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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ANNUAL REPORT

ON FORM 10-K

Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

Nu Horizons Electronics Corp.

(Exact name of registrant as specified in its charter)

(631) 396-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

(Title of class)

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 1-K or any amendment to this Form 10K  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 1, 2001.

Aggregate Market Value of Non-Affiliate Stock at May 1, 2003—approximately $85,152,105

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I.

GENERAL:

Except for historical information contained herein, the matters set forth herein are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. Potential risks and uncertainties include such factors as the level of business and consumer spending for electronic products, the amount of sales of the Company’s products, the competitive environment within the electronics industry, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company’s expansion efforts, the economic conditions in the semiconductor industry and the financial strength of the Company’s customers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.

Nu Horizons Electronics Corp. (the “Company”) and its wholly owned subsidiaries, NIC Components Corp. (“NIC”), Titan Supply Chain Services Corp. (“Titan”), Titan Supply Chain Services PTE LTD (“TSC”), Nu Horizons International Corp.(“NUI”) NUHC Inc. (“NUC”), Nu Horizons Asia PTE LTD (“NUA”), Nu Horizons Eurotech Ltd. (“NUE”), and its majority owned subsidiaries NIC Components Asia PTE. LTD.(“NIA”), NIC Eurotech Ltd. (“NIE”) are engaged in the distribution of and supply chain services for high technology active and passive electronic components.

NUV Inc. (“NUV” or “Nu Visions”), is currently an inactive wholly owned subsidiary of the Company, and was a contract assembler of circuit boards and related electromechanical devices for various original equipment manufacturers, or OEMs, until the sale of its assets on August 23, 2001.

All references in this report to “the Company,” “we,” “our” and “us” are to Nu Horizons Electronics Corp. and its subsidiaries.

Active components distributed by the Company, principally to OEMs in the United States, include mainly commercial semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave, RF and fiber-optic components, transistors and diodes. Passive components distributed by NIC, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components including capacitors, resistors and related networks.

The active and passive components distributed by the Company are utilized by the electronics industry and other industries in the manufacture of sophisticated electronic products including: industrial instrumentation, computers and peripheral equipment, consumer electronics, telephone and telecommunications equipment, satellite communications equipment, cellular communications equipment, medical equipment, automotive electronics, and audio and video electronic equipment.

Manufacturers of electronic components augment their marketing programs through the use of independent distributors and supply chain service providers such as the Company, upon which the Company believes they rely to a considerable extent to market and deliver their products. The Company offers its customers the convenience of diverse inventories, rapid delivery, design and technical assistance, inventory management, forecasting and logistical services and the availability of product in smaller quantities than generally available directly from manufacturers. Generally, companies engaged in the distribution of active and passive electronic components, such as the Company, are required to maintain a relatively significant investment in inventories and accounts receivable. To meet these requirements, the Company, and other companies in the industry, typically depend on internally generated funds as well as external borrowings.

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Management’s policy is to manage, maintain and control the bulk of its inventories from its principal headquarters and stocking facilities in Melville, Long Island, New York, in San Jose, California and Singapore. As additional franchise line opportunities become available to the Company, the need for branch level inventories may be necessary and desirable in order to better serve the specific needs of local markets.

Semiconductor Products (Active Components):

The Company is a distributor of a broad range of semiconductor products to commercial and military OEM’s, principally in the United States. The Company is a franchised distributor of active components for approximately thirty product lines. Significant franchised product lines include Allegro, Elantec, Exar, Hitachi Semiconductor, Integrated Circuit Systems, Intersil Corporation, Marvel, Pericom, ST Microelectronics, Sun Microsystems, TDK Semiconductor, Toshiba, Vitesse Semiconductor and Xilinx among others.

The Company’s franchise agreements authorize it to sell all or part of the product line of a manufacturer on a non-exclusive basis. Under these agreements, each manufacturer will generally grant credits for any subsequent price reduction by such manufacturer and inventory return privileges whereby the Company can return to each such manufacturer for credit or exchange a percentage ranging from 5% to 20% of the inventory purchased from said manufacturer during a semi-annual period. The franchise agreements generally may be cancelled by either party upon written notice. The Company anticipates, in the future, entering into additional franchise agreements and increasing its inventory levels in accordance with business demands.

Passive Components and Relationship with Nippon:

NIC has been the exclusive outlet in North America for Nippon Industries Co. Ltd.’s (Japan) (“Nippon”) brand of passive components with a license for the use of the Nippon brand. The Company has a License Agreement with Nippon dated as of September 1, 2000 under which the Company has been granted an exclusive license to use the Nippon brand in the United States, Mexico, Central and South America and the Caribbean. The License Agreement has an initial term of ten years and automatically renews for successive one year periods unless the Company or Nippon terminates the License Agreement 90 days prior to the end of the initial or any renewal term.

Due to certain market situations, NIC, with Nippon’s assent, has also established several manufacturing associations with U.S. and Taiwan based manufacturers to supply NIC with a portion of its product requirements under the NIC brand. NIC intends to continue to give Nippon priority, however, in acquiring Nippon’s products whenever Nippon’s technology and pricing are commensurate market requirements.

Sales and Marketing:

Management’s strategy for long-term success has been to focus the Company’s sales and marketing efforts towards the following industry segments, both domestically and abroad: industrial, telecom/datacom, medical instrumentation, microwave and RF, fiber-optic, consumer electronics, security and protection devices, office equipment, computers and computer peripherals, factory automation and robotics. In order to help achieve these goals, the Company may enter into new franchise agreements for a broad base of commodity semiconductor products including those used in the key niche industries referred to above.

All sales are made through customers’ purchase orders. Semiconductors are sold primarily via telephone by the Company’s in-house staff of approximately 80 salespersons, and by a field sales force of approximately 100 salespersons. The Company maintains branch sales facilities located as follows:

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ITEM1.    BUSINESS (Continued):

Sales and Marketing (continued):

EAST COAST

Massachusetts—Boston

New York—Melville (Long Island) and Rochester

New Jersey—Mt. Laurel (Philadelphia) and Pine Brook

Ohio—Cleveland

Maryland—Columbia

North Carolina—Raleigh

Georgia—Atlanta

Alabama—Huntsville

Florida—Ft. Lauderdale, Orlando and Tampa

NIC’s passive components are marketed through the services of a national network of approximately 20 independent sales representative organizations, employing over 200 salespersons, as well as through NIC’s in-house sales and engineering personnel. The independent representative organizations do not represent competing product lines but sell other related products. Commissions to such organizations generally range from 2 to 3% of all sales in a representative’s exclusive territory.

NIC has developed a national network of approximately 75 regional distributor locations, which market passive components on a non-exclusive basis. Approximately 35 of the regional distributors have entered into agreements with NIC whereby they are required to purchase from NIC a prescribed initial inventory. These distributors are protected by NIC against price reductions and are granted certain inventory return and other privileges. Due to the efforts of NIC and its distributors, NIC’s passive components have been tested and “designed in” as a prime source of qualified product by over 7,000 OEMs in the United States.

No single customer accounted for more than 3% of the Company’s consolidated sales for the year ended February 28, 2003. The Company’s sales practice is to require payment within thirty days of delivery.

Source of Supply:

The Company inventories an extensive stock of active and passive components, however, if the Company’s customers order products for which the Company does not maintain inventory, the Company’s marketing strategy is to obtain such products from its franchise manufacturers, or, if a product is unobtainable, to identify and recommend satisfactory interchangeable alternative components. For this purpose, the Company devotes considerable efforts to familiarizing itself with component product movement throughout the industry, as well as to constant monitoring of its own inventories.

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Source of Supply (continued):

As of February 28, 2003, there were two manufacturers that represented more than 10% of the Company’s inventory on a consolidated basis. Those suppliers accounted for approximately $24,044,000 of total inventory. Electronic components distributed by the Company generally are presently readily available; however, from time to time the electronics industry has experienced a shortage or surplus of certain electronic products.

For the year ended February 28, 2003, the Company purchased inventory from two suppliers that was in excess of 10% of the Company’s total purchases. Purchases from these suppliers were approximately $57,915,000 and $22,289,000 for the fiscal year.

Competition and Regulation:

The Company competes with many companies that distribute semiconductor and passive electronic components and, to a lesser extent, companies that manufacture such products and sell them directly to OEMs and other distributors. Many of these companies have substantially greater assets and possess greater financial and personnel resources than those of the Company. In addition, certain of these companies possess independent franchise agreements to carry semiconductor product lines which the Company does not carry, but which it may desire to have. Competition is based primarily upon inventory availability, quality of service, knowledge of product and price. The Company believes that the distribution of passive electronic components under its own label is a competitive advantage.

The Company’s competitive ability to price its imported active and passive components could be adversely affected by increases in tariffs, duties, changes in the United States’ trade treaties with Japan, Taiwan or other foreign countries, transportation strikes and the adoption of Federal laws containing import restrictions. In addition, the cost of the Company’s imports could be subject to governmental controls and international currency fluctuations. Because imports are paid for with U.S. dollars, the decline in value of United States currency as against foreign currencies would cause increases in the dollar prices of the Company’s imports from Japan and other foreign countries. Although the Company has not experienced any material adverse effect to date in its ability to compete or maintain its profit margins as a result of any of the foregoing factors, no assurance can be given that such factors will not have a material adverse effect in the future.

Backlog:

The Company defines backlog as orders, believed to be firm, received from customers and scheduled for shipment, no later than 60 days for active components and no later than 90 days for passive components from the date of the order. As of May 1, 2003, the Company’s backlog was approximately $29,600,000 as compared to a backlog of approximately $34,900,000 at May 1, 2002.

Employees:

As of February 28, 2003, the Company employed approximately 483 persons: 12 in management, 331 in sales and sales support, 21 in product and purchasing, 26 in finance, accounting and human resources, 20 in MIS, 14 in operations and 59 in quality control, shipping, receiving and warehousing. The Company believes that its employee relations are satisfactory.

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Available Information:

The public may read and copy any materials filed by us with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, Washington D.C., 20549. the public may obtain information about the operation of the SEC’s public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.

In addition, we make available free of charge on our website at http://www.nuhorizons.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) under the Exchange Act as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

In December 1996, the Company leased an approximately 80,000 square foot facility in Melville, Long Island, New York to serve as its executive offices and main distribution center. The lease term is from December 17, 1996, to December 16, 2008 at an annual base rental of $601,290 and provides for a 4% annual escalation in each of the last ten years of the term.

On May 1, 1996, the Company leased approximately 25,000 square feet of warehouse and office space for its San Jose, California operation. This facility serves as the Company’s West Coast regional sales and distribution headquarters. The lease term is from May 1, 2001 to April 30, 2006 at an annual base rental of $540,000.

On August 1, 2000, the Company leased approximately 10,000 square feet of office space in Melville, Long Island, New York to serve as the executive offices of it’s NIC Components subsidiary. The lease term is from April 1, 2001 to December 31, 2008 at an annual base rental of $285,700 and provides for a 4% annual escalation in each subsequent year of the lease.

The Company also leases space for twenty nine (29) branch sales offices, which range in size from 1,000 square feet to 9,300 square feet, with lease terms that expire between July 2003 and June 2009. Annual base rentals range from $21,600 to $199,400 with aggregate base rentals approximating $1,530,000. The Company believes it can obtain extensions of the leases scheduled to expire in fiscal 2004 on substantially similar terms to those currently in effect.

No material legal proceeding is pending to which the Company is a party or to which any of its property is or may be subject.

No matters were submitted during the fourth quarter of the fiscal year ended February 28, 2003 to a vote of security holders through the solicitation of proxies or otherwise.

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PART II.

8

9

Introduction:

Nu Horizons Electronics Corp. and its wholly owned subsidiaries, NIC Components Corp. (“NIC”), NUHC Inc., (“NUC”), Nu Horizons Eurotech Limited (“NUE”), Nu Horizons Asia PTE LTD (“NUA”), Titan Supply Chain Services Corp. (“TITAN”) Titan Supply Chain Services PTE LTD (“TSC”), Nu Horizons International Electronics Corp. (“NUI”) and its majority owned subsidiaries NIC Components Asia PTE. LTD. (“NIA”), and NIC Eurotech Limited are engaged in the distribution of high technology active and passive electronic components to a wide variety of original equipment manufacturers (“OEMs”) of electronic products. Active components distributed by the Company include semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave, RF and fiber-optic components, transistors and diodes. Passive components distributed by NIC, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components, including capacitors, resistors and related networks.

As of August 23, 2001 the Company sold the assets of Nu Visions Manufacturing Inc. (“Nu Visions”), a wholly owned subsidiary of the Company, which was a contract assembler of circuit boards and related electromechanical devices for various OEM’s.

The financial information presented herein includes: (i) Balance sheets as of February 28, 2003, and February 28, 2002; (ii) Statements of income for the twelve month periods ended February 28, 2003, February 28, 2002 and February 28, 2001; (iii) Statements of cash flows for the twelve month periods ended February 28, 2003, February 28, 2002 and February 28, 2001; and (iv) Consolidated changes in shareholders’ equity for the twelve month periods ended February 28, 2003, February 28, 2002 and February 28, 2001.

Critical Accounting Policies and Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, income taxes and contingencies and litigation, on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements:

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If assumptions about future demand/or actual market conditions are less favorable than those projected by management, additional write-downs of inventories could be required.

Fiscal Year 2003 versus 2002

Results of Continuing Operations:

Net sales for the year ended February 28, 2003 aggregated $302,081,000 as compared to $281,913,000 for the year ended February 28, 2002, an increase of $20,168,000 or approximately 7.2%. Management attributes this increase in sales for the period to the core semiconductor and passive component distribution business, which has recently experienced a moderate increase in demand. Management believes that the current slowdown stabilized during the prior fiscal year and that market conditions have begun to marginally improve. Although the marketplace continues to afford poor visibility, management continues to believe that the first half of fiscal 2004 will continue to be flat or provide modest growth opportunities at best. We are hopeful that the second half of fiscal 2004 will bring a return of low double digit growth patterns as the technology sector moves toward a substantial recovery, however, no assurances can be given in this regard.

Gross profit margin as a percentage of net sales was 18.3% for the year ended February 28, 2003 as compared to 21.4% for the year ended February 28, 2002. This continuing decrease in gross margin percentage reflects decreasing prices due to increased competitive pressures resulting from the industry wide decline in demand coupled with an oversupply of product in the marketplace. The aforementioned reduction in margin percentage resulted in a $5,000,000 decrease in total gross margin dollars in fiscal 2003 in spite of the 7.2% or $20,200,000 increase in sales. Management believes that the margin pressure during the first quarter of fiscal 2004 could continue for the balance of the first half of fiscal 2004, with a return to relative margin stability in the second half of fiscal 2004, however, no assurances can be given in this regard.

Operating expenses decreased by $2,938,000 to $57,440,000 for the year ended February 28, 2003 from $60,378,000 for the year ended February 28, 2002, a decrease of approximately 4.9%. The dollar decrease in operating expenses was due to an approximately $3,850,000 decrease in personnel related costs—commissions, salaries, travel and fringe benefits, partially offset by an increase of approximately $912,000 in various other general and administrative expenses. Operating expenses as a percentage of sales decreased to 19.0% of sales as compared to 21.4% for the prior year.

Interest expense decreased by $1,419,000 from $1,517,000 for the year ended February 28, 2002 to $98,000 for the year ended February 28, 2003. This decrease was primarily due to bank borrowings being reduced to zero resulting from the decrease in the Company’s inventory and accounts receivable levels which had been needed to support sales activity in the fiscal 2001 and 2002 periods, net of the commitment fees required to maintain the Company’s revolving line of credit facility.

Net loss from continuing operations for the year ended February 28, 2003 was $2,512,000 or $.15 per share, as compared to a loss of $2,763,000 or $.17 per share for the year ended February 28, 2002. Management attributes the fiscal 2003 loss of $2,512,000 to a continued reduction of gross margin dollars exceeding the reduction in operating and interest expense. The $2,763,000 loss for fiscal 2002 is due to reduced sales volumes in excess of reductions in operating expenses, resulting in a loss of $1,638,000 and a one-time charge for the impairment of the value of goodwill, which had previously been amortized over a fifteen-year period, resulting in an additional $1,125,000 loss.

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Discontinued Operations:

On August 23, 2001, the Company completed the sale of the assets of its contract-manufacturing subsidiary, Nu Visions Manufacturing, Inc. The selling price of $31,563,000 was paid with $2,000,000 subordinated debt and $29,563,000 of cash proceeds.

Net income from the discontinued operation for the year ended February 28, 2002 was $799,000 or $.05 per share with no net income or loss in the current fiscal year. The net gain on the sale of the subsidiary resulted in an after tax profit of $4,184,000 or $.25 per share for the fiscal year February 28, 2002. This resulted in total net income from the discontinued operation for the year ended February 28, 2002 of $4,982,000 or $.30 per basic share and $.29 per diluted share. There were no equivalent items to report for the current fiscal year ended February 28, 2003.

Combined Net Income (Loss):

Net loss for the year ended February 28, 2003 was $2,512,000 or $.14 per share as compared to net income (which comes from both continuing and discontinued operations) of $2,220,000 or $.13 per share in the fiscal year ended February 28, 2002.

Fiscal Year 2002 versus 2001

Results of Continuing Operations:

Net sales for the year ended February 28, 2002 aggregated $281,913,000 as compared to $634,010,000 for the year ended February 28, 2001, a decrease of $352,097,000 or approximately 56%. Management attributes this decrease in sales for the period to the core semiconductor and passive component distribution business, which experienced substantially decreased demand. Toward the latter part of the fourth quarter of our prior fiscal year, we and the market place overall began to experience a significant decline in demand for electronic components. This reduced demand continued throughout fiscal 2002.

Gross profit margin as a percentage of net sales was 21.4% for the year ended February 28, 2002 as compared to 22.0% for the year ended February 28, 2001. It should also be noted that the gross profit margin for the fourth quarter of fiscal 2002 was 20.1%. This continuing decrease in gross margin reflected decreasing prices due to increased competitive pressures resulting from the industry wide decline in demand coupled with an oversupply of product in the marketplace.

Operating expenses decreased by $15,747,000 to $60,378,000 for the year ended February 28, 2002 from $76,125,000 for the year ended February 28, 2001, a decrease of approximately 21%. The dollar decrease in operating expenses was due to decreases in the following expense categories: approximately $11,290,000 or approximately 72% of the decrease was for personnel related costs—commissions, salaries, travel and fringe benefits. The remaining decrease of approximately $4,457,000 or approximately 28% of the total is a result of decreases in various other general and administrative expenses. Operating expenses as a percentage of sales, however, increased to 21.4% of sales as compared to 12.0% for the prior year. The sharp reduction in sales has resulted in higher operating expenses as a percentage of sales and a loss of the economies of scale the Company enjoyed in its prior fiscal year. Management decided to endure this higher rate of operating expenses in order to be prepared for what it believed would be an inevitable rebound for the industry.

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Interest expense decreased by $3,345,000 from $4,862,000 for the year ended February 28, 2001 to $1,517,000 for the year ended February 28, 2002. This decrease was primarily due to the lower average levels of bank debt during the year resulting from the decrease in the Company’s inventory and accounts receivable levels required to support reduced sales activity, repayment of indebtedness with the proceeds of the sale of the Nu Visions Manufacturing (NUV) subsidiary and substantially lower interest rates overall.

Net loss from continuing operations for the year ended February 28, 2002 was $2,763,000 or $.17 share, as compared to income of $33,561,000 or $2.07 per basic share and $1.89 per diluted share, for the year ended February 28, 2001. Management attributed $1,638,000 of the loss for fiscal 2002 to reduced sales volumes, resulting in a greater decrease in gross profit margin dollars than in operating expenses. The remaining loss of $1,125,000, was attributable to a one-time charge for the impairment of the value of goodwill, which had previously been amortized over a fifteen-year period.

Discontinued Operations:

On August 23, 2001, the Company completed the sale of the assets of its contract-manufacturing subsidiary, NUV. The selling price was paid with a $2,000,000 Subordinated Note and $29,563,000 in cash.

Net income from the discontinued operation for the year ended February 28, 2002 was $799,000 or $.05 per basic and diluted share as compared to $1,791,000 or $.11 per basic share and $.10 per diluted share the year before. The net gain on the sale of the subsidiary resulted in an after tax profit of $4,184,000 or $.25 per basic share and $.24 per diluted share for the current year. This resulted in total net income from the discontinued operation for the year ended February 28, 2002 of $4,982,000 or $.30 per basic share and $.29 per diluted share as compared to $1,791,000 or $.11 per basic share and $.10 per diluted in the prior year.

Combined Net Income:

Net income from both continuing and discontinued operations combined for the year ended February 28, 2002 was $2,220,000 or $.13 per diluted share as compared to $35,352,000 or $1.99 per diluted share the year before.

Liquidity and Capital Resources:

Fiscal Year 2003 versus 2002

The Company ended its 2003 fiscal year with working capital and cash aggregating approximately $116,792,000 and $31,346,000 respectively, as compared to approximately $120,790,000 and $2,690,000 respectively, at February 28, 2002. The Company’s current ratio at February 28, 2003, was 6.2:1 as compared to 6.8:1 at February 28, 2002. The Company believes that its financial position at February 28, 2003, will enable it to take advantage of any new opportunities that may arise.

On October 18, 2000, the Company entered into a new unsecured revolving line of credit with six banks, as amended, which currently provides for maximum borrowings of $80,000,000 at either (i) the lead bank’s prime rate or (ii) LIBOR plus 75 to 265 basis points depending on the ratio of the Company’s liabilities to its tangible net worth, at the option of the Company through October 18, 2004. Borrowings under this line of credit were $2,500,000 at February 28, 2002. There were no borrowings at February 28, 2003. As of the end of both fiscal years, the Company was in compliance with all the required covenants.

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The Company has contacted its banks to discuss entering into a new loan agreement to address the Company’s need to revise certain financial covenants contained in the current loan agreement. The Company is currently in full compliance with all of the covenants contained in its current agreement. However, the Company believes that there is a risk that, due to the overall decline in sales in the electronic components market, coupled with its decision to continue to invest both domestically and in the Asian market, commencing in June 2003, the Company may violate the covenant related to minimum tangible net worth. Several banks have advised the Company that they are willing to enter into a new loan agreement that would enable the Company to remain in compliance with all covenants, as revised, for the foreseeable future. There can be no assurances that the Company and its lenders will actually enter into such an agreement.

The Company anticipates that its resources provided by its cash flow from operations, without entering into the aforementioned agreement, will be sufficient to meet its financing requirements for at least the next twelve-month period. The company is not currently a borrower and does not believe it will need to borrow during the next twelve month period.

Off-Balance Sheet Arrangements:

As of February 28, 2003 the Company had no off-balance sheet arrangements to report.

Contractual Obligations:

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Inflationary Impact:

Since the inception of operations, inflation has not significantly affected the operating results of the Company. However, inflation and changing interest rates have had a significant effect on the economy in general and therefore could affect the operating results of the Company in the future.

Forward Looking Statement Disclaimer:

Except for historical information contained herein, the matters set forth above may be forward-looking statements such forward-looking statements are based on the current beliefs of the Company’s management. Certain risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. Potential risks and uncertainties include such factors as the level of business and consumer spending for electronic products, the amounts of sales of the Company’s products, the competitive environment within the electronic industry, the ability of the Company to continue to expand its operations and the level of costs incurred in connection therewith, economic conditions in the semiconductor industry and the financial strength of the Company’s customers and suppliers. The Company does not undertake any obligation to update its forward looking statements. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.

The Company’s credit facility bears interest based on interest rates tied to the prime or LIBOR rate, either of which may fluctuate over time based on economic conditions. As a result, the Company is subject to market risk for changes in interest rates and could be subjected to increased or decreased interest payments if market rates fluctuate and the Company has borrowings outstanding under its line of credit.

The Company has several foreign subsidiaries and acquires certain inventory from foreign suppliers and as such, faces risk due to adverse movements in foreign currency exchange rates, primarily the Singapore dollar and the British pound. These risks could have a material impact on the Company’s financial results in future periods.

The electronic component industry is cyclical which can cause significant fluctuations in sales, gross margins and profits, from year to year. For example, during calendar 2001, the industry experienced a severe decline in the demand for electronic components, which caused sales to decrease by 56%. The prior year reflected a 74% increase in net sales. It is difficult to predict the timing of the changing cycles in the electronic component industry.

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Independent Auditors’ Report

To The Board of Directors and Shareholders

Nu Horizons Electronics Corp.

Melville, New York

We have audited the accompanying consolidated balance sheets of Nu Horizons Electronics Corp. and subsidiaries as of February 28, 2003 and 2002, and the consolidated statements of operations, changes in shareholders’ equity and cash flows for the three years in the period ended February 28, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements, referred to above, present fairly in all material respects, the financial position of Nu Horizons Electronics Corp. and subsidiaries at February 28, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, the financial statement schedule listed in the index at Item 15(a) presents fairly, in all material respects, the information required to be set forth therein.

New York, New York

May 5, 2003

F-1

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

F-2

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements

F-3

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

See notes to consolidated financial statements

F-4

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS