal
   net operating loss carryforward of approximately $413,000.  Such net operating
   loss is subject to certain limitations and expires in varying amounts during
   the fiscal years 2007 through 2010.  Further, the Company had established a
   valuation allowance with respect to the net deferred tax assets attributable
   to this acquired subsidiary, which was eliminated during fiscal 2001.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE E - EARNINGS (LOSS) PER COMMON SHARE

                                                                        For the year ended June 30,
                                                2001                            2000                           1999
                                        Income     Shares     Per        Income    Shares     Per       Loss       Shares      Per
                                        (numer-   (denomi-   share       (numer-  (denomi-   share      (numer-    (denomi-    share
                                         ator)     nator)    amount       ator)    nator)    amount      ator)      nator)     amount

   Basic earnings
   (loss) per share;
     income available
     to common shareholders            $9,850,397  5,669,560   $1.74    $6,375,954  5,497,866  $1.16   $(1,157,150)  5,547,405  $(0.21)


   Effect of dilutive
   securities
     Stock options                                   509,093                         268,220


   Diluted earnings
   (loss) per
     share; income
     available
     to common
     shareholders
     plus assumed
     conversions                      $9,850,397   6,178,653   $1.59    $6,375,954  5,766,086  $1.11  $(1,157,150)   5,547,405  $(0.21)

     Excluded from the  calculation of earnings (loss) per share are options and
     warrants to purchase  90,688,45,000 and 832,943 shares in fiscal 2001, 2000
     and 1999, respectively, as their inclusion would have been antidilutive.`

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS

    Debt and capitalized lease obligations are as follows:

                                                                 June 30,
                                                            2001           2000

   Term loan and revolving line of credit (a)          $54,556,622     $39,895,981
   Other term loans (b)                                    324,689         469,535
   Equipment note                                           30,634
   Capitalized lease obligations (c)                     2,561,909       1,533,389

                                                        57,473,854      41,898,905

   Less amounts representing interest on capitalized
      lease obligations                                    263,706         150,584

                                                        57,210,148      41,748,321

   Less current maturities                               1,081,905         807,444

                                                       $56,128,243     $40,940,877`

The Companys
agreement with its banks, as amended, provides the Company with a $80,000,000
revolving line of credit facility through September 30, 2001, at which point it
will revert back to $70,000,000. The credit facility is based principally on
eligible accounts receivable and inventories of the Company as defined in the
agreement. The agreement was amended during fiscal 2001 to (i) increase the
amount available under the revolving line of credit, and (ii) extend the
maturity date to September 14, 2002. The interest rate is based on the average
30-day LIBOR plus 1% to 2-1/4% depending on the Companys performance for
the immediately preceding four fiscal quarters measured by a certain financial
ratio. 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
$54,556,622 at June 30, 2001, with an associated interest rate of 5.43%. 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.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued)

   (b)  Other Term Loans

        Other term loans as of June 30, 2001 are as follows:

                                                                      Monthly
         Date of loan                     Balance       Term          payment

         March 16, 1995                $  24,019       84 months      $2,730
         January 14, 1999                300,670       60 months       9,829
                                        --------
                                        $324,689`

The above loans are
collateralized by the related equipment acquired, having a carrying value of
approximately $398,000 at June 30, 2001 and $586,000 at June 30, 2000. 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 5.5% and 1% per
annum, respectively.

The Company leases certain
equipment under agreements accounted for as capital leases. The aggregate
obligations for the equipment require the Company to make monthly payments
through March 2005, with implicit interest rates from 7.0% to 8.5%.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



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, 2001:

                                                                        Capitalized
                                                            Debt          leases

    Year ending June 30,
       2002                                           $    145,933    $    980,122
       2003                                             54,680,336         788,395
       2004                                                 76,363         469,864
       2005                                                  8,562         323,528
       2006                                                    751
                                                        ----------      ----------
                                                       $54,911,945      $2,561,909
                                                        ==========       =========`

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:

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:

The Companys rent
expense was approximately $602,000 for each of the years ended June 30, 2001,
2000 and 1999, respectively, in connection with the above lease.

Rent expense on office and
warehouse facilities leases for the years ended June 30, 2001, 2000 and 1999 was
approximately $1,826,000, $1,235,000 and $1,131,000, respectively, net of
sublease income of approximately $115,000, $127,000 and $110,000, respectively.

The Company also leases
various office equipment and automobiles under noncancellable operating leases
expiring through June 2005. The minimum rental commitments required under these
leases at June 30, 2001 are as follows:

The Company has entered
into employment agreements with three executive officers which provide for
annual base salaries aggregating $785,000 through June 30, 2004 and contain
provisions for severance payments in the event of change of control as defined
in the agreements. The Companys agreements with its Chairman and Executive
Vice President provides for cash bonuses equal to 4% and 2%, respectively, of
the Companys earnings before income taxes for each fiscal year in which
such earnings are in excess of $1,000,000 or 6% and 3%, respectively, of the
Companys earnings before income taxes if such earnings are in excess of
$2,500,000 up to a maximum annual cash bonus of $720,000 and $360,000,
respectively. In addition, the Companys agreement with its Chairman
provides for a deferred compensation which accrues at a rate of $50,000 per year
and becomes payable in its entirety no later than January 15th of the year next
following his cessation of employment for any reason. Effective July 1, 2001,
the Company is obligated to provide health insurance to the Chairman, Executive
Vice President, and their respective spouses commencing upon their termination
of employment with Jaco and ending on the later to occur of (i) their death or
(ii) the death of their respective spouses.

On June 6, 2000, the
Company entered into an employment agreement with an Executive Vice President
which provides for an annual base of $300,000 through May 30, 2003. The
employment agreement also provides for an annual cash bonus equal to 2% of
certain gross profit dollars, as defined.

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. However, the ultimate outcome of these matters cannot be
determined at this time, and accordingly, no amounts have been provided for in the
accompanying consolidated financial statements.

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, 2001, 2000 and 1999, the Company contributed to this plan approximately
$175,000, $116,000 and $96,000, respectively.

On June 26, 2000, the
Company announced a 3-for-2 stock split which was in the form of a 50% common
stock dividend payable on July 24, 2000 to shareholders of record on July 10,
2000. All references to the number of weighted average common shares outstanding
and earnings per share have been restated to reflect the 3-for-2 stock split.

In December 1992, the Board
of Directors approved the adoption of a nonqualified stock option plan, known as
the 1993 Non-Qualified Stock Option Plan, hereinafter referred to as
the 1993 Plan. The Board of Directors or Plan Committee is
responsible for the granting and pricing of these options. Such price shall be
equal to the fair market value of the common stock subject to such option at the
time of grant. The options expire five years from the date of grant and are
exercisable over the period stated in each option. In December 1997, the
shareholders of the Company approved an increase in the amount of shares
reserved for the 1993 plan to 900,000 from 440,000, of which 676,223 are
outstanding at June 30, 2001.

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 22,000 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 4,399 shares of the Companys common stock annually. The Outside
Directors Plan expired on January 1, 1998, with a total of 13,197 options
outstanding at June 30, 2001. 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
15,000 options to purchase the Companys common stock at the fair market
value on the date of grant. In September 1998, two outside directors were each
granted 11,250 options to purchase the Companys common stock at the fair
market value on the date of grant. These 37,500 options were not granted
pursuant to any of the Companys existing stock option plans.

In October 2000, the Board
of Directors approved the adoption of the 2000 Stock Option Plan,
hereinafter referred to as the 2000 Plan. The 2000 Plan provides for
the grant of incentive stock options (ISOs) and non-qualified stock
options (NQSOs) to employees, officers, directors, consultants and
advisers of the Company. The Board of Directors or Plan Committee is responsible
for the granting and pricing of these options. Such price shall be equal to the
fair market value of the common stock subject to such option at the time of
grant. In the case of ISOs granted to shareholders owning more than 10% of the
Companys voting securities, the exercise price shall be no less than 110%
of the fair market value of the Companys common stock on the date of
grant. All options shall expire ten years from the date of grant of such option
(five years in the case of an ISO granted to a 10% shareholder) or on such
earlier date as may be prescribed by the Committee and set forth in the option
agreement, and are exercisable over the period stated in each option. The 2000
plan reserves 600,000 shares of the Companys common stock, of which
238,250 are outstanding at June 30, 2001.

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

`Weighted -
                                                 Nonqualified               average
                                                 stock options             exercise
                                             Price range      Shares         price

    Outstanding at July 1, 1998              $3.18 - $8.50  534,845          $4.91

    Granted                                  $1.79 - $2.75  397,500           2.23
    Expired                                  $3.18 - $8.50 (204,402)          3.19

    Outstanding at June 30, 1999             $1.79 - $8.50  727,943           3.79

    Granted                                  $2.50 - $13.71 258,000           4.70
    Exercised                                $1.79 - $8.50 (153,723)          5.67
    Expired                                  $2.50 - $4.67  (41,800)          3.44

    Outstanding at June 30, 2000             $1.79 - $13.71 790,420           3.74

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

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


    Amounts exercisable at
       June 30, 2001                        $1.79 - $13.71  726,920           3.46`

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

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

         $1.79 - $4.67          677,521          30            $2.77    677,521           30              $2.77

         $5.67 - $8.00          242,649         111            $7.87      4,399            6              $5.67

        $13.71 -                  45,000         47            $13.71     45,000          47              $13.71`

The weighted-average option
fair value on the grant date was $4.82, $4.97 and $.92 for options issued during
the years ended June 30, 2001, 2000 and 1999, respectively.

The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 123
(SFAS No. 123), Accounting for Stock-Based Compensation;
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:

`2001         2000           1999

    Net earnings (loss)
       As reported                            $9,850,397    $6,375,954   $(1,157,150)
       Pro forma                               8,732,958     6,098,272    (1,523,550)
    Net earnings (loss) per common share  -
    basic
       As reported                                 $1.74         $1.16        $(0.21)
       Pro forma                                    1.54          1.11         (0.27)
    Net earnings (loss) per common share -
    diluted
       As reported                                 $1.59         $1.11        $(0.21)
       Pro forma                                    1.41          1.06         (0.27)`

These pro forma amounts may
not be representative of future disclosures because they do not take into
account pro forma compensation expense related to grants made before fiscal
1996. The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for the fiscal years ended June 30, 2001, 2000 and 1999,
respectively; expected volatility of 93%, 109% and 55%; risk-free interest rates
of 5.33%, 6.25% and 5.08%; 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.

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

In June 1997, the
Companys Board of Directors approved the adoption of a restricted stock
plan, which was subsequently ratified by shareholders during the Companys
December 1997 annual meeting. The plan enables the Board of Directors or Plan
Committee to have sole discretion and authority to determine who may purchase
restricted stock, the number of shares, the price to be paid and the
restrictions placed upon the stock. Pursuant to this plan, the Company issued
135,000 shares of common stock to certain employees at a purchase price of $.67
per share. Shares purchased are subject to a four-year vesting period and the
Company recognized $135,000 of compensation expense during fiscal 2001, 2000 and
1999 in connection with this plan.

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE J - COMPREHENSIVE INCOME (LOSS)

   Total comprehensive income and its components for the years ended June30,
   2001, 2000 and 1999 are as follows:

                                                 2001         2000         1999

     Net income (loss)                       $9,850,397   $6,375,954   $(1,157,150)
     Unrealized (loss) gain on marketable
         securities                            (166,240)     (74,076)      77,673
     Deferred tax benefit (expense)              60,678       27,038       (28,351)

     Comprehensive income (loss)             $9,744,835   $6,328,916   $(1,107,828)`

On June 6, 2000, the Company acquired all of the issued and outstanding shares
   of common stock, no par value, of Interface Electronics Corp. ("Interface"), a
   distributor of electronic parts, components and equipment, located in
   Massachusetts.  The purchase price was $15,400,000 payable in cash, plus a
   deferred payment of $3,960,000,  provided that certain conditions, as defined
   in the purchase agreement, were met. As of June 30, 2001, $3,760,000 of the
   deferred payment has been paid. The remaining $200,000 has been provided for
   in the accompanying balance sheet. An additional $25,000 has been provided for
   in the accompanying balance sheet due to a purchase price adjustment. On the
   second anniversary of the closing date a deferred payment of up to $2,640,000
   shall be paid provided that certain conditions, as defined in the purchase
   agreement, are met.  When the remaining contingency is resolved, the Company
   shall record the current fair value of the consideration paid as additional
   goodwill which will be amortized over the remaining life of the asset.

The acquisition has been accounted for as a purchase and the operations of
   Interface have been included in the Company's Statement of Earnings since the
   date of acquisition.  Included in other assets are the costs of the
   identifiable intangible assets acquired, principally an employment agreement
   and a

franchise agreement which are being amortized on a straight-line basis over
   five and fifteen years, respectively. The excess of the purchase price and
   related expenses over the net tangible and identifiable intangible assets
   acquired amounted to approximately $17,486,000 and is being amortized on a
   straight line basis over twenty years. A summary of the allocation of the
   assets and liabilities acquired follows:

`Operating assets acquired                     $ 13,306,956
         Employment agreement                               685,000
         Franchise agreement                                550,000

                                                         14,541,956

         Liabilities assumed                            (12,414,389)
         Transaction costs                                 (228,241)

                                                        (12,642,630)

         Goodwill                                        17,485,674

         Total purchase price                          $ 19,385,000`

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

`Pro forma years ended June 30,
                                            2000             1999

         Net sales                    $252,756,821     $172,131,191
         Net income (loss)               3,993,635       (3,531,947)

         Net income (loss) per share
            Basic                             $0.73           $(0.64)
            Diluted                            0.69            (0.64)`

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

On February 25, 2000, the
Company purchased the operating assets of PGI, Industries, Inc.,
(PGI) an exporter of electronic components, located in Ronkonkoma,
New York. The purchase price was $1,200,000 paid in cash, plus a deferred
payment of $100,000 payable over the next two years based on certain conditions,
as defined in the purchase agreement. As of June 30, 2001, $50,000 of the
deferred payment has been paid. When the remaining contingency is resolved, the
Company shall record the current fair value of the consideration issued as
additional costs of the acquired enterprise. These additional costs shall be
amortized over the remaining life of the asset. The acquisition has been
accounted for as a purchase and the operations of PGI have been included in the
Companys Statement of Earnings since the date of acquisition. The excess
of the purchase price over the fair value of the assets acquired, approximately
$260,000, is being amortized on a straight-line basis over twenty years.
Proforma results of operations are not material.

The Company has two
reportable segments: electronics parts distribution and contract manufacturing.
The Companys primary business activity is conducted with small and medium
size manufacturers, located in North America, that produce electronic equipment
used in a variety of industries. Information pertaining to the Companys
operations in different geographic areas for fiscal years 2001, 2000 and 1999,
is not considered material to the financial statements.

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

`Year ended June 30,
                                               2001          2000         1999
                                               ---------------------------------
                                                        (in thousands)

Net sales from external customers
   Electronics components distribution ....   $321,124   $ 193,111    $ 127,401
   Contract manufacturing .................     29,098      16,214       13,310

                                              $350,222   $ 209,325    $ 140,711

Intersegment net sales
   Electronics components distribution ....   $    992   $     324    $     336
   Contract manufacturing .................                                 111

                                              $    992   $     324    $     447

Operating profit (loss)
   Electronics components distribution ....   $ 19,167   $  12,012    $    (868)
   Contract manufacturing .................      1,575         348          602

                                              $ 20,742   $  12,360    $    (266)


Interest expense
   Electronics components distribution ....   $  3,457   $   1,053    $     768
   Contract manufacturing .................        662         506          541

                                              $  4,119   $   1,559    $   1,309

Income tax provision (benefit)
   Electronics components distribution ....   $  6,400   $   4,489    $    (374)
   Contract manufacturing .................        372         (64)         (44)

                                              $  6,772   $   4,425    $    (418)`

`Year ended June 30,
                                               2001          2000         1999
                                                        (in thousands)


   Identifiable assets
      Electronics components distribution   $117,069      $115,109    $  62,259
      Contract manufacturing                  19,246        10,995       10,672

                                            $136,315      $126,104    $  72,931

   Capital expenditures
      Electronics components distribution  $    1,238   $      612   $       396
      Contract manufacturing                      759          280         1,207

                                           $    1,997    $      892   $    1,603

   Depreciation and amortization
      Electronics components distribution  $    2,297    $    1,209   $    1,049
      Contract manufacturing                      926           659          539

                                           $    3,223    $    1,868   $    1,588`

`Jaco Electronics, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           June 30, 2001, 2000 and 1999



NOTE M - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                                                  Quarter ended


                                          June 30,      March 31,       December 31,    September 30,   June 30,        March 31,       December 31,    September 30,
                                             2001       2001            2000            2000            2000            2000            1999            1999

Net sales                                $72,146,768    $83,680,954    $100,235,652   $94,158,828     $70,513,859    $51,693,699        $45,100,259    $42,017,363

Gross profit                              10,777,533     15,367,532      20,077,191    20,617,658      17,065,608     12,012,855          9,868,111      7,935,605

Net (loss) earnings                        (437,625)     1,585,493        4,044,662     4,657,867       3,512,177      1,766,228            883,474        214,075

Net (loss) earnings per common share (a)
    Basic                                    $(0.08)       $0.28          $0.72          $0.83            $0.63           $0.32               $0.16          $0.04
    Diluted                                   (0.08)        0.26           0.65           0.75             0.58            0.30                0.16           0.04`

(a) As adjusted to reflect
a 3-for-2 stock split effective July 24, 2000.

In connection with our
audits of the consolidated financial statements of Jaco Electronics, Inc. and
Subsidiaries for the years ended June 30, 2001 and 2000 referred to in our
report dated August 16, 2001, 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, 2001. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.

`Jaco Electronics, Inc. and Subsidiaries

                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                     Years ended June 30, 2001, 2000 and 1999





        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

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


   Year ended June 30, 2000          $  440,000  $  598,000    $178,000(a)(c)   $ 105,000(b)  $1,111,000


   Year ended June 30, 1999          $1,268,000  $  982,000(d) $  12,000(a)    $1,822,000(b)  $  440,000`

# [TO BE
UPDATED]

`Exhibit No. Exhibit
----------- -------

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

3.1.1             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.

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

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

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

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

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

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

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.

10.10       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.

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 No. 333 -49877, filed
            April 10, 1998 Exhibit 4.4.

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

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

10.13.1     Amendment No. 1 to Employment Agreement between Joel Girsky and the Company.

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

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

10.15.1     Amendment No. 1 to employment agreement between Jeffrey D. Gash and the Company.

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

10.16.1     Amendment No. 1 to employment agreement between Joseph Oliveri and the Company.

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

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

10.18       Agreement between the Company and Gary Giordano.

10.19       Employment Agreement between Joel H. Girsky and the Company.

10.20       Employment Agreement between Charles Girsky and the Company.

21.1        Subsidiaries of the Company.

23.1        Consent of Grant Thornton LLP.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

99.8.10         Amendment to Second Restated and Amended Loan and Security Agreement dated June
            12, 2001

99.8.11         Amendment to Second Restated and Amended Loan and Security Agreement dated July
           1, 2001.`

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.

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

`Name                       Title                     Date
----                       -----                     ----
/s/ Joel H. Girsky
________________________   Chairman of the Board,    September 28, 2001
Joel H. Girsky             President and Treasurer
                           (Principal Executive
                           Officer)
/s/ Jeffrey D. Gash
________________________   Executive Vice President  September 28, 2001
Jeffrey D. Gash            - Finance and Secretary
                           (Principal Financial and
                           Accounting Officer)
/s/ Joseph F. Oliveri
________________________   Vice Chairman of the      September 28, 2001
Joseph F. Oliveri          Board and Executive Vice
                           President
/s/ Charles B. Girsky
_______________________    Executive Vice President  September 28, 2001
Charles B. Girsky          and Director

/s/ Stephen A. Cohen
________________________   Director                  September 28, 2001
Stephen A. Cohen

/s/ Edward M. Frankel
________________________   Director                 September 28, 2001
Edward M. Frankel

/s/ Joseph F. Hickey, Jr.
________________________   Director                  September 28, 2001
Joseph F. Hickey, Jr.`