jaco10q33109.htm

	March 31,		June 30,
	2009		2008
	(UNAUDITED)		(DERIVED FROM AUDITED STATEMENTS – NOTE 2)
ASSETS

Current Assets

Cash and cash equivalents	$	20,184	$	14,444
Accounts receivable - net		9,020,698		32,591,064
Inventories - net		8,636,442		17,702,321
Prepaid expenses and other		1,318,523		1,727,707
Escrow with WPG America		948,523		-
Current assets of discontinued operations		-		16,900,320

Total current assets		19,944,370		68,935,856

Property, plant and equipment – net		932,587		1,005,047

Goodwill		1,952,791		3,052,791

Other assets		933,271		1,944,407

Non-current assets of discontinued operations		-		14,186,125

Total assets	$	23,763,019	$	89,124,226

	March 31,			June 30,
	2009			2008
	(UNAUDITED)			(DERIVED FROM AUDITED STATEMENTS – NOTE 2)
LIABILITIES & SHAREHOLDERS' EQUITY

LIABILITIES

Current Liabilities

Accounts payable and accrued expenses	$	9,557,393		$	23,901,278
Current maturities of long-term debt and
capitalized lease obligations		7,147,079			31,409,953
Income taxes payable		3,905			13,769
Current liabilities of discontinued operations		-			9,498,397

Total current liabilities		16,708,377			64,823,397

Deferred compensation		1,237,468			1,200,001

Total liabilities		17,945,845			66,203,398

Commitments and Contingencies (Notes 2,3,4,8 and 9)

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		27,332,730			27,236,361
Accumulated Deficit		(19,896,413	)		(2,516,390	)
Treasury stock – 659,900 shares at cost		(2,314,566	)		(2,314,566	)

Total shareholders' equity		5,817,174			23,100,828

Total liabilities and shareholders’ equity	$	23,763,019		$	89,124,226

	2009			2008

Net sales	$	10,690,638		$	14,869,837
Cost of goods sold		8,912,177			12,357,739

Gross profit		1,778,461			2,512,098

Selling, general and administrative expenses		2,520,372			2,484,409
Claim settlements		(1,490,302	)		-

Operating profit		748,391			27,689

Interest expense		135,278			498,745

Income (loss) from continuing operations before income taxes		613,113			(471,056	)

Income tax provision		9,555			12,270

Income (loss) from continuing operations		603,558			(483,326	)

Loss from discontinued operations		(436,357	)		(111,393	)

Net income (loss)	$	167,201		$	(594,719	)

PER SHARE INFORMATION

Basic and diluted loss per common share:

Income (loss) from continuing operations	$	0.10		$	(0.08	)
Loss from discontinued operations		(0.07	)		(0.01	)

Net income (loss)	$	0.03		$	(0.09	)

Weighted-average common shares and common
equivalent shares outstanding:

Basic and diluted		6,294,332			6,294,332

	2009			2008

Net sales	$	46,805,206		$	48,879,855
Cost of goods sold		38,708,545			40,006,941

Gross profit		8,096,661			8,872,914

Selling, general and administrative expenses		8,250,366			7,640,437
Impairment of goodwill and intangible assets		1,271,000			-
Claim settlements		(1,690,302	)		(480,377	)

Operating profit		265,597			1,712,854

Interest expense		947,382			1,654,394

(Loss) income from continuing operations before income taxes		(681,785	)		58,460

Income tax provision		28,833			38,159

(Loss) income from continuing operations		(710,618	)		20,301

Loss from discontinued operations		(16,669,405	)		(756,539	)

Net loss	$	(17,380,023	)	$	(736,238	)

PER SHARE INFORMATION

Basic and diluted loss per common share:

Loss from continuing operations	$	(.11	)	$	-
Loss from discontinued operations		(2.65	)		(0.12	)

Net loss	$	(2.76	)	$	(0.12	)

Weighted-average common shares and common
equivalent shares outstanding:

Basic and diluted		6,294,332			6,294,332

	2009			2008
Cash flows from operating activities
Net loss	$	(17,380,023	)	$	(736,238	)
Net loss from discontinued operation		(16,669,405	)		(756,539	)
Net (loss) earnings from continuing operations		(710,618	)		20,301

Adjustments to reconcile net (loss) earnings from continuing
operations to net cash provided by operating activities
Impairment of goodwill and intangible assets		1,271,000			-
Depreciation and amortization		378,223			518,271
Deferred compensation		37,467			37,504
Stock-based compensation		96,369			93,066
Provision for doubtful accounts		437,250			380,891
Changes in operating assets and liabilities
Decrease in operating assets - net		32,194,030			2,953,594
(Decrease) increase in operating liabilities – net		(14,353,750	)		(1,317,063	)
Net cash provided by discontinued operations		4,618,643			219,896

Net cash provided by operating activities		23,968,614			2,906,460

Cash flows from investing activities
Proceeds from sale of assets of discontinued operations		300,000			-
Capital expenditures		-			(77,991	)

Net cash used in investing activities		300,000			(77,991	)

Cash flows from financing activities
Borrowings under line of credit		104,582,943			147,893,470
Repayments under line of credit		(128,810,851	)		(150,687,245	)
Principal payments under equipment financing		(34,966	)		(39,088	)

Net cash used in financing activities		(24,262,874	)		(2,832,863	)

Net increase (decrease) in cash		5,740			(4,394	)

Cash at beginning of period		14,444			15,713

Cash at end of period	$	20,184		$	11,319
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	947,000		$	1,654,000
Income taxes	$	29,000		$	43,000

1) The accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accrual adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows of Jaco Electronics, Inc. and its subsidiaries (“Jaco” or the “Company”) at the end of and for all the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation. Information with respect to the Company’s Discontinued Operations described in footnote 2 below is presented separately in the financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2008 and the notes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2008. 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, 2008.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has been dependent upon its credit facility to meet its obligations and sustain operations. Based upon its current cash position, its budget for business operations, the availability under its credit facility, and by monitoring discretionary expenditures, management believes that the Company will be able to fund operations through at least March 2010. The Company’s credit facility comes due December 22, 2009. Although the Company plans to secure credit financing through an extension of its current agreement or by replacing its current agreement with other credit financing, no assurance can be given that additional financing will be available to the Company on acceptable terms, or at all. The Company’s ability to continue as a going concern is ultimately dependent upon generating revenues, achieving profitable operations and generating sufficient cash flows from operations to meet future obligation.

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management in preparing the consolidated financial statements include the allowance for doubtful accounts, the provision for obsolete or slow moving inventories, the valuation of goodwill and other intangible assets and the valuation of net deferred income tax assets.

2) On November 7, 2008 the Company announced that it had entered into an Asset Purchase Agreement (the “Sale Agreement”) with WPG Americas, Inc. (“WPG Americas”) and on January 7, 2009 the transaction was completed. Pursuant to the Sale Agreement, WPG Americas purchased certain assets used in the Company’s business of distributing passive and active electronic components and supporting technology products and services (“Discontinued Operations”). The assets sold included certain inventory, machinery and equipment, furniture and fixtures and contracts. The purchase price for the net assets was based on their value on the date of closing and is subject to a post-closing adjustment. Other than inventory and security deposits, there was no basis in other assets sold therefore all proceeds allocated to them resulted in a gain on disposal. At the closing, WPG Americas paid the Company $6,500,000 in cash and assumed approximately $9,366,000 of accounts payable. All proceeds of the proposed sale were used to repay outstanding borrowings on the Company’s credit facility.

The Sale Agreement contains customary representations, warranties, covenants and conditions to closing. The Sale Agreement also contains a Transition Services Agreement, which provides for periodic payments by WPG Americas to the Company for use of, among other items, some of the Company’s employees and a portion of its corporate office and warehouse. The Company was required to fund a $1,000,000 escrow account for certain potential obligations with respect to the purchased inventory. As of March 31, 2009, the funding of the escrow has been waived to the extent of $948,523 of transition costs that are due from WPG America. This amount is listed on the balance sheet as a current asset. At March 31, 2009 $483,024 was due WPG Americas and is included in accounts payable.

In the three months ended September 30, 2008, as a result of the pending acquisition of the net assets, used in the Discontinued Operations, by WPG Americas, the Company determined that the value of all of its goodwill and identifiable intangible assets related to such business, which were not to be acquired, had been impaired, the result of which was an impairment charge of approximately $14,106,000 as a non-cash charge to operating expenses. In addition, the Company has restated its balance sheet as it relates to assets and liabilities and its results of operations of the Discontinued Operations as follows:

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2009			2008			2009			2008
Sales from discontinued operations	$	-		$	29,590,000		$	46,336,000		$	93,998,000
Cost of sales of discontinued operations		-			24,905,816			38,897,196			79,589,697
Gross profit of discontinued operations		-			4,684,184			7,438,804			14,408,303
SG & A of discontinued operations		736,357			4,795,577			10,302,531			15,164,842
Impairment of Goodwill and intangible assets		-			-			14,105,678			-
Loss on operations of discontinued operations		(736,357	)		(111,393	)		(16,969,405	)		(756,539	)
Gain on disposal of discontinued operations		300,000			-			300,000			-
Loss from discontinued operations	$	(436,357	)	$	(111,393	)	$	(16,669,405	)	$	(756,539	)

Management believes that its plan for a focused sales and marketing effort in Flat Panel Displays (“FPD”) should improve results from operations and cash flows. Continued achievement of this plan, however, will be dependent upon the Company's ability to generate sufficient revenues, decrease operating costs and remain in compliance with the covenants contained in its credit agreement. As a result of the Sale Agreement, the Company’s credit agreement was amended on January 7, 2009. As part of the amendment, the Company paid a fee of $100,000. The Company’s future operating performance will be subject to financial, economic and other factors beyond its control, and there can be no assurance that the Company will be able to achieve these goals. The Company’s failure to achieve these goals or remain in compliance with the covenants contained in its credit agreement would have a material adverse effect upon its business, financial condition and results of operations.

As discussed further in Note 4, the Company maintains a revolving line of credit collateralized by substantially all the assets of the Company, which provides the Company with bank financing based upon eligible accounts receivable and inventory, as defined. The credit facility has a maturity date of December 22, 2009. The Company is currently negotiating with prospective lenders to replace the existing credit facility. While there can be no assurances that the deal will close, the Company has received a letter of interest from one of the prospective lenders.

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

Under the terms of the purchase agreement relating to this transaction, the Company received $9,250,000 of the purchase consideration in cash on the closing date. Such cash consideration was used to repay a portion of the outstanding borrowings under the Company's then-existing line of credit. The balance of the purchase consideration was satisfied through the delivery of a $2,750,000 subordinated note issued by the purchaser. The purchase agreement also provided for a working capital adjustment of up to $500,000. Additionally, the Company was entitled to receive additional consideration in the form of a six-year earn-out based on 5% of the annual net sales in excess of $20,000,000 of Nexus after the closing date, up to $1,000,000 in the aggregate.

On September 1, 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 answered the complaint and asserted counterclaims for amounts owed to it under the purchase agreement. On July 8, 2008, the case was dismissed by order of the Court pursuant to the parties’ settlement, which provided for the exchange of releases without payment to any party and a Supply Agreement for the possible sale by the Company of electronic components to Titan Nexus and related parties. In light of the Sale Agreement with WPG Americas, it is unlikely that any product will be sold under the Supply Agreement.

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

4) To provide liquidity in funding its operations, the Company borrows under credit facilities and other external sources of financing. On December 22, 2006, the Company entered into a three-year credit agreement with CIT Group/Business Credit, Inc. (“CIT”), which provided for a $55,000,000 revolving line of credit. This credit facility has a maturity date of December 22, 2009. On January 23, 2007, CIT assigned $25,000,000 of its interest in the credit facility to Bank of America, N.A. The credit facility as amended included a supplemental loan (“Supplemental Loan”) of $3,000,000 at an interest rate equal to the three month LIBOR rate plus 5%. The Supplemental Loan was payable in seven quarterly installments commencing October 1, 2007. The Company had currently made all the required installment payments for this Supplemental Loan. On January 7, 2009, as a result of the closing on the sale agreement with WPG Americas, as disclosed above, the credit facility was further amended whereby the maximum amount of the revolving line of credit was reduced to $25,000,000, the Supplemental Loan was paid in full and the applicable rate on borrowings was increased. Borrowings under the credit facility are based principally on eligible accounts receivable and inventories of the Company, as defined in the agreement, and are collateralized by substantially all of the assets of the Company. At March 31, 2009, the outstanding balance on this revolving line of credit facility was $7,147,079 ($7,000,000 of which is borrowed under a 30-day LIBOR-based revolver). There was an additional $632,000 available at March 31, 2009. At March 31, 2009, the Company had an outstanding $500,000 stand-by letter of credit on behalf of a certain vendor. The interest rate on the outstanding borrowings under the credit facility at March 31, 2009 was: 4.50% on the borrowings under the 30-day LIBOR-based revolver and 6.25% (prime plus 3%) on the balance of the borrowings.

Under the credit agreement the Company is required to comply with one financial covenant which stipulates that in the event the Company’s additional borrowing availability under the revolving line of credit facility for any five consecutive days is less than $5,000,000, the Company is required to retroactively maintain a Fixed Charge Coverage Ratio (as defined therein) of 1.1 to 1.0 as of the end of the immediately preceding fiscal quarter. As of March 31, 2009, the Company was in compliance of the financial covenant contained in its credit agreement.

The credit agreement also provides for a limitation on capital expenditures of $500,000 for the Company’s 2009 fiscal year and for each remaining fiscal year in which the credit agreement is in effect. The credit agreement also contains other covenants and restrictions, including limitations on: the Company’s incurrence of additional indebtedness unrelated to the credit facility; its incurrence of liens; mergers, consolidations and sales of assets by the Company; investments, loans and acquisitions by the Company and the Company’s ability to pay cash dividends. In addition, the credit agreement 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, outstanding borrowings under the credit agreement are classified as a current liability.

If the Company were to be in violation of the financial covenant or any other material provision contained in the credit agreement in the future and not able to obtain an amendment or waiver with respect to such noncompliance, the lenders under the credit facility could declare the Company to be in default under the facility, requiring all amounts outstanding under the facility to be immediately due and payable and/or limit the Company’s ability to borrow additional amounts under the facility. If the Company did not have sufficient available cash to pay all such amounts that became due and payable, it would have to seek additional debt or equity financing through other external sources, which may not be available on acceptable terms, or at all. Failure to maintain financing arrangements on acceptable terms would have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, the Company will be required to extend or refinance its credit facility by December 22, 2009. If we are unable to do so or 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.

5) The Company is one of several plaintiffs alleging price fixing claims in violation of federal and state antitrust laws against a number of component manufacturers in the random access memory semiconductor market. The parties have agreed to settle such claims with some of the defendants and, in connection with such settlements, the Company has received $1,490,000 and $1,690,000 for the three and nine months ended March 31, 2009, respectively, as compared to $0 and $480,000 for the three and nine months ended March 31, 2008, respectively.

6) In October 2000, the Board of Directors approved the adoption of the “2000 Stock Option Plan,” hereinafter referred to as the “2000 Plan.” The 2000 Plan, as amended, provides for the grant of up to 1,200,000 incentive stock options (“ISOs”) and nonqualified stock options (“NQSOs”) to employees, officers, directors, consultants and advisers of the Company. The Board of Directors or Compensation Committee 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 541,250 are outstanding and 407,750 are exercisable at March 31, 2009.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing formula and a single option award approach. The fair value is then amortized to expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Compensation expense recognized in the accompanying condensed consolidated statement of operations was $96,369 and $93,066 for the nine months ended March 31, 2009 and 2008, respectively, and $27,921 and $35,611 for the three months ended March 31, 2009 and 2008, respectively. At March 31, 2009, there was an aggregate of $210,843 of unamortized compensation expense related to stock options which will be recognized as an expense over a remaining period of approximately 2.5 years (weighted average of approximately one year), which represents the remaining requisite service period for such awards.

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


Options outstanding at June 30, 2008		689,750		$	4.41
Granted		-			-
Exercised		-			-
Forfeited		(148,500	)		5.15

Options outstanding at March 31, 2009		541,250		$	4.21		62
Options exercisable at March 31, 2009		407,750		$	4.68		49

Nonvested Stock Options:
Nonvested at June 30, 2008		222,875		$	2.86
Granted		-			-
Vested		(64,625	)		2.94
Forfeited		(24,750	)		3.37

Nonvested at March 31, 2009		133,500		$	2.72

9) During the three and nine months ended March 31, 2009, the Company recorded sales of $0 and $18,407, respectively, compared to $16,901 and $92,986 for the three and nine months ended March 31, 2008, 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 March 31, 2009 and June 30, 2008 aggregate $0 and $4,924, respectively.

10) Electronic components distribution sales include exports made principally to customers located in Western Europe, Canada, Mexico, and the Far East. For the three and nine months ended March 31, 2009, export sales amounted to approximately $499,000 and $16,849,000, respectively as compared to approximately $9,517,000 and $34,716,000 for the three and nine months ended March 31, 2008, respectively. Predominately all of the foreign sales are related to the Discontinued Operations of the Company. Information pertaining to the Company's operations in individual geographic areas for the three and nine months ended March 31, 2009 and 2008 are not considered material to the financial statements. The Company’s operations and assets are principally in the United States.

	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2009		2008			2009			2008
Semiconductors	$	-	$	16,839,000		$	28,074,000		$	55,784,000
Flat Panel Displays		10,690,000		14,870,000			46,805,000			48,880,000
Passive Components		-		9,236,000			12,972,000			27,002,000
Electromechanical Devices		-		3,515,000			5,290,000			11,212,000

		10,690,000		44,460,000			93,141,000			142,878,000
Discontinued operations		-		(29,590,000	)		(46,336,000	)		(93,998,000	)

Continuing operations	$	10,690,000	$	14,870,000		$	46,805,000		$	48,880,000

11) The Company has adopted the provisions of FASB interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”. The Company has recognized no adjustment for uncertain tax provisions. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no examinations underway. The Company is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service and most state and local authorities for fiscal tax years ending prior to June 30, 2005. (Certain state authorities may subject the Company to examination up to the period ending June 30, 2004.) The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as income taxes, however, no such provisions for accrued interest and penalties related to uncertain tax positions have been recorded as of March 31, 2009.

12) In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” Effective for fiscal years beginning after December 15, 2008, these statements revise and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The adoption of these statements will change the Company’s accounting treatment for business combinations on a prospective basis.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets”. FSP FAS 142-3 amends the factors that should be considered in developing a renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FSP FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (R) and other U.S. generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier application is not permitted. The Company will be assessing the potential effect of FSP FAS 142-3 if applicable, if it acquires intangible assets.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”) and (“APB 28-1”). FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements and amends APB Opinion No. 28 “Interim Financial Reporting”, to require those disclosures in interim financial statements. FSP FAS 107-1 and APB 28-1 are required to be adopted no later than the periods ending after June 15, 2009

On April 1, 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP FAS 141R-1) whereby assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, companies should typically account for the acquired contingencies using existing accounting guidance. FSP FAS 141R-1 is effective for new acquisitions consummated on or after January 1, 2009. The Corporation will apply FSP FAS 141R-1 to any future acquisition.

The following discussion contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which represent our management’s beliefs and assumptions concerning future events. When used in this report and in other written or oral statements made by us from time to time, forward-looking statements include, without limitation, statements regarding our financial forecasts or projections, our expectations, beliefs, intentions or future strategies that are signified by the words “expects”, “anticipates”, “estimates”, “intends”, “plans” or similar language. Although we believe that the expectations in these forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which are subject to change and/or beyond our control that could cause our actual results and the timing of certain events to differ materially from those expressed in the forward-looking statements. Consequently, the inclusion of the forward-looking statements should not be regarded as a representation by us of results that actually will be achieved. For a discussion of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008, as amended, and our other reports and documents filed with the Securities and Exchange Commission.

Jaco had been a 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 have included 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 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 (“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. This in-house integration center allows us to provide optimized and efficient design solutions, optical enhancements and touch screen integrations, as well as the manufacture of FPD subassemblies and complete displays, for commercial, industrial and military applications. As a result of the Sale Agreement with WPG Americas, the Company will focus all of its operations and resources on FPD.

We have disclosed in Note 1 to our consolidated financial statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 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 2008 Form 10-K. The accounting principles we utilized in preparing our consolidated financial statements conform to generally accepted accounting principles in the United States of America.

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

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” Effective for fiscal years beginning after December 15, 2008, these statements revise and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The adoption of these statements will change the Company’s accounting treatment for business combinations on a prospective basis.

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2009			2008			2009			2008

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		83.4			83.1			82.7			81.8
Gross profit		16.6			16.9			17.3			18.2
Selling, general and administrative expenses		23.5			16.7			17.6			15.6
Impairment of goodwill and intangible assets		-			-			2.7
Claim settlements		(13.9	)		-			(3.6	)		(0.9	)
Operating profit		7.0			.2			.6			3.5
Interest expense		1.3			3.4			2.0			3.4
Income (loss) from continuing operations before income taxes		5.7			(3.2	)		(1.4	)		0.1
Income tax provision		0.1			0.1			0.1			0.1
Income (loss) from continuing operations		5.6			(3.3	)		(1.5	)		-
Loss from discontinued operations		(4.1	)		(.7	)		(35.6	)		(1.5	)
Net income (loss)		1.5	%		(4.0	)%		(37.1	)%		(1.5	)%

Net sales for the three and nine months ended March 31, 2009 were $10.7 million and $46.8 million, respectively, compared to $14.9 million and $48.9 million for the three and nine months ended March 31, 2008. This represents decreases of 28.1% and 4.2%, respectively for the three and nine months. Our net sales for the three months were impacted by the continuing downturn in the economy. We are experiencing customers delaying existing orders and prospective customers delaying new projects. We did not realize any material decrease in net sales for the nine months of the current fiscal year compared to the nine months of last fiscal year. This was attributable to a large order we shipped for optical scan voting systems during the first quarter of this fiscal year of approximately $11 million. We believe we are well positioned in the flat panel product industrial market that we ice. Currently, demand for product has continued to be weak based on current economic conditions. We sell FPD’s as an individual part and we sell FPD product as a value-added offering through our in-house integration center. We provide design capabilities and a “full-solution” capability enabling us to offer our customers an expanded range of services to integrate FPD product into their applications. We market our FPD capabilities to a diversified range of industry segments such as electronic kiosks, the fast food industry, digital signage, the gaming industry, financial institutions, medical applications, military and electronic and optical voting machines.

Gross profit was $1.8 million and $8.1 million for the three and nine months ended March 31, 2009, or 16.6% and 17.3% respectively, compared to $2.5 million and $8.9 million for the three and nine months ended March 31, 2008 or 16.9% and 18.2%, respectively. The decrease in gross profit dollars for the three months is primarily attributable to the decrease in net sales. Our gross profit margin historically runs slightly higher, with net sales through our integration center where we are providing value-add services. Management considers gross profit margin to be a key performance indicator in managing our business. Demand and pricing for our products have been, and in the future may continue to be, affected by industry-wide economic trends and events beyond our control such as the current economic condition existing.

Selling, general and administrative (“SG&A”) expenses for the three and nine months ended March 31, 2009 were $2.5 million and $8.3 million compared to $2.5 million and $7.6 million for the three and nine months ended March 31, 2008. SG&A for the three months ended March 31, 2009 was impacted by overhead that was in place during the beginning of the quarter that was required to support the transition immediately after the transaction for the sale of the component business to WPG Americas. At the end of the quarter overhead required during this transition period has been eliminated. The Company expects SG&A to be reduced for future periods.

Operating profit for the three and nine months ended March 31, 2009 were $0.7 million and $0.3 million, respectively, compared to $0 and $1.7 million for the three and nine months ended March 31, 2008, respectively. The reduction in net sales for the three months ended March 31, 2009 was offset by the settlement recorded during the quarter. The impairment of a portion of our goodwill and intangible assets totaling $1.3 million impacted our results for the nine months ended March 31, 2009,which excludes the impairment of goodwill and intangible assets from discontinued operations of 14.1 million as listed below.

Interest expense for the three and nine months ended March 31, 2009 were $0.01 million and $0.9 million, respectively, compared to $0.5 million and $1.7 million for the three and nine months ended March 31, 2008. The decreases are primarily attributable to the lower amount outstanding under the line of credit as a result of the sale of certain assets to WPG Americas and lower borrowing rates as the indexes upon which the Company’s interest is based have decreased.

Discontinued operations represent the results of the Company’s component products business, such as capacitors, resistors, and semiconductors for the three and nine months ended March 31, 2009 and 2008 certain assets, of which, were sold to WPG Americas as of January 7, 2009. Due to the decline in net sales from the discontinued operations for the three and nine months ended March 31, 2009 and a non-cash charge for impairment to goodwill and intangible assets of $14.1 million in September 2008 as a result of the sale of the component portion of the business, the loss from discontinued operations increased to $ 0.4 million and $16.6 million, respectively, compared to $ 0.1 million and $ 0.7 million for the three and nine months ended March 31, 2009.

To provide liquidity in funding its operations, the Company borrows under credit facilities and other external sources of financing. On December 22, 2006, the Company entered into a three-year credit agreement with CIT Group/Business Credit, Inc. (“CIT”), which provided for a $55,000,000 revolving line of credit. This credit facility has a maturity date of December 22, 2009. On January 23, 2007, CIT assigned $25,000,000 of its interest in the credit facility to Bank of America, N.A. The credit facility as amended included a supplemental loan (“Supplemental Loan”) of $3,000,000 at an interest rate equal to the three month LIBOR rate plus 5%. The Supplemental Loan was payable in seven quarterly installments commencing October 1, 2007. The Company had currently made all the required installment payments for this Supplemental Loan. On January 7, 2009, as a result of the closing on the sale agreement with WPG Americas, as disclosed above, the credit facility was further amended whereby the maximum amount of the revolving line of credit was reduced to $25,000,000, the Supplemental Loan was paid in full and the interest rate on borrowings was increased. Borrowings under the credit facility are based principally on eligible accounts receivable and inventories of the Company, as defined in the agreement, and are collateralized by substantially all of the assets of the Company. At March 31, 2009, the outstanding balance on this revolving line of credit facility was $7,147,079 ($7,000,000 of which is borrowed under a 30-day LIBOR-based revolver). There was an additional $632,000 available at March 31, 2009. At March 31, 2009, the Company had an outstanding $500,000 stand-by letter of credit on behalf of a certain vendor. The interest rate on the outstanding borrowings under the credit facility at March 31, 2009 was: 4.50% on the borrowings under the 30-day LIBOR-based revolver and 6.25% (prime plus 3%) on the balance of the borrowings.

Under the credit agreement the Company is required to comply with one financial covenant which stipulates that in the event the Company’s additional borrowing availability under the revolving line of credit facility for any five consecutive days is less than $5,000,000, the Company is required to retroactively maintain a Fixed Charge Coverage Ratio (as defined therein) of 1.1 to 1.0 as of the end of the immediately preceding fiscal quarter. As of March 31, 2009, the Company was in compliance with the financial covenant contained in its credit agreement.

For the nine months ended March 31, 2009, our net cash provided by continuing operating activities was approximately $24.3 million as compared to $2.9 million for the nine months ended March 31, 2008. Net cash used in financing activities was approximately $24.3 million for the nine months ended March 31, 2009 as compared to $2.8 million for the nine months ended March 31, 2008. The increase in net cash provided by operating activities is the result of the sale of the Company’s net assets of its Discontinued Operations as described in Note 2 and the cash generated form the collection of the accounts receivable of the Company’s Discontinued Operations during the three months ended March 31, 2009. The entire proceeds for the sale of the net assets and the collection of the accounts receivable were used to repay the indebtedness under the Company’s credit facility, which directly relates to the increase in the net cash used in financing activities for the nine months ended March 31, 2009 as compared to the nine months ended March 31, 2008.

As previously disclosed, based upon the sale of the net assets of our components business, and our proposed business plan for the FPD business, including no anticipated material capital expenditures, we believe that cash flow from operations, including possible settlements from price fixing claims, and funds available under our credit facility will be sufficient to fund our capital needs for the next twelve months. However, our ability to maintain sufficient liquidity depends partially on our ability to achieve anticipated levels of revenue, while continuing to control cost, and remaining in compliance with the covenants contained in the credit agreement. In the past, when necessary, we have been able to obtain waivers and/or amendments from our lenders to satisfy any noncompliance with financial covenants contained in our credit agreement. While we cannot assure that any such waivers and/or amendments, if needed, will be available in the future, 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 a waiver and/or amendment 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. Furthermore, the Company will be required to extend or refinance its credit facility by December 22, 2009. If we are unable to do so or 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.

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 April 30, 2009, $7.6 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 $0.08 million based on the amount of outstanding borrowings at April 30, 2009. The impact of interest rate fluctuations on our other floating rate debt is not material.

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 March 31, 2009. 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 March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the Sale Agreement, the Company is still evaluating if it may have changes in its internal controls.

As a result of the acquisition of the net assets by WPG Americas of the Company’s passive and active electronic components business, the Company determined that the value of all of its goodwill and identifiable intangible assets related to this business had been impaired, the result of which was an impairment charge of approximately $14,106,000 as a non-cash charge to operating expenses during the nine months ended March 31, 2009.

Class	Shares Outstanding at May 13, 2009
Common Stock, $0.10 Par Value	6,294,332 (excluding 659,900 shares held as treasury stock)

	June 30, 2008
Current assets of discontinued operations:
Inventory	$	16,900,320
Non-current assets of discontinued operations:
Other Assets and intangible assets	$	322,829
Goodwill		13,863,296

	$	14,186,125

Current liabilities of discontinued operations:
Accounts payable and accrued expenses	$	9,498,397

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

Bank Debt	$	7,147,079	$	7,147,079
Operating Lease		4,023,971		545,222		2,581,194		897,555		-
Total		11,171,050		7,692,301		2,581,194		897,555