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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT

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

For Quarter Ended November 30, 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)

(Former name, former address and former fiscal year, if changed since last report.)

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 checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

Indicated the number of shares outstanding of each of the issuer’s classes of common stock, as of November 30, 2004.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

INDEX

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PART 1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

See notes to interim consolidated condensed financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

See notes to interim consolidated condensed financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

See notes to interim consolidated condensed financial statements.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

In the opinion of management, the accompanying unaudited interim consolidated condensed financial statements of Nu Horizons Electronics Corp. (the “Company”), its wholly owned subsidiaries NIC Components Corp., NUHC Inc., Nu Horizons International Corp., Nu Horizons Asia PTE LTD, Nu Horizons Electronics Hong Kong Limited, Nu Horizons Europe Limited, Titan Supply Chain Services Corp., Titan Supply Chain Services PTE LTD, Titan Supply Chain Services Limited and its majority owned subsidiaries, NIC Components Asia PTE LTD and NIC Components Europe Limited, contain all adjustments necessary to present fairly the Company’s financial position as of November 30, 2004 and February 29, 2004 and the results of its operations for the nine and three month periods ended November 30, 2004 and 2003, and its cash flows for the nine month periods ended November 30, 2004 and 2003.

The accounting policies followed by the Company are set forth in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended February 29, 2004, which is incorporated herein by reference. Specific reference is made to this report for a description of the Company’s securities and the notes to consolidated financial statements included therein. The accompanying unaudited interim financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the United States of America.

The results of operations for the nine-month period ended November 30, 2004 are not necessarily indicative of the results to be expected for the full year.

Property, plant and equipment consists of the following:

On August 23, 2001, the Company completed the sale of the assets of its contract-manufacturing subsidiary, Nu Visions Manufacturing, Inc., (“Nu Visions”). The selling price of $31,563,000 consisted of $2,000,000 in a Junior Subordinated Note and $29,563,000 in cash.

The $2,000,000 Junior Subordinated Note, dated August 23, 2001 and issued by the buyer, has a maturity date of May 14, 2007 and is subordinate in right of payment to all existing and future indebtedness of the issuer. The note bears interest from the issue date, on the principal amount, to, and including the maturity date, at a rate of 8% per annum. Interest shall be payable on the maturity date and shall compound quarterly as of each anniversary of the issue date. Prepayment of the note and interest accrued is permitted if and when certain conditions in the subordination agreement have been met.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

On September 30, 2004, the Company entered into a secured revolving line of credit, as amended, with eight banks which provides for maximum borrowings of $100,000,000 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 29, 2008. Direct borrowings under the line of credit were $40,200,000 at November 30, 2004 and $5,300,000 at February 29, 2004. As of the end of the reporting period, the Company had met all of the required covenants.

Earnings per share has been computed in accordance with the provisions of SFAS No. 128. The following table sets forth the components of basic and diluted earnings per share:

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

The Company accounts for its stock-based compensation using the intrinsic value method provided for under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB No. 25 and related interpretations, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. SFAS No. 123, “Accounting for Stock Based Compensation” (as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment to FASB Statement No. 123”), establishes a fair-value based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires the disclosure of the pro forma effects on net income (loss) per share as if the fair value accounting prescribed by SFAS No. 123 had been adopted. Compensation expense related to stock options granted to non-employees is accounted for under SFAS 148, whereby compensation expense is recognized over the vesting period based on the fair value of the options on the date of grant.

No stock-based employee compensation cost is reflected in net income (loss), as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net income (loss) per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based compensation.

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the nine months ended November 30, 2004 and November 30, 2003, respectively: expected volatility of 39.2% and 40.0%, respectively; risk free interest rate of 2.5% and 4.0%, respectively; and expected lives of 2 to 7 years.

The effects of applying SFAS 123 in the above pro forma disclosures are not indicative of future amounts, as they are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts.

In December 2004, the FASB issued a revision to SFAS 123 (revised 2004) “Share-Based Compensation”. This revision requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. The statement eliminates the alternative method of accounting for employer share-based payments previously available under APB 25. This statement is effective beginning in our second quarter of fiscal 2006.

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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

Management believes that the Company is operating in a single business segment, distribution of electronic components, in accordance with the rules of SFAS No. 131 (“Disclosure About Segments of an Enterprise and Related Information”).

Although the Company’s business is primarily conducted in the United States, operations are also carried out overseas through its foreign subsidiaries in different geographic areas.

Revenues, by geographic area, for the first nine months of each of our last two fiscal years are as follows:

Total assets, by geographic area, for the third quarter ended in each of our last two fiscal years are as follows:

Long lived assets (net), by geographic area, for the third quarter ended in each of our last two fiscal years are as follows:

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Introduction:

Nu Horizons Electronics Corp. (the “Company”) and its wholly-owned subsidiaries, NIC Components Corp. (“NIC”), NUHC Inc. (“NUC”), Nu Horizons International Corp. (“International”), Nu Horizons Asia PTE LTD (“NUA”), Nu Horizons Electronics Hong Kong Limited (“NHK”), Nu Horizons Europe Limited (“NUE”), Titan Supply Chain Services Corp. (“TLC”), Titan Supply Chain Services LTD PTE (“TSC”) and Titan Supply Chain Services Limited and its majority owned subsidiaries NIC Components Asia PTE LTD (“NIA”) and NIC Components Europe Limited (“NIE”), 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 fiberoptic components, transistors and diodes. Passive components distributed by NIC, NIA and NIE, principally to OEMs and other distributors nationally, consists of a high technology line of chip and leaded components including capacitors, resistors and related networks.

The financial information presented herein includes: (i) Consolidated Condensed Balance Sheets as of November 30, 2004 and February 29, 2004; (ii) Consolidated Condensed Statements of Operations for the nine and three month periods ended November 30, 2004 and 2003 and (iii) Consolidated Condensed Statements of Cash Flows for the nine month periods ended November 30, 2004 and 2003.

Overview:

The electronics manufacturing and the electronics distribution industries suffered one of the most severe downturns in the industries’ history beginning in calendar 2001 and continuing through most of calendar 2003. This downturn was marked by an oversupply of components, excess manufacturing capacity and a significant decline in the demand for electronic components. However, during the second half of calendar 2003 there was 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 through calendar 2005, although at a more modest rate. The Company’s strategy of maintaining its infrastructure and investing during the electronic industry’s severe downturn has yielded positive results. Sales in Asia increased almost 100% from fiscal 2004 to 2005 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 quarter ended November 30, 2004, net sales increased to $116,219,000 from $91,072,000 for the prior year quarter with net income of $584,000 or $.03 per basic and diluted share as compared to net income of $197,000 or $.01 per basic and diluted share in last year’s quarter. For the nine months ended November 30, 2004, net sales increased to $353,627,000 from $243,840,000 for the prior year period with net income of $2,957,000 or $.18 per basic share and $.17 per diluted share as compared to a net loss of $1,257,000 or $.08 per basic and diluted share in the prior year period.

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 quarterly report on Form 10-Q.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Overview (continued):

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.

The following table sets forth for the nine months and quarters ended November 30, 2004 and 2003, certain items in the Company’s consolidated statements of operations expressed as a percentage of net sales.

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, income taxes, litigation and other contingencies, 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

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:

Results of Operations:

Sales for the nine-month period ended November 30, 2004 were $353,627,000 as compared to $243,840,000 for the comparable period of the prior year, an increase of $109,787,000 or 45%. Sales for the three-month period ended November 30, 2004 were $116,219,000 as compared to $91,072,000 for the comparable period of the prior year, an increase of $25,147,000 or 27.6%. The substantial year over year sales gains, for both periods being reported, can be attributed to the general double digit recovery experienced by the semiconductor industry in general over the past twelve months. Management attributes the relatively flat sales performance for the sequential second and third quarters of fiscal 2005 as compared to the first quarter to a seasonal pause. Management believes that the industry growth rate in the near term will be in single digits. The marketplace continues to afford poor near term visibility, which makes it difficult for management to estimate the Company’s overall sales volume and earnings for the balance of this fiscal year and the early part of the next fiscal year.

The gross profit margin for the nine months and quarter ended November 30, 2004 was 16.6% and 16.7%, respectively, as compared to 18.1% for the nine months ended November 30, 2003 and 17.3% for the three month period of the prior year. Management believes that the gross margin pressure experienced in the latter part of fiscal 2004 and the first three quarters of fiscal 2005 resulted from a change in the Company’s product mix and increased order size, coupled with increased sales in the Asian market which requires lower selling prices due to volume demand from large Asian contract manufacturers. Margin pressures appear to have stabilized during the first half of fiscal 2005 and management believes they will not continue to decline, however, no assurances can be given in this regard.

Operating expenses increased to $52,122,000 for the nine month period ended November 30, 2004 from $46,316,000 for the nine months ended November 30, 2003, an increase of $5,806,000 or 12.5%. Operating expenses increased from $15,560,000 for the three month period ended November 30, 2003 to $17,687,000 for the three months ended November 30, 2004, an increase of $2,127,000 or 13.7%. The dollar increase in operating expenses was due to increases in the following expense categories: approximately $3,559,000 or 61.3% of the increase for the nine-month period and $1,118,000 or 52.6% of the increase for the three month period, were for personnel related costs resulting from the increased staffing levels in connection with the expansion of the Company’s Asian and North American operations during the first nine months of this fiscal year. The remaining increases for the nine and three month periods, respectively, were a result of net increases in rent and utilities $392,000 or 6.8% and $132,000 or 6.2%, insurances $321,000 or 5.5% and $105,000 or 4.9%, professional fees $502,000 or 8.6% and $317,000 or 14.9% and various other

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Results of Operations (continued):

general and administrative expenses aggregating $1,032,000 or 17.8% and $455,000 or 21.4%. Management has decided to endure this higher rate of operating expenses in order to capitalize on the continuing industry rebound, although no assurances can be given in this regard.

Interest expense increased from $112,000 for the nine months ended November 30, 2003 to $1,355,000 for the nine months ended November 30, 2004 and from $25,000 for the three month period ended November 30, 2003 to $570,000 for the three months ended November 30, 2004. This increase in interest expense for the current periods resulted from bank borrowings incurred to support increased levels of accounts receivable and inventory required to support the Company’s increased sales volume. There were no bank borrowings in the prior year period ended November 30, 2003.

Net income for the nine-month period ended November 30, 2004 was $2,957,000 or $.18 per basic share and $.17 per diluted share as compared to a net loss of $1,257,000 or $.08 per basic and diluted share for the nine-month period ended November 30, 2003. Net income for the three-month period ended November 30, 2004 was $585,000 or $.03 per basic and diluted share as compared to net income of $197,000 or $.01 per basic and diluted share for the three-month period ended November 30, 2003. Management attributes the increase in earnings for the fiscal 2005 periods to increased sales volume resulting in increased gross margin dollars exceeding the increase in operating and interest expenses incurred in connection with the expansion of the Company’s Asian and U.S. operational capabilities.

Liquidity and Capital Resources:

At November 30, 2004, the Company’s current ratio was 6.6:1 as compared to 5.6:1 at February 29, 2004. Working capital increased from $123,494,000 at February 29, 2004 to $162,603,000 at November 30, 2004, while cash increased from February 29, 2004 to November 30, 2004 by $4,320,000 to $16,790,000. The increase in working capital resulted from the increase in inventory and accounts receivable, net of an increase in accounts payable, required to sustain the substantial increase in the Company’s sales volume.

On September 30, 2004, the Company entered into a new secured revolving credit agreement with eight banks which provides for maximum borrowings of $100,000,000 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 29, 2008. The Company is currently in full compliance with all of the covenants contained in this agreement.

The Company anticipates that its resources provided by its cash flow from operations and the aforementioned new loan agreement, will be sufficient to meet its financing requirements for the next twelve-month period.

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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Risk Factors:

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.

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 three most recent quarters, the Company’s revenues have begun to show signs of growth and an industry up-cycle, with $116,000,000 of revenues in the quarter ended November 30, 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, the Company purchased inventory from two suppliers that was in excess of 10% of the Company’s total purchases 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Risk Factors (continued):

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.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of the Company’s bank debt and the associated interest expense are sensitive to changes in the level of interest rates. 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. A hypothetical 100 basis point (one percentage point) increase in interest rates would have resulted in incremental interest expense of approximately $340,000 for the nine month period ended November 30, 2004. There were no bank borrowings for the comparable prior year period ended November 30, 2003. 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 is in a borrowing mode.

The Company has several foreign subsidiaries in Asia, the United Kingdom and Canada. The Company does business in more than one dozen countries and currently generates approximately 21% of its revenues from outside North America. The Company’s ability to sell its products in foreign markets may be affected by changes in economic, political or market conditions in the foreign markets in which the Company does business.

The Company’s total assets in its foreign subsidiaries was $55.0 million and $36.0 million at November 30, 2004 and 2003 respectively, translated into US dollars at the closing exchange rates. The company also acquires certain inventory from foreign suppliers and as such, faces risk due to adverse movements in foreign currency exchange rates. These risks could have a material impact on the Company’s results in future periods. The potential loss based on end of period balances and prevailing exchange rates resulting from a hypothetical 10% strengthening of the dollar against foreign currencies was not material in the quarter ended November 30, 2004. The Company does not currently employ any currency derivative instruments, futures contracts or other currency hedging techniques to mitigate its risks in this regard.

The electronic component industry is cyclical which can cause significant fluctuations in sales, gross profit 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.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of November 30, 2004. Based on such evaluation, they have concluded that, as of November 30, 2004, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that such controls and procedures are effective at the “reasonable assurance” level.

There were no changes in the Company’s internal control over financial reporting or in other factors that have, or is reasonably likely to, materially affect the Company’s internal control over financial reporting during the period covered by this report.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

There are no material legal proceedings against the Company or in which any of their property is subject.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3. Defaults upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information

None

ITEM 6. Exhibits:

31.1 - Section 302 Certification of Chief Financial Officer

31.2 - Section 302 Certification of Chief Executive Officer

32.1 - Section 1350 Certification of Chief Financial Officer

32.2 - Section 1350 Certification of Chief Executive Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBIT INDEX

to

FORM 10-Q

FOR THE THIRD QUARTER ENDED NOVEMBER 30, 2004

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

NU HORIZONS ELECTONICS CORP.

(Exact Name of Registrant as Specified in Its Charter)