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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

For the fiscal year ended February 29, 2004

Commission file number 1-8798

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 04, 2004.

Aggregate Market Value of Non-Affiliate Stock at May 4, 2004 – approximately $168,934,855

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

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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 the factors described below the under “Management Discussion and Analysis –Risk Factors” in this Form 10-K .

Nu Horizons Electronics Corp. a Delaware corporation incorporated in 1987, (the “Company”) and its wholly owned subsidiaries, NIC Components Corp. (“NIC”), Nu Horizons International Corp. (“International”), NUHC Inc. (“NUC”), Nu Horizons Asia PTE LTD (“NUA”), Nu Horizons Europe Limited (“NUE”), Titan Supply Chain Services Corp. (“Titan”), Titan Supply Chain Services PTE LTD (“TSC”), Titan Supply Chain Services Limited (“TSE”), NUV Inc. (“NUV”) and its majority owned subsidiaries, NIC Components Europe Limited (“NIE”) and NIC Components Asia PTE. LTD (“NIA”) 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.

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, in Singapore and in Buckingham, England. 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.

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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, Epson, Exar, Hynix, Integrated Circuit Systems, Intersil Corporation, Linear Technologies, Marvel, Pericom, Renesas, Sharp Microelectronics, 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.

Financial information regarding the Company’s reportable segments and foreign and domestic operations can be found in note 13 of the Notes to the Company’s financial statements.

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 with 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.

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Sales and Marketing (continued):

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:

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 3 global distributors and approximately 25 regional distributor locations, which market passive components on a non-exclusive basis. These 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 29, 2004. 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 29, 2004, there were three manufacturers that represented more than 10% of the Company’s inventory on a consolidated basis. Those suppliers accounted for approximately $29,466,000 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 29, 2004, 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 $37,749,000 and $28,195,000 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. The Company also competes for customers with some of its own suppliers. 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, 2004, the Company’s backlog was approximately $47,200,000 as compared to a backlog of approximately $29,600,000 at May 1, 2003.

Employees:

As of February 29, 2004, the Company employed approximately 527 persons: 44 in management, 329 in sales and sales support, 30 in product and purchasing, 30 in finance, accounting and human resources, 23 in MIS, 20 in operations and 51 in quality control, shipping, receiving and warehousing. The Company believes that its employee relations are satisfactory.

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.

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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 current 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 14,000 square feet, with lease terms that expire between July 2004 and June 2009. Annual base rentals range from $21,600 to $199,400 with aggregate base rentals approximating $3,129,000. 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.

During the fourth quarter of the fiscal year ended February 29, 2004 no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise.

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PART II.

Equity Compensation Plan Information

The following chart summarizes the options and warrants outstanding and available to be issued at February 29, 2004:

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Overview:

Nu Horizons Electronics Corp. (the “Company”), and its wholly-owned subsidiaries, NIC Components Corp. (“NIC”), Nu Horizons International Corp. (“International”), NUHC Inc (“NUC”), Nu Horizons Asia PTE LTD (“NUA”), Nu Horizons Europe Limited (“NUE”), Titan Supply Chain Services Corp. (“Titan”), Titan Supply Chain Services PTE LTD (“TSC”), Titan Supply Chain Services Limited (“TSE”), NUV Inc. (“NUV”) and its majority owned subsidiaries, NIC Components Europe Limited (“NIE”) and NIC Components Asia PTE. LTD (“NIA”) 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 electronics and the electronics distribution industries suffered one of the most severe downturns in the industries’ history beginning in 2001 and continuing through most of 2003. This downturn was marked by an oversupply of components, excess manufacturing capacity and a significant decline in the demand for electronic components. The second half of calendar 2003 appears to have been the break out period the industry has long been expecting. This was evidenced by industry wide double digit sequential and year over year increases in sales dollar volume, albeit accompanied by continued downward margin pressures. Management believes that this improvement in the components market worldwide should continue. The Company’s strategy of maintaining its infrastructure and investing during the electronic industry’s severe downturn is now beginning to see positive results. Sales in Asia increased almost 200% from fiscal 2003 to 2004 and the Company’s book to bill ratio, company wide, remains positive. Year over year and quarter over quarter the Company has increased market share with all of its major suppliers for both the semiconductor and passive component businesses.

For the fiscal year ended February 29, 2004, net sales from continuing operations increased to $345.9 million from $302.1 million in the comparable period last year. Net loss for fiscal 2004 was $848,000 or $0.05 per share, compared with a net loss of $2.5 million, or $.15 per share in the year-earlier period. The Company has now reported four sequential quarters of sales growth, with the fiscal 2004 fourth quarter experiencing a 12% sequential increase in sales over the fiscal 2004 year’s third quarter. The Company believes that the industry is in full recovery mode and that Nu Horizons should continue to participate in the benefits of this increased demand.

For an understanding of the significant factors that influenced the company’s performance during the past three years, the following discussion should be read in conjunction with the consolidated financial statements and other information appearing elsewhere in this annual report on Form 10-K.

The following table sets forth for the years ended February 2004, 2003 and 2002, certain items in the Company’s consolidated statements of operations expressed as a percentage of net sales.

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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:

Fiscal Year 2004 versus 2003

Results of Continuing Operations:

Net sales for the year ended February 29, 2004 aggregated $345,864,000 as compared to $302,081,000 for the year ended February 28, 2003, an increase of approximately $44,000,000 or 14.5%. This increase was comprised of a decline in sales of approximately $3,000,000 in the first six months of the 2004 fiscal year as compared to the first six months of the prior fiscal year. This was followed by an increase in sales of approximately $47,000,000 in the second half of fiscal 2004 as compared to the last six months of fiscal 2003. Given the historically cyclical nature of the Company’s industry, management attributes this increase in sales performance in the latter part of fiscal 2004 as the break out period the electronic component industry has long been expecting. This was evidenced by the industry wide double digit sequential increases in sales dollar volume in the latter six months of calendar 2003. Management believes this improvement in the components market worldwide should continue through fiscal 2005, although no assurances can be given in this regard.

Gross profit margin as a percentage of net sales was 17.6% for the year ended February 29, 2004 as compared to 18.3% for the year ended February 28, 2003. Management believes that this continuing gross margin pressure results from a change in the Company’s product mix which was impacted by larger orders in the computer and liquid crystal categories domestically, coupled with increased sales in the Asian market which requires lower selling prices due to volume demand from Asian contract manufacturer. Management believes that margin pressures during the first quarter of fiscal 2005 have stabilized and should not continue to decline, however, no assurances can be given in this regard.

Operating expenses increased to $62,436,000 for the year ended February 29, 2004 from $57,440,000 for the year ended February 28, 2003, an increase of approximately $4,996,000 or 8.7%. The dollar increase in operating expenses was entirely due to personnel related costs – commissions, salaries, travel and fringe benefits resulting from increased staffing levels in connection with the expansion of the Company’s Asian and U.S. operational capability during the current fiscal year. Management made a strategic decision to invest in expanding

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Fiscal Year 2004 versus 2003 (Continued):

Results of Continuing Operations (Continued):

the Company’s personnel during the recent market downturn, which resulted in increased operating expenses. Management believes that this investment will enable the Company to take advantage of the current and future rebound the industry is currently experiencing, although no assurances can be given in this regard.

Interest expense increased to $140,000 for the year ended February 29, 2004 as compared to $98,000 for the year ended February 28, 2003. This increase was primarily due to a return to bank borrowings in the fourth quarter of fiscal 2004 due to the increase in the Company’s inventory and accounts receivable levels which were needed to support increased sales activity in the latter half of the fiscal 2004 period.

Net loss from continuing operations for the year ended February 29, 2004 was $848,000 or $.05 per share, as compared to a loss of $2,512,000 or $.15 per share for the year ended February 28, 2003. Management attributes the fiscal 2004 loss of $848,000 to the increase in operating and interest expense exceeding the moderate increase in gross margin dollars.

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 had recently experienced a moderate increase in demand.

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 $20,168,000 increase in sales.

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 volume 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. 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.

Combined Net Income (Loss):

Net loss for the year ended February 28, 2003 was $2,512,000 or $.15 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.

Liquidity and Capital Resources:

Fiscal Year 2004 versus 2003

The Company ended its 2004 fiscal year with working capital and cash aggregating approximately $123,494,000 and $12,470,000 respectively, as compared to approximately $116,792,000 and $31,346,000 respectively, at February 28, 2003. The Company’s current ratio at February 29, 2004, was 5.6:1 as compared to 6.2:1 at February 28, 2003.

On September 4, 2003, the Company entered into a secured revolving line of credit with three banks, which currently provides for maximum borrowings of $41,500,000 at either (i) the lead bank’s prime rate or (ii) LIBOR plus 100 to 275 basis points depending on the ratio of the Company’s liabilities to its tangible net worth, at the option of the Company through September 4, 2007. Borrowings under this line of credit were $5,300,000 at February 29, 2004. 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.

The Company has contacted its banks to discuss entering into a new loan agreement to address the Company’s need to increase its available revolving credit line to approximately $75,000,000 and 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, due to increased borrowing requirements resulting from projected substantial overall increases in sales in the electronic components market, the Company will need additional availability under its credit line. In addition, the Company believes that commencing November 2004, it is likely to have insufficient twelve month trailing earnings to insure compliance with the covenant related to earnings before interest and depreciation. 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, as well as provide a sufficient increase in the available borrowing limits 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 new loan agreement, will be insufficient to meet its financing requirements for the next twelve-month period.

Off-Balance Sheet Arrangements:

As of February 29, 2004, the Company had no off-balance sheet arrangements to report.

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Contractual Obligations:

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 could cause actual results to differ from those in the forward-looking statements. Potential risks and uncertainties include such factors as those described under Risk Factors below. The Company does not undertake any obligation to update its forward looking statements.

Risk Factors:

The Company may not have adequate liquidity or capital resources to finance its operations for the next twelve months.

The Company expects that it will require cash beyond the amount currently available under its existing credit agreement and its cash flow from operations in order to enable it to purchase inventory for the projected substantial overall sales increase in the electronics components market. The Company is engaged in discussions with its banks to discuss the entry into a new loan agreement with a revolving credit line of approximately $75 million; however, there is no assurance that the Company and its lenders will enter into a revised loan agreement and, if the Company fails to do so, it may not have sufficient cash flow from operations to meet its financing requirements for the next twelve months.

A large portion of the Company’s revenues come from sales of semiconductors, which is a highly cyclical industry, and an industry down-cycle could significantly affect the Company’s operating results.

The semiconductor industry historically has experienced periodic fluctuations in product supply and demand, often associated with changes in technology and manufacturing capacity, and is generally considered to be highly cyclical. According to the Semiconductor Industry Association, the semiconductor industry experienced its worst annual downturn in history with revenue from worldwide semiconductor sales estimated to have fallen by approximately 50% from calendar 2000 to 2001. The Company’s revenues closely follow the strength or weakness of the semiconductor market. The Company’s total sales of semiconductors in fiscal years 2004, 2003, 2002 and 2001 were $346,000,000, $302,000,000 $282,000,000 and $634,000,000 respectively. Although the Company’s results have recently shown signs of an industry upturn, a technology industry downcycle, particularly in the semiconductor sector, could negatively affect the Company’s operating results in the future.

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The Company’s revenues and profitability have declined significantly from historical highs and, although revenues have started to increase in recent quarters, the Company may be unable to achieve consistent profitability at levels experienced in the past.

The Company’s operations have been significantly and negatively affected by the recent downturn in the technology industry and the general economy. From a high of approximately $191 million in sales in the fiscal quarter ended November 2000, the Company’s sales stabilized in the $70 to $80 million range per quarter for eight quarters. In the two most recent quarters, the Company’s revenues have begun to show signs of growth and an industry up-cycle, with $102,000,000 of revenues in the quarter ended February 29, 2004. Despite this recent growth, the Company has not yet been able to achieve consistent profitability at a level deemed acceptable to management. As a result, the Company has continued to implement substantial cost-cutting measures designed to align its expenses to provide profitability at current revenue levels. The success of these cost-cutting measures, as well as the timing of any economic recovery, will affect the Company’s ability to achieve consistent profitability at reasonable levels. Although the Company does not anticipate any further restructuring charges in the near term, if the Company is not able to maintain an acceptable level of profitability, the Company may need to consider expense reductions.

If the Company were unable to maintain its relationships with key suppliers, it could adversely affect the Company’s sales.

In fiscal 2004, sales of products and services from three suppliers exceeded 10% of the Company’s inventory on a consolidated basis. As a result, to the extent that those suppliers are not willing to do business with the Company in the future on terms acceptable to the Company, the loss of these suppliers could materially adversely affect the Company’s business, results of operations, financial condition or liquidity. If any of these industry leading suppliers was unwilling to do business with the Company, the Company’s relationships with its customers could be materially adversely affected because the Company’s customers depend on the Company’s distribution of electronic components and computer products from the industry’s leading suppliers.

Declines in the value of the Company’s inventory could materially adversely affect the Company’s business, results of operations, financial condition or liquidity.

The electronic components and computer products industry is subject to rapid technological change, new and enhanced products and evolving industry standards, which can contribute to decline in value or obsolescence of inventory. During an economic downturn it is possible that prices will decline due to an oversupply of product and, therefore, there may be greater risk of declines in inventory value. Although it is the policy of many of the Company’s suppliers to offer distributors like the Company certain protections from the loss in value of inventory (such as price protection, limited rights of return and rebates), the Company cannot assure you that such return policies and rebates will fully compensate it for the loss in value, or that the vendors will choose to, or be able to, honor such agreements. The Company cannot assure you that unforeseen new product developments or declines in the value of its inventory will not materially adversely affect its business, results of operations, financial condition or liquidity, or that the Company will successfully manage its existing and future inventories.

Substantial defaults by the Company’s customers on the Company’s accounts receivable could have a significant negative impact on the Company’s business, results of operations, financial condition or liquidity.

A significant portion of the Company’s working capital consists of accounts receivable from customers. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for products and services, or were to become unwilling or unable to make payments in a timely manner, the Company’s business, results of operations, financial condition or liquidity could be adversely affected. If the economic and industry downturn were to continue, it could have an adverse affect on the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management’s expectations.

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The electronics component and computer industries are highly competitive and if the Company cannot effectively compete, its revenues may decline.

The market for the Company’s products and services is very competitive and subject to rapid technological advances. Not only does the Company compete with other distributors, it also competes for customers with some of its own suppliers. The Company’s failure to maintain and enhance its competitive position could adversely affect its business and prospects.

The sizes of the Company’s competitors vary across market sectors, as do the resources the Company has allocated to the sectors in which it does business. Therefore, some of the competitors may have greater financial, personnel, capacity and other resources than the Company has in one or more of its market sectors. As a result, the Company’s competitors may be in a stronger position to respond quickly to potential acquisitions and other market opportunities, new or emerging technologies and changes in customer requirements.

The Company’s non-U.S. locations represent a significant and growing portion of its revenue, and consequently, the Company is increasingly exposed to risks associated with operating internationally.

In fiscal 2004, approximately 18.5 % of the Company’s sales came from its operations outside the United States. During fiscal 2003 and 2002 approximately 8% and 11.8% of sales, respectively, were from locations outside the United States. Most notable in this growth of non-U.S. sales is the increasing volume of sales activity in the Asia region, which accounted for approximately 17.1% of consolidated sales in fiscal 2004. As a result of the Company’s foreign sales and locations, its operations are subject to a variety of risks that are specific to international operations, including the following:

Manufacturing of electronic component and computer products is increasingly shifting to lower-cost production facilities in Asia, and most notably the People’s Republic of China. The Company’s business and prospects could be materially adversely affected if this shift continues and the Company is unable to develop distribution relationships with these or other manufacturers on acceptable terms. In particular, if the Company is unable to develop relationships with manufacturers that provide profit margins comparable to the margins maintained under existing relationships, the Company’s operating results may be negatively affected. In addition, the Company has operations in several locations in emerging or developing economies that have a potential for higher risk. The risks associated with these economies include currency volatility and other economic or political risks. While the Company has and will continue to adopt measures to reduce the impact of losses resulting from volatile currencies and other risks of doing business abroad, the Company cannot ensure that such measures will be adequate.

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 29, 2004 and February 28, 2003, and the consolidated statements of operations, changes in shareholders’ equity and cash flows for the three years in the period ended February 29, 2004. 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 29, 2004 and February 28, 2003, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 2004 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.

/s/ LAZAR LEVINE & FELIX LLP

     LAZAR LEVINE & FELIX LLP

New York, New York

April 19, 2004

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

See notes to consolidated financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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