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


{X}      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period ended December 31, 1998

                                       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
                   (Address of principal executive office) (Zip Code)



Registrant's telephone number, including area code:   (516)  273-5500

Indicated  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 report),  and (2) has been subject to such
filing requirements for the past 90 days.



                        YES  X                                NO __



Number of Shares of  Registrant's  Common Stock  Outstanding  as of February 12,
1999 - 3,653,521 (Excluding 412,200 Shares of Treasury Stock).


<PAGE>

<TABLE>
<CAPTION>

FORM 10-Q                                                                        December 31, 1998
Page  2


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS


                                    JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                                  (UNAUDITED)


                                                              December 31,               June 30,
                                                                  1998                     1998  
                                                              ------------             -----------
ASSETS

Current Assets

<S>                                                           <C>                       <C>        
         Cash                                                 $   390,024               $   562,556
         Marketable securities                                    813,275                   764,810
         Accounts receivable, net                              22,881,322                21,887,618
         Inventories                                           33,966,202                35,737,288
         Prepaid expenses and other                               992,457                 1,203,198
         Prepaid income taxes                                     769,074                   610,132
         Deferred income taxes                                    817,000                   772,500
                                                              -----------               -----------

                  Total current assets                         60,629,354                61,538,102


Property, plant and equipment, net                              7,226,221                 6,102,445

Deferred income taxes                                             353,000                   333,000

Excess of cost over net assets acquired, net                    3,682,680                 3,776,912

Other assets                                                    1,686,671                 1,668,830
                                                              -----------               -----------


                                                              $73,577,926               $73,419,289
                                                              ===========               ===========


                      See accompanying notes to condensed consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

FORM 10-Q                                                                       December 31, 1998
Page 3



                                   JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                                  (UNAUDITED)



                                                                      December 31,           June 30,
                                                                         1998                  1998    
                                                                     ------------          -----------
LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities

<S>                                                                 <C>                 <C>         
         Accounts payable and accrued expenses                      $ 15,776,208        $ 18,394,251
         Current maturities of long term debt and
           capitalized lease obligations                                 698,798             663,198
                                                                   -------------        ------------


         Total current liabilities                                    16,475,006          19,057,449

Long term debt and capitalized lease obligations                      20,771,957          17,036,593

Deferred compensation                                                    725,000             700,000


SHAREHOLDERS' EQUITY


         Preferred stock - authorized, 100,000 shares,
           $10 par value; none issued
         Common stock - authorized 10,000,000 shares,
           $.10 par value; issued 4,065,721 shares
            and 3,653,521 and 3,866,221
           shares outstanding, respectively                              406,572             406,572
         Additional paid in capital, net                              22,463,795          22,396,295
         Accumulated other comprehensive income                          172,052             164,385
         Retained earnings                                            14,768,059          15,077,957
         Treasury stock                                               (2,204,515)         (1,419,962)
                                                                     ------------        ------------

         Total shareholders' equity                                   35,605,963          36,625,247
                                                                      ----------          ----------


                                                                     $73,577,926         $73,419,289
                                                                     ============        ============



                    See accompanying notes to condensed consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

FORM 10-Q                                                                       December 31, 1998
Page 4



                                    JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                     FOR THE THREE MONTHS ENDED DECEMBER 31,
                                                   (UNAUDITED)




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


<S>                                                               <C>                 <C>        
NET SALES                                                         $34,966,098         $39,787,894

COST AND EXPENSES

Cost of goods sold                                                 28,271,002          31,589,263
                                                                   ----------          ----------
         Gross profit                                               6,695,096           8,198,631

Selling, general and administrative expenses                        6,467,866           7,149,105
                                                                 ------------        ------------
         Operating  profit                                            227,230           1,049,526

Interest expense                                                      341,022             270,343
                                                                 ------------        ------------
         (Loss) earnings before income taxes                        (113,792)             779,183

Income tax benefit (provision)                                         46,000           (316,000)
                                                                 ------------        ------------
         NET (LOSS) EARNINGS                                     $   (67,792)        $    463,183
                                                                 ============        ============
Net (loss) earnings per common share

Basic and diluted                                                $     (0.02)        $       0.12
                                                                 ============        ============
Weighted average common shares outstanding
         
         Basic                                                      3,654,182           3,882,851
                                                                 ============        ============
         Diluted                                                    3,654,182           3,938,860
                                                                 ============        ============


                    See accompanying notes to condensed consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

FORM 10-Q                                                                       December 31, 1998
Page 5



                                   JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                    FOR THE SIX MONTHS ENDED DECEMBER 31,
                                               (UNAUDITED)




                                                                   1998                 1997     
                                                               --------------       -------------
<S>                                                               <C>                 <C>        
NET SALES                                                         $68,222,554         $76,666,428

COST AND EXPENSES

Cost of goods sold                                                 54,825,070          60,650,643
                                                                   ----------          ----------

         Gross profit                                              13,397,484          16,015,785

Selling, general and administrative expenses                       13,262,918          14,026,220
                                                                 ------------        ------------

         Operating  profit                                            134,566           1,989,565

Interest expense                                                      654,464             542,352
                                                                 ------------        ------------

         (Loss) earnings before income taxes                        (519,898)           1,447,213

Income tax benefit (provision)                                        210,000           (586,000)
                                                                 ------------        ------------


         NET (LOSS) EARNINGS                                     $  (309,898)        $    861,213
                                                                 ============        ============

Net (loss) earnings per common share

Basic and diluted                                                $     (0.08)        $       0.22
                                                                 ============        ============

Weighted average common shares outstanding

         Basic                                                      3,725,441           3,885,537
                                                                 ============        ============
         Diluted                                                    3,725,441           3,939,345
                                                                 ============        ============



                    See accompanying notes to condensed consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
FORM 10-Q                                                                                                     December 31, 1998
Page 6




                                                        JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                                         CONSOLIDATED STATEMENT OF CHANGES
                                                             IN SHAREHOLDERS' EQUITY
                                                    FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
                                                                      (UNAUDITED)




                                                                                     Accumulated
                                                                    Additional          Other                                     
                                           Common Stock               Paid-In       Comprehensive      Retained         Treasury  
                                        Shares       Amount           Capital          Income          Earnings           Stock  
                                   --------------- -------------- ----------------  -------------- ----------------- ---------------
                                  

<S>             <C>                     <C>             <C>          <C>                <C>             <C>             <C>         
Balance at July 1, 1998                 4,065,721       $406,572     $ 22,801,295       $ 164,385       $15,077,957     $(1,419,962)

Deferred compensation expense                                                                                                       

Purchase of treasury stock                                                                                                 (784,553)

Unrealized gain on marketable
  securities, net                                                                           7,667 

Net loss                                                                                                   (309,898)
                                   --------------- -------------- ----------------  -------------- ----------------- ---------------
 
Balance at December 31, 1998            4,065,721       $406,572     $ 22,801,295       $ 172,052       $14,768,059     $(2,204,515)
                                   =============== ============== ================  ============== ================= ===============

</TABLE>


                                    
                                                        Total
                                     Deferred       Shareholders'
                                   Compensation        Equity
                                   --------------- -------------- 
                                  

Balance at July 1, 1998            $ (405,000)      $36,625,247

Deferred compensation expense          67,500            67,500

Purchase of treasury stock                            (784,553)

Unrealized gain on marketable
  securities, net                                         7,667

Net loss                                              (309,898)
                                   ---------------  -------------- 
                                 
Balance at December 31, 1998        $ (337,500)     $35,605,963
                                   =============== ============== 
                                   
     
     See accompanying notes to condensed consolidated financial statements.


<TABLE>
<CAPTION>
<PAGE>

FORM 10-Q                                                                       December 31, 1998
Page 7



                                      JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                   CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                       FOR THE SIX MONTHS ENDED DECEMBER 31,
                                                   (UNAUDITED)

                                                                                   1998                 1997
                                                                             -----------------    -----------------
 Cash flows from operating activities
<S>                                                                                <C>                   <C>      
      Net (loss) earnings                                                          $ (309,898)           $ 861,213

Adjustments to reconcile net (loss) earnings to net
     cash provided by (used in) operating activities
          Depreciation and amortization                                               781,948              650,795
          Deferred compensation                                                        92,500               36,250
          Deferred income tax benefit                                                 (70,000)             (85,000)
          Provision for doubtful accounts                                             253,687              235,575
          Gain on sale of equipment                                                    (1,655)
          Changes in operating assets and liabilities,
          Decrease in operating assets, net                                          575,494              291,333
          (Decrease) increase in operating liabilities, net                       (2,618,043)              49,564
                                                                             -----------------    -----------------
          Net cash (used in) provided by operating activities                      (1,295,967)           2,039,730
                                                                             -----------------    -----------------
Cash flows from investing activities
          Capital expenditures                                                     (1,200,316)          (1,023,300)
          Increase in marketable securities, net                                      (35,298)             (63,046)
          Proceeds from sale of equipment                                               9,689
          Increase in other assets                                                    (84,507)            (159,010)
                                                                             -----------------    -----------------
          Net cash used in investing activities                                     (1,310,432)          (1,245,356)
                                                                             -----------------    -----------------
Cash flows from financing activities
          Borrowings under line of credit                                           28,698,555           73,312,120
          Payments under line of credit                                            (25,089,672)         (73,455,110)
          Principal payments under equipment financing
            and term loans                                                            (390,463)            (472,997)
          Purchase of treasury stock                                                  (784,553)            (165,015)
                                                                             -----------------    -----------------
          Net cash provided by (used in) financing activities                        2,433,867             (781,002)
                                                                             -----------------    -----------------
          NET (DECREASE) INCREASE  IN CASH                                            (172,532)              13,372
                                                                             -----------------    -----------------
Cash at beginning of period                                                            562,556              463,352
                                                                             -----------------    -----------------

Cash at end of period                                                               $ 390,024            $ 476,724
                                                                             =================    =================

Supplemental schedule of non-cash financing and
    investing activities
Equipment under capital leases                                                      $ 552,544



                    See accompanying notes to condensed consolidated financial statements.

</TABLE>
<PAGE>

FORM 10-Q                                                      December 31, 1998
 Page 8


                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

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 and the results of  operations  at and for the
periods presented.  Such financial statements do not include all the information
or footnotes necessary for a complete  presentation.  Therefore,  they should be
read in conjunction with the Company's audited  consolidated  statements for the
year ended June 30, 1998 and the notes thereto  included in the Company's annual
report on Form 10-K. The results of operations  for the interim  periods are not
necessarily indicative of the results for the entire year.

2) The Company has a $30,000,000 term loan and revolving line of credit facility
with its banks, which are based principally on eligible accounts receivables and
inventories  as defined in the  agreement.  The  agreement  was  amended to: (i)
extend the maturity date to September 13, 2000, (ii) change the interest rate to
a rate based on the average 30 day LIBOR rate plus 3/4 % to 1 1/4%  depending on
the Company's  performance  for the  immediately  preceding four fiscal quarters
measured by a certain  financial  ratio,  and (iii) changed the  requirements of
certain  financial  covenants.  The  applicable  interest  rate may be  adjusted
quarterly and borrowings under this facility are collateralized by substantially
all of the assets of the Company.

3) The Board of  Directors of the Company has  authorized  the purchase of up to
650,000 shares of its outstanding common stock under a stock repurchase program.
The  purchases  may be made by the Company from time to time on the open market.
The  Company  has made  purchases  of 412,200  shares of its common  stock as of
February 12, 1999 for aggregate consideration of $2,204,515.

4) For interim financial reporting  purposes,  the Company uses the gross profit
method for computing inventories,  which consists of goods held for resale, work
in process and raw materials.

5) In fiscal 1998, the Company  adopted the provisions of Statement of Financial
Accounting  Standards No. 128 ("SFAS No.  128"),  "Earnings per Share." SFAS No.
128 replaces the  calculation  of primary and fully  diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options,  warrants and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts  for all  periods  have been  presented  to  conform to the SFAS No. 128
computation.


<PAGE>

<TABLE>
<CAPTION>

FORM 10-Q                                                                       December 31, 1998
Page 9

           The number of shares used in the Company's basic and diluted earnings
per share computations are as follows:



                                                      Three Months Ended                 Six Months Ended
                                                         December 31,                    December 31, 
                                               ---------------------------------   ------------------------------
                                                   1998              1997              1998             1997
                                               --------------   ----------------   -------------     ------------
 
Weighted average common shares
  outstanding net of treasury shares,
<S>                                                <C>                <C>             <C>              <C>      
  for basic earnings per share                     3,654,182          3,882,851       3,725,441        3,885,537

Common stock equivalents for
  stock options                                                          56,009                           53,808
                                               --------------   ----------------   -------------     ------------
Weighted average common shares
  outstanding for diluted earnings per share       3,654,182          3,938,860       3,725,441        3,939,345
                                               ==============   ================   =============     ============
</TABLE>


         For the three  and six  months  ended  December  31,  1998  options  to
purchase  476,564 shares of common stock at a price range of $4.13 to $12.75 and
warrants to purchase  70,000  shares of common stock at $22.95 were  outstanding
during the period. They were not included in the computation of diluted earnings
per share because the exercise prices were greater than the average market price
of the common shares.

6) The company has adopted SFAS No. 130 "Reporting  Comprehensive  Income" which
establishes  guidelines for reporting and disclosure of comprehensive income and
its  components.  The purpose of reporting  comprehensive  income is to report a
measure of all changes in equity that resulted from recognized  transactions and
other economic  events of the periods  presented  other than  transactions  with
stockholders.  Adoption of SFAS No. 130 had no economic  impact on the Company's
consolidated  financial  position,  net earnings,  stockholders'  equity or cash
flows, although the presentation of certain items has changed.

Comprehensive income and its components, net of tax, are as follows:
<TABLE>
<CAPTION>

                                                   Three Months Ended               Six Months Ended
                                                      December 31,                    December 31,
                                               -----------------------------      ------------------------
                                                  1998            1997             1998          1997
                                              -------------    ------------      ----------   -----------
                                                     (in thousands)                  (in thousands)
<S>                                                  <C>              <C>           <C>             <C> 
Net (loss) earnings                                  $(68)            $463          $(310)          $861

Other comprehensive income:

   Net unrealized investments gains (losses)            54            (30)               8
                                              -------------    ------------      ----------   -----------

Comprehensive (loss) income                          $(14)            $433          $(302)          $861
                                              =============    ============      ==========   ===========
</TABLE>

         The components of accumulated  other  comprehensive  income included in
the  accompanying   condensed   consolidated  balance  sheets  and  consolidated
statement  of  changes  in  shareholders'  equity  consists  of  net  unrealized
investment  gains as of the end of the period.  
<PAGE>

FORM 10-Q                                                     December 31, 1998 
Page 10

7) The  Financial  Accounting  Standard  Board  issued  Statement  of  Financial
Accounting  Standards No. 131  "Disclosures  about Segments of an Enterprise and
Related  Information" ( "SFAS 131").  SFAS 131  established  standards to report
information about operating segments and related  discussions about products and
services, geographic areas and major customers. SFAS 131 is effective for fiscal
years  beginning   after  December  15,  1997.  This  statement   permits  early
application  and  requires  restatement  for all prior periods.  SFAS 131 is not
required to be applied to interim  financial  statements  in the initial year of
adoption.  Management believes that the adoption of this statement will not have
any material impact on previously reported information.


                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

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

GENERAL

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

         The  Company's   customers   are  primarily   small  and  medium  sized
manufacturers.  The  trend  for  these  customers  has  been  to  shift  certain
manufacturing functions to third parties ("Outsourcing"). The Company intends to
capitalize  on this trend toward  Outsourcing  by  increasing  sales of products
enhanced by value-added  services.  Value-added  services  currently provided by
Jaco consist of configuring complete computer systems to customer specifications
both in tower  and  desktop  configurations,  kitting  (e.g.  supplying  sets of
specified  quantities of products to a customer that are prepackaged for ease of
feeding  the  customer's  production  lines),   automated  inventory  management
services  and  contract   manufacturing   through  the  Company's   wholly-owned
subsidiary, Nexus Custom Electronics, Inc.


<PAGE>


FORM 10-Q                                                      December 31, 1998
Page 11


Results of Operations

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

<TABLE>
<CAPTION>

                                                 Three Months Ended                     Six Months Ended
                                                    December 31,                          December 31,
                                           ------------------------------         ---------------------------

                                              1998               1997                1998             1997
                                           ----------         ----------          ----------       ----------
   
<S>                                                <C>             <C>                 <C>               <C>   
Net Sales                                       100.0%           100.0%              100.0%            100.0%
Cost of goods sold                               80.9             79.4                80.4              79.1
                                           ----------         ----------          ----------       ----------
 Gross Profit                                    19.1             20.6                19.6              20.9
Selling, general and
  administrative expenses                        18.5             18.0                19.4              18.3
                                           ----------         ----------          ----------       ----------
Operating  profit                                0.6               2.6                 0.2               2.6
Interest expense                                 0.9               0.6                 1.0               0.7
                                           ----------         ----------          ----------       ----------
(Loss) earnings before income taxes             (0.3)              2.0                (0.8)              1.9
Income tax benefit (expense)                     0.1              (0.8)                0.3              (0.8)
                                           ----------         ----------          ----------       ----------
NET (LOSS) EARNINGS                             (0.2%)             1.2%               (0.5%)             1.1%
                                           ==========         ==========          ==========       ==========

</TABLE>

COMPARISON OF THE THREE AND SIX MONTHS ENDED  DECEMBER 31, 1998 AND DECEMBER 31,
1997.

     Net sales for the three and six months  ended  December 31, 1998 were $35.0
million and $68.2  million,  respectively  compared  to $39.8  million and $76.7
million  for the three and six months  ended  December  31,  1997,  respectively
representing  decreases in net sales of 12.1% and 11.0%. The Company's net sales
were impacted by continued  industry wide pricing  pressures;  compounded by the
softening  demand for electronic  components  which has affected the electronics
industry for over two years.  The Company has targeted  flat panel  displays and
monitors  as an area of  growth,  and net sales in this area have  increased  in
recent quarters.

         Gross profit margins as a percentage of net sales were 19.1% and 19.6 %
for the three and six months ended December 31, 1998,  respectively  compared to
20.6%  and  20.9%  for the  three  and  six  months  ended  December  31,  1997,
respectively.  The decrease is  attributable  to pricing  pressures along with a
change in product mix.


<PAGE>


FORM 10-Q                                                     December 31, 1998
Page 12

     Selling,  general and  administrative  expenses ("S,G&A") for the three and
six  months  ended  December  31,  1998 were  $6.5  million  and $13.3  million,
decreases of $.7 and $.8 million or 9.5% and 5.4% when compared to the three and
six months ended December 31, 1997. In addition, S,G&A for the second quarter of
fiscal 1999  decreased  $.3 million when compared to the first quarter of fiscal
1999. The decrease in S,G&A is the result of cost savings  initiatives which the
Company had implemented in prior periods.

         Interest  expense  increased to $341,000 and $654,000 for the three and
six months  ended  December  31, 1998  compared to $270,000 and $542,000 for the
three and six months ended December 31, 1997,  increases of $71,000 and $112,000
or 26.1% and 20.7%.  The  increases  are  primarily  attributable  to  increased
borrowings  due to the  Company's  purchases of its common stock under its stock
repurchase program,  along with fixed asset additions primarily for the contract
manufacturing business.

         The net losses for the three and six months  ended  December  31,  1998
were $68,000 and  $310,000 or $0.02 and $0.08 per share,  compared to net income
of $463,000 and  $861,000 or $0.12 and $0.22 per share,  during the same periods
last fiscal year. The weighted average number of diluted shares outstanding were
3,654,182  and  3,725,441  for the three and six months ended  December 31, 1998
compared to 3,938,860 and 3,939,345 for the same periods last fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

         The  Company's  agreement  with its banks,  as  amended,  provides  the
Company with a $30,000,000 term loan and revolving line of credit facility based
principally on eligible  accounts  receivable and  inventories of the Company as
defined in the agreement which expires  September 13, 2000. The interest rate of
the  credit  facility  is based on the  average  30 day LIBOR  rate plus 3/4% to
1-1/4% depending on the Company's performance for the immediately preceding four
fiscal  quarters  measured  by a certain  financial  ratio,  and may be adjusted
quarterly.  The outstanding balance on the revolving line of credit facility was
$18,921,967  at December 31, 1998.  The term loan,  with a remaining  balance of
$482,143 at December 31, 1998,  requires monthly principal  payments of $17,857,
together  with  interest  through  September  13, 2000,  with a final payment of
$107,146  due  on  September  13,  2000.  Borrowings  under  this  facility  are
collateralized by substantially all of the assets of the Company.  The agreement
contains  provisions for maintenance of certain financial  ratios,  all of which
the Company is in  compliance  with at December  31,  1998,  and  prohibits  the
payment of cash dividends.

For the six months  ended  December  31, 1998,  the  Company's  net cash used in
operating  activities  was  approximately  $1.3  million  compared  to net  cash
provided by  operating  activities  of  approximately  $2.0  million for the six
months ended  December 31, 1997. The decrease is primarily  attributable  to the
reduction in accounts  payable and accrued  expenses.  Net borrowings  under the
Company's line of credit was approximately $3.6 million for the six months ended
December 31, 1998 compared to a net repayment of  approximately  $.1 million for
the six months ended December 31, 1997.  The additional  borrowings is primarily
attributable  to the purchase of $.8 million of treasury  stock along with fixed
asset additions primarily for the contract manufacturing business. The Company's
cash expenditure may vary significantly  from current levels,  based on a number
of factors, including, but not limited to, future acquisitions if any.

         For the first  six  months of fiscal  1999 and  fiscal  1998  inventory
turnover was 3.2:1 and 3.7:1, respectively.  The average days outstanding of the
Company's  accounts  receivable at December 31, 1998 was 58 days, as compared to
54 days at December 31, 1997.

         The Board of Directors of the Company had authorized the purchase of up
to 250,000 shares of its common stock under a stock repurchase  program.  During
fiscal  1999,  the Board of  Directors  authorized  the  repurchase  of up to an
additional 400,000 shares of the Company's common stock. The purchases may


<PAGE>


FORM 10-Q                                                      December 31, 1998
Page 13

be made by the  Company  from time to time on the open  market at the  Company's
discretion and will be dependent on market conditions. Through February 12, 1999
the Company  has  purchased  412,200  shares of its common  stock for  aggregate
consideration of $2,204,515 under this program.

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

Year 2000 Compliance

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

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

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

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

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

     The Company believes it will cost approximately $1.8 million to replace the
core financial and reporting software systems for its distribution business. The
Company is utilizing outside consultants to undertake a portion of such work.

 INFLATION

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


<PAGE>


FORM 10-Q                                                      December 31, 1998
Page 14


PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

                           Nothing to Report

Item 2.           Changes in Securities and Use of Proceeds

                           Nothing to Report

Item 3.           Defaults Upon Senior Securities

                           Nothing to Report

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

                  Jaco's Annual Meeting of Shareholders  was held on December 7,
1998. The Shareholders approved the following:

(i)      The election of each of the nominees to the Board of Directors:

               Stephen A. Cohen          For:     3,238,267     Withheld: 29,891
               Edward M. Frankel         For:     3,238,267     Withheld: 29,891
               Charles B. Girsky         For:     3,238,090     Withheld: 30,068
               Joel H. Girsky            For:     3,238,090     Withheld: 30,068
               Joseph F. Hickey, Jr.     For:     3,238,267     Withheld: 29,891

(ii)                       An  amendment  to the  Company's  1993 Non  Qualified
                           Stock Option Plan (the "1993 Non-Qualified  Plan") as
                           amended,  to provide that  directors will be eligible
                           to receive stock options under the 1993 Non-Qualified
                           Plan.

               For: 1,919,135 Against: 1,216,222 Abstention 132,801

(iii)                      An amendment to the Company's  Restricted  Stock Plan
                           to provide that directors will be eligible to receive
                           awards under the Restricted Stock Plan.

               For: 2,966,946 Against: 168,169 Abstention: 133,043

Item 5.           Other Information

                            Nothing to Report

Item 6.          Exhibits and Reports on Form 8-K

a)       Exhibits

                            27.1  Financial Data Schedule

b)       Reports on Form 8-K:  None


<PAGE>





                                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.


                             JACO ELECTRONICS, INC.
                                  (Registrant)



                     BY: Jeffrey D. Gash
                     Jeffrey D. Gash, Vice President/Finance
                    (Principal Financial Officer)









DATED February 12, 1999