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








{X}           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
quarterly period ended December 31, 2007




OR





{   }         TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
transition period from ____________________ to
__________________________





Commission
File Number 0-5896




JACO ELECTRONICS, INC.


(Exact name of
registrant as specified in its charter)








NEW
YORK                                                                      11-1978958


(State or other jurisdiction
of                                   
(I.R.S. Employer Identification No.)


incorporation or
organization)





145 OSER AVENUE, HAUPPAUGE, NEW
YORK 11788











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





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.





YesX                      No __




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-


accelerated
filer.  See definition of “accelerated filer and larger accelerated
filer” in Rule 12b-2 of the


Exchange
Act.




Large
accelerated filer  ̈                        Accelerated
filer  ̈                        Non-accelerated
filer ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange


Act).  Yes
__  NoX





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest


practicable
date.




Class
            Shares Outstanding at February 13,
      2008Common
      Stock, $0.10 Par Value
            6,294,332
      (excluding 659,900 shares held as treasury
  stock)

















FORM
10-Q                                                                                                            December 31,
2007
 Page
2
  PART
I - FINANCIAL INFORMATION
 Item
1. Financial Statements
 
 
 JACO
ELECTRONICS, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS




December
      31,
            
            June
      30,2007
            
            2007(UNAUDITED)
            
            (DERIVED
      FROMAUDITED
              STATEMENTS)ASSETSCurrent
      AssetsCash
            
            $
            19,812
            
            $
            15,713Accounts
      receivable - net
            
            
            28,406,980
            
            
            35,752,247Inventories
      - net
            
            
            31,716,024
            
            
            30,364,720Prepaid
      expenses and other
            
            
            718,315
            
            
            551,159Total
      current assets
            
            
            60,861,131
            
            
            66,683,839Property,
      plant and equipment – net
            
            
            1,198,088
            
            
            1,433,286Goodwill
            
            
            
            25,416,087
            
            
            25,416,087Other
      assets
            
            
            2,538,615
            
            
            2,553,345Total
      assets
            
            $
            90,013,921
            
            $
            96,086,557







See
accompanying notes to condensed consolidated financial
statements.


FORM
10-Q                                                                                                                  December 31,
2007


Page
3











JACO
ELECTRONICS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS

















December
      31,
            
            
            June
      30,2007
            
            
            2007(UNAUDITED)
            
            
            (DERIVED
      FROMAUDITEDSTATEMENTS)LIABILITIES
      & SHAREHOLDERS' EQUITYCurrent
      LiabilitiesAccounts payable and accrued expenses
            
            $
            26,073,450
            
            
            $
            24,999,242Current maturities of long-term debt andcapitalized
      lease obligations
            
            
            30,716,940
            
            
            
            37,772,069Income
      taxes payable
            
            
            12,781
            
            
            
            15,657Total
      current liabilities
            
            
            56,803,171
            
            
            
            62,786,968Long-term
      debt and capitalized lease obligations
            
            
            5,188
            
            
            
            34,966Deferred
      compensation
            
            
            1,175,003
            
            
            
            1,150,000Total
      liabilities
            
            
            57,983,362
            
            
            
            63,971,934Commitments
      and ContingenciesSHAREHOLDERS'
      EQUITYPreferred stock - authorized, 100,000 shares,$10 par value; none issued
            
            
            -
            
            
            
            -Common stock – authorized, 20,000,000 shares,$.10 par value; 6,954,232 shares issuedand 6,294,332 shares outstanding
            
            
            695,423
            
            
            
            695,423Additional
      paid-in capital
            
            
            27,172,022
            
            
            
            27,114,567Retained
      earnings
            
            
            6,477,680
            
            
            
            6,619,199Treasury
      stock – 659,900 shares at cost
            
            
            (2,314,566
            )
            
            
            (2,314,566
            )Total
      shareholders' equity
            
            
            32,030,559
            
            
            
            32,114,623Total liabilities and shareholders’ equity
            
            $
            90,013,921
            
            
            $
            96,086,557










See
accompanying notes to condensed consolidated financial statements.











FORM
10-Q                                                                                                                    December 31,
2007


Page
4





JACO
ELECTRONICS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE
THREE MONTHS ENDED DECEMBER 31,


(UNAUDITED)





2007
            
            
            2006Net
      sales
            
            
            $
            49,407,689
            
            
            $
            65,989,745Cost
      of goods sold
            
            
            41,343,522
            
            
            
            57,473,663Gross
      profit
            
            
            8,064,167
            
            
            
            8,516,082Selling,
      general and administrative expenses
            
            
            7,472,387
            
            
            
            7,667,119Operating
      profit
            
            
            591,780
            
            
            
            848,963Interest
      expense
            
            
            
            540,288
            
            
            
            693,900Earnings
      before income taxes
            
            
            51,492
            
            
            
            155,063Income
      tax provision
            
            
            12,276
            
            
            
            15,000Net
      earnings
            
            $
            39,216
            
            
            $
            140,063PER
      SHARE INFORMATIONBasic
      earnings per common share:
            
            $
            .01
            
            
            $
            .02Diluted
      earnings per common share:
            
            $
            .01
            
            
            $
            .02Weighted
      average common shares and common equivalent shares
      outstanding:Basic
            
            
            6,294,332
            
            
            
            6,294,332Diluted
            
            
            6,294,332
            
            
            
            6,369,866





See
accompanying notes to condensed consolidated financial
statements.





FORM
10-Q                                                                                                                       December 31,
2007


Page
5





JACO
ELECTRONICS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE
SIX MONTHS ENDED DECEMBER 31,


(UNAUDITED)





2007
            
            
            2006Net
      sales
            
            
            $
            98,418,018
            
            
            $
            135,607,324Cost
      of goods sold
            
            
            82,333,083
            
            
            
            118,434,129Gross
      profit
            
            
            16,084,935
            
            
            
            17,173,195Selling,
      general and administrative expenses
            
            
            15,044,916
            
            
            
            15,202,111Operating
      profit
            
            
            1,040,019
            
            
            
            1,971,084Interest
      expense
            
            
            1,155,649
            
            
            
            1,539,945(Loss)
      earnings before income taxes
            
            
            (115,630
            )
            
            
            431,139Income
      tax provision
            
            
            25,889
            
            
            
            30,000Net
      (Loss) earnings
            
            $
            (141,519
            )
            
            $
            401,139PER
      SHARE INFORMATIONBasic
      (loss) earnings per common share:
            
            $
            (.02
            )
            
            $
            .06Diluted
      (loss) earnings per common share:
            
            $
            (.02
            )
            
            $
            .06Weighted
      average common shares and common equivalent shares
      outstanding:Basic
            
            
            6,294,332
            
            
            
            6,294,332Diluted
            
            
            6,294,332
            
            
            
            6,371,799





See
accompanying notes to condensed consolidated financial statements.

















FORM
      10-Q
              
              
              
              
              
              
              
              
              
              December
      31, 2007Page
      6JACO
      ELECTRONICS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENT OF CHANGESIN
      SHAREHOLDERS' EQUITYFOR
      THE SIX MONTHS ENDED DECEMBER 31, 2007(UNAUDITED)Additional
              
              
              
              
              
              
              TotalCommon
      stock
              
              paid-in
              
              Retained
              
              
              Treasury
              
              shareholders'Shares
              
              Amount
              
              capital
              
              earnings
              
              
              stock
              
              equityBalance
      at July 1, 2007
              6,954,232
              
              $     695,423
              
              $     27,114,567
              
              $            6,619,199
              
              
              $    (2,314,566)
              
              $      32,114,623Net
      loss
              
              
              
              
              
              
              (141,519)
              
              
              
              
              (141,519)Stock-based
      compensation
              
              
              
              
              57,455
              
              
              
              
              
              
              57,455Balance
      at December 31, 2007
              6,954,232
              
              $     695,423
              
              $     27,172,022
              
              $            6,477,680
              
              
              $    (2,314,566)
              
              $      32,030,559See
      accompanying notes to condensed consolidated financial
      statements.











FORM
10-Q                                                                                                                        December 31,
2007


Page
7





JACO
ELECTRONICS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE
SIX MONTHS ENDED DECEMBER 31,


(UNAUDITED)


2007
            
            
            2006Cash
      flows from operating activitiesNet
      (loss) earnings
            
            $
            (141,519
            )
            
            $
            401,139Adjustments
      to reconcile net (loss) earnings to netcash
      provided by (used in) operating activitiesDepreciation  and
      amortization
            
            
            354,645
            
            
            
            373,004Deferred
      compensation
            
            
            25,003
            
            
            
            25,000Stock-based
      compensation
            
            
            57,455
            
            
            
            8,456Provision
      for (recovery of) doubtful accounts
            
            
            373,943
            
            
            
            (124,707
            )Changes
      in operating assets and liabilitiesDecrease
      (increase) in operating assets - net
            
            
            5,382,060
            
            
            
            (3,413,127
            )Increase
      in operating liabilities – net
            
            
            1,071,333
            
            
            
            2,229,631Net
      cash provided by (used in) operating activities
            
            
            7,122,920
            
            
            
            (500,604
            )Cash
      flows from investing activitiesCapital
      expenditures
            
            
            (33,914
            )
            
            
            (125,364
            )Net
      cash used in investing activities
            
            
            (33,914
            )
            
            
            (125,364
            )Cash
      flows from financing activitiesBorrowings
      under line of credit
            
            
            98,595,692
            
            
            
            135,213,166Repayments
      under line of credit
            
            
            (105,655,041
            )
            
            
            (134,584,551
            )Principal
      payments under equipment financing
            
            
            (25,558
            )
            
            
            (21,936
            )Net
      cash (used in) provided by financing activities
            
            
            (7,084,907
            )
            
            
            606,679Net
      increase (decrease) in cash
            
            
            4,099
            
            
            
            (19,289
            )Cash
      at beginning of period
            
            
            15,713
            
            
            
            29,211Cash
      at end of period
            
            $
            19,812
            
            
            $
            9,922Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
            
            $
            1,156,000
            
            
            $
            1,540,000Income
      taxes
            
            
            28,000
            
            
            
            27,000


See
accompanying notes to condensed consolidated financial statements.


















FORM
10-Q                                                                                                             December 31,
2007


Page
8





JACO
ELECTRONICS, INC. AND SUBSIDIARIES


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








1)  The
accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments, which are,
in the opinion of management, necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows of Jaco
Electronics, Inc. and its subsidiaries (“Jaco” or the “Company”) at the end of
and for all the periods presented.  Such financial statements do not
include all the information or footnotes necessary for a complete
presentation.  They should be read in conjunction with the Company’s
audited consolidated financial statements for the fiscal year ended June 30,
2007 and the notes thereto included in the Company’s Annual Report on Form 10-K,
as amended, for the fiscal year ended June 30, 2007.  The results of
operations for the interim periods are not necessarily indicative of the results
for the entire year or any interim period therein. There have been no changes to
the Company’s significant accounting policies subsequent to June 30, 2007,
except as described in Note 11.





2)           As
discussed further in Note 4, the Company maintains a revolving line of credit,
collateralized by substantially all of the assets of the Company, which provides
the Company with bank financing based upon eligible accounts receivable and
inventory, as defined.  The credit facility has a maturity date of
December 22, 2009. As of December 31, 2007, the Company was in violation of
the financial covenant contained in its credit agreement, as discussed in Note
4. On February 12, 2008, the credit agreement was amended and the Company is in
compliance with this covenant as amended.





Management believes that its ongoing
plan for improved operating controls and a focused sales and marketing effort
should continue to improve results from operations and cash flows in the near
term. Continued achievement of this plan, however, will be dependent upon the
Company's ability to generate sufficient revenues, decrease operating costs and
remain in compliance with its bank covenants. The Company’s future operating
performance will be subject to financial, economic and other factors beyond its
control, and there can be no assurance that the Company will be able to achieve
these goals. The Company’s failure to achieve these goals or remain in
compliance with its bank covenants would have a material adverse effect upon its
business, financial condition and results of operations.





3)           On
September 20, 2004, the Company completed the sale of substantially all of the
assets of its contract manufacturing subsidiary, Nexus Custom Electronics, Inc.
("Nexus"), to Sagamore Holdings, Inc. (“Sagamore”) for consideration of up to
$13,000,000, subject to closing adjustments, and the assumption of certain
liabilities. The divestiture of Nexus has allowed the Company to focus its
resources on its core electronics distribution business. As a result of the sale
of Nexus, the Company no longer engages in contract manufacturing.





Under the terms of the purchase
agreement relating to this transaction, the Company received $9,250,000 of the
purchase consideration in cash on the closing date. Such cash consideration was
used to repay a
portion of the outstanding borrowings under the Company's then-existing line of
credit. The balance of the purchase consideration was satisfied through the
delivery of a $2,750,000 subordinated note issued by the purchaser. This note
has a maturity date of September 1, 2009 and bears interest
at the lower of the prime rate or 7%. The note is payable by the purchaser in
quarterly cash installments ranging from $156,250 to $500,000 commencing
September 2006 and continuing for each quarter thereafter until maturity. None
of the scheduled payments on the note have been received by the Company. The
purchase agreement also provided for a working capital adjustment, as defined,
of up to $500,000. As previously reported, each of the Company and the purchaser
believe that it was entitled to the full working capital adjustment.
Accordingly, the amount of the working capital adjustment has been under dispute
by both parties.





Additionally, the Company is entitled
to receive additional consideration in the form of a six-year earn-out based on
5% of the annual net sales in excess of $20,000,000 of Nexus after the closing
date, up to $1,000,000 in the aggregate.











FORM
10-Q                                                                                                            December 31,
2007


Page
9





On September 19, 2006, Nexus Nano
Electronics, Inc. (“NNE”), as successor to Sagamore, and its subsidiary filed
suit against the Company in the U.S. District Court for the Southern District of
New York alleging fraud and misrepresentations by the Company in connection with
the sale of Nexus and seeking an unspecified amount of damages.  The
parties had entered into settlement discussions and the documentation for an
agreement in principle had been substantially finalized, but prior to approval
by the parties’ respective boards of directors, NNE’s assets were transferred to
Titan Global Holdings, Inc. and/or its subsidiary, Titan Nexus, Inc.
  On December 27, 2007, NNE filed an amended complaint adding claims
for breach of contract and breach of warranty in connection with the Company’s
sale to NNE of alleged non-conforming parts.  On January 18, 2008, the
Company answered the amended complaint and asserted counterclaims against
plaintiffs and other related entities, including Titan Global Holdings, Inc. and
Titan Nexus, Inc., seeking, among other things, amounts owed to it in connection
with the sale of Nexus.  The Company believes that the plaintiffs’ claims
are without merit and intends to litigate this suit
vigorously.




The Company’s management previously determined that the note receivable had been
impaired and recorded a full write-off of the note receivable and all other
amounts arising from the sale of Nexus as of June 30, 2007, which amounted to
$3,183,401. Such write-off had been reflected as a loss on sale of subsidiary in
the Company’s consolidated statement of operations for the year ended June 30,
2007.In addition, the Company is uncertain of its ability to collect
accounts receivable due to it from NNE and, therefore, has set up a reserve
against the entire amount of this receivable, which amounted to
$713,000.





4)           The Company borrows amounts under
credit facilities and other external sources of financing. On December 22, 2006,
the Company entered into a new three-year credit agreement with CIT
Group/Business Credit, Inc. (“CIT”), which provides for a $55,000,000 revolving
line of credit. This credit facility has a maturity date of December 22, 2009.
On January 23, 2007, CIT assigned $25,000,000 of its interest in the credit
facility to Bank of America, N.A. On March 23, 2007, the credit facility was
amended to provide the Company with a supplemental loan (“Supplemental Loan”) of
$3,000,000, which originally was payable on May 17, 2007. On May 18, 2007, the
Supplemental Loan was amended to provide for periodic payments to be made
through July 15, 2007, at which time the Supplemental Loan was to be paid in
full. On July 24, 2007, the Supplemental Loan was further amended to provide for
a $3,000,000 loan at an interest rate equal to the LIBOR rate plus 5%, payable
in seven quarterly installments commencing October 1, 2007.The Company has currently made all the
required installment payments for this Supplemental Loan. In addition, mandatory prepayments
are to be made based on (i) an amount equal to fifty percent of Excess Cash
Flow, as defined in the credit agreement, and (ii) the net proceeds of
Designated Inventory, as defined in the credit agreement. Borrowings under the
new credit facility are based principally on eligible accounts receivable and
inventories of the Company, as defined in the credit agreement, and are
collateralized by substantially all of the assets of the Company.  At
December 31, 2007, the outstanding balance on this revolving line of credit
facility was $30,660,000 ($21,000,000 of which is borrowed under a 30-day
LIBOR-based revolver and $2,700,000 under the Supplemental Loan) with an
additional $7,697,000 available. At December 31, 2007, the Company had
outstanding $2,670,000 of stand-by letters of credit on behalf of certain
vendors. At December 31, 2007, the interest rates on the outstanding borrowings
under the credit facility were: 7.095% on the borrowings under the 30-day
LIBOR-based revolver; 10.32% on the Supplemental Loan; and 8.0% (prime plus
0.75%) on the balance of the borrowings.





Under the
credit agreement, the Company is required to comply with one financial covenant
which stipulates that in the event the Company’s additional borrowing
availability under the revolving line of credit facility for any five
consecutive days is less than $5,000,000, the Company is required to
retroactively maintain a Fixed Charge Coverage Ratio (as defined therein) of 1.1
to 1.0 as of the end of the immediately preceding fiscal quarter for the most
recently ended four fiscal quarters. As of December 31, 2007, the Company was in
violation of this financial covenant. On February 12, 2008, the credit agreement
was amended and the Company is in compliance with this covenant as
amended.





The
credit agreement also provides for a limitation on capital expenditures of
$500,000 for the Company’s 2008 fiscal year and for each remaining fiscal year
in which the credit agreement is in effect. The credit agreement also contains
other covenants and restrictions, including limitations on: the Company’s
incurrence of additional indebtedness unrelated to the credit facility; its
incurrence of liens; mergers, consolidations and sales of assets by the Company;
investments, loans and acquisitions by the Company; and the Company’s ability to
pay cash dividends.  In addition, the credit agreement, as was the
case with the Company’s prior credit agreement, requires the deposit of customer
receipts to be directed















FORM
10-Q                                                                                                             December 31,
2007


Page
10





to a
blocked account and applied directly to the repayment of indebtedness
outstanding under the credit facility.  Accordingly, outstanding
borrowings under the credit agreement are classified as a current
liability.





If
the Company were to be in violation of the financial covenant or any other
material provision contained in the credit agreement in the future and not able
to obtain an amendment or waiver with respect to such noncompliance, the lenders
under the credit facility could declare the Company to be in default under the
facility, requiring all amounts outstanding under the facility to be immediately
due and payable and/or limit the Company’s ability to borrow additional amounts
under the facility. If the Company did not have sufficient available cash to pay
all such amounts that became due and payable, it would have to seek additional
debt or equity financing through other external sources, which may not be
available on acceptable terms, or at all. Failure to maintain financing
arrangements on acceptable terms would have a material adverse effect on the
Company’s business, results of operations and financial condition.





5)           The
Company was one of several plaintiffs alleging price fixing claims in violation
of federal and state antitrust laws against a number of component manufacturers
in the dynamic random access memory semiconductor market. The parties have
settled claims with some of the defendants and, in connection with such
settlement, the Company has recorded $480,000 and $89,000 as a reduction of
selling, general and administrative expenses on its consolidated statement of
operations for the six and three months ended December 31, 2007, respectively,
and a receivable of $89,000 included in other current assets on its balance
sheet as at December 31, 2007.





6)           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
originally provided for the grant of up to 600,000 incentive stock options
("ISOs") and nonqualified stock options ("NQSOs") to employees, officers,
directors, consultants and advisers of the Company. In December 2004, the
shareholders of the Company approved an increase in the amount of shares
reserved for issuance under the 2000 Plan to 1,200,000. The Board of Directors
or the Compensation Committee of the Board is responsible for the granting and
pricing of these
options. The exercise price of the options granted under the 2000 Plan must
equal  the fair market value of the Company’s common stock on the date
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 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. Of the 1,200,000 shares of
the Company's common stock reserved for issuance upon exercise of options
711,750 shares were subject to options outstanding at December 31,
2007.





The
Company measures the cost of employee services received in exchange for an award
of equity instruments based on the fair-value of the award, as determined using
the Black-Scholes Option pricing method, and recognizes such cost over the
requisite service period, which is generally the vesting
period.  There were 87,500 stock options granted during the six and
three months ended December 31, 2007. The weighted-average fair
value of these options was $1.23, which was estimated at the date of grant using
the Black-Scholes-Merton option pricing model with the following
weighted-average assumptions: expected volatility of 62%; risk-free interest
rate of 4.37%; expected term of 7 years; and expected dividend yield of 0.Compensation expense recognized in the accompanying condensed
consolidated statement of operations was
$57,455 and $8,456 for the six months ended December 31, 2007 and 2006,
respectively, and $28,728 and $8,456 or the three months ended December 31, 2007
and 2006, respectively.  At December 31, 2007, there was an aggregate
of $446,897 of unamortized compensation expense related to stock options which
will be recognized as an expense over a remaining period of approximately three
years, which represents the remaining requisite service period for such
awards.





























FORM
10-Q                                                                                                            December 31,
2007


Page
11











Summary
of Stock Option Activity





The
Company issues new shares of common stock upon exercise of stock options. The
following is a summary of option activity for our stock option
plans:


Options     Outstanding
            
            Weighted-
              Average
              Exercise
              Price
            
            Weighted-
              Average
              Remaining
              Contractual
              Term (months)Employee
      Stock Option Plans:Options
      outstanding at June 30, 2007
            624,250
            
            
            $
      4.74Granted
            87,500
            
            
            1.90Exercised
            -
            
            
            -Canceled
            -
            
            
            -Options
      outstanding at December 31, 2007
            711,750
            
            $
      4.42
            
            74Options
      exercisable at December 31, 2007
            482,125
            
            $
      5.13
            
            56











The
aggregate intrinsic value of outstanding and exercisable options at December 31,
2007 was $0 and $0, respectively.





7)           The
number of shares used in the Company’s basic and diluted earnings
(loss) per share computationsis as
follows:







Six
      Months Ended
              
              
              Three
      Months EndedDecember
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2007
              
              
              2006Weighted
      average common shares
                outstanding,
      net of treasury shares,
                for
      basic earnings per share
              
              
              6,294,332
              
              
              
              6,294,332
              
              
              
              6,294,332
              
              
              
              6,294,332Effect
      of dilutive securities
              
              
              -
              
              
              
              77,467
              
              
              
              -
              
              
              
              75,534Weighted
      average common shares
                outstanding
      for diluted earnings per share
              
              
              6,294,332
              
              
              
              6,371,799
              
              
              
              6,294,332
              
              
              
              6,369,866





Excluded from the calculation of earnings per share for the six months ended
December 31, 2007 were outstanding options to purchase 711,750 shares of the
Company’s common stock representing all outstanding options for the three months
ended December 31, 2007, as their inclusion would have been antidilutive.
Excluded from the calculation of loss per share for the three months ended
December 31, 2007 are outstanding options to purchase 711,750 shares of the
Company’s common
stock, as the exercise price of
such options equaled or exceeded the average market price during the period.Common stock equivalents for stock options are calculated using the
treasury stock method.

















FORM
10-Q                                                                                                             December 31,
2007


Page
12





8)           The
Company is a party to various 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 business, results of operations or
financial position.





9)           During
the three and six months ended December 31 2007, the Company recorded sales of
$17,835 and $76,085, respectively, compared to $75,040 and $92,592 for the three
and six months ended December 31, 2006, respectively, from a customer, Frequency
Electronics, Inc. (“Frequency”). The Company’s Chairman of the Board of
Directors and President serves on the Board of Directors of Frequency. Such
sales transactions with Frequency are in the normal course of business. Amounts
included in accounts receivable from Frequency at December 31, 2007 and June 30,
2007 aggregate $10,281 and $15,832, respectively.


The Company leases
office and warehouse facilities from a partnership owned by two officers and
directors of the Company. The lease expires in December 2013. During the three
and six months ended December 31 2007 rent paid to this partnership was $173,643
and $347,288, respectively, compared to $165,375 and $330,750 for the three and
six months ended December 31, 2006, respectively.





The
son-in-law of the Company’s Chairman and President is a partner of a law firm,
which provides legal services on behalf of the Company. During the three and six
months ended December 31 2007 fees paid to such firm were $31,588 and $91,070,
respectively, compared to $17,276 and $35,073 for the three and six months ended
December 31, 2006, respectively.





10)         The
following table provides information regarding approximate product sales to
external customers:











Six
      Months Ended
            
            
            Six
      Months EndedDecember
      31,
            
            
            December
      31,2007
            
            
            
            2006
            
            
            
            2007
            
            
            
            2006Semiconductors
            
            
            $38,946,000
            
            
            
            $80,655,000
            
            
            
            $18,614,000
            
            
            
            $39,454,000Flat
      Panel Displays
            
            
            34,010,000
            
            
            
            30,214,000
            
            
            
            18,756,000
            
            
            
            14,135,000Passive
      Components
            
            
            17,765,000
            
            
            
            17,815,000
            
            
            
            8,365,000
            
            
            
            8,935,000Electromechanical
      Devices
            
            
            7,697,000
            
            
            
            6,924,000
            
            
            
            3,673,000
            
            
            
            3,465,000$98,418,000
            
            
            
            $135,608,000
            
            
            
            $49,408,000
            
            
            
            $65,989,000





11)Effective July 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An
Interpretation of FASB 109” (“FIN 48).  FIN 48 prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities.
The adoption of the provisions of FIN 48 did not have an impact on the Company’s
consolidated financial position and did not result in unrecognized tax benefits
being recorded. FIN 48 also provides guidance on the accounting for potential
interest and penalties. The Company’s historical accounting policy with respect
to interest and penalties related to tax uncertainties has been to classify
these amounts as income taxes, and the Company has continued this classification
upon the adoption of FIN 48. Since no
unrecognized tax benefits are being recorded, no corresponding interest and
penalties have been accrued.





The
Company files income tax returns in the U.S. federal jurisdiction and various
states. There are currently no examinations underway. The Company is no longer
subject to U.S. federal income tax examinations by the Internal Revenue Service
and most state and local authorities for fiscal tax years ending prior to June
30, 2004. (Certain state authorities may subject the Company to examination up
to the period ending June 30, 2003.)





In,
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”(“SFAS No. 157”) to
eliminate the diversity in practice that exists due to the different definitions
of fair value. SFAS No. 157 retains the exchange price notion in earlier
definitions of fair value, but clarifies that the exchange price is the price in
an orderly transaction between market participants to sell an asset or liability
in the













FORM
10-Q                                                                                                            December 31,
2007


Page
13





principal
or most advantageous market for the asset or liability. SFAS No. 157 states that
the transaction is hypothetical at the measurement date, considered from the
perspective of the market participant who holds the asset or liability. As such,
fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price), as opposed to the price
that would be paid to acquire the asset or received to assume the liability at
the measurement date (an entry price). SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. In December 2007, the FASB
released a proposed FASB Staff Position (FSP FAS 157b-Effective Date of FASB Statement
No. 157) which, if adopted as proposed, would delay the effective
date of SFAS No. 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).  We are
evaluating the impact the adoption of SFAS No. 157 will have on our consolidated
financial statements.





In February
2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets
and Financial Liabilities — Including an amendment of FASB Statement
No. 115” (“SFAS No. 159”). This standard amends SFAS No.115,
“Accounting for Certain Investment in Debt and Equity Securities”, with
respect to accounting for a transfer to the trading category for all entities
with available-for-sale and trading securities electing the fair value option.
This standard allows companies to elect fair value accounting for many financial
instruments and other items that currently are not required to be accounted as
such, allows different applications for electing the option for a single item or
groups of items, and requires disclosures to facilitate comparisons of similar
assets and liabilities that are accounted for differently in relation to the
fair value option. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are evaluating the impact the adoption of
SFAS No.159 will have on our consolidated financial
statements.





On
December 21, 2007, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain
circumstances to continue to use the "simplified" method, in developing
estimates of expected term of "plain-vanilla" share options in accordance with
Statement No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the
use of the "simplified" method beyond December 31, 2007.  The Company
believes that the adoption of  SAB 110 will not have a material
impact  on its consolidated financial statements.





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





The following discussion contains various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, which represent our management’s beliefs and
assumptions concerning future events.  When used in this report and in
other written or oral statements made by us from time to time, forward-looking
statements include, without limitation, statements regarding our financial
forecasts or projections, our expectations, beliefs, intentions or future
strategies that are signified by the words “expects”, “anticipates”,
“estimates”, “intends”, “plans” or similar language.  Although we
believe that the expectations in these forward-looking statements are
reasonable, we cannot assure you that such expectations will prove to be
correct.  These forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which are subject to change and/or beyond
our control, that could cause our actual results and the timing of certain
events to differ materially from those expressed in the forward-looking
statements. Consequently, the inclusion of the forward-looking statements should
not be regarded as a representation by us of results that actually will be
achieved. For a discussion of important factors that could cause our actual
results to differ materially from those contemplated by the forward-looking
statements, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2007, as amended, and our other reports and documents
filed with the Securities and Exchange Commission.





GENERAL





Jaco is a
leading distributor of active and passive electronic components to industrial
original equipment manufacturers (“OEMs”) that are used in the manufacture and
assembly of electronic products in such
industries as telecommunications, medical devices, computers and office
equipment, military/aerospace, and automotive and consumer electronics. Products
distributed by the Company include semiconductors, flat panel displays,
capacitors, resistors, electromechanical devices and power
supplies.  Due to the ongoing shift of manufacturing to the Far East,
the Company modified its business model during













FORM
10-Q                                                                                                            December 31,
2007


Page
14





the
fiscal year ended June 30, 2006 to pursue the business available in the United
States, increase its support of global contract manufacturers that require its
value-added services and logistics programs, and aggressively promote its flat
panel display, or FPD, product offerings, which have experienced significant
growth in recent quarters and which the Company believes have potential for
growth in the future, through its FPD in-house integration center that opened in
February 2005. This in-house integration center allows us to provide optimized
and efficient design solutions, optical enhancements and touch screen
integrations, as well as to manufacture of FPD subassemblies and complete
displays for commercial, industrial and military applications.




Critical
Accounting Policies and Estimates





We have disclosed in Note 1 to our
consolidated financial statements and in Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2007 those accounting policies that
we consider to be significant in determining our results of operations and
financial position.  There have been no material changes
to the critical accounting policies previously identified and described in our
2007 Form 10-K.  The accounting principles we utilized in preparing
our consolidated financial statements conform in all material respects to
generally accepted accounting principles in the United States of
America.





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





New
Accounting Standards





Effective
July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes-An Interpretation of FASB 109” (“FIN
48).  FIN 48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those benefits to
be recognized, a tax position must be more likely than not to be sustained upon
examination by taxing authorities. The adoption of the provisions of FIN 48 did
not have an impact on the Company’s consolidated financial position and did not
result in unrecognized tax benefits being recorded. FIN 48 also provides
guidance on the accounting for potential interest and penalties. The Company’s
historical accounting policy with respect to interest and penalties related to
tax uncertainties has been to classify these amounts as income taxes, and the
Company has continued this classification upon the adoption of FIN 48. Since no
unrecognized tax benefits are being recorded, no corresponding interest and
penalties have been accrued.





The
Company files income tax returns in the U.S. federal jurisdiction and various
states. There are currently no examinations underway. The Company is no longer
subject to U.S. federal income tax examinations by the Internal Revenue Service
and most state and local authorities for fiscal tax years ending
prior to June 30, 2004. (Certain state authorities may subject the Company to
examination up to the period ending June 30, 2003.)





In,
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”(“SFAS No. 157”) to
eliminate the diversity in practice that exists due to the different definitions
of fair value. SFAS No. 157 retains the exchange price notion in earlier
definitions of fair value, but clarifies that the exchange price is the price in
an orderly transaction between market participants to sell an asset or liability
in the














FORM
10-Q                                                                                                            December 31,
2007


Page
15





principal
or most advantageous market for the asset or liability. SFAS No. 157 states that
the transaction is hypothetical at the measurement date, considered from the
perspective of the market participant who holds the asset or liability. As such,
fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price), as opposed to the price
that would be paid to acquire the asset or received to assume the liability at
the measurement date (an entry price). SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. In December 2007, the FASB
released a proposed FASB Staff Position (FSP FAS 157b-Effective Date of FASB Statement
No. 157) which, if adopted as proposed, would delay the effective
date of SFAS No. 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).  We are
evaluating the impact the adoption of SFAS No. 157 will have on our consolidated
financial statements.





In
February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial
Assets and Financial Liabilities — Including an amendment of FASB Statement
No. 115”, (“SFAS No. 159,”). This standard amends SFAS No.115,
“Accounting for Certain Investment in Debt and Equity Securities”, with
respect to accounting for a transfer to the trading category for all entities
with available-for-sale and trading securities electing the fair value option.
This standard allows companies to elect fair value accounting for many financial
instruments and other items that currently are not required to be accounted as
such, allows different applications for electing the option for a single item or
groups of items, and requires disclosures to facilitate comparisons of similar
assets and liabilities that are accounted for differently in relation
to the fair value option. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We are evaluating the impact the
adoption of SFAS No.159 will have on our consolidated financial
statements.





On
December 21, 2007, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain
circumstances to continue to use the "simplified" method, in developing
estimates of expected term of "plain-vanilla" share options in accordance with
Statement No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the
use of the "simplified" method beyond December 31, 2007.  The Company
believes that the adoption of  SAB 110 will not have a material
impact  on its consolidated financial statements.





Results of
Operations





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







Three
      Months Ended
                December 31,
              
              Six
      Months Ended
                December 31,2007
              
              2006
              
              2007
              
              2006Net
      sales
              100.0%
              100.0%
              100.0%
              100.0%Cost
      of goods sold
              83.77
              
              87.11
              
              83.77
              
              87.33Gross
      profit
              16.33
              
              12.99
              
              16.33
              
              12.77Selling,
      general and
                administrative
      expenses
              15.11
              
              11.66
              
              15.33
              
              11.33Operating
      profit (loss)
              1.22
              
              1.33
              
              1.00
              
              1.44Interest
      expense
              1.11
              
              1.11
              
              1.11
              
              1.11Earnings
      (loss) before income taxes
              0.11
              
              0.22
              
              (0.1))
              
              0.33Income
      tax provision
              0.00
              
              0.00
              
              0.00
              
              0.00Net
      earnings (loss)
              0.1%
              0.2%
              (0.1)%
              0.3%













FORM
10-Q                                                                                                            December 31,
2007


Page
16





Comparison
of the three and six months ended December 31,2007 and December
31,2006





Net
sales for the three and six months ended December 31, 2007 were $49.4 million
and $98.4 million, respectively, compared to $66.0 million and $135.6 million
for the three and six months ended December 31, 2006, representing decreases of
25.1% and 27.4%, respectively. During the quarter and first six months of the
fiscal year we have experienced weak demand from our global contract
manufacturers, primarily in the Far East. We support these customers with
logistics programs consisting of inventory management services and warehousing
capabilities. Sales to these global contract manufacturers are subject to large
fluctuations due to the customer’s current demand and our ability to provide the
products that are required at a competitive price. Sales to global contract
manufacturers consist primarily of semiconductors. Net sales for the three and
six months ended December 31, 2007 to these customers were $10.2 million and $21.9
million, respectively, compared to $28.8 million and $61.5 million for the three
and six months ended December 31 ,2006, representing decreases of 64.6% and
64.4%, respectively.





We sell flat panel displays (“FPD’s” ) as a component sale through our standard
distribution channel and we sell FPD product as a value-added offering through
our in-house integration center. We provide design capabilities and a
“full-solution” capability enabling us to offer our customers an expanded range
of services to integrate FPD product into their application. We market our FPD
capabilities to a broad range of business segments, such as electronic kiosk,
the fast food industry, signage, the gaming industry, financial institutions,
and medical and military applications. For the three and six months ended
December 31, 2007, FPD sales increased 32.7% and 12.6% to $18.8 million and
$34.0 million, respectively, from $14.1 million and $30.2 million for the three
and six months ended December 31, 2006.  FPD sales, for the three
months, represented, for the first time, the largest percentage of our net sales
at 38.0%. The FPD market continues to get larger. We will continue to
aggressively market our FPD product primarily in the United States.




Semiconductors represented approximately 37.7% and 39.6% of our net sales for
the three and six months ended December 31, 2007, respectively, compared to
59.8% and 59.5% for the three and six months ended December 31, 2006,
respectively. This decrease is primarily the result of the decrease in net sales
of to our global contract manufacturers and the increase of our FPD net sales as
a percentage of our total net sales. Based on fluctuations in pricing in the
global market of semiconductors we cannot be certain when or if these sales will
increase.





Passive
components, which are primarily commodity product such as capacitors and
resistors, accounted for 16.9% and 18.1% of our net sales for the three and six
months ended December 31, 2007, respectively, compared to 13.5% and 13.1% for
the three and six months ended December 31, 2006, respectively. Actual net sales
of passive components has remained constant at approximately $18 million and the
increase in the percentage of net sales is the result of the decrease in total
net sales. Due to the transition of sales to the Far East we do not believe we
will materially increase net sales in passive components for the foreseeable
future.





Electromechanical products such as power supplies, relays, and printer heads
represented approximately $3.7 million, or 7.4%, and $7.7 million, or 7.8%, of
net sales for the three and six months ended December 31, 2007, respectively,
compared to $3.5 million, or 5.3%, and $6.9 million, or 5.1%, for the three and
six months ended December 31, 2006, respectively. The increase in the percentage
of net sales is
the result of the decrease in total net sales. Based on current demand for these
components we do not expect a material increase in sale of this product for the
foreseeable future.





Gross profit was $8.1 million, or 16.3% of net sales, and $16.1 million, or
16.3% of net sales, for the three and six months ended December 31, 2007,
respectively, compared to $8.5 million, or 12.9% of net sales, and $17.2
million, or 12.7% of net sales, for the three and six months ended December 31,
2006, respectively. As discussed, previously, the decrease in total net sales
and corresponding gross profit dollars of our logistics business is the primary
reason for the decrease during the current quarter and fiscal year of gross
profit dollars compared to the corresponding periods last fiscal year. Our core
business has historically generated higher gross profit margins than our
logistics sales. This is the primary reason for the increase in gross profit
margin.  As a result of the higher margins, gross profit dollars
declined only $500,000, or 5.3%, and $1.1 million, or 6.3%, for the three and
six months ended December 31, 2007 compared to the comparable periods last
fiscal year. Management considers gross profit to be a key











FORM
10-Q                                                                                                           December 31,
2007


Page
17





performance
indicator in managing our business. Any future changes in demand for product
through our logistic programs could affect our gross profit margin in the
future. In addition, demand and pricing for our products
have been, and in the future may continue to be, adversely affected by
industry-wide trends and events beyond our control.





Selling,
general and administrative (“SG&A”) expenses were $7.5 million, or 15.1% of
net sales, and $15.0 million, or 15.3% of net sales, respectively, for the three
and six months ended December 31, 2007 compared to $7.7 million, or 11.6% of net
sales, and $15.2 million, or 11.3% of net sales, respectively, for the three and
six months ended December 31, 2006. Management considers SG&A as a
percentage of net sales to be a key performance indicator in managing our
business. The increase in this percentage this fiscal year is a reflection of
the reduction in sales described above. Our actual SG&A expenses decreased
slightly for the three and six months ended December 31, 2007 compared to
the


comparable
periods last fiscal year. This was achieved by monitoring and reducing expenses
in non-strategic areas while we continue to invest in supporting our FPD product
growth. We believe these investments have contributed to the increase of our FPD
sales.





Interest expense was $540,000 and $1,156,000 for the three and six months ended
December 31, 2007, respectively, compared to $694,000 and $1,540,000 for the
three and six months ended December 31, 2006. This reflects decreases of
$154,000, or 22.1%, and $384,000, or 25.0%, when comparing the current fiscal
year to last fiscal year. The decreases are attributable to lower borrowing
rates and lower levels of borrowing under the current line of credit. Recent
reductions in federal lending rates will impact our interest expense for the
foreseeable future.





Net earnings for the three months
ended December 31, 2007 were $39,000, or $0.01 per diluted share, and net loss
for the six months ended December 31, 2007 were ($141,000), or ($0.02) per
diluted shared, compared to net earnings of $140,000, or $0.02, and $401,000, or
$0.06 per diluted share, respectively, for the three and six months ended
December 31, 2006. The decrease in net earnings during the current fiscal year
compared to last fiscal year is attributed to the decrease in net sales
discussed previously.





LIQUIDITY AND CAPITAL
RESOURCES





To
provide liquidity in funding its operations, the Company borrows amounts under
credit facilities and other external sources of financing. On December 22, 2006,
the Company entered into a new three-year credit agreement with CIT
Group/Business Credit, Inc. (“CIT”), which provides for a $55,000,000 revolving
secured line of credit. This credit facility has a maturity date of December 22,
2009. On January 23, 2007, CIT assigned $25,000,000 of its interest in the
credit facility to Bank of America, N.A. On March 23, 2007, the credit facility
was amended to provide the Company with a supplemental loan
(“Supplemental Loan”) of $3,000,000, which originally was payable on May 17,
2007. On May 18, 2007, the Supplemental Loan was amended to provide for periodic
payments to be made through July 15, 2007, at
which time the Supplemental Loan was to be paid in full. On July 24, 2007, the
Supplemental Loan was further amended to provide for a $3,000,000 loan at an
interest rate equal to the LIBOR rate plus 5%,
payable in seven quarterly installments commencing October 1, 2007. The Company
has currently made all the required installment payments for this Supplemental
Loan. In addition, mandatory prepayments are to be made based on (i) an amount
equal to fifty percent of Excess Cash Flow, as defined in the
credit agreement, and (ii) the net proceeds of Designated Inventory, as defined
in the credit agreement. Borrowings under the new credit facility are based
principally on eligible accounts receivable and inventories of the Company, as
defined in the credit agreement, and are collateralized by substantially all of
the assets of the Company.  At December 30, 2007, the outstanding
balance on this revolving line of credit facility was $30,660,000 ($21,000,000
of which is borrowed under a 30-day LIBOR-based revolver and $2,700,000 under
the Supplemental Loan) with an additional $7,697,000 available. At December 31,
2007, the Company had outstanding $2,500,000 of stand-by letters of credit on
behalf of certain vendors.  At December 31, 2007, the interest rates
on the outstanding borrowings under the credit facility were: 7.095% on the
borrowings under the 30-day LIBOR-based revolver; 10.32% on the Supplemental
Loan; and 8.0% (prime plus 0.75%) on the balance of the borrowings.





Under the
credit agreement, the Company is required to comply with one financial covenant
which stipulates that in the event the Company’s additional borrowing
availability under the revolving line of















FORM
10-Q                                                                                                           December 31,
2007


Page
18





credit
facility for any five consecutive days is less than $5,000,000, the Company is
required to retroactively maintain a Fixed Charge Coverage Ratio (as defined in
the credit agreement) of 1.1 to 1.0 as of the end of the immediately preceding
fiscal quarter for the most recently ended four fiscal quarters. As of December
31, 2007, the Company was in violation of this financial covenant. On February
12, 2008, the credit agreement was amended and the Company is in compliance with
this covenant as amended.





At
December 31, 2007, the Company had cash of approximately $20,000 and working
capital of approximately $4,058,000, as compared to cash of approximately
$16,000 and working capital of approximately
$3,897,000 at June 30, 2007.  As described above, our credit agreement
requires our cash generated from operations to be applied directly to the
prepayment of indebtedness under our credit facility.





For
the six months ended December 31, 2007, our net cash provided by operating
activities was approximately $7.1 million as compared to net cash used in
operating activities of $0.5 million for the six
months ended December 31, 2006. The increase in net cash provided by operating
activities is primarily attributable to the decrease in our accounts receivable
for the six months ended December 31, 2007. Net cash used in investing
activities was approximately $34,000 for the six months ended December 31, 2007
as compared to net cash used in investing activities of $125,000 for the six
months ended December 31, 2006.  Net cash used in financing activities
was approximately $7.1 million for the six months ended December 31, 2007
as compared to $0.6 million provided by financing activities for the six
months ended December 31, 2006. The increase in net cash used is primarily
attributable to the decrease in net borrowings under our credit facility of
approximately $7.1 million in the six months ended December 31, 2007 as compared
to an increase in net borrowings of $0.6 million in the six months ended
December 31, 2006.





For the
six months ended December 31, 2007 and 2006, our inventory turnover was 5.6
times and 7.4 times, respectively. The average days outstanding of our accounts
receivable at December 31, 2007 were 57 days, as compared to 51 days at
December 31, 2006. Inventory turnover and average days outstanding are key
ratios that management relies on to monitor our business.





Based
upon our present plans, including no anticipated material capital expenditures,
we believe that cash flow from operations and funds available under our credit
facility will be sufficient to fund our capital needs for the next twelve
months.  However, our ability to maintain sufficient liquidity depends
partially on our ability to achieve anticipated levels of revenue, while
continuing to control cost, and remaining in compliance with our bank covenants.
As previously discussed, we were able to obtain an amendment from our lenders to
satisfy our noncompliance with a financial covenant contained in our credit
agreement as of December 31, 2007. While we cannot assure that any such
amendments and/or waivers, if needed, will be available in the future,
management believes we will be able to continue to obtainfinancing
on acceptable terms under our existing credit facility or through other external
sources.  In the event that in the future we are unable to obtain such
an amendment and/or waiver of our non-compliance with our financial covenants,
the lenders under our credit facility could declare us to be in default under
the facility, requiring all amounts outstanding under the facility to be
immediately due and payable and/ or limit the Company’s ability to borrow
additional amounts under the facility. If we did not have sufficient available
cash to pay all such amounts that become due and payable, we would have to seek
additional debt or equity financing through other external sources, which may
not be available on acceptable terms, or at all. Failure to maintain financing
arrangements on acceptable terms would have a material adverse effect on our
business, results of operations and financial condition.






























FORM
10-Q                                                                                                             December
31, 2007


Page
19







Contractual
      Obligations




This
table summarizes our known contractual obligations and commercial commitments at
December 31, 2007.




Total
            
            
            < 1 Year
            
            
            1 to 3 Years
            
            
            3 to 5 Years
            
            
            > 5 YearsBank
      Debt
            
            $
            30,659,575
            
            
            $
            30,659,575Capital
      Lease
            
            
            62,553
            
            
            
            57,365
            
            
            $
            5,188Operating
      Lease
            
            
            6,072,379
            
            
            
            1,388,074
            
            
            
            2,867,037
            
            
            $
            1,817,268
            
            
            
            -Total
            
            $
            36,794,507
            
            
            $
            32,105,014
            
            
            $
            2,872,225
            
            
            $
            1,817,268





Inflation
and Seasonality





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





Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.





We are exposed to interest rate changes
with respect to borrowings under our credit facility, which bears interest at a
variable rate dependent upon either the prime rate, federal funds rate or the
LIBOR rate (“rates”).  At January 31, 2008, $29.1 million was
outstanding under the credit facility. Changes in any of the rates during the
current fiscal year will have a positive or negative effect on our interest
expense. Each 1.0% fluctuation in the rate will increase or decrease our
interest expense under the credit facility by approximately
$0.3 million based on the amount of outstanding borrowings at January 31, 2008.
The impact of interest rate fluctuations on our other floating rate debt is not
material.





Item
4. Controls and Procedures.





An evaluation was performed, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2007.  Based upon that
evaluation, the Company’s management, including its Chief Executive Officer and
Chief Financial Officer, has concluded that the Company's disclosure controls
and procedures are effective to ensure that information required to be disclosed
in the reports that the Company files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and is accumulated and communicated to the Company’s management, including its
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.  There have been no changes in the
Company's internal control over financial reporting or in other factors
identified in connection with this evaluation that occurred during the three
months ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





PART
II – OTHER INFORMATION





Item
1.    Legal Proceedings





For information related to legal
proceedings, see Note 3 and Note 8 of the Notes to Consolidated Financial
Statements presented in Part 1, Item 1 of this report on Form 10-Q.





Item
1A.  Risk Factors





See
“Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year
ended June 30, 2007.












FORM
10-Q                                                                                                          December 31,
2007


Page
20





Item
6.                     Exhibits.





Exhibit 10.27.8 -
            Second
      Amendment to Credit Agreement dated as of February 12, 2008
              among
      CIT, as Agent under the Credit Agreement, and Jaco Electronics,
              Inc.
      and Interface Electronics Corp., as Borrowers under the Credit
              Agreement.




Exhibit
31.1 -      Rule 13a-14 (a) / 15d-14 (a)
Certification of Principal Executive  Officer





Exhibit
31.2 -      Rule 13a-14 (a) / 15d-14 (a)
Certification of Principal Financial Officer.





Exhibit
32.1 -      Section 1350 Certification of
Principal Executive Officer.





Exhibit
32.2 -      Section 1350 Certification of
Principal Financial Officer.













































S
I G N A T U R E














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





February
14, 2008


JACO ELECTRONICS, INC.


(Registrant)








BY:  /s/ Jeffrey D. Gash


Jeffrey D. Gash, Executive Vice
President,


Finance and
Secretary


(Principal Financial
Officer)