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


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

For the quarterly period ended September 30, 2006

                                       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 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 a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act.

 Large accelerated filer |_|  Accelerated filer |_|   Non-accelerated filer |X|

Indicate by check mark whether the registrant is a shell company (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 November 13, 2006
                  -----           ---------------------------------------
Common Stock, $0.10 Par Value     6,294,332 (excluding 659,900  shares held
                                        as treasury stock)

<PAGE>

<TABLE>

FORM 10-Q                                                 September 30, 2006
Page 2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements


                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


                                                                September 30,           June 30,
                                                                  2006                    2006
                                                              ---------------          -----------
ASSETS                                                           (UNAUDITED)

Current Assets

<S>                                                           <C>                       <C>
         Cash                                                 $    32,056               $    29,211
         Accounts receivable - net                             39,598,106                36,498,390
                  Inventories - net                            31,237,255                33,271,437
         Prepaid expenses and other                             1,278,478                 1,027,763
                                                                ---------                ----------

                  Total current assets                         72,145,895                70,826,801


Property, plant and equipment - net                             1,647,471                 1,766,407

Goodwill 25,416,087                                            25,416,087

Note receivable                                                 2,750,000                2,750,000

Other assets                                                    2,306,852                 2,320,296
                                                              -----------               -----------


Total assets                                                 $104,266,305              $103,079,651
                                                             ============              ============







                                See accompanying notes to condensed consolidated financial statements.

</TABLE>


<PAGE>

<TABLE>

FORM 10-Q                                                                            September 30, 2006
Page 3



                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS



                                                                       September 30,         June 30,
                                                                         2006                  2006
                                                                     --------------     --------------
(UNAUDITED) LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities

<S>                                                                 <C>                 <C>
        Accounts payable and accrued expenses                       $ 31,756,609        $ 31,539,051
        Current maturitiesof long-term debt and
          capitalized lease obligations                               35,847,933          35,141,702
        Income taxes payable                                              41,634              39,812
                                                                     -----------         ------------
         Total current liabilities                                    67,646,176          66,720,565

Long-term debt and capitalized lease obligations                          75,576              88,111

Deferred compensation                                                  1,112,502           1,100,000

Commitments and Contingencies


SHAREHOLDERS' EQUITY


         Preferred stock - authorized, 100,000 shares,
           $10 par value; none issued                                       ---                   ---
         Common stock - authorized, 20,000,000 shares,
            $.10 par value; 6,954,232 shares issued
            and 6,294,332 shares outstanding                            695,423              695,423
         Additional paid-in capital                                   27,049,999          27,049,999
         Retained earnings                                            10,001,195           9,740,119
         Treasury stock - 659,900 shares at cost                      (2,314,566)        (2,314,566)
                                                                      ----------         -----------
         Total shareholders' equity                                   35,432,051          35,170,975
                                                                      ----------          ----------


         Total liabilities and shareholders' equity                 $104,266,305        $103,079,651
                                                                    ============        ============




                  See accompanying notes to condensed consolidated financial statements.

</TABLE>


<PAGE>


<TABLE>

FORM 10-Q                                                                            September 30, 2006
Page 4

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

                                                                   2006                 2005
                                                               --------------       -------------


Net sales                                                        $ 69,617,579        $ 52,461,032
<S>                                                                <C>                 <C>
Cost of goods sold                                                 60,960,466          45,343,614
                                                                -------------          ----------

         Gross profit                                               8,657,113           7,117,418

Selling, general and administrative expenses                        7,534,992           6,842,344
                                                                 ------------        ------------

         Operating profit                                           1,122,121             275,074

Interest expense                                                      846,045             565,613
                                                                 ------------        ------------

         Earnings (loss) before income taxes                          276,076           (290,539)

Income tax provision (benefit)                                         15,000           (191,066)
                                                                 ------------        ------------

         Net Earnings (Loss)                                        $ 261,076           $  (99,473)
                                                                  ===========         =============

PER SHARE INFORMATION

Basic earnings (loss) per common share:                                 $0.04             $(0.02)
                                                                        =====             =======

Diluted earnings (loss) per common share:                               $0.04             $(0.02)
                                                                        =====             =======

Weighted-average common shares and common equivalent shares outstanding:

         Basic                                                      6,294,332           6,267,832
                                                                 ============        ============

         Diluted                                                    6,373,733           6,267,832
                                                                 ============        ============

            See accompanying notes to condensed consolidated financial statements.


</TABLE>


<PAGE>

<TABLE>

FORM 10-Q                                                                                                       September 30, 2006
Page 5




                     JACO ELECTRONICS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENT OF CHANGES
                             IN SHAREHOLDERS' EQUITY
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
                                   (UNAUDITED)





                                                                    Additional                                           Total
                                               Common stock           paid-in      Retained           Treasury       shareholders'
                                        Shares       Amount           capital      earnings              stock           equity
                                   --------------- -------------- -------------------------------  ---------------- ---------------


<S>             <C>                   <C>            <C>           <C>             <C>              <C>               <C>
Balance at July 1, 2006               6,954,232      $ 695,423     $ 27,049,999    $ 9,740,119      $ (2,314,566)     $ 35,170,975

Net income                                                                             261,076                             261,076

                                 --------------- -------------- ---------------- --------------  ---------------- -----------------

Balance at September 30, 2006         6,954,232      $ 695,423     $ 27,049,999   $ 10,001,195      $ (2,314,566)     $ 35,432,051
                                 =============== ============== ================ ==============  ================ =================





                                        See accompanying notes to condensed consolidated financial statements.

</TABLE>
<PAGE>


<TABLE>


FORM 10-Q                                                                                      September 30, 2006
Page 6



                    Jaco Electronics, Inc. And Subsidiaries
                Condensed Consolidated Statements of Cash Flows
                     For The Three Months Ended September 30
                                   (UNAUDITED)

                                                                                   2006                        2005
                                                                             ------------------           ---------------

Cash flows from operating activities
<S>                                                                                  <C>                       <C>
      Net Income (loss)                                                              $ 261,076                 $ (99,473)

Adjustments to reconcile net income (loss) to net
     cash (used in) provided by operating activities
          Depreciation  and amortization                                               184,545                   270,919
          Deferred compensation                                                         12,502                    12,500
          Deferred income tax expense (benefit)                                              -                  (216,500)
          Provision for doubtful accounts                                              (89,500)                        -
          Changes in operating assets and liabilities
          (Increase) decrease in operating assets - net                             (1,256,062)                4,226,579
          Increase (decrease) in operating liabilities - net                           219,380                (1,158,360)
                                                                             ------------------           ---------------

          Net cash (used in) provided by operating activities                         (668,059)                3,035,665
                                                                             ------------------           ---------------

Cash flows from investing activities
         Capital expenditures                                                           (22,792)                  (20,513)
                                                                             ------------------           ---------------

         Net cash used in investing activities                                         (22,792)                  (20,513)
                                                                             ------------------           ---------------

Cash flows from financing activities
          Borrowings under line of credit                                           69,126,219                50,659,893
          Repayments under line of credit                                          (68,421,764)              (53,960,466)
          Principal payments under equipment financing                                 (10,759)                  (14,519)
                                                                             ------------------           ---------------
          Net cash provided by (used in) financing activities                           693,696                (3,315,092)
                                                                             ------------------           ---------------
          Net Increase (decrease) in cash                                                 2,845                  (299,940)
                                                                             ------------------           ---------------
Cash at beginning of period                                                              29,211                   321,423
                                                                             ------------------           ---------------

Cash at end of period                                                                 $ 32,056                  $ 21,483
                                                                             ==================           ===============

Supplemental disclosures of cash flow information:
     Cash paid during the year for:
             Interest                                                                $ 847,000                 $ 589,000
             Income taxes                                                               13,000                    94,000


</TABLE>



<PAGE>




FORM 10-Q                                                     September 30, 2006
Page 7

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


1) The accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments, which are,
in the opinion of management, necessary for a fair presentation of the
consolidated financial position and the results of operations of Jaco
Electronics, Inc. and its subsidiaries ("Jaco" or the "Company") at the end of
and for all the periods presented. Such financial statements do not include all
the information or footnotes necessary for a complete presentation. Therefore,
they should be read in conjunction with the Company's audited consolidated
financial statements for the fiscal year ended June 30, 2006 and the notes
thereto included in the Company's Annual Report on Form 10-K, as amended, for
the fiscal year ended June 30, 2006. The results of operations for the interim
periods are not necessarily indicative of the results for the entire year or any
interim period therein. There have been no changes to the Company's significant
accounting policies subsequent to June 30, 2006.

2) Although the Company recorded net earnings of approximately $261,000 during
the three months ended September 30, 2006, the Company incurred a net loss of
approximately $6,962,000 during the fiscal year ended June 30, 2006. The Company
also utilized approximately $2,036,000 of cash in operations during the fiscal
year ended June 30, 2006. At September 30, 2006, the Company had cash of
approximately $32,000 and working capital of approximately $4,450,000, as
compared to cash of approximately $29,000 and working capital of approximately
$4,106,000 at June 30, 2006.

         As discussed further in Note 4, the Company maintains a secured
revolving line of credit, which provides the Company with bank financing based
upon eligible accounts receivable and inventory, as defined. The credit facility
has a maturity date of December 31, 2006. At times during the fiscal year ended
June 30, 2006, the Company was in violation of certain financial covenants
contained in its credit agreement and, as a result, was required to secure
waivers from its lenders and make related amendments to the credit agreement. As
of September 30, 2006, the Company was in compliance with all of its covenants
contained in the credit agreement.

     Management continues to believe that its ongoing plan for cost containment,
improved operating  controls,  paring back of unprofitable  product lines, and a
focused  sales and  marketing  effort  should  continue to improve  results from
operations and cash flows in the near term. Continued  achievement of this plan,
however,  will be dependent  upon the Company's  ability to generate  sufficient
revenues,  decrease  operating costs and improve trade support levels consistent
with this plan, and remain in compliance with its bank covenants.  The Company's
future operating  performance  will be subject to financial,  economic and other
factors beyond its control,  and there can be no assurance that the Company will
be able to achieve these goals.  The  Company's  failure to achieve these goals,
renew or  replace  its  credit  facility  as  discussed  in Note 4, or remain in
compliance with its bank covenants would have a material adverse effect upon its
business, financial condition and results of operations.

3) On September 20, 2004, the Company completed the sale of substantially all of
the assets of its contract manufacturing subsidiary, Nexus Custom Electronics,
Inc. ("Nexus"), to Sagamore Holdings, Inc. for consideration of up to
$13,000,000, subject to closing adjustments, and the assumption of certain
liabilities. The Company received $9,250,000 of the purchase consideration in
cash on the closing date. The balance of the purchase consideration was
satisfied through the delivery of a $2,750,000 subordinated note





<PAGE>



FORM 10-Q                                                     September 30, 2006
Page 8

issued by the purchaser. This note has a maturity date of September 1, 2009 and
bears interest at the lower of the prime rate or 7%. The note is payable by the
purchaser in quarterly cash installments ranging from $156,250 to $500,000
commencing September 2006 (which initial payment was not made) and continuing
for each quarter thereafter until maturity. Prepayment of the principal of and
accrued interest on the note is permitted. In accordance with the purchase
agreement, the Company determined that it was owed an additional $500,000
pursuant to a working capital adjustment provided for in the agreement, which
has been recorded in the Company's financial statements. The Purchaser has
disputed the Company's claim to the working capital adjustment and has informed
the Company that it believes that the Company owes a $500,000 working capital
adjustment to the purchaser. Since this dispute remains unresolved, there has to
date been no purchase price adjustment between the Company and Sagamore.
Additionally, the Company is entitled to receive additional consideration in the
form of a six-year earn-out based on 5% of the annual net sales of Nexus after
the closing date, up to $1,000,000 in the aggregate. As of September 30, 2006,
the Company has not earned any of the additional consideration.

         On September 19, 2006, Nexus Nano Electronics, Inc. ("NNE"), as
successor to Sagamore, and its subsidiary filed suit against the Company in the
U.S. District Court for the Southern District of New York alleging fraud and
misrepresentations by the Company in connection with the sale of Nexus and
seeking an unspecified amount of damages. The Company believes that the
plaintiffs' claims are without merit and intends to contest them vigorously as
well as assert counterclaims for amounts owed to it in connection with such
sale, if this matter is not settled. Subsequent to the filing of this suit, the
parties entered into settlement discussions and have reached an agreement in
principle to settle this matter for, among other things, a mutual release of all
disputed claims relating to this transaction and the cancellation of the
purchaser's $2,750,000 subordinated note held by the Company in consideration
for NNE's issuance to the Company of shares of its common and/or preferred stock
of an equivalent value. The documentation relating to this proposed settlement
has not yet been finalized or approved by the parties' respective boards of
directors and, therefore, the Company cannot assure you that this settlement
will be completed upon the terms described above or at all.

4) To provide  additional  liquidity and  flexibility in funding its operations,
the Company borrows amounts under credit  facilities and other external  sources
of financing.  On December 22, 2003,  the Company  entered into a Third Restated
and Amended Loan and Security Agreement with GMAC Commercial Finance LLC and PNC
Bank, National Association  (subsequently assigned by PNC Bank on March 31, 2006
to the CIT Group/Business  Credit,  Inc.) originally providing for a $50,000,000
(which has subsequently  been reduced to $40,000,000)  revolving secured line of
credit. This credit facility currently has a maturity date of December 31, 2006.
Based upon a  non-binding  letter of intent  dated  November 2, 2006 between the
Company and one of its lenders,  and subject to normal due diligence  definitive
and documentation,  the Company believes it will be able to renew or replace its
credit  facility on terms at least as  favorable  as those  currently  in effect
prior to its scheduled maturity on December 31, 2006, although no assurances can
be given that we will be able to do so. Borrowings under the credit facility are
based  principally  on  eligible  accounts  receivable  and  inventories  of the
Company,  as  defined  in  the  credit  agreement,  and  are  collateralized  by
substantially  all of the assets of the  Company.  At September  30,  2006,  the
outstanding balance on this revolving line of credit facility was $35.8 million,
with an additional  $3.5 million  available.  The Company has  outstanding  $2.6
million of stand-by letters of credit on behalf of certain vendors. The interest
rate on the  outstanding  borrowings  at  September  30, 2006 was  approximately
9.41%.

         Under the credit agreement, as amended, the Company is required to
comply with the following financial covenants: maintain a Fixed Charge Coverage
Ratio (as defined therein) of 1.2 to 1.0 for the nine months ended September 30,
2006 and for each of the twelve months ending each quarterly period thereafter;
maintain minimum Net Worth (as defined therein), commencing August 31, 2005, of
not less than $40,500,000, increasing as of the end of each fiscal quarter
thereafter by 65% of the net profit for such quarter, if any, reduced by the
amount of specified Special Charges and Write-offs (as defined therein), which
includes the establishment of a valuation allowance on deferred taxes of up to
$6.4 million,

<PAGE>



FORM 10-Q                                                     September 30, 2006
Page 9

and a limitation on capital expenditures of $300,000 for each fiscal year . The
credit agreement also restricts the Company's ability to pay dividends. In
addition, the credit agreement includes a subjective acceleration clause and
requires the deposit of customer receipts to be directed to a blocked account
and applied directly to the repayment of indebtedness outstanding under the
credit facility. Accordingly, this debt is classified as a current liability.

         As of September 30, 2006, the Company was in compliance with all of its
bank covenants.

         At times during the fiscal year ended June 30, 2006, the Company was in
violation of certain financial covenants contained in its credit agreement and,
as a result, was required to secure waivers from its lenders and make related
amendments to the credit agreement. In the event that in the future the Company
were to fail to remain in compliance with its bank covenants and was not able to
obtain an amendment or waiver with respect to such noncompliance, the lenders
under its credit facility could declare the Company to be in default under the
facility, requiring all amounts outstanding under the facility to be immediately
due and payable and/or limit the Company's ability to borrow additional amounts
under the facility. If the Company did not have sufficient available cash to pay
all such amounts that become due and payable, we would have to seek additional
debt or equity financing through other external sources, which may not be
available on acceptable terms, or at all. Failure to maintain financing
arrangements on acceptable terms would have a material adverse effect on the
Company's business, results of operations and financial condition.

5) 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 February 21, 2003 for aggregate consideration of
$110,051. No repurchases of common stock were made during the three months ended
September 30, 2006 or 2005.

6) In December 1992, the Board of Directors approved the adoption of a
nonqualified stock option plan, known as the "1993 Non-Qualified Stock Option
Plan," hereinafter referred to as the "1993 Plan." The Board of Directors or the
Compensation Committee of the Board is responsible for the granting and pricing
of options under the 1993 Plan. Such price shall be equal to the fair market
value of the common stock subject to such option at the time of grant. The
options expire five years from the date of grant and are exercisable over the
period stated in each option. In December 1997, the shareholders of the Company
approved an increase in the amount of shares reserved for issuance under the
1993 plan to 900,000 from 440,000, of which there were no outstanding options at
September 30, 2006.
         In October 2000, the Board of Directors approved the adoption of the
"2000 Stock Option Plan," hereinafter referred to as the "2000 Plan." The 2000
Plan originally provided for the grant of up to 600,000 incentive stock options
("ISOs") and nonqualified stock options ("NQSOs") to employees, officers,
directors, consultants and advisers of the Company. In December 2004, the
shareholders of the Company approved an increase in the amount of shares
reserved for issuance under the 2000 plan to 1,200,000. The Board of Directors
or the Compensation Committee of the Board is responsible for the granting and
pricing of these options. Such price shall be equal to the fair market value of
the common stock subject to such option at the time of grant. In the case of
ISOs granted to shareholders owning more than 10% of the Company's voting
securities, the exercise price shall be no less than 110% of the fair market
value of the Company's common stock on the date of grant. All options shall
expire ten years from the date of grant of such option (five years in the case
of an ISO granted to a 10% shareholder) or on such earlier date as may be
prescribed by the Committee and set forth in the option agreement, and are
exercisable over the period stated in each option. Under the 2000 Plan,
1,200,000 shares of the Company's common stock are reserved, of which 499,750
were outstanding at September 30, 2006.
         There were no stock options or other share-based awards granted during
the three months ended September 30, 2006 or 2005.


<PAGE>


FORM 10-Q                                                    September 30, 2006
Page 10

         The Company measures the cost of employee services received in exchange
for an award of equity instruments based on the fair-value of the award, as
determined using the Black-Scholes Option pricing method, and recognize such
cost over the requisite service period, which is generally the vesting period.
No compensation expense with regard to stock option or other share-based awards
has been recognized in the accompanying condensed consolidated statements of
operations for the three months ended September 30, 2006 or 2005.

Summary of Stock Option Activity

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


                                                                                       Weighted-
                                                                     Weighted-          Average
                                                                      Average          Remaining
                                                       Options        Exercise        Contractual
                                                     Outstanding       Price          Term(months)

                                                  --------------------------------  --------------
Employee Stock Option Plans:
<S>                        <C> <C>                     <C>              <C>
Shares outstanding at June 30, 2006                    499,750          $5.07
Granted
Exercised
Canceled                                                 2,500           6.70
                                                  --------------------------------  -----------------

Shares outstanding at September 30, 2006               497,250          $5.06              66
                                                  --------------------------------  -----------------
Shares exercisable at September 30, 2006               497,250          $5.06              66
</TABLE>

The aggregate intrinsic value of outstanding and exercisable options at
September 30, 2006 was $314,880.
<TABLE>

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

                                                                               Three Months Ended
                                                                                  September 30,
                                                                            2006                2005
                                                                       ---------------     ---------------
 Weighted average common shares outstanding net of
<S>                                                                         <C>                 <C>
treasury shares, for basic earnings per share                               6,294,332           6,267,832

Effect of dilutive securities                                                  79,401                   -
                                                                       ---------------     ---------------

Weighted average common shares outstanding for diluted                       6,373,733           6,267,832
earnings per share                                                     ===============     ===============


</TABLE>


          Excluded from the calculation of earnings per share for the three
months ended September 30, 2006 were outstanding options to purchase 251,250
shares of the Company's common stock as the exercise price of such options
exceeded the average market price during the period. Excluded from the
calculation of loss per share for the three months ended September 30, 2005 are
outstanding options to purchase 532,000 shares of the Company's common stock,
representing all outstanding options for the three months ended

<PAGE>



FORM 10-Q                                                    September 30, 2006
Page 11

September 2005, as their inclusion would have been antidilutive. Common stock
equivalents for stock options are calculated using the treasury stock method.

8) The Company is a party to various legal matters arising in the general
conduct of business. The ultimate outcome of such matters is not expected to
have a material adverse effect on the Company's business, results of operations
or financial position.

9) During the three months ended September 30, 2006 and 2005, the Company
recorded sales of $17,552 and $6,037, respectively, from a customer, Frequency
Electronics, Inc. ("Frequency"). The Company's Chairman of the Board of
Directors and President serves on the Board of Directors of Frequency. Such
sales transactions with Frequency are in the normal course of business. Amounts
included in accounts receivable from Frequency at September 30, 2006 and June
30, 2006 aggregate $2,722 and $17,068, respectively.
         A law firm of which one of our directors is a partner provides legal
services on behalf of the Company. Fees paid to such firm amounted to $9,864 and
$59,974 for the three months ended September 30, 2006 and 2005, respectively.
         The son-in-law of the Company's Chairman and President was a partner of
a law firm which provides legal services on behalf of the Company. Fees paid to
such firm during the period he was a partner amounted to $58,013 for the three
months ended September 30, 2005.
             The Company leases office and warehouse facilities from a
partnership owned by two officers and directors of the Company. As of June 30,
2005, the partnership had advanced the Company $125,000 to fund the construction
of a new Flat Panel Display Integration Center, $75,000 of which the Company
repaid in September 2006 and has accrued the remaining $50,000 as a liability in
the accompanying balance sheet.

10) In June 2005, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 154, "Accounting Changes and Error Corrections - a replacement of APB
Opinion No. 20 and FASB Statement No. 3" ("SFAS No. 154"). Opinion 20 previously
required that most voluntary changes in accounting principle be recognized by
including in net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154 requires retrospective
application to prior periods' financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The adoption of SFAS No. 154 did not have an impact on
the Company's consolidated financial statements.

        In June 2000, the FASB issued FIN No. 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109." This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity's financial statements in accordance with SFAS No. 109 "Accounting for
Income Taxes." It prescribes a recognition and threshold measurement attribute
for financial statement disclosure of tax positions taken or expected to be
takes on a tax return. The Company will be required to adopt the interpretation
in the first quarter of fiscal 2008. Management is currently evaluating the
requirements of FIN No. 48 and has not yet determined the impact on the
consolidated financial statements.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements", ("SFAS No. 157,") to eliminate the diversity in practice that
exists due to the different definitions of fair value. SFAS No. 157 retains the
exchange price notion in earlier definitions of fair value, but clarifies that
the exchange price is the price in an orderly transaction between market
participants to sell an asset or liability in the principal or most advantageous
market for the asset or liability. SFAS No. 157 states that the transaction is
hypothetical at the measurement date, considered from the perspective of the
market participant who holds the asset or liability. As such, fair value is
defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date (an exit price), as opposed to the price that would be paid to
acquire the asset or received to assume the liability at the measurement date
(an entry price).

<PAGE>

FORM 10-Q                                                     September 30, 2006
Page 12

        SFAS No. 157 also stipulates that, as a market-based measurement, fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). SFAS No. 157
expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition.

        SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years, although earlier application is encouraged. Additionally, prospective
application of the provisions of SFAS No. 157 is required as of the beginning of
the fiscal year in which it is initially applied, except when certain
circumstances require retrospective application. The Company is currently
evaluating the impact of SFAS No. 157 on its consolidated financial statements.

        In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108,") which was
issued to provide consistency between how registrants quantify financial
statement misstatements.

        Historically, there have been two widely used methods for quantifying
the effects of financial statement misstatements. These methods are referred to
as the "roll-over" and "iron curtain" methods. The roll-over method quantifies
the amount by which the current year income statement is misstated. Exclusive
reliance on an income statement approach can result in the accumulation of
errors on the balance sheet that may not have been material to any individual
income statement, but which may misstate one or more balance sheet accounts. The
iron curtain method quantifies the error as the cumulative amount by which the
current year balance sheet is misstated. Exclusive reliance on a balance sheet
approach can result in disregarding the effects of errors in the current year
income statement that results from the correction of an error existing in
previously issued financial statements. We currently use the roll-over method
for quantifying identified financial statement misstatements.

        SAB 108 established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatement on
each of the company's financial statements and the related financial statement
disclosures. This approach is commonly referred to as the "dual approach"
because it requires quantification of errors under both the roll-over and iron
curtain methods.

        SAB 108 allows registrants to initially apply the dual approach either
by (1) retroactively adjusting prior financial statements as if the dual
approach had always been used or by (2) recording the cumulative effect of
initially applying the dual approach as adjustments to the carrying values of
assets and liabilities as of the beginning of our fiscal year with an offsetting
adjustment recorded to the opening balance of retained earnings. Use of this
"cumulative effect" transition method requires detailed disclosure of the nature
and amount of each individual error being corrected through the cumulative
adjustment and how and when it arose.

        We will initially apply SAB 108 using the cumulative effect transition
method in connection with the preparation of our annual financial statements for
the year ending June 30, 2007 and are currently evaluating the impact the
adoption of SAB 108 will have on our consolidated financial statements.

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


<PAGE>



  FORM 10-Q                                                   September 30, 2006
  Page 13

      The following discussion contains various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Act of 1934, as amended,
or the Exchange Act, which represent our management's beliefs and assumptions
concerning future events. When used in this report and in other written or oral
statements made by us from time to time, forward-looking statements include,
without limitation, statements regarding our financial forecasts or projections,
our expectations, beliefs, intentions or future strategies that are signified by
the words "expects", "anticipates", "estimates", "intends", "plans" or similar
language. Although we believe that the expectations in these forward-looking
statements are reasonable, we cannot assure you that such expectations will
prove to be correct. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which are subject to change and/or beyond
our control, that could cause our actual results and the timing of certain
events to differ materially from those expressed in the forward-looking
statements. Consequently, the inclusion of the forward-looking statements should
not be regarded as a representation by us of results that actually will be
achieved. For a discussion of important factors that could cause our actual
results to differ materially from those contemplated by the forward-looking
statements, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2006, as amended, and our other reports and documents
filed with the Securities and Exchange Commission.

GENERAL

Jaco is a leading distributor of active and passive electronic components to
industrial (Original Equipment Manufacturers") OEMs that are used in the
manufacture and assembly of electronic products in such industries as
telecommunications, medical devices, computers and office equipment,
military/aerospace, and automotive and consumer electronics. Products
distributed by the Company include semiconductors, flat panel displays,
capacitors, resistors, electromechanical devices and power supplies. Due to the
ongoing shift of manufacturing to the Far East, the Company modified its
business model during the fiscal year ended June 30, 2006 to pursue the business
available in the United States, increase its support of global contract
manufacturers that require its value-added services and logistics programs, and
aggressively promote its flat panel display, or FPD, product offerings, which
have experienced significant growth in recent quarters and which the Company
believes have potential for growth in the future, through its FPD in-house
integration center that opened in February 2005. This new in-house integration
center allows us to provide optimized and efficient design solutions, optical
enhancements and touchscreen integrations, as well as to manufacture of FPD
subassemblies and complete displays for commercial, industrial and military
applications. Critical Accounting Policies and Estimates

         We have disclosed in Note 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, 2006, 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 2006 Form 10-K. The accounting
principles we utilized in preparing our consolidated financial statements
conform in all material respects to generally accepted accounting principles in
the United States of America.

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



FORM 10-Q                                                     September 30, 2006
Page 14

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 June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). Opinion 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
SFAS No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. SFAS No. 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The adoption of
SFAS No. 154 did not have an impact on the Company's consolidated financial
statements.

        In June 2000, the FASB issued FIN No. 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109." This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity's financial statements in accordance with SFAS No. 109 "Accounting for
Income Taxes." It prescribes a recognition and threshold measurement attribute
for financial statement disclosure of tax positions taken or expected to be
takes on a tax return. The Company will be required to adopt the interpretation
in the first quarter of fiscal 2008. Management is currently evaluating the
requirements of FIN No. 48 and has not yet determined the impact on the
consolidated financial statements.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements", ("SFAS No. 157,") to eliminate the diversity in practice that
exists due to the different definitions of fair value. SFAS No. 157 retains the
exchange price notion in earlier definitions of fair value, but clarifies that
the exchange price is the price in an orderly transaction between market
participants to sell an asset or liability in the principal or most advantageous
market for the asset or liability. SFAS No. 157 states that the transaction is
hypothetical at the measurement date, considered from the perspective of the
market participant who holds the asset or liability. As such, fair value is
defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date (an exit price), as opposed to the price that would be paid to
acquire the asset or received to assume the liability at the measurement date
(an entry price).

        SFAS No. 157 also stipulates that, as a market-based measurement, fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). SFAS No. 157
expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition.

        SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years, although earlier application is encouraged. Additionally, prospective
application of the provisions of SFAS No. 157 is required as of the beginning of
the fiscal year in which it is initially applied, except when certain
circumstances require retrospective application. The Company is currently
evaluating the impact of SFAS No. 157 on its consolidated financial statements.

        In  September  2006,  the SEC staff  issued  Staff  Accounting  Bulletin
No.  108,  "Considering  the  Effects  of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial

<PAGE>


FORM 10-Q                                                    September 30, 2006
Page 15

Statements" ("SAB108,") which was issued to provide consistency between how
registrants quantify financial statement misstatements.

        Historically, there have been two widely used methods for quantifying
the effects of financial statement misstatements. These methods are referred to
as the "roll-over" and "iron curtain" methods. The roll-over method quantifies
the amount by which the current year income statement is misstated. Exclusive
reliance on an income statement approach can result in the accumulation of
errors on the balance sheet that may not have been material to any individual
income statement, but which may misstate one or more balance sheet accounts. The
iron curtain method quantifies the error as the cumulative amount by which the
current year balance sheet is misstated. Exclusive reliance on a balance sheet
approach can result in disregarding the effects of errors in the current year
income statement that results from the correction of an error existing in
previously issued financial statements. We currently use the roll-over method
for quantifying identified financial statement misstatements.

        SAB 108 established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatement on
each of the company's financial statements and the related financial statement
disclosures. This approach is commonly referred to as the "dual approach"
because it requires quantification of errors under both the roll-over and iron
curtain methods.

        SAB 108 allows registrants to initially apply the dual approach either
by (1) retroactively adjusting prior financial statements as if the dual
approach had always been used or by (2) recording the cumulative effect of
initially applying the dual approach as adjustments to the carrying values of
assets and liabilities as of the beginning of our fiscal year with an offsetting
adjustment recorded to the opening balance of retained earnings. Use of this
"cumulative effect" transition method requires detailed disclosure of the nature
and amount of each individual error being corrected through the cumulative
adjustment and how and when it arose.

        We will initially apply SAB 108 using the cumulative effect transition
method in connection with the preparation of our annual financial statements for
the year ending June 30, 2007 and are currently evaluating the impact the
adoption of SAB 108 will have on our consolidated financial statements.

Results of Operations

The following table sets forth certain items in our statements of operations as
a percentage of net sales for the periods shown:
                                                 Three Months Ended
                                                    September 30,
                                           ------------------------------

                                              2006               2005
                                           ----------         ----------
Net sales                                        100.0%            100.0%
Cost of goods sold                                87.6              86.4
                                           ----------         ----------
Gross profit                                      12.4              13.6
Selling, general and
  administrative expenses                         10.8              13.1
                                           ----------         ----------
Operating profit                                  1.6                0.5
Interest expense                                  1.2                1.1
                                           ----------         ----------
Earnings (loss) before income taxes               0.4              (0.6)
Income tax provision (benefit)                    0.0              (0.4)
                                           ----------         ----------
Net earnings (loss)                               0.4%             (0.2)%
                                                  ====             ======



<PAGE>



FORM 10-Q                                                     September 30, 2006
Page 16


COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005

         Net sales for the three months ended September 30, 2006 were $69.6
million compared to $52.5 million for the three months ended September 30, 2005,
an increase of $17.1 million, or 32.8%. During the quarter, we continued to see
strong demand from global contract manufacturers, primarily in the Far East,
which we support with our logistics programs consisting of inventory management
services and warehousing capabilities. Sales to these customers which are
comprised almost entirely of semiconductors, increased to $32.8 million for the
three months ended September 30, 2006, an increase of $16.2 million, or
approximately 98% compared to $16.5 million for the three months ended September
30, 2005. As a result of the increase in sales to these customers during the
quarter, semiconductors represented 59.2% of our net sales for the three months
ended September 30, 2006 compared to 52.1% of net sales for the same period of
last fiscal year. Our global customers support the needs of the major equipment
manufacturers. As a result, our logistics programs are partially dependent on
the ability of these manufacturers, the end-users of our products to forecast
their future requirements. Due to the highly cyclical nature of the
semiconductor industry, we have historically been subject to fluctuations in
this portion of our business.

         We sell FPDs as a component sale through our standard distribution
channel and we sell FPD products as a value-added offering through our in-house
integration center. We provide design capabilities and a "full solution"
capability enabling us to offer our customers an expanded range of services to
integrate FPDs into their applications. We believe we can market our
capabilities to a broad range of business segments, segments such as electronic
kiosk, the fast food industry, signage, financial institutions, electronic
voting equipment medical and military applications. For the three months ended
September 30, 2006, FPD sales increased 32.2% to $16.0 million compared to $12.1
million for the three months ended September 30, 2005. FPD product represented
23.6% of our net sales for the three months ended September 30, 2006, compared
to 23.7% for the same period last year

         Passive components, which are primarily commodity product such as
capacitors and resistors, represented approximately 12.2% of our net sales
during the quarter compared to 15.7% for the three months ended September 30,
2005. This decrease reflects the continuation of a long-term trend of passive
component price reductions due to an increase in production primarily
originating from the Far East. Accordingly, we do not expect any material
increases in our passive component sales for the foreseeable future.
Electromechanical Products, such as power supplies, relays, and printer heads,
represented 5.0% of our net sales for the three months ended September 30, 2006
compared to 8.5% for the comparable period last fiscal year. While we continue
to believe that these products, which typically have high per unit selling
prices, remain a viable offering for the U.S. market, sales of electromechanical
products declined as a percentage of total revenue due to product mix.

         We continue to aggressively market our FPD product, while looking to
complement our core product lines with our value-added services and our quote
group to quickly respond to customer inquiries. Our growth through our logistics
programs is partially attributable to an increase in the number of vendors we
support. We intend to continue to aggressively market these programs to this
customer base. In addition we continue to seek to identify potential strategic
alliances to expand our presence in the Far East in response to the significant
growth in manufacturing in the region that has occurred in recent years.

     Gross  profit  for the  three  months  ended  September  30,  2006 was $8.7
million,  or 12.4% of net sales compared to $7.1 million,  or 13.6% of net sales
for the three months ended September 30, 2005,  representing a $1.6 million,  or
21.6%,  increase.  This increase is directly attributable to the increase in net
sales.  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.  As discussed  above,  there was a large increase in net
sales during the quarter to global contract  manufacturers  through our logistic
programs.  These logistics programs  historically  operate at lower margins than
the rest of our  operations.  There were no material  variances  in gross profit
margins related to the balance of our net sales during the


<PAGE>



FORM 10-Q                                                     September 30, 2006
Page 17

quarter. As a result, our gross profit margin declined compared to the same
quarter of the prior fiscal year. Unless there is a material variance in net
sales generated through our logistics programs, we do not anticipate any
material change in our gross profit margin for the foreseeable future. In
addition, demand and pricing for our products have been, and in the future may
continue to be, adversely affected by industry-wide trends and events beyond our
control.

         Selling, general and administrative ("SG&A") expenses were $7.5
million, or 10.8% of net sales, for the three months ended September 30, 2006
compared to $6.8 million, or 13.1 % of net sales for the three months ended
September 30, 2005, representing an increase of $0.7 million or 10.1%.
Management considers SG&A as a percentage of net sales to be a key performance
indicator in managing our business. We have been able to focus our spending on
core business areas while carefully monitoring spending in non-strategic areas.
The majority of our increase in SG&A during the quarter related to variable
costs, such as commissions, that are directly associated with the increase in
our net sales. During the fiscal year ended June 30, 2006, we were able to
implement significant cost reductions by focusing our spending on core business
areas while decreasing spending in non-strategic areas. Although we plan to
continue to look for areas of cost reductions the increase in our net sales
during recent quarters has required us to increase certain costs necessary to
support our growth. Therefore, we do not anticipate any further reductions in
SG&A for the foreseeable future.

         Interest expense increased $0.3 million, or 49.6%, for the three months
ended September 30, 2006 to $0.9 million from $0.6 million for the comparable
period last year. Interest expense has increased primarily due to continuing
increases in federal lending rates resulting in higher borrowing rates under our
existing credit facility. Continued increases in borrowing rates would further
increase our interest expense, which would have a negative effect on our results
of operations.

         Net earnings for the three months ended September 30, 2006 were $0.3
million, or $0.04 per diluted share, compared to a net loss of $0.1 million, or
$0.02 per diluted share, for the three month ended September 30, 2005. Our net
income for the quarter is due to our increase in gross profit dollars as a
resulting from our increase in net sales, as well as improved overall operating
performance, as indicated by the reduction of SG&A as a percentage of net sales
during the current quarter compared to the same period of last year.

LIQUIDITY AND CAPITAL RESOURCES

     To provide liquidity and flexibility in funding its operations, the Company
borrows amounts under credit facilities and other external sources of financing.
On December 22, 2003, the Company entered into a Third Restated and Amended Loan
and Security Agreement with GMAC Commercial  Finance LLC and PNC Bank,  National
Association  (subsequently  assigned  by PNC Bank on March  31,  2006 to the CIT
Group/Business  Credit,  Inc.) originally providing for a $50,000,000 (which has
subsequently been reduced to $40,000,000) revolving secured line of credit. This
credit  facility  has a  maturity  date  of  December  31,  2006.  Based  upon a
non-binding  letter of intent dated November 2, 2006 between the Company and one
of  its  lenders,   and  subject  to  normal  due   diligence   and   definitive
documentation,  we  believe  we will be able to  renew  or  replace  our  credit
facility on terms at least as  favorable  as those  currently in effect prior to
its scheduled maturity on December 31, 2006, although no assurances can be given
that we will be able to do so.  Borrowings  under the credit  facility are based
principally on eligible accounts  receivable and inventories of the Company,  as
defined in the credit agreement,  and are collateralized by substantially all of
the assets of the Company.  At September 30, 2006,  the  outstanding  balance on
this  revolving line of credit  facility was $35.8  million,  with an additional
$3.5 million  available.  The Company has  outstanding  $2.6 million of stand-by
letters  of credit  on  behalf of  certain  vendors.  The  interest  rate on the
outstanding borrowings at September 30, 2006 was approximately 9.41%.

     Under the credit agreement,  as amended,  the Company is required to comply
with the following financial  covenants:  maintain a Fixed Charge Coverage Ratio
(as defined  therein) of 1.2 to 1.0 for the nine months ended September 30, 2006
and for each of the twelve  months  ending  each  quarterly  period  thereafter;
maintain minimum Net Worth (as defined therein),  commencing August 31, 2005, of
not less


<PAGE>



FORM 10-Q                                                     September 30, 2006
Page 18

than $40,500,000, increasing as of the end of each fiscal quarter thereafter by
65% of the net profit for such quarter, if any, reduced by the amount of
specified Special Charges and Write-offs (as defined therein), hich includes the
establishment of a valuation allowance on deferred taxes of up to $6.4 million,
and a limitation on capital expenditures of $300,000 for each fiscal year
commencing after June 30, 2006. The credit agreement also restricts the
Company's ability to pay dividends. In addition, the credit agreement includes a
subjective acceleration clause and requires the deposit of customer receipts to
be directed to a blocked account and applied directly to the repayment of
indebtedness outstanding under the credit facility. Accordingly, this debt is
classified as a current liability.

         As of September 30, 2006, the Company was in compliance with all of its
covenant contained in the credit agreement.

               At September 30, 2006, the Company had cash of approximately
$32,000 and working capital of approximately $4,500,000, as compared to cash of
approximately $29,000 and working capital of approximately $4,106,000 at June
30, 2006. As described above, our credit agreement requires our cash generated
from operations to be applied directly to the prepayment of indebtedness under
our credit facility.

              For the three months ended September 30, 2006, our net cash used
in operating activities was approximately $0.7 million as compared to net cash
provided by operating activities of $3.0 million for the three months ended
September 30, 2005. The decrease in net cash provided by operating activities is
primarily attributable to an increase in our accounts receivable partially
offset by a decrease in inventory for the three months ended September 30, 2006,
as compared to a decrease in our accounts receivable and inventory for the three
months ended September 30, 2005. Net cash used in investing activities was
approximately $23,000 for the three months ended September 30, 2006 as compared
to net cash used in investing activities of $21,000 for the three months ended
September 30, 2005. Net cash provided by financing activities was approximately
$0.7 million for the three months ended September 30, 2006 as compared to $3.3
million used in financing activities for the three months ended September 30,
2005. The increase in net cash provided is primarily attributable to the
increase in net borrowings under our credit facility of approximately $0.7
million in the three months ended September 30, 2006 as compared to a decrease
in net borrowings of $3.3 million in the three months ended September 30, 2005.

         For the three months ended September 30, 2006 and 2005, our inventory
turnover was 7.6 times and 5.0 times, respectively. The average days outstanding
of our accounts receivable at September 30, 2006 were 50 days, as compared to 58
days at September 30, 2005. Inventory turnover and average days outstanding are
key ratios that management relies on to monitor our business.

     Based upon our present  plans,  including no anticipated  material  capital
expenditures  and, as discussed  above, the renewal or replacement of our credit
facility on terms at least as  favorable  as those  currently in effect prior to
its  scheduled  maturity on December  31,  2006,  we believe that cash flow from
operations and funds  available  under our credit facility will be sufficient to
fund our  capital  needs for the next  twelve  months.  However,  our ability to
maintain  sufficient  liquidity  depends  partially  on our  ability  to achieve
anticipated levels of revenue,  while continuing to control costs, and remaining
in  compliance  with our bank  covenants.  Historically,  including  on  several
occasions  during the fiscal year ended June 30, 2006, we have,  when necessary,
been able to obtain  amendments  to our credit  facilities  or waivers  from our
lenders to satisfy  instances of our  non-compliance  with financial  covenants.
While we cannot  assure  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.  In the  event  that in the  future we are  unable  to  obtain  such an
amendment or waiver of our  non-compliance  with our  financial  covenants,  the
lenders  under our credit  facility  could declare us to be in default under the
facility, requiring all amounts outstanding under the facility to be immediately
due and payable and/ or limit the Company's ability to borrow additional amounts
under the facility. If we did not have sufficient available cash to pay all such
amounts that become due and payable,  we would have to seek  additional  debt or
equity financing through other external  sources,  which may not be available on
acceptable  terms,  or at all.  Failure to maintain  financing  arrangements  on
acceptable terms would have a material  adverse effect on our business,  results
of operations and financial condition.


<PAGE>


<TABLE>

FORM 10-Q                                                                       September 30, 2006
Page 19


Contractual Obligations

         This table summarizes our known contractual obligations and commercial
commitments at September 30, 2006.

                                 Total          < 1 Year      1 to 3 Years    3 to 5 Years    > 5 Years
                             --------------- --------------- --------------- ---------------- --------------

<S>               <C>           <C>             <C>
         Bank Debt(1)           $35,800,543     $35,800,543
         Capital Lease              147,124          63,053          $84,071
         Operating Lease          7,074,508       1,359,805        2,852,158      $2,629,845       $232,700
                             --------------- --------------- --------------- ---------------- --------------

         Total                  $43,022,175     $37,223,401       $2,936,229      $2,629,845       $232,700
                             =============== =============== =============== ================ ==============
</TABLE>

(1) Our credit facility currently has a maturity date of December 31, 2006. As
stated above, we believe we will be able to renew this facility or, in the
alternative, refinance the indebtedness outstanding thereunder through
borrowings under a new credit facility, and, therefore, we expect to continue to
have significant long-term debt obligations outstanding after December 31, 2006.

Inflation and Seasonality

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


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

         We are exposed to interest rate changes with respect to borrowings
under our credit facility, which bears interest at a variable rate dependent
upon either the prime rate, federal funds rate or the LIBOR rate ("rates"). At
October 31, 2006, $28.6 million was outstanding under the credit facility.
Changes in any of the rates during the current fiscal year will have a positive
or negative effect on our interest expense. Each 1.0% fluctuation in the rate
will increase or decrease our interest expense under the credit facility by
approximately $0.3 million based on the amount of outstanding borrowings at
October 31, 2006. The impact of interest rate fluctuations on our other floating
rate debt is not material.

Item 4. Controls and Procedures.

         An evaluation was performed, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of September 30, 2006. Based upon that evaluation, the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
has concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. There have been no changes in the Company's internal
control over financial reporting or in other factors identified in connection
with this evaluation that occurred during the three months ended September 30,
2006 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.


<PAGE>


FORM 10-Q                                                    September 30, 2006
Page 20


PART II - OTHER INFORMATION



Item 6.   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.






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                                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.

November 14, 2006
                             JACO ELECTRONICS, INC.
                                  (Registrant)


                              BY:  /s/ Jeffrey D. Gash
                                      ---------------------------------------
                                      Jeffrey D. Gash, Executive Vice President,
                                      Finance and Secretary
                                      (Principal Financial Officer)