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 September 30, 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 November 11,
1998 - 3,653,521 (Excluding 412,200 Shares of Treasury Stock).


<PAGE>

<TABLE>
<CAPTION>


FORM 10-Q                                                                       September 30, 1998
Page  2


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS


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

     
                                                              September 30,             June 30,
                                                                  1998                    1998   
                                                               -----------            -----------
ASSETS

Current Assets

<S>                                                           <C>                       <C>        
         Cash                                                 $ 1,519,542               $   562,556
         Marketable securities                                    687,060                   764,810
         Accounts receivable - net                             21,331,931                21,887,618
         Inventories                                           35,756,451                35,737,288
         Prepaid expenses and other                             1,074,337                 1,203,198
         Prepaid income taxes                                     762,613                   610,132
         Deferred income taxes                                    824,000                   772,500
                                                              -----------               -----------

                  Total current assets                         61,955,934                61,538,102


Property, plant and equipment - net                             7,102,677                 6,102,445

Deferred income taxes                                             342,000                   333,000

Excess of cost over net assets acquired - net                   3,729,796                 3,776,912

Other assets                                                    1,589,426                 1,668,830
                                                              -----------               -----------


                                                              $74,719,833               $73,419,289
                                                              ===========               ===========



</TABLE>




          See accompanying notes to condensed consolidated financial statements.



<PAGE>


FORM 10-Q                                                     September 30, 1998
Page 3
<TABLE>
<CAPTION>



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


                                                                      September 30,          June 30,
                                                                         1998                  1998    
                                                                      ------------          -----------
LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities

<S>                                                                 <C>                 <C>         
         Accounts payable and accrued expenses                      $ 18,012,534        $ 18,394,251
         Current maturities of long term debt and
           capitalized lease obligations                                 733,613             663,198
                                                                   -------------        ------------


         Total current liabilities                                    18,746,147          19,057,449

Long term debt and capitalized lease obligations                      19,661,795          17,036,593

Deferred compensation                                                    712,500             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 3,657,321 and 3,866,221
           shares outstanding, respectively                              406,572             406,572
         Additional paid-in capital - net                             22,430,045          22,396,295
         Accumulated other comprehensive income                          118,135             164,385
         Retained earnings                                            14,835,851          15,077,957
         Treasury stock                                               (2,191,212)         (1,419,962)
                                                                     ------------        ------------

         Total shareholders' equity                                   35,599,391          36,625,247
                                                                      ----------          ----------

                                                                     $74,719,833         $73,419,289
                                                                     ===========        =============

</TABLE>



          See accompanying notes to condensed consolidated financial statements.



<PAGE>



FORM 10-Q                                                     September 30, 1998
Page 4



                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                    FOR THE THREE MONTHS ENDED SEPTEMBER 30,
                                   (UNAUDITED)

<TABLE>
<CAPTION>


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


<S>                                                               <C>                 <C>        
NET SALES                                                         $33,256,456         $36,878,534


COST AND EXPENSES

Cost of goods sold                                                 26,554,068          29,061,380
                                                                   ----------          ----------

         Gross profit                                               6,702,388           7,817,154

Selling, general and administrative expenses                        6,795,052           6,877,115
                                                                 ------------        ------------

         Operating (loss) profit                                     (92,664)             940,039

Interest expense                                                      313,442             272,009
                                                                 ------------        ------------

         (Loss) earnings before income taxes                        (406,106)             668,030

Income tax benefit (provision)                                        164,000           (270,000)
                                                                 ------------        ------------


         NET (LOSS) EARNINGS                                     $  (242,106)        $    398,030
                                                                 ============        ============

Net (loss) earnings per common share

Basic and diluted                                                $     (0.06)        $       0.10
                                                                 ============        ============

Weighted average common shares outstanding

         Basic                                                      3,830,397           3,888,221
         Diluted                                                    3,830,397           3,943,192
                                                                 ============        ============


</TABLE>


       See accompanying notes to condensed consolidated financial statements.

<PAGE>

FORM 10-Q                                                   September 30, 1998
Page 5

<TABLE>
<CAPTION>


                                                           JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                                              CONSOLIDATED STATEMENT OF CHANGES
                                                                  IN SHAREHOLDERS' EQUITY
                                                       FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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                                                                                                 (771,250)

Unrealized loss on marketable
  securities - net                                                                        (46,250)                                  

Net loss                                                                                                 $ (242,106)                
                                   --------------- -------------- ----------------  -------------- ----------------- ---------------
  
Balance at September 30, 1998           4,065,721       $406,572     $ 22,801,295       $ 118,135       $14,835,851    $ (2,191,212)
                                   =============== ============== ================  ============== ================= ===============
                                   
</TABLE>



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

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

Deferred compensation expense           33,750             33,750

Purchase of treasury stock                               (771,250)

Unrealized loss on marketable
  securities - net                                        (46,250)

Net loss                                                 (242,106)
                                   ---------------  -------------- 

Balance at September 30, 1998       $ (371,250)      $35,599,391
                                   ===============  ============== 
                                  


     See accompanying notes to condensed consolidated financial statements.


<PAGE>



FORM 10-Q                                                     September 30, 1998
Page 6


                                      JACO ELECTRONICS, INC. AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                       FOR THE THREE MONTHS ENDED SEPTEMBER 30,
                                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                   1998                 1997
                                                                             -----------------    -----------------
  Cash flows from operating activities
<S>                                                                                <C>                   <C>      
      Net (loss) earnings                                                          $ (242,106)           $ 398,030

Adjustments to reconcile net earnings to net
     cash provided by (used in) operating activities
          Depreciation  and amortization                                              375,299              330,083
          Deferred compensation                                                        46,250               12,500
          Deferred income tax benefit                                                 (29,000)             (55,000)
          Provision for doubtful accounts                                             120,814               89,375
          Changes in operating assets and liabilities,
          Decrease (increase) in operating assets - net                               392,090             (702,433)
          (Decrease) increase in operating liabilities - net                         (381,717)             318,005
                                                                             -----------------    -----------------
          Net cash provided by operating activities                                   281,630              390,560
                                                                             -----------------    -----------------
Cash flows from investing activities
         Capital expenditures                                                        (742,538)            (260,536)
         Decrease (increase) in other assets                                           46,071               (6,130)
                                                                             -----------------    -----------------
         Net cash used in investing activities                                       (696,467)            (266,666)
                                                                             -----------------    -----------------
Cash flows from financing activities
       Borrowings under line of credit                                             15,987,250           35,455,080
       Payments under line of credit                                              (13,656,102)         (35,489,278)
       Principal payments under equipment financing
       and term loans                                                                (188,075)            (151,352)
       Purchase of treasury stock                                                    (771,250)
                                                                             -----------------    -----------------
Net cash provided by (used in) financing activities                                 1,371,823             (185,550)
                                                                             -----------------    -----------------
NET INCREASE (DECREASE) IN CASH                                                       956,986              (61,656)
                                                                             -----------------    -----------------
Cash at beginning of period                                                           562,556              463,352
                                                                             -----------------    -----------------
Cash at end of period                                                             $ 1,519,542            $ 401,696
                                                                             =================    =================

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

</TABLE>

   See accompanying notes to condensed consolidated financial statements.

<PAGE>



FORM 10-Q                                                    September 30, 1998
Page 7


                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (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
November 12, 1998 for aggregate consideration of $2,204,514.

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

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, and, where appropriate, restated to
conform to the SFAS No. 128 computation.


<PAGE>



FORM 10-Q                                                    September 30, 1998
Page 8

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

<TABLE>
<CAPTION>

                                                                   Three Months Ended
                                                                      September 30,
                                                       --------------------------------------------
                                                             1998                      1997
                                                       -----------------         ------------------

Weighted average common shares
  outstanding net of treasury shares,
<S>                                                           <C>                        <C>      
  for basic earnings per share                                3,830,397                  3,888,221

Common stock equivalents for
  stock options                                                                             54,971
                                                       -----------------         ------------------

Weighted average common shares
  outstanding for diluted earnings per share                  3,830,397                  3,943,192
                                                       =================         ==================


</TABLE>


6) The company has adopted SFAS No. 130 "Reporting  Comprehensive  Income" which
establishes  guidance for the reporting and display 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 period 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
                                                                      September 30,
                                                       --------------------------------------------
                                                             1998                      1997
                                                       -----------------         ------------------
                                                                     (in thousands)
<S>                                                              <C>                          <C> 
Net (loss) earnings                                              $(242)                       $398

Other comprehensive income:

   Net unrealized investments (losses) gains                       (46)                         30
                                                       -----------------         ------------------

Comprehensive (loss) income                                      $(288)                       $428
                                                       =================         ==================
</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                                                     September 30, 1998
Page 9

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  period.  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.

8) The Company has entered into three employment  agreements  during the current
fiscal year with its Chairman and two other key  executives.  The agreements are
for four years and are renewable for one year periods  thereafter,  they provide
for base salary along with cash bonuses which are  dependent  upon the Company's
performance. In addition, among other items, the agreements have made provisions
in the event of a change in control of the Company.

 
                     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
seek to  capitalize  on this trend toward  outsourcing  by  increasing  sales of
products  enhanced  by  value-added  services.  Value-added  services  currently
provided by Jaco consist of configuring  complete  computer  systems to customer
specifications both in tower and desktop configurations, kitting (e.g. supplying
sets of specified  quantities of products to a customer that are prepackaged for
ease of feeding the customer's  production  lines),  and contract  manufacturing
through the Company's wholly owned subsidiary Nexus Custom Electronics, Inc.


<PAGE>


FORM 10-Q                                                     September 30, 1998
Page 10


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
                                                                    September 30,
                                                    --------------------------------------------

                                                        1998                           1997
                                                    ------------                   ------------
<S>                                                        <C>                            <C>   
Net sales                                                  100.0%                         100.0%
Cost of goods sold                                          79.8                           78.8
                                                    ------------                   ------------
Gross profit                                                20.2                           21.2
Selling, general and
  administrative expenses                                   20.4                           18.6
                                                    ------------                   ------------
Operating (loss) profit                                     (.2)                            2.6
Interest expense                                             1.0                            0.8
                                                    ------------                   ------------
(Loss) earnings before income taxes                         (1.2)                           1.8
Income tax (benefit) expense                                (0.5)                           0.7
                                                     ------------                   ------------
NET (LOSS) EARNINGS                                         (0.7%)                          1.1%
                                                     ============                    ===========
</TABLE>

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

         Net sales for the first  quarter of fiscal 1999  decreased 10% to $33.3
million as compared to $36.9 million for the first  quarter of fiscal 1998.  The
Company's  first quarter  results were  impacted by the continued  industry wide
pressures  on  pricing;  compounded  by  the  softening  demand  for  electronic
components  which has affected the electronics  industry for over two years. The
Company derived approximately $3.2 million in sales from contract manufacturing.
The Company  believes  that with the expansion of the  semiconductor  management
group, flat panel display division and field application  engineer program it is
positioned for future growth and will benefit from these strategic investments.
         Gross  profit  margin  as a  percentage  of net sales was 20.2% for the
three  months  ended  September  30, 1998  compared to 21.2% for the  comparable
period last fiscal  year.  The  Company's  product mix has  remained  relatively
constant. The decrease in margin is attributable to the pressure on pricing that
has existed due to the excess availability of components.
         Selling,  general and administrative expenses decreased to $6.8 million
for the first  quarter of fiscal 1999  compared to $6.9 million and $7.5 million
for the first and fourth  quarters  of fiscal  1998  respectively.  The  Company
implemented cost saving  initiatives of overhead items that the Company believes
to be non-essential to future growth.
<PAGE>

FORM 10-Q                                                     September 30, 1998
Page 11

         Interest  expense  increased  to $313,000  for the three  months  ended
September  30, 1998 compared to $272,000 for the  comparable  period last fiscal
year.  The increase  was  primarily  attributable  to the  increased  borrowings
resulting from the Company's  purchasing of approximately  209,000 shares of its
common  stock for an  aggregate  consideration  of  $771,000  through  its stock
repurchase program and maintaining higher levels of inventory during this fiscal
quarter compared to the same quarter last fiscal year.
         Net loss for the three months ended  September 30, 1998 was $242,000 or
approximately  $.06 per share  diluted,  compared to net earnings of $398,000 or
$.10 per share  diluted for the three  months  ended  September  30,  1997.  The
decrease  in sales  during  this fiscal  quarter  and  decrease in gross  profit
dollars  resulted in the reported  loss during the quarter  ended  September 30,
1998.

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 agreements  expiring September 13, 2000. The interest rate of the
credit  facility  is based on the  average 30 day LIBOR rate plus 3/4% to 1-1/4%
depending on the Company's performance for the immediately preceding four fiscal
quarters measured by a certain  financial ratio, and may be adjusted  quarterly.
The outstanding balance on the revolving line of credit facility was $17,643,943
at September 30, 1998.  The term loan,  with a remaining  balance of $535,714 at
September 30, 1998,  requires monthly  principal  payments of $17,857,  together
with interest  through  September 13, 2000, with a final payment of $107,146 due
on September  13, 2000.  Borrowings  under this facility are  collateralized  by
substantially  all  of  the  assets  of  the  Company.  The  agreement  contains
provisions for maintenance of certain financial ratios, all of which the Company
is in compliance  with at September 30, 1998,  and prohibits the payment of cash
dividends.

         For the three  months ended  September 30, 1998, the Company's net cash
provided by operating  activities was  approximately  $.3 million as compared to
net cash  provided by operating  activities  of $.4 million for the three months
ended September 30, 1997. Net cash used in investing activities increased to $.7
million  for the three  months  ended  September  30,  1998,  as compared to $.3
million for the three months ended September 30, 1997. The increase is primarily
attributable to the increase in capital  expenditures  during the quarter of $.7
million which almost  entirely  represented  equipment  required by the contract
manufacturing  operation.  Net  borrowings  under the  Company's  line of credit
increased during the quarter by approximately  $2.3 million due primarily to the
purchase of $.8 million of treasury  stock by the Company and an increase in the
days  outstanding  of the Company's  accounts  receivable,  resulting in reduced
collections. The Company's cash expenditures may vary significantly from current
levels,  based on a number of factors,  including,  but not  limited to,  future
acquisitions  if any.  

     For the first  three  months  of  fiscal  1999 and  fiscal  1998  inventory
turnover was 3.0x and 3.4x,  respectively.  The average days  outstanding of the
Company's accounts  receivable at September 30, 1998 was 59 days, as compared to
55 days at  September  30,  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 the
quarter, the Board of Directors authorized the repurchase of up to an additional
400,000 shares of the Company's  common stock.  The purchases may be made by the
Company  from time to time on the open market at the  Company's  discretion  and
will be dependent on market  conditions.  Through November 12, 1998, 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


<PAGE>


FORM 10-Q                                                     September 30, 1998
Page 12

the year 1999,  which could  cause a system  failure or other  computer  errors,
leading to  disruptions in  operations.  In April 1996, the Company  developed a
three-phase  program  for Y2K  information  systems  compliance.  Phase I was to
identify those systems with which the Company has exposure to Y2K issues.  Phase
II was the development and implementation of action plans to be Y2K compliant in
all areas by late 1998.  Phase III, to be fully  completed  by mid 1999,  is the
final major area of exposure to ensure  compliance.  The Company has  identified
three major areas  determined to be critical for successful Y2K compliance:  (1)
financial and informational system applications,  (2) manufacturing applications
and (3) third party relationships.
         As  of  September  1,  1998,   Jaco  has  completed  the  redesign  and
development of an entirely new distribution software system. All of the dates in
this new database are 8 characters,  including the century.  The system has been
tested and has been in production as of September 1, 1998.  The systems  include
customer  order  entry,  purchase  order entry to the  Company's  manufacturers,
warehousing and inventory control.
         The financial  systems,  Accounts  Payable and General Ledger have been
Y2K compliant since April 1997. The Accounts  Receivable system is Y2K compliant
as of September 1, 1998.
         Jaco's distribution facilities:  warehouse, shipping and other physical
handling have been tested and are Y2K compliant.
         The Company, as it relates to the contract manufacturing  operations in
accordance  with Phase I of the  program,  is in the  process of  conducting  an
internal  review  of all  systems  and  contacting  all  software  suppliers  to
determine  major  areas  of  exposure  to  Y2K  issues.  In  the  financial  and
information  systems area a number of  applications  have been identified as Y2K
compliant due to their recent  implementation.  The contract  manufacturing core
financial  and  reporting  systems are not Y2K compliant but are scheduled to be
complete and fully tested by mid 1999. In the third party area,  the Company has
contacted most of its major third parties.
These parties state that they intend to be Y2K compliant by the year 2000.
         The Company believes it will cost approximately $1.5 million to replace
the core financial,  reporting and distribution  software  systems.  The Company
utilized  outside  consultants  to undertake a portion of the work.  The Company
does not expect the cost that will be incurred to be material in connection with
the contract manufacturing area and the third party area.

 INFLATION

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


<PAGE>



FORM 10-Q                                                     September 30, 1998
Page 13


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

                           Nothing to Report

Item 5.          Other Information

                            Nothing to Report

Item 6.          Exhibits and Reports on Form 8-K

        a)       Exhibits

                   10.13    Employment agreement between
                            Joel Girsky and the Company

                   10.14    Employment agreement between
                            Charles Girsky and the Company

                   10.15    Employment agreement between
                            Jeffrey D. Gash and the Company

                   27.1     Financial Data Schedule

                   99.8.3   Amendment to Second  Restated
                            and Amended Loan and Security Agreement
                            dated July 1, 1998

                   99.8.4   Amendment to Second Restated
                            and Amended Loan and Security Agreement
                            dated September 21, 1998

          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:  November 16, 1998