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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION   [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 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. 
  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 offices)
    
    (Zip Code)
 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.
Yes [X]  No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ]  No [X] 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 May 7, 2004Common Stock, $0.10 Par Value
    
    6,182,082 (excluding 659,900 shares held as treasurystock)




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED STATEMENT OF CHANGESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSIGNATURECERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION    Table of Contents  FORM 10-Q
Page 2
    
    March 31, 2004
 
 PART I - FINANCIAL INFORMATION 
  
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) March 31,
    
    June 30,2004
    
    2003ASSETSCurrent AssetsCash
    
    $
    181,100
    
    
    $
    157,467Restricted cash
    
    
    
    
    
    
    800,000Marketable securities
    
    
    761,455
    
    
    
    652,608Accounts
receivable  net
    
    
    38,823,226
    
    
    
    31,997,984Inventories
    
    
    46,113,274
    
    
    
    40,493,508Prepaid expenses and other
    
    
    1,136,204
    
    
    
    1,036,856Prepaid and refundable income taxes
    
    
    117,667
    
    
    
    1,059,897Deferred income taxes
    
    
    2,797,000
    
    
    
    2,555,000Total current assets
    
    
    89,929,926
    
    
    
    78,753,320Property, plant and equipment - net
    
    
    4,631,161
    
    
    
    5,559,122Deferred income taxes
    
    
    404,000
    
    
    
    431,000Excess of cost over net assets acquired - net
    
    
    25,599,082
    
    
    
    25,599,082Other assets
    
    
    2,849,325
    
    
    
    3,869,254Total assets
    
    $
    123,413,494
    
    
    $
    114,211,778
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 3
    
    March 31, 2004
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) March 31,
    
    June 30,2004
    
    2003LIABILITIES & SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and accrued expenses
    
    $
    37,145,162
    
    
    $
    31,154,244Current maturities of long-term debt and
capitalized lease obligations
    
    
    511,555
    
    
    
    679,552Total current liabilities
    
    
    37,656,717
    
    
    
    31,833,796Long-term debt and capitalized lease obligations
    
    
    38,934,862
    
    
    
    35,860,325Deferred compensation
    
    
    987,500
    
    
    
    950,000SHAREHOLDERS EQUITYPreferred stock - authorized,
100,000 shares, $10 par value; none issuedCommon stock  authorized, 20,000,000,
$0.10 par value; issued 6,839,432 and
6,425,732 shares, respectively,
and 6,179,532 and 5,765,832 shares
outstanding, respectively
    
    
    683,943
    
    
    
    642,573Additional paid-in capital
    
    
    26,046,648
    
    
    
    25,152,010Retained earnings
    
    
    21,385,880
    
    
    
    22,117,967Accumulated other comprehensive income (loss)
    
    
    32,510
    
    
    
    (30,327
    )Treasury stock  659,900 shares at cost
    
    
    (2,314,566
    )
    
    
    (2,314,566
    )Total shareholders equity
    
    
    45,834,415
    
    
    
    45,567,657Total liabilities and shareholders equity
    
    $
    123,413,494
    
    
    $
    114,211,778
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 4
    
    March 31, 2004
 
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED) 2004
    
    2003NET SALES
    
    $
    68,886,375
    
    
    $
    59,405,669Cost of goods sold
    
    
    59,410,359
    
    
    
    52,251,165Gross profit
    
    
    9,476,016
    
    
    
    7,154,504Selling, general and administrative expenses
    
    
    8,833,152
    
    
    
    7,230,611Operating profit (loss)
    
    
    642,864
    
    
    
    (76,107
    )Interest expense
    
    
    445,143
    
    
    
    322,557Earnings (loss) before income taxes
    
    
    197,721
    
    
    
    (398,664
    )Income tax provision (benefit)
    
    
    69,000
    
    
    
    (139,000
    )NET EARNINGS (LOSS)
    
    $
    128,721
    
    
    $
    (259,664
    )Net earnings (loss) per common share:Basic
    
    $
    0.02
    
    
    $
    (0.05
    )Diluted
    
    $
    0.02
    
    
    $
    (0.05
    )Weighted average common shares outstanding:Basic
    
    
    5,997,409
    
    
    
    5,767,588Diluted
    
    
    6,283,577
    
    
    
    5,767,588
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 5
    
    March 31, 2004
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED) 2004
    
    2003NET SALES
    
    $
    207,974,100
    
    
    $
    162,629,438Cost of goods sold
    
    
    180,357,653
    
    
    
    142,212,612Gross profit
    
    
    27,616,447
    
    
    
    20,416,826Selling, general and administrative expenses
    
    
    27,236,629
    
    
    
    22,044,055Operating profit (loss)
    
    
    379,818
    
    
    
    (1,627,229
    )Interest expense
    
    
    1,505,905
    
    
    
    1,122,664Loss before income taxes
    
    
    (1,126,087
    )
    
    
    (2,749,893
    )Income tax benefit
    
    
    (394,000
    )
    
    
    (962,000
    )NET LOSS
    
    $
    (732,087
    )
    
    $
    (1,787,893
    )Net loss per common share:Basic
    
    $
    (0.12
    )
    
    $
    (0.31
    )Diluted
    
    $
    (0.12
    )
    
    $
    (0.31
    )Weighted average common shares outstanding:Basic
    
    
    5,905,567
    
    
    
    5,789,068Diluted
    
    
    5,905,567
    
    
    
    5,789,068
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 6
    
    March 31, 2004
 
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED) AccumulatedCommon stock
    
    Additionalpaid-in
    
    Retained
    
    othercomprehensive
    
    Treasury
    
    TotalshareholdersShares
    
    Amount
    
    capital
    
    earnings
    
    (loss) income
    
    stock
    
    equityBalance at July 1, 2003
    
    
    6,425,732
    
    
    $
    642,573
    
    
    $
    25,152,010
    
    
    $
    22,117,967
    
    
    $
    (30,327
    )
    
    $
    (2,314,566
    )
    
    $
    45,567,657Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (732,087
    )
    
    
    
    
    
    
    
    
    
    
    (732,087
    )Unrealized gain on marketable
securities, net of deferred taxes
of $39,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,837
    
    
    
    
    
    
    
    62,837Exercise of stock options
    
    
    413,700
    
    
    
    41,370
    
    
    
    894,638
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936,008Balance at March 31, 2004
    
    
    6,839,432
    
    
    $
    683,943
    
    
    $
    26,046,648
    
    
    $
    21,385,880
    
    
    $
    32,510
    
    
    $
    (2,314,566
    )
    
    $
    45,834,415
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 7
    
    March 31, 2004
 
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED) 2004
    
    2003Cash flows from operating activitiesNet loss
    
    $
    (732,087
    )
    
    $
    (1,787,893
    )Adjustments to reconcile net loss to net
cash (used in) provided by operating activitiesDepreciation and amortization
    
    
    1,560,133
    
    
    
    1,626,308Deferred compensation
    
    
    37,500
    
    
    
    37,500Deferred income tax benefit
    
    
    (254,000
    )
    
    
    (31,000
    )Gain on sale of equipment
    
    
    (2,100
    )
    
    
    (5,000
    )Provision for doubtful accounts
    
    
    601,750
    
    
    
    617,300Changes in operating assets and liabilities(Increase)
decrease in operating assets  net
    
    
    (11,414,968
    )
    
    
    9,086,815Increase in
operating liabilities  net
    
    
    5,990,918
    
    
    
    4,612,033Net cash (used in) provided by operating activities
    
    
    (4,212,854
    )
    
    
    14,156,063Cash flows from investing activitiesCapital expenditures
    
    
    (401,151
    )
    
    
    (219,506
    )Proceeds from sale of equipment
    
    
    2,100
    
    
    
    5,000Purchase of marketable securities
    
    
    (7,010
    )
    
    
    (8,351
    )Deferred payments on business acquisitions
    
    
    
    
    
    
    (2,099,563
    )Net cash used in investing activities
    
    
    (406,061
    )
    
    
    (2,322,420
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    203,949,159
    
    
    
    142,878,773Repayments under line of credit
    
    
    (200,520,551
    )
    
    
    (153,342,932
    )Release of compensating balance
    
    
    800,000Funding of compensating balance
    
    
    
    
    
    
    (800,000
    )Principal payments under equipment financing
and term loans
    
    
    (522,068
    )
    
    
    (720,163
    )Purchase of treasury stock
    
    
    
    
    
    
    (110,051
    )Proceeds from exercise of stock options
    
    
    936,008Net cash provided by (used in) financing activities
    
    
    4,642,548
    
    
    
    (12,094,373
    )NET INCREASE (DECREASE) IN CASH
    
    
    23,633
    
    
    
    (260,730
    )Cash at beginning of period
    
    
    157,467
    
    
    
    324,447Cash at end of period
    
    $
    181,100
    
    
    $
    63,717
 See accompanying notes to condensed consolidated financial statements.




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FORM 10-Q
Page 8
    
    March 31, 2004
 
 JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 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 of Jaco
Electronics, Inc. and its subsidiaries (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. Therefore,
they should be read in conjunction with the Companys audited consolidated
statements for the fiscal year ended June 30, 2003 and the notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended
June 30, 2003. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year. 2) On December 22, 2003, the Company obtained a $50,000,000 revolving secured
line of credit from GMAC Commercial Finance LLC and PNC Bank, National
Association. This credit facility has a maturity date of December 31, 2006.
This facility amended an existing $45,000,000 secured line of credit.
Borrowings under the amended credit facility are based principally on eligible
accounts receivable and inventories of the Company as defined in the agreement.
The prior agreement was amended on September 19, 2003 to extend the maturity
date to October 1, 2004, and was subsequently amended on November 7, 2003 to
provide a waiver for noncompliance with a certain financial covenant for the
quarter ended September 30, 2003. The prior agreement required the Company to
maintain an $800,000 compensating balance arrangement with its banks in an
interest bearing account, which was funded during the quarter ended December
31, 2002. The new agreement allows for the release of the $800,000 compensating
balance arrangement, and includes an additional available amount under the
line of credit of up to $750,000. The additional available amount at the time
of closing was $732,000, and declines by $31,000 monthly. The interest rate
under the prior agreement was based on the average 30-day LIBOR plus 2.25% to
2.75% depending on the Companys performance for the immediately preceding four
fiscal quarters measured by a specified financial ratio. Effective September
19, 2003, the rate converted to the higher of the prime rate plus 0.75% or the
federal funds rate plus 1.25%. Effective November 7, 2003, the rate converted
to the higher of the prime rate plus 1% or the federal funds rate plus 1.50%.
Effective December 22, 2003, the rate converted to the higher of the prime rate
plus 0.75% or the federal funds rate plus 1.25%, or at the Companys option,
the average 30-day LIBOR plus 3.25%. The outstanding balance on the amended
revolving line of credit facility was $38.9 million with an additional $5.3
million available at March 31, 2004. Borrowings under this facility are
collateralized by substantially all of the assets of the Company. The agreement
contains provisions for maintenance of certain financial covenants, all of
which the Company was in compliance with at March 31, 2004, and prohibits the
payment of cash dividends. Failure to remain in compliance with these covenants
could trigger an acceleration of our obligation to repay all outstanding
borrowings under our credit facility and limit the Companys ability to borrow
additional amounts under the line of credit. 3) On September 18, 2001, the Companys Board of Directors authorized the
repurchase of up to 250,000 shares of its outstanding common stock. Purchases
may be made from time to time in market or private transactions at prevailing
market prices. The Company made purchases of 41,600 shares of its common stock
from November 5, 2002 through March 31, 2004 for aggregate consideration of
$110,051.




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FORM 10-Q
Page 9
    
    March 31, 2004
 4) Total comprehensive income (loss) and its components for the three and nine
months ended March 31, 2004 and 2003 are as follows: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net earnings (loss)
    
    $
    128,721
    
    
    $
    (259,664
    )
    
    $
    (732,087
    )
    
    $
    (1,787,893
    )Unrealized gain (loss)
on marketable securities
    
    
    11,954
    
    
    
    (18,334
    )
    
    
    101,837
    
    
    
    (85,010
    )Deferred tax (expense) benefit
    
    
    (5,000
    )
    
    
    7,000
    
    
    
    (39,000
    )
    
    
    32,000Comprehensive income (loss)
    
    $
    135,675
    
    
    $
    (270,998
    )
    
    $
    (669,250
    )
    
    $
    (1,840,903
    )
 Accumulated other comprehensive income (loss) at March 31, 2004 and June
30, 2003 is comprised entirely of unrealized gains and losses on marketable
securities, net of the related tax effect. 5) The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations (APB
No. 25) and has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, an Amendment of FASB Statement No. 123 (SFAS No.
148). Under APB No. 25, compensation expense is only recognized when the
market value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire
the stock. Accordingly, no compensation expense has been recognized in the
Companys condensed consolidated financial statements in connection with
employee stock option grants. During the nine months ended March 31, 2004, 85,000 stock options were
granted to certain employees or directors of the Company. These stock options
had exercise prices ranging from $6.70 to $8.31 and are due to expire ten years
from the date of grant. The following table illustrates the effect on net income and earnings per
share for the three and nine months ended March 31, 2004 and 2003 had the
Company applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation to
stock-based employee compensation.




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FORM 10-Q
Page 10
    
    March 31, 2004
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net earnings (loss), as reported
    
    $
    128,721
    
    
    $
    (259,664
    )
    
    $
    (732,087
    )
    
    $
    (1,787,893
    )Deduct: Total stock-based employee
compensation expense determined
under the
fair value based method for all
awards, net of related tax effects
    
    
    (60,823
    )
    
    
    (73,044
    )
    
    
    (151,357
    )
    
    
    (133,914
    )Pro forma net earnings (loss)
    
    $
    67,898
    
    
    $
    (332,708
    )
    
    $
    (883,444
    )
    
    $
    (1,921,807
    )Net earnings (loss) per common share:Basic - as reported
    
    $
    0.02
    
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.31
    )Basic - pro forma
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.15
    )
    
    $
    (0.33
    )Diluted - as reported
    
    $
    0.02
    
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.31
    )Diluted - pro forma
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.15
    )
    
    $
    (0.33
    )
 6) The number of shares used in the Companys basic and diluted earnings
(loss) per share computations are as follows: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Weighted average common shares
outstanding net of treasury shares,
for basic earnings per share
    
    
    5,997,409
    
    
    
    5,767,588
    
    
    
    5,905,567
    
    
    
    5,789,068Effect of dilutive securities
    
    
    286,168Weighted average common shares
outstanding for diluted earnings per share
    
    
    6,283,577
    
    
    
    5,767,588
    
    
    
    5,905,567
    
    
    
    5,789,068
 Excluded from the calculation of diluted earnings (loss) per share are
options to purchase 262,750 and 760,550 shares of the Companys common stock
for the three and nine months ended March 31, 2004, respectively, as compared
to 1,125,750 shares for the three and nine months ended March 31, 2003, as
their inclusion would have been antidilutive.




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FORM 10-Q
Page 11
    
    March 31, 2004
 7) In April 2003, the Financial Accounting Standards Board (FASB)
issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133). SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of SFAS No. 149 has not had a material impact on
the Companys consolidated financial position, results of operations or cash
flows. 8) In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
SFAS No. 150 requires that those instruments be classified as liabilities in
statements of financial position. The adoption of SFAS No. 150 has not had a
material impact on the Companys consolidated financial position, results of
operations or cash flows. 9) In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities (FIN No. 46). In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans or receivables,
real estate or other property. A variable interest entity may be essentially
passive or it may engage in activities on behalf of another company. Prior to
the adoption of FIN No. 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN No. 46 changes that treatment by requiring a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities or
entitled to receive a majority of the entitys residual returns or both. The
Company does not have any variable interest entities which would require
consolidation under FIN No. 46. Accordingly, the adoption of FIN No. 46 has had
no effect on the Companys consolidated financial position, results of
operations or cash flows. 10) In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition (SAB No. 104), which codifies, revises and rescinds
certain sections of SAB No. 101, Revenue Recognition, in order to make this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. The changes noted in SAB No.
104 did not have a material effect on the Companys financial position or
results of operations. 11) The Company is a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to have a
material adverse effect on the Companys business, results of operations or
financial position.




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FORM 10-Q
Page 12
    
    March 31, 2004
 12) Certain reclassifications have been made to prior year amounts to conform
to the current years presentation. 13) The Company leases certain office and warehouse facilities under
noncancellable operating leases. On December 22, 2003, the Company amended and
extended the lease for their primary place of business. This facility is leased
from a partnership owned by two officers, directors and principal shareholders
of the Company. The new lease requires minimum lease payments as follows: Year ending June 30,2004
    
    $
    300,0002005
    
    
    615,0002006
    
    
    645,7502007
    
    
    678,0382008
    
    
    711,9392009
    
    
    364,652
 14) The Company has two reportable segments: electronics parts distribution and
contract manufacturing. The Companys primary business activity is conducted
with small and medium size manufacturers, located in North America, that
produce electronic equipment used in a variety of industries. Information
pertaining to the Companys operations in different geographic areas for the
three and nine months ended March 31, 2004 and 2003 is not considered material
to the Companys financial statements. The Companys management utilizes net sales and net earnings (loss) before
income taxes information in assessing performance and making overall operating
decisions and resource allocations. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies included in the Companys Annual Report on Form 10-K for
the fiscal year ended June 30, 2003. Information about the Companys segments
is as follows:




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##### Table of Contents



FORM 10-Q
Page 13
    
    March 31, 2004
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003(in thousands)
    
    (in thousands)Net sales from external customersElectronics components distribution
    
    $
    63,120
    
    
    $
    55,441
    
    
    $
    192,037
    
    
    $
    151,275Contract manufacturing
    
    
    5,766
    
    
    
    3,965
    
    
    
    15,937
    
    
    
    11,354$
    68,886
    
    
    $
    59,406
    
    
    $
    207,974
    
    
    $
    162,629Intersegment net salesElectronics components distribution
    
    $
    235
    
    
    $
    107
    
    
    $
    1,190
    
    
    $
    221Contract manufacturing
    
    
    
    
    
    
    19
    
    
    
    3
    
    
    
    19$
    235
    
    
    $
    126
    
    

    $
    1,193
    
    
    $
    240Operating profit (loss)Electronics components distribution
    
    $
    294
    
    
    $
    81
    
    
    $
    (565
    )
    
    $
    (1,177
    )Contract manufacturing
    
    
    349
    
    
    
    (157
    )
    
    
    945
    
    
    
    (450
    )$
    643
    
    
    $
    (76
    )
    
    $
    380
    
    
    $
    (1,627
    )Interest expenseElectronics components distribution
    
    $
    338
    
    
    $
    224
    
    
    $
    1,199
    
    
    $
    799Contract manufacturing
    
    
    107
    
    
    
    99
    
    
    
    307
    
    
    
    324$
    445
    
    
    $
    323
    
    
    $
    1,506
    
    
    $
    1,123Earnings (loss) before income taxesElectronics components distribution
    
    $
    (45
    )
    
    $
    (143
    )
    
    $
    (1,764
    )
    
    $
    (1,976
    )Contract manufacturing
    
    
    243
    
    
    
    (256
    )
    
    
    638
    
    
    
    (774
    )$
    198
    
    
    $
    (399
    )
    
    $
    (1,126
    )
    
    $
    (2,750
    )Capital expendituresElectronics components distribution
    
    $
    43
    
    
    $
    56
    
    
    $
    261
    
    
    $
    107Contract manufacturing
    
    
    81
    
    
    
    113
    
    
    
    140
    
    
    
    113$
    124
    
    
    $
    169
    
    
    $
    401
    
    
    $
    220Depreciation and amortizationElectronics components distribution
    
    $
    294
    
    
    $
    291
    
    
    $
    952
    
    
    $
    998Contract manufacturing
    
    
    208
    
    
    
    213
    
    
    
    608
    
    
    
    628$
    502
    
    
    $
    504
    
    
    $
    1,560
    
    
    $
    1,626March 31,
    
    June 30,2004
    
    2003Identifiable assetsElectronics components distribution
    
    $
    110,715
    
    
    $
    103,228Contract manufacturing
    
    
    12,698
    
    
    
    10,984$
    123,413
    
    
    $
    114,212




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##### Table of Contents



FORM 10-Q
Page 14
    
    March 31, 2004
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement under the Private Securities Litigation Reform Act of
1995: Certain statements contained in this report or in other written or oral
statements made from time to time by the Company may contain forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Such statements may use words such as anticipate, estimate, expect,
believe, may, intend and similar words or terms. Although we believe that
the expectations in such forward-looking statements are reasonable, we cannot
assure you that such expectations will prove to have been correct. The
forward-looking statements are based upon a number of assumptions and estimates
that, while presented with specificity and considered reasonable by us, are
inherently subject to significant business, economic and competitive risks,
uncertainties and contingencies which are beyond our control, and upon
assumptions with respect to future business decisions which are subject to
change. Accordingly, the forward-looking statements are only an estimate and
actual results will vary from the forward-looking statements, and these
variations may be material. We are not obligated to update any forward-looking
statement, but investors are urged to consult any further disclosures we make
in our subsequent filings with the Securities and Exchange Commission.
Consequently, the inclusion of the forward-looking statements should not be
regarded as a representation by us of results or performance that actually will
be achieved. Forward-looking statements are necessarily speculative in nature,
and it is usually the case that one or more of the assumptions in the
forward-looking statements do not materialize. Investors are cautioned not to
place undue reliance on the forward-looking statements. We caution investors
that the factors set forth below, which are described in further detail in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2003 and in our
other filings with the Securities and Exchange Commission, could cause our
results to differ materially from those stated in the forward-looking
statements. These factors include, among others, the impact of competitive
products, demand for our products and related market acceptance risks,
fluctuations in our operating results, delays in development of highly complex
electronic products, our ability to continue to expand our operations, the
level of costs incurred in connection with our expansion efforts, the financial
strength of our customers and suppliers, and risks associated with general
industry and economic conditions. GENERAL Jaco Electronics, Inc. (Jaco or the Company) is a distributor of
electronic components, and provider of contract manufacturing and value-added
services. Products distributed by us include semiconductors, capacitors,
resistors, electromechanical devices, flat panel displays and monitors, and
power supplies used in the assembly and manufacturing of electronic equipment. Our customers are primarily small and medium sized manufacturers. The
trend for these customers has been to shift certain manufacturing functions to
third parties (i.e., outsourcing). We intend 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 us consist of
automated inventory management services, kitting (e.g., supplying sets of
specified quantities of products to a customer that are prepackaged in kits for
ease of feeding the customers production lines), and contract manufacturing
through Nexus Custom Electronics, Inc., (Nexus) a wholly owned subsidiary.
We are also expanding in the flat panel display value-added market, which
includes full system integration, kitting and the implementation of touch
technologies.




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##### Table of Contents



FORM 10-Q
Page 15
    
    March 31, 2004
 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
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    86.3
    
    
    
    88.0
    
    
    
    86.7
    
    
    
    87.4Gross Profit
    
    
    13.7
    
    
    
    12.0
    
    
    
    13.3
    
    
    
    12.6Selling, general and
administrative expenses
    
    
    12.8
    
    
    
    12.2
    
    
    
    13.1
    
    
    
    13.6Operating profit (loss)
    
    
    0.9
    
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    (1.0
    )Interest expense
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.7Earnings (loss) before income taxes
    
    
    0.3
    
    
    
    (0.7
    )
    
    
    (0.5
    )
    
    
    (1.7
    )Income tax provision (benefit)
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.6
    )NET EARNINGS (LOSS)
    
    
    0.2
    %
    
    
    (0.4
    )%
    
    
    (0.3
    )%
    
    
    (1.1
    )%
 COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 2004 AND MARCH 31,
2003 Net sales for the three and nine months ended March 31, 2004 were $68.9
million and $208.0 million, respectively, compared to $59.4 million and $162.6
million for the three and nine months ended March 31, 2003, respectively,
representing increases of 16.0% and 27.9%, respectively. Net sales for the
three and nine months of this fiscal year increased $9.5 million and $45.3
million compared to the same periods of our last fiscal year. The increase in
net sales is principally attributable to the acquisition of certain assets of
the electronics distribution business of Reptron Electronics, Inc. (Reptron)
in June 2003 and the Companys internal growth. We are seeing increased demand
for a wide range of components. Certain products, such as memory and flat panel
displays (FPD), which are in short supply, are starting to become more
available. The Company currently has a large backlog of orders for these
products. Our FPD net sales were approximately $12.3 million and $39.0 million
for the three and nine months ended March 31, 2004, respectively. This
represents an increase of 158.9% and 169.6%, respectively, compared to last
fiscal year. Sales of FPD products continue to be a major focus for
the Company. Also, we are expanding our presence in the Far East. Many of our customers are
shifting their production to the Far East due to the inexpensive cost of
operation. Our expansion is intended to support our existing business in this
region and the development of new customers. Globally, the Far East is the
fastest growing region for our industry. Our active components net sales,
including FPDs, represented 73.4% and 74.5% of our net distribution sales for
the three and nine months ended March 31, 2004, respectively. Passive
components, including capacitors, resistors and electro-mechanical products,
accounted for the balance. The Company is seeing smaller production runs still
be manufactured in the United States. Our wholly-owned subsidiary, Nexus, which
performs contract manufacturing services is also seeing an increase in demand.
Nexus net sales for the three and nine months ended March 31, 2004 were $5.8
million and $15.9 million, respectively, representing increases of 44.8% and
40.2% from the comparable prior periods.




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##### Table of Contents



FORM 10-Q
Page 16
    
    March 31, 2004
 Gross profit was $9.5 million, or 13.7% of net sales, and $27.6 million,
or 13.3% of net sales, for the three and nine months ended March 31, 2004,
respectively, an increase of 32.4% and 35.3%, respectively, compared to $7.2
million, or 12.0% of net sales, and $20.4 million, or 12.6% of net sales, for
the comparable periods in our last fiscal year. Management considers gross
profit to be a key performance indicator in managing our business. Gross profit
margins are usually a factor of product mix and demand for product. Our margins
are currently improving primarily due to an increase in demand for product. We
do not, however, anticipate margins reaching historical levels achieved in the
past due to our current product mix. Historically, active components sell at
lower margins than passive components, and the Company is currently selling a
far greater concentration of active components than passive components. If
product demand remains strong, we believe we can maintain our margins at least
at the current level. We do not anticipate any significant change for the
foreseeable future, although we cannot assure you that demand for our products
will not be adversely affected by events beyond our control. Selling, general and administrative expenses (SG&A) were $8.8 million
and $27.2 million for the three and nine months ended March 31, 2004,
respectively, compared to $7.2 million and $22.0 million for the three and nine
months ended March 31, 2003, respectively. The increase in SG&A is principally
a factor of the increased costs associated with our acquisition of a portion of
the Reptron distribution business. SG&A as a percentage of net sales was 12.8%
and 13.1% for the three and nine months ended March 31, 2004, respectively,
compared to 12.2% and 13.6% for the three and nine months ended March 31, 2003,
respectively. Management considers SG&A as a percentage of net sales to be a
key performance indicator in managing our business. The Company believes that
decreasing this percentage is important to our future success. The operating
leverage derived from an increase in net sales should result in a decrease in
SG&A as a percentage of net sales, which when combined with maintenance of our
gross profit margin, would result in improved results. Interest expense increased to $0.4 million and $1.5 million for the three
and nine months ended March 31, 2004, respectively, compared to $0.3 million
and $1.1 million for the three and nine months ended March 31, 2003,
respectively. The increase in interest expense is attributable to the
borrowings associated with our purchase of Reptron and the borrowings required
to support the increase in our accounts receivable and inventory. Any dramatic
increase in borrowing rates could significantly increase our interest expense,
which would have a negative impact on our results. Net earnings for the three months ended March 31, 2004 were $0.1 million,
or $0.02 per diluted share, compared to a net loss of $0.3 million, or $(0.05)
per diluted share, for the comparable period in our last fiscal year. Net loss
for the nine months ended March 31, 2004 was $0.7 million, or $(0.12) per
diluted share, compared to $1.8 million, or $(0.31) per diluted share, for the
comparable period in our last fiscal year. Our earnings for the quarter and
decrease in loss for the nine months when compared to last year were primarily
the result of our increase in net sales and gross profit margin. The Company
believes it has benefited from the increased demand for product in the
electronics industry and the integration of the acquired portion of the
distribution business of Reptron. LIQUIDITY AND CAPITAL RESOURCES On December 22, 2003, the Company obtained a $50,000,000 revolving secured
line of credit from GMAC Commercial Finance LLC and PNC Bank, National
Association. This credit facility has a maturity date of December 31, 2006.
This facility amended an existing $45,000,000 secured line of credit.
Borrowings under the amended credit facility are based principally on eligible
accounts receivable and inventories of the Company as defined in the agreement.
The prior agreement was amended on September 19, 2003 to extend the maturity
date to October 1, 2004, and was subsequently amended on November 7, 2003 to
provide a waiver for noncompliance with a certain financial covenant for the
quarter ended September 30, 2003. The prior agreement required the Company to
maintain an $800,000 compensating balance arrangement with its banks in an
interest bearing account, which was funded during the quarter ended December
31, 2002. The new agreement allows for the release of the $800,000 compensating
balance arrangement, and includes an additional available amount under the line
of credit of up to $750,000. The additional available amount at the time of
closing was $732,000, and declines by $31,000 monthly. The interest rate under
the prior agreement was based on the average 30-day LIBOR plus 2.25% to 2.75%
depending on the Companys performance for the immediately preceding four
fiscal quarters measured by a specified financial ratio. Effective September
19, 2003, the rate converted to the higher of the prime rate plus 0.75% or the
federal funds rate plus 1.25%. Effective November 7, 2003, the rate




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##### Table of Contents



FORM 10-Q
Page 17
    
    March 31, 2004
 converted to the higher of the prime rate plus 1% or the federal funds rate
plus 1.50%. Effective December 22, 2003, the rate converted to the higher of
the prime rate plus 0.75% or the federal funds rate plus 1.25%, or at the
Companys option, the average 30-day LIBOR plus 3.25%. The outstanding balance
on the amended revolving line of credit facility was $38.9 million with an
additional $5.3 million available at March 31, 2004. Borrowings under this
facility are collateralized by substantially all of the assets of the Company.
The agreement contains provisions for maintenance of certain financial
covenants, all of which the Company was in compliance with at March 31, 2004,
and prohibits the payment of cash dividends. Failure to remain in compliance
with these covenants could trigger an acceleration of our obligation to repay
all outstanding borrowings under our credit facility and limit the Companys
ability to borrow additional amounts under the line of credit. For the nine months ended March 31, 2004, our net cash used in operating
activities was approximately $4.2 million, as compared to net cash provided by
operating activities of $14.2 million for the same period in our last fiscal
year. The increase in net cash used is primarily attributable to an increase in
our accounts receivable and inventory, which was partially offset by an
increase in our accounts payable and accrued expenses. The increase in our
accounts receivable resulted from the increase in our net sales for the nine
months ended March 31, 2004. The inventory increase was primarily due to
supporting specific managed customer inventory programs. Net cash used in
investing activities was approximately $0.4 million for the nine months ended
March 31, 2004 as compared to $2.3 million for the nine months ended March 31,
2004. The decrease is primarily attributable to deferred payments of $2.1
million for the nine months ended March 31, 2003 related to our acquisition in
June 2000 of Interface Electronics Corp. Net cash provided by financing
activities was approximately $4.6 million for the nine months ended March 31,
2004 as compared to net cash used in financing activities of $12.1 million for
the same period in our last fiscal year. The increase in net cash provided is
primarily attributable to the increase in net borrowings under our credit
facility of approximately $13.9 million. For the nine months ended March 31, 2004 and 2003, our inventory turnover
was 5.6 times and 4.8 times, respectively. The average days outstanding of our
accounts receivable at March 31, 2004 was 49 days, as compared to 46 days at
March 31, 2003. 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 and for the foreseeable future. However, our
cash expenditures may vary significantly from current levels based on a number
of factors, including, but not limited to, future acquisitions and capital
expenditures, if any. Historically, we have been able to obtain amendments to
our credit facilities to satisfy financial covenants, when necessary. While we
cannot assure you that any such future amendments, if needed, will be
available, management believes we will be able to continue to obtain financing
on acceptable terms under our existing credit facility or through other
external sources. Inflation Inflation has not had a significant impact on our operations during the
last three fiscal years. Critical Accounting Policies and Estimates We have disclosed in Note A 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, 2003, as amended, 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 2003 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 our 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




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##### Table of Contents



FORM 10-Q
Page 18
    
    March 31, 2004
 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 In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No.
149 amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133). SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 has
not had a material impact on the Companys consolidated financial position,
results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
SFAS No. 150 requires that those instruments be classified as liabilities in
statements of financial position. The adoption of SFAS No. 150 has not had a
material impact on the Companys consolidated financial position, results of
operations or cash flows. In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN No. 46). In general, a
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A
variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in activities on behalf of another
company. Prior to the adoption of FIN No. 46, a company generally included
another entity in its consolidated financial statements only if it controlled
the entity through voting interests. FIN No. 46 changes that treatment by
requiring a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. The Company does not have any variable interest entities
which would require consolidation under FIN No. 46. Accordingly, the adoption
of FIN No. 46 has had no effect on the Companys consolidated financial
position, results of operations or cash flows. In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition (SAB No. 104), which codifies, revises and rescinds
certain sections of SAB No. 101, Revenue Recognition, in order to make this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. The changes noted in SAB No.
104 did not have a material effect on the Companys financial position or
results of operations. 
 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 the higher of the prime rate plus
0.75% or the federal funds rate plus 1.25%, or at the Companys option, the
average 30-day LIBOR plus 3.25%. At April 30, 2004, $34.8 million was
outstanding under the credit facility. Changes in the prime interest rate,
federal funds rate, or the average 30-day LIBOR during the fiscal year will
have a positive or negative effect on our interest expense. Each 1.0%
fluctuation in the prime interest rate, federal funds rate, or average 30-day
LIBOR will increase or decrease our interest expense under the credit facility
by approximately $0.3 million based on the amount of outstanding borrowings at
April 30, 2004. The impact of interest rate fluctuations on our other floating rate debt
is not material.




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##### Table of Contents



FORM 10-Q
Page 19
    
    March 31, 2004
 
 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 Principal
Executive Officer and Principal 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 March 31, 2004. Based upon that evaluation, the Companys
management, including its Principal Executive Officer and Principal Financial
Officer, have 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. 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 March 31, 2004 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.




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##### Table of Contents



FORM 10-Q
Page 20
    
    March 31, 2004
 
 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  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. b) Reports on Form 8-K  (1)
    
    On January 8, 2004, a Current Report on Form 8-k was filed under
Item 5. Other Events and Regulation FD Disclosure to report
that the Company obtained a $50,000,000 revolving secured line
of credit from GMAC Commercial Finance LLC and PNC Bank,
National Association with a maturity date of December 31, 2006.(2)
    
    On February 9, 2004, a Current Report on Form 8-K was filed
under Item 12. Results of Operations and
Financial Conditionto report the Companys
results for its second quarter of the fiscal year
ending June 30, 2004.




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##### Table of Contents



SIGNATURE 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. May 14, 2004 JACO ELECTRONICS, INC.(Registrant)BY: /s/
    
    Jeffrey D. GashJeffrey D. Gash, Executive Vice President,Finance and Secretary(Principal Financial Officer)