<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 ANNUAL REPORT
                                  ON FORM 10K


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


       For the fiscal year ended                 Commission file number
          February 28, 1998                               1-8798
-------------------------------------       ----------------------------------- 

                         Nu Horizons Electronics Corp.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


               Delaware                                  11-2621097
-------------------------------------       ----------------------------------- 
  (State of other jurisdiction of                     (I.R.S. Employer
  incorporation or organization                       Identification No.)

  70 Maxess Road, Melville, New York                       11747
--------------------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)

                                (516) 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:

                                                  Name of each exchange on
         Title of each class                          which registered

Common Stock Par Value $.0066 Per Share         NASDAQ National Market System
---------------------------------------     ------------------------------------

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

                               (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 the number of shares outstanding of each of the issuer's classes
of common stock, as of May 1, 1998.

    Common Stock Par Value $.0066                        8,753,076
-------------------------------------       ----------------------------------- 
              Class                                  Outstanding Shares

 Aggregate Market Value of Non-Affiliate Stock at May 1, 1998  approximately 
 $59,100,000
--------------------------------------------------------------------------------
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I:
 
   <S>       <C>                                                                  <C>       <C>
   ITEM 1.   Business                                                             Pages      3 - 7    
                                                                                                      
   ITEM 2.   Properties                                                           Pages      7  8     
                                                                                                      
   ITEM 3.   Legal Proceedings                                                    Page       8        
                                                                                                      
   ITEM 4.   Submission of Matters to a Vote of Security Holders                  Page       8         
                                                                                          
PART II:                                                                                  
                                                                                          
   ITEM 5.   Market for the Registrant's Common Equity and Related                                    
             Stockholder Matters                                                  Page       8        
                                                                                                      
   ITEM 6.   Selected Financial Data                                              Page       9        
                                                                                                      
   ITEM 7.   Management's Discussion and Analysis of Financial Condition and                          
             Results of Operations                                                Pages      10  13   
                                                                                                      
   ITEM 8.   Financial Statements and Supplementary Data                          Pages      F1  F18  
                                                                                                      
   ITEM 9.   Changes in and Disagreements with Accountants on Accounting                              
             and Financial Disclosures                                            Page       14        
                                                                                         
PART III:                                                                                
                                                                                         
   ITEM 10.  Directors and Executive Officers of the Company                      Pages      14  15 
                                                                                                    
   ITEM 11.  Executive Compensation                                               Pages      16  25 
                                                                                                    
   ITEM 12.  Security Ownership of Certain Beneficial Owners and Management       Page       26     
                                                                                                    
   ITEM 13.  Certain Relationships and Related Transactions                       Page       26      
            
PART IV:    
            
   ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K     Pages      27  34
                                                                                                        
Signatures                                                                        Page       35
 
Exhibit Index

</TABLE>

                                                                          Page 2
<PAGE>
 
PART I.

ITEM 1.  BUSINESS
 
         GENERAL:

           Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
         subsidiaries, NIC Components Corp. ("NIC") and Nu Horizons/Merit
         Electronics Corp. ("NUM"), are engaged in the distribution of high
         technology active and passive electronic components. Nu Horizons
         International Corp. ("International"), another wholly-owned subsidiary,
         is an export distributor of electronic components. Nu Visions
         Manufacturing, Inc. ("NUV" or "Nu Visions") located in Springfield,
         Massachusetts, another wholly-owned subsidiary of the Company, is a
         contract assembler of circuit boards and related electromechanical
         devices for various OEMs. All references herein to the Company shall,
         unless the context otherwise requires, be deemed to refer to the
         Company and its subsidiaries.

           In March 1998, subsequent to the fiscal year end, the Company formed
         another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began
         foreign operations in the United Kingdom.

           Active components distributed by the Company, principally to original
         equipment manufacturers (OEMs) in the United States, include mainly
         commercial semiconductor products such as memory chips,
         microprocessors, digital and linear circuits, microwave, RF and
         fiberoptic 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 contract
         assemblers such as the Company, upon which the Company believes they
         rely to a considerable extent to market their products. Distributors
         and assemblers, such as the Company, offer their customers the
         convenience of diverse inventories and rapid delivery, design and
         technical assistance, and the availability of product in smaller
         quantities than generally available 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 all
         inventories from its principal headquarters and stocking facility on
         Long Island, New York and stocking facility in San Jose, California. 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.

                                                                          Page 3
<PAGE>
 
ITEM 1.  BUSINESS (Continued):

         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, Cirrus Logic, Crystal, Elantec, Exar, Maxim
         Integrated Products, Quality Semiconductor, SGS-Thomson
         Microelectronics, Sun Microsystems, TDK Semiconductor, Toshiba and
         Xilinx.

           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 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) brand of passive components and does not
         anticipate any change in this relationship. While the Company does not
         have a written agreement with Nippon in this regard, it believes that a
         formal written agreement is not material to its ongoing business
         relationship with Nippon.

           Due to certain market situations, NIC, with Nippon's assent, has also
         established several manufacturing associations with U.S. and Taiwan
         based companies. NIC intends to continue to give Nippon priority,
         however, in acquiring its products whenever the technology and pricing
         are commensurate with the North American market's requirements.

         Contract Assembly:

           As discussed above, the Company's core business is the distribution
         of active components to OEM's and passive components to OEM's and
         distributors nationally in the United States.

           Those components are then placed on printed circuit boards by the
         OEM's themselves or are contracted for placement to outside contract
         assembly companies (domestically or offshore). The Company believes
         that the latter outside contract assembly is becoming more prevalent
         nationally, especially among small to midsize OEM's.

           With a view towards maximizing the Company's current customer base as
         well as offering new customers additional services, the Company decided
         that contract circuit board assembly was a natural extension to its
         business since 80% of the components found on most printed circuit
         boards can be provided through the Company's active and NIC's passive
         products.

                                                                          Page 4
<PAGE>
 
ITEM 1.  BUSINESS (Continued):

         Contract Assembly (continued):
    
         Nu Visions provides both surface mount and through-hole circuit board
         assembly services to the aforementioned OEMs. In order to expand and
         enhance this segment of the business, the Company has acquired
         approximately $2,500,000 of automated circuit board assembly equipment
         and is in the process of tripling the size of Nu Vision's facility to
         45,000 square feet in anticipation of continued growth.

         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: industrial, telecom/datacom, medical instrumentation,
         microwave and RF, fiberoptic, consumer electronics, security and
         protection devices, office equipment, computers and computer
         peripherals, factory automation and robotics, in each case both
         domestically and abroad. 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.

           As of February 28, 1998, the Company had approximately 13,000
         customers. All sales are made through customers' purchase orders.
         Semiconductors are sold primarily via telephone by the Company's in-
         house staff of approximately 90 salespersons, and by a field sales
         force of approximately 110 salespersons. The Company maintains branch
         sales facilities located as follows:

         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 and Orlando                 
                                                              
         MIDWEST                                                
         -------                                                
                                                                
         Arizona  Phoenix                                       
         Illinois - Chicago                                     
         Minnesota  Minneapolis                                 
         Texas  Austin and Dallas                               
                                                                
         WEST COAST                                             
         ----------                                             
                                                                
         California  Irvine, Los Angeles, San Diego and San Jose 

           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 are
         generally equal to 5% of all sales in a representative's exclusive
         territory.

                                                                          Page 5
<PAGE>
 
ITEM 1.  BUSINESS (Continued):

         Sales and Marketing (continued):
 
           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
         OEM's in the United States.

           Nu Visions' contract manufacturing facilities are marketed through
         the services of several East Coast independent sales representatives,
         as well as the Company's field sales force.

           No single customer accounted for more than 2% of the Company's
         consolidated sales for the year ended February 28, 1998.  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.

           As of February 28, 1998, there was one manufacturer that represented
         more than 10% of the Company's inventory on a consolidated basis. That
         supplier accounted for 20% of total inventory. Electronic components
         distributed by the Company generally are presently readily available;
         however, from time to time the electronics industry has experienced
         shortages or surplus of certain electronic products.

           For the year ended February 28, 1998, the Company purchased inventory
         from one supplier that was in excess of 10% of the Company's total
         purchases. Purchases from this supplier aggregated approximately
         $18,872,000 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 which manufacture such products and sell them
         directly to OEM's 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.

                                                                          Page 6
<PAGE>
 
ITEM 1.  BUSINESS (Continued):

         Competition and Regulation (continued):

           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 of 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, 1998, the Company's backlog was
         approximately $20,000,000 as compared to a backlog of approximately
         $24,000,000 at May 1, 1997.

         Employees:

           As of February 28, 1998, the Company employed approximately 488
         persons: 10 in management, 258 in sales and sales support, 30 in
         product and purchasing, 17 in accounting and finance, 10 in MIS, 31 in
         operations, 88 in manufacturing, and 44 in quality control, shipping,
         receiving and warehousing. The Company believes that its employee
         relations are satisfactory.

ITEM 2.  PROPERTIES

           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. In June 1997, the
         Company completed moving its executive offices and distribution
         operations. The lease term is from December 17, 1996, to December 16,
         2008 at an annual base rental of $601,290 and provision for a 4% annual
         escalation in each of the last ten years of the term.

           The Amityville facility, which served as corporate headquarters until
         April 1997 was sold in August 1997.

           The Company leases approximately 14,400 square feet of manufacturing
         and office space in Springfield, Massachusetts for its Nu Visions
         subsidiary. The lease term is from February 17, 1992 to February 16,
         2002 at an annual base rental of $100,850 subject to annual consumer
         price index increases not to exceed 2% annually.

                                                                          Page 7
<PAGE>
 
ITEM 2.  PROPERTIES (Continued):

           On May 1, 1996, the Company leased approximately 25,000 square feet
         of warehouse and office space in San Jose, California for its Nu
         Horizons/Merit subsidiary. This facility serves as the Company's West
         Coast regional sales and distribution headquarters. The lease term is
         from May 1, 1996 to April 30, 2001 at an annual base rental of
         $225,000.

           The Company also leases space for nineteen (19) branch sales offices
         which range in size from 1,000 square feet to 5,000 square feet, with
         lease terms that expire between September 1996 and January 2002. Annual
         base rentals range from $11,400 to $63,400 with aggregate base rentals
         approximating $653,000.

ITEM 3.  LEGAL PROCEEDINGS:

           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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

           No matters were submitted during the fourth quarter of the fiscal
         year ended February 28, 1998 to a vote of security holders through the
         solicitation of proxies or otherwise.

PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:

          a)  The Company's common stock is traded on the NASDAQ National Market
              System under the symbol "NUHC". The following table sets forth,
              for the periods indicated, the high and low closing prices for the
              Company's common stock, as reported by the NASDAQ National Market
              System.

              FISCAL YEAR 1997:                       HIGH        LOW
                                                      ----        ---
                                                             
               First Quarter                         $17.25      $12.63
               Second Quarter                         14.75        7.25
               Third Quarter                          11.13        7.88
               Fourth Quarter                         10.00        7.88
                                                             
              FISCAL YEAR 1998:                              
                                                             
               First Quarter                           9.50        6.75
               Second Quarter                          9.00        7.25
               Third Quarter                           9.25        6.75
               Fourth Quarter                          7.17        5.50 
                                                             
              FISCAL YEAR 1999:                              
                                                             
               First Quarter (Through May 1, 1998)     7.09        6.12

          b)  As of May 1, 1998, the Company's common stock was owned by
              approximately 4,500 holders of record.

 
          c)  The Company has never paid a cash dividend on its common stock. In
              addition, the Company's prior revolving credit line agreement
              prohibited, without the bank's consent, the payment of cash
              dividends. The Company's existing revolving credit line agreement
              only permits dividends of up to 25% of the Company's consolidated
              net income.

                                                                          Page 8
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA:

<TABLE>
<CAPTION> 
                         FOR THE              FOR THE               FOR THE             FOR THE             FOR THE           
                        YEAR ENDED          YEAR ENDED            YEAR ENDED          YEAR ENDED          YEAR ENDED          
                         FEBRUARY            FEBRUARY              FEBRUARY            FEBRUARY            FEBRUARY           
                         28, 1998            28, 1997              29, 1996            28, 1995            28, 1994           
                         --------            --------              --------            --------            --------            
                                        
INCOME STATEMENT
DATA:

<S>                 <C>                <C>                 <C>                   <C>                 <C>
Net Sales               $233,325,408        $216,612,707          $202,803,184        $130,251,554        $92,418,038
Gross profit on
  sales                   50,794,325          48,488,124            48,201,148          30,913,305         24,950,478
Gross profit
  percentage                    21.8%               22.4%                 23.8%               23.7%              27.0%
Income before
  provision for
  income taxes             8,947,537          11,921,256            15,799,592           7,444,147          8,549,534
Net income                 5,297,991           7,073,560             9,396,301           4,421,823          5,044,225
Earnings per
 common share:
Basic                   $        .61        $        .81          $       1.19        $        .57        $       .65
 
Diluted                 $        .52        $        .69          $        .97        $        .52        $       .65
</TABLE>

<TABLE>
<CAPTION> 
                          FEBRUARY            FEBRUARY             FEBRUARY          FEBRUARY          FEBRUARY 
                          28, 1998            28, 1997             29, 1996          28, 1995          28, 1994 
                          --------            --------             --------          --------          --------  
                                        
BALANCE SHEET
  DATA:

<S>                 <C>               <C>                <C>                  <C>                <C>
Working capital          $75,217,607        $51,941,472          $57,954,434        $36,328,941       $23,792,512
Total assets              99,641,428         74,783,314           75,459,586         51,972,606        37,448,040
Long-term debt            32,790,395         15,523,483           27,094,030         20,580,613         9,339,195
Shareholders'
  equity                  51,542,045         46,950,735           37,617,703         22,541,916        18,051,985

</TABLE>

                                                                          Page 9
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS:

         Introduction:

         Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
         subsidiaries, Nu Horizons/Merit Electronics Corp. ("NUM"), NIC
         Components Corp. ("NIC") and Nu Horizons International Electronics
         Corp. ("International"), are engaged in the distribution of high
         technology active and passive electronic components to a wide variety
         of original equipment manufacturers ("OEM's") 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, principally to OEM's and
         other distributors nationally, consist of a high technology line of
         chip and leaded components, including capacitors, resistors and related
         networks.

         Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in
         Springfield, Massachusetts, another wholly-owned subsidiary of the
         Company, is a contract assembler of circuit boards, harnesses and
         related electromechanical devices for various OEM's.

         In March 1998, subsequent to the fiscal year end, the Company formed
         another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began
         foreign operations in the United Kingdom.

         The financial information presented herein includes: (i) Balance sheets
         as of February 28, 1998, and February 28, 1997; (ii) Statements of
         income for the twelve month periods ended February 28, 1998, February
         28, 1997 and February 29, 1996; (iii) Statements of cash flows for the
         twelve month periods ended February 28, 1998, February 28, 1997 and
         February 29, 1996; and (iv) Consolidated changes in shareholders'
         equity for the twelve month periods ended February 28, 1998, February
         28, 1997 and February 29, 1996.

         Fiscal Year 1998 versus 1997

         Results of Operations:

         Net sales for the year ended February 28, 1998 aggregated $233,325,408
         as compared to $216,612,707 for the year ended February 28, 1997, an
         increase of 7.7%. Management attributes this moderate increase in sales
         for the period entirely to the core semiconductor distribution business
         which experienced excess inventory levels at the semiconductor
         manufacturing (supplier) level evidenced by reduced unit pricing in
         spite of substantial increases in unit demand resulting in only
         moderate increases in sales dollar volume. Management believes that
         this situation is temporary and is now in the process of correction;
         however, no assurance can be given in this regard.

         Gross profit margin as a percentage of net sales was approximately
         21.8% for the year ended February 28, 1998 as compared to 22.4% for the
         year ended February 28, 1997. Management attributes this lower profit
         margin primarily to a general downward correction of selling prices in
         the marketplace, for both semiconductors and passive components, during
         the period and a greater volume of larger orders at lower gross profit
         margins. Although the Company expects that these conditions will not
         continue, as long as current market trends prevail, no assurances can
         be given in this regard.

                                                                         Page 10
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (Continued):

         Fiscal Year 1998 versus 1997 (Continued)

         Results of Operations (continued):

         Operating expenses increased by $5,259,512 to $40,133,422 for the year
         ended February 28, 1998 from $34,873,910 for the year ended February
         28, 1997, an increase of approximately 15.1%. The dollar increase in
         operating expenses was due to increases in the following expense
         categories: Approximately $3,328,000 or approximately 63.3% of the
         increases were for personnel related costs commissions, salaries,
         travel and fringe benefits. During fiscal 1998 the Company decided to
         continue to pursue a policy of upgrading and enlarging its sales and
         sales support staff to support anticipated future growth in the near as
         well as more distant future. Increased sales levels in the second,
         third and fourth quarters of fiscal 1997 did not meet expectations. The
         Company continues to believe in this strategy for long-term growth and
         expects market conditions to undergo a correction in the near future
         although no assurances can be given in this regard. The remaining
         increase of approximately $1,931,000 or approximately 36.7% of the
         total increment is a result of increases in various other operating
         expenses primarily due to increased overhead from the Company's new
         corporate headquarters and distribution facility.

         Interest expense increased by $22,071 from $1,701,092 for the year
         ended February 28, 1997 to $1,723,163 for the year ended February 28,
         1998. This relative stability was primarily due to the interest on
         higher average levels of bank debt being offset by more favorable
         interest rates.

                                               INTEREST COSTS           
                                               FOR THE FISCAL           
                                                 YEARS ENDED            
                                     ---------------------------------  
                                        February          February      
                                        28, 1998          28, 1997      
                                     --------------     --------------  
         Revolving Bank Credit          $1,140,796        $1,116,340    
         Sub. Convert. Notes               582,367           584,752    
         Total Interest Expense         $1,723,163        $1,701,092    
                                     ==============     ==============   


         Net income for the year ended February 28, 1998, was $5,297,991 or $.52
         per share, diluted, as compared to $7,073,560 or $.69 per share
         diluted, for the year ended February 28, 1997. The decrease in earnings
         is primarily due to increased operating expenses and the lack of
         commensurate increased sales volume.

         Results of Operations:

         Fiscal Year 1997 versus 1996

         Net sales for the year ended February 28, 1997 aggregated $216,612,707
         as compared to $202,803,184 for the year ended February 29, 1996, an
         increase of 6.8%. Management attributes this moderate increase in sales
         for the period entirely to the core semiconductor distribution business
         which experienced excess inventory levels at the semiconductor
         manufacturing (supplier) level which resulted in reduced unit pricing
         and lower overall sales volume.

         Gross profit margin as a percentage of net sales was approximately
         22.4% for the year ended February 28, 1997 as compared to 23.8% for the
         year ended February 29, 1996. Management attributes this lower profit
         margin primarily to a general downward correction of selling prices in
         the marketplace, for both semiconductors and passive components, during
         the period and a greater volume of larger orders at lower gross profit
         margins.

                                                                         Page 11
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued):

         Fiscal Year 1997 versus 1996 (Continued)

         Results of Operations (continued):

         Operating expenses increased by $4,496,530 to $34,873,910 for the year
         ended February 28, 1997 from $30,377,380 for the year ended February
         29, 1996, an increase of approximately 14.8%. The dollar increase in
         operating expenses was due to increases in the following expense
         categories: Approximately $3,740,000 or approximately 83.2% of the
         increases were for personnel related costs commissions, salaries,
         travel and fringe benefits. The remaining increase of approximately
         $756,000 or approximately 16.8% of the total increment is a result of
         increases in various other operating expenses. Toward the latter part
         of fiscal 1996 and early in fiscal 1997, the Company decided to pursue
         a policy of upgrading and enlarging its sales and sales support staff
         to support anticipated future growth in the near as well as more
         distant future. Increased sales levels in the second, third and fourth
         quarters of fiscal 1997 did not meet expectations.

         Interest expense decreased by $325,625 from $2,026,717 for the year
         ended February 29, 1996 to $1,701,092 for the year ended February 28,
         1997. This decrease was primarily due to the interest on higher average
         levels of bank debt being more than offset by the lower amount of
         outstanding subordinated convertible debt (see Note 7 to the
         Consolidated Financial Statements).

                                               INTEREST COSTS          
                                               FOR THE FISCAL          
                                                YEAR ENDED             
                                                                       
                                            February       February   
                                            28, 1997       29, 1996
                                         ------------------------------
                                                                       
         Revolving Bank Credit              $1,116,340     $  916,226
         Sub. Convert. Notes                   584,752      1,110,491
         Total Interest Expense             $1,701,092     $2,026,717
                                         ============================== 

         Net income for the year ended February 28, 1997 was $7,073,560 or $.69
         per share, diluted, as compared to $9,396,301 or $.97 per share
         diluted, for the year ended February 29, 1996. The decrease in earnings
         is primarily due to increased operating expenses and the lack of
         commensurate increased sales volume.

         Liquidity and Capital Resources:

         Fiscal Year 1998 versus 1997

         The Company ended its 1998 fiscal year with working capital and cash
         aggregating approximately $75,218,000 and $4,334,000, respectively at
         February 28, 1998 as compared to approximately $51,941,000 and $946,000
         respectively, at February 28, 1997. The Company's current ratio at
         February 28, 1998, was 5.9:1. The Company believes that its financial
         position at February 28, 1998, will enable it to take advantage of any
         new opportunities that may arise.

                                                                         Page 12
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (Continued):

         Fiscal Year 1998 versus 1997 (Continued)

         Liquidity and Capital Resources (continued):

         On May 23, 1997, the Company entered into a new unsecured revolving
         line of credit, which currently provides for maximum borrowings of
         $35,000,000 through May 23, 2001 with two banks. At February 28, 1998,
         $25,300,000 was outstanding under this line of credit as compared to
         $8,000,000 at February 28, 1997.

         In a private placement completed on August 31, 1994, the Company issued
         $15 million principal amount of Subordinated Convertible Notes, which
         are due in $5,000,000 increments on August 31, 2000, 2001 and 2002. The
         notes are subordinate in right of payment to all existing and future
         senior indebtedness of the Company. The notes bear interest at 8.25%,
         payable quarterly on November 15, February 15, May 15 and August 15.
         The notes are convertible into shares of common stock at a conversion
         price of $9.00 per share. The cost of issuing these notes was $521,565
         and was amortized over three years. As of February 28, 1998, $7,941,000
         of the notes have been converted into 882,333 shares of common stock
         and $7,059,000 principal amount of subordinated convertible notes
         remained outstanding and are due in increments of $2,353,000 on August
         31, 2000, 2001 and 2002. No assurance can be given that the notes will
         be converted or that the shares of common stock underlying the notes
         will be sold by the holders thereof.

         The Company anticipates that its resources provided by its cash flow
         from operations and its bank lines of credit will be sufficient to meet
         its financing requirements for at least the next twelve-month period.

         Impact of Year 2000 Issue:

         The year 2000 issue is the result of computer programs being written
         using two digits rather than four to define the applicable year. Any of
         the Company's computer programs that have date-sensitive software may
         recognize a date using "00" as the year 1900 rather than the year 2000.
         This could potentially result in a system failure or miscalculations
         causing disruptions of operations, including, among other things, a
         temporary inability to process transactions, send invoices, or engage
         in other similar normal business activities. The Company has ensured
         that its software is already year 2000 compliant, and as such this
         issue is not expected to have a material effect on the operations of
         the Company. Nevertheless, the Company cannot predict the effect of the
         year 2000 problem on the vendors, customers and other entities with
         which the Company transacts business, or with whose products the
         Company's products interact and there can be no assurance that the
         effect of the year 2000 issue on such entities will not adversely
         effect the Company's operations.

         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.

         Other:

         Except for historical information contained herein, the matters set
         forth above are forward-looking statements that involve certain risks
         and uncertainties that could case 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.

                                                                         Page 13
<PAGE>
 
                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          Independent Auditors' Report

To The Board of Directors
Nu Horizons Electronics Corp.
Melville, New York

     We have audited the accompanying consolidated financial statements of Nu
Horizons Electronics Corp. and subsidiaries as of February 28, 1998 and 1997,
and the consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended February 28, 1998.  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 generally accepted auditing
standards.  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 the
above, present fairly in all material respects, the financial position of Nu
Horizons Electronics Corp. and subsidiaries at February 28, 1998 and February
28, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended February 28, 1998 in conformity with
generally accepted accounting principles.


                                                    /s/ LAZAR LEVINE & FELIX LLP
                                                    ----------------------------
                                                        LAZAR LEVINE & FELIX LLP



New York, New York
May 18, 1998

                                                                        Page F-1
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
                                        

                                -ASSETS-                February        February
CURRENT ASSETS:                                         28, 1998        28, 1997
                                                     -----------     -----------
Cash                                                 $ 4,333,669     $   946,084
Accounts receivable-net of allowance for doubtful                    
     Accounts of $2,362,722 and $2,192,079                           
     For 1998 and 1997, respectively                  37,351,029      30,636,645
Inventories                                           44,004,890      29,764,570
Prepaid expenses and other current assets              4,837,007       2,903,269
                                                     -----------     -----------
TOTAL CURRENT ASSETS                                  90,526,595      64,250,568
                                                                     
PROPERTY, PLANT AND EQUIPMENT  NET                                   
(Notes 3 and 6)                                        6,359,775       7,550,356
                                                                     
OTHER ASSETS                                                         
Costs in excess of net assets acquired-net             1,752,332       1,909,256
Other assets (Note 4)                                  1,002,726       1,073,134
                                                     -----------     -----------
                                                     $99,641,428     $74,783,314
                                                     ===========     ===========

                     -LIABILITIES AND SHAREHOLDERS' EQUITY-
                      ------------------------------------ 
 
CURRENT LIABILITIES:
Accounts payable                                     $12,112,365     $ 7,931,500
Accrued expenses                                       3,196,623       4,186,802
Current portion of long-term debt (Note 6)                     -         190,794
                                                     -----------     -----------
TOTAL CURRENT LIABILITIES                             15,308,988      12,309,096
                                                     -----------     -----------
                                                                     
LONG-TERM LIABILITIES:                                               
Deferred income taxes (Note 9)                           431,395         222,148
Revolving credit line (Notes 5)                       25,300,000       8,000,000
Long-term debt (Note 6)                                        -         242,335
Subordinated convertible notes (Note 7)                7,059,000       7,059,000
                                                     -----------     -----------
TOTAL LONG-TERM LIABILITIES                           32,790,395      15,523,483
                                                     -----------     -----------
                                                                     
COMMITMENTS AND CONTINGENCIES                                        
(Notes 5, 10, 11 and 12)                                             
                                                                     
SHAREHOLDERS' EQUITY (Note 8):                                       
Preferred stock, $1 par value, 1,000,000                             
    Shares authorized; none issued or outstanding                    
Common stock, $.0066 par value, 20,000,000                           
    Shares authorized;  8,753,076 and 8,732,299      
    shares issued and outstanding for 1998 and 1997,                        
     respectively                                         57,770          57,633
Additional paid-in capital                            19,042,230      18,938,984
Retained earnings                                     33,532,009      28,234,018
                                                     -----------     -----------
                                                      52,632,009      47,230,635
Less:  loan to ESOP (Note 10)                          1,089,964         279,900
                                                      51,542,045      46,950,735
                                                     -----------     -----------

                                                     $99,641,428     $74,783,314
                                                     ===========     ===========

                See notes to consolidated financial statements.

                                                                        Page F-2
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                       CONSOLIDATED STATEMENTS OF INCOME
                       ---------------------------------

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR ENDED
                                               ---------------------------------------------------------------------
<S>                                              <C>                       <C>                      <C>
                                                     FEBRUARY                  FEBRUARY                 FEBRUARY
                                                     28, 1998                  28, 1997                 29, 1996
                                               -------------------       ------------------       ------------------
 
NET SALES                                             $233,325,408             $216,612,707             $202,803,184
                                               -------------------       ------------------       ------------------
 
COSTS AND EXPENSES:
 
     Cost of sales (Note 12)                           182,531,083              168,124,583              154,602,036
     Operating expenses                                 40,133,422               34,873,910               30,377,380
     Interest expense                                    1,723,163                1,701,092                2,026,717
     Interest income                                        (9,797)                  (8,134)                  (2,541)
                                                       224,377,871              204,691,451              187,003,592
                                               -------------------       ------------------       ------------------
 
INCOME BEFORE PROVISION
FOR INCOME TAXES                                         8,947,537               11,921,256               15,799,592
 
     Provision for income taxes (Note 9)                 3,649,546                4,847,696                6,403,291
                                               -------------------       ------------------       ------------------
 
NET INCOME                                            $  5,297,991             $  7,073,560             $  9,396,301
                                               ===================       ==================       ==================
 
EARNINGS PER SHARE (Note 2i):
 
     Basic                                            $        .61             $        .81             $       1.19
                                               ===================       ==================       ==================
 
     Diluted                                          $        .52             $        .69             $        .97
                                               ===================       ==================       ==================
</TABLE>



                See notes to consolidated financial statements.

                                                                        Page F-3
<PAGE>
 
                NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                ----------------------------------------------
          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER S' EQUITY
          -----------------------------------------------------------


<TABLE>
<CAPTION>
                                                              ADDITIONAL                                        TOTAL
                                                   COMMON       PAID-IN       RETAINED        LOAN TO       SHAREHOLDERS'
                                       SHARES       STOCK       CAPITAL       EARNINGS          ESOP            EQUITY
                                    ------------  ---------  -------------  -------------  -------------   --------------
<S>                                   <C>          <C>        <C>            <C>            <C>             <C>
Balance at February 28, 1995          7,732,051    $51,032    $10,726,727    $11,764,157    $       -         $22,541,916
                                                                                                           
Exercise of stock options                24,420        161         99,175              -              -            99,336
Conversion of subordinated                                                                                 
  convertible notes                     666,666      4,400      5,995,600              -              -         6,000,000
Loan to ESOP                                  -          -              -              -       (559,800)         (559,800)
Repayment from ESOP                           -          -              -              -        139,950           139,950
Net income                                    -          -              -      9,396,301              -         9,396,301
                                    ------------  ---------  -------------  -------------  -------------   --------------
Balance at February 29, 1996          8,423,137     55,593     16,821,502     21,160,458       (419,850)       37,617,703
                                                                                                           
Exercise of stock options                93,495        617        177,905              -              -           178,522
Conversion of subordinated                                                                                 
  convertible notes                     215,667      1,423      1,939,577              -              -         1,941,000
Repayment from ESOP                           -          -              -              -        139,950           139,950
Net income                                    -          -              -      7,073,560              -         7,073,560
                                    ------------  ---------  -------------  -------------  -------------   --------------
Balance at February 28, 1997          8,732,299     57,633     18,938,984     28,234,018       (279,900)       46,950,735
                                                                                                           
Exercise of stock options                20,777        137        103,246              -              -           103,383
Loan to ESOP                                  -          -              -              -       (950,014)         (950,014)
Repayment from ESOP                           -          -              -              -        139,950           139,950
Net income                                    -          -              -      5,297,991              -         5,297,991
                                    ------------  ---------  -------------  -------------  -------------   --------------
Balance at February 28, 1998          8,753,076    $57,770    $19,042,230    $33,532,009    $(1,089,964)      $51,542,045
                                    ============  =========  =============  =============  =============   ==============
</TABLE>



                See notes to consolidated financial statements

                                                                        Page F-4
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                        
<TABLE>
<CAPTION>
                                                                            FOR THE YEAR ENDED
                                                -----------------------------------------------------------------------
<S>                                               <C>                       <C>                       <C>
                                                      FEBRUARY                  FEBRUARY                  FEBRUARY
                                                      28, 1998                  28, 1997                  29, 1996
                                                -------------------       -------------------       -------------------
 
INCREASE (DECREASE) IN CASH AND
        CASH EQUIVALENTS:
 
Cash flows from operating activities:
        Cash received from customers                  $ 226,296,024             $ 215,279,744             $ 192,949,945
        Cash paid to suppliers and employees           (232,653,486)             (197,159,875)             (196,045,525)
        Interest received                                     9,797                     8,134                     2,541
        Interest paid                                    (1,723,163)               (1,701,092)               (2,026,717)
        Income taxes paid                                (4,511,763)               (1,677,850)               (6,034,790)
                                                -------------------       -------------------       -------------------
               Net cash provided (used) by
                  operating activities                  (12,582,591)               14,749,061               (11,154,546)
                                                -------------------       -------------------       -------------------
 
Cash flows from investing activities:
        Capital expenditures                             (1,176,904)               (4,936,512)               (1,055,558)
        Purchase of stock for ESOP                         (950,014)                        -                  (559,800)
        Proceeds from sale of building                    1,126,840                         -                         -
                                                -------------------       -------------------       -------------------
               Net cash (used) by investing
                        activities                       (1,000,078)               (4,936,512)               (1,615,358)
                                                -------------------       -------------------       -------------------
 
Cash flows from financing activities:
        Borrowings under revolving credit line           51,650,000                21,150,000                65,000,000
        Repayments under revolving credit line          (34,350,000)              (30,450,000)              (52,100,000)
        Principal payments of long-term debt               (433,129)                 (619,254)                 (413,884)
        Proceeds from exercise of employee
          stock options                                     103,383                   178,522                    99,336
        Proceeds from long-term debt                              -                         -                   559,800
                                                -------------------       -------------------       -------------------
               Net cash provided by (used in)
                        financing activities             16,970,254                (9,740,732)               13,145,252
                                                -------------------       -------------------       -------------------
 
Net increase in cash and cash equivalents                 3,387,585                    71,817                   375,348
Cash and cash equivalents, beginning of year                946,084                   874,267                   498,919
                                                -------------------       -------------------       -------------------
 
Cash and cash equivalents, end of year                $   4,333,669             $     946,084             $     874,267
                                                ===================       ===================       ===================
</TABLE>



                See notes to consolidated financial statements.

                                                                        Page F-5
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
               -------------------------------------------------

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR ENDED
                                                  ------------------------------------------------------------------
<S>                                              <C>                      <C>                       <C>
                                                     FEBRUARY                 FEBRUARY                  FEBRUARY
                                                     28, 1998                 28, 1997                 29, 1996
                                                  ----------------      -------------------       ------------------
 
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING
ACTIVITIES:
 
Net income                                            $  5,297,991              $ 7,073,560             $  9,396,301
                                                  ----------------      -------------------       ------------------
 
Adjustments to reconcile net income to net cash
   provided (used) by operating activities:
 
        Depreciation and amortization                    1,488,057                1,238,967                1,169,816
        Bad debts                                          315,000                  701,500                  635,000
        Contribution to ESOP (compensation)                139,950                  139,950                  139,950
              Loss on sale of building                      60,871                        -                        -
Changes in assets and liabilities:
        (Increase) in accounts receivable               (7,029,384)              (1,332,963)              (9,853,239)
        (Increase) decrease in inventories             (14,240,320)               7,044,345              (14,553,370)
        (Increase) decrease in prepaid
          expenses and other current assets             (1,933,738)              (1,889,346)                 623,688
        (Increase) in other assets                         (80,951)                 (77,902)                 (77,969)
        Increase  in accounts payable
                 and accrued expenses                    3,190,686                1,964,667                1,666,050
        Increase (decrease) in income taxes                      -                 (220,288)                 212,545
        (Decrease) in other current liabilities                  -                        -                  (43,686)
        (Decrease) increase in deferred taxes              209,247                  106,571                 (469,632)
        Total adjustments                              (17,880,582)               7,675,501              (20,550,847)
                                                  ----------------      -------------------       ------------------
 
Net cash provided (used) by operating activities      $(12,582,591)             $14,749,061             $(11,154,546)
                                                  ================      ===================       ==================
</TABLE>

NON-CASH FINANCING ACTIVITIES:

        During the year ended February 29, 1996, the subordinated debt-holder
  (see Note 7) converted $6,000,000 of debt into 666,666 shares of the Company's
  common stock.

        During the year ended February 28, 1997, the subordinated debt-holder
  (see Note 7) converted $1,941,000 of debt into 215,667 shares of the Company's
  common stock.


                See notes to consolidated financial statements.

                                                                        Page F-6
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                      THREE YEARS ENDED FEBRUARY 28, 1998
                      -----------------------------------
                                        
1.  ORGANIZATION:

    Nu Horizons Electronics Corp. and its subsidiaries, NIC Components Corp.,
    and Nu Horizons International Corp., were incorporated in the State of New
    York on October 22, 1982, November 8, 1982, and December 8, 1986,
    respectively. Nu Visions Manufacturing, Inc. was incorporated in the State
    of Massachusetts on August 9, 1991. On April 15, 1987, Nu Horizons
    Electronics Corp. was reincorporated in the State of Delaware. On April 18,
    1994, Nu Horizons/Merit Electronics Corp. was incorporated in the State of
    Delaware, for the express purpose of acquiring the business of Merit
    Electronics Corp. All companies are wholesale distributors throughout the
    United States or export distributors of electronic components, except for Nu
    Visions Manufacturing, which is a contract assembler of circuit boards and
    various electromechanical devices.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    a.  Principles of Consolidation:

        The consolidated financial statements include the accounts of Nu
        Horizons Electronics Corp., (the "Company") and its wholly-owned
        subsidiaries, NIC Components Corp. ("NIC"), Nu Horizons/Merit
        Electronics Corp. ("NUM"), Nu Visions Manufacturing, Inc. ("NUV") and Nu
        Horizons International Corp. ("International"). All material
        intercompany balances and transactions have been eliminated.

    b.  Use of Estimates:

        In preparing financial statements, in accordance with generally accepted
        accounting principles, management makes certain estimates and
        assumptions, where applicable, that affect the reported amounts of
        assets, liabilities and disclosures of contingent assets and liabilities
        at the date of the financial statements, as well as reported amounts of
        revenues and expenses during the reporting period. While actual results
        could differ from those estimates, management does not expect such
        variances, if any, to have a material effect on the financial
        statements.

    c.  Concentration of Credit Risk/Fair Value:

        Financial instruments that potentially subject the Company to
        concentrations of credit risk consists principally of cash and accounts
        receivable.

        The Company maintains, at times, deposits in federally insured financial
        institutions in excess of federally insured limits. Management attempts
        to monitor the soundness of the financial institution and believes the
        Company's risk is negligible.

        Concentrations with regard to accounts receivable are limited due to the
        Company's large customer base.

        The carrying amounts of cash, accounts receivable, accounts payable and
        accrued expenses approximate fair value due to the short-term nature of
        these items. The carrying amount of long-term debt also approximates
        fair value since the interest rates on these instruments approximate
        market interest rates.

    d.  Inventories:

        Inventories, which consist primarily of goods held for resale, are
        stated at the lower of cost (first-in, first-out method) or market.

                                                                        Page F-7
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
 
    e.    Depreciation:

          Depreciation is provided using the straight-line method as follows:

               Office equipment                    5 years
               Furniture and fixtures              5 - 12 years
               Computer equipment                  5 years

          Leasehold improvements are amortized over the term of the lease.
          Maintenance and repairs are charged to operations and major
          improvements are capitalized. Upon retirement, sale or other
          disposition, the associated cost and accumulated depreciation are
          eliminated from the accounts and any resulting gain or loss is
          included in operations.

    f.    Income Taxes:

          The Company has elected to file a consolidated federal income tax
          return with its subsidiaries. The Company utilizes Financial
          Accounting Standards Board Statement No. 109 (SFAS 109) "Accounting
          for Income Taxes". SFAS 109 requires use of the asset and liability
          approach of providing for income taxes. Deferred income taxes are
          provided for on the timing differences for certain items which are
          treated differently for tax and financial reporting purposes. These
          items include depreciation of fixed assets, inventory capitalization
          valuations and the recognition of bad debt expense.

          International has elected under Section 995 of the Internal Revenue
          Code to be taxed as an "Interest Charge Disc". Based upon these rules,
          income taxes are paid when International distributes its income to the
          parent company. Until distributions are made, the parent company pays
          interest only on the deferred tax liabilities. International's untaxed
          income at February 28, 1998 approximates $3,000,000.

    g.    Goodwill:

          Costs in excess of net assets acquired are being amortized on a
          straight-line basis over fifteen years. As of February 28, 1998 and
          1997, accumulated amortization of goodwill aggregated $601,542 and
          $444,618, respectively.

          The Company periodically reviews the valuation and amortization of
          goodwill to determine possible impairment by comparing the carrying
          value to the undiscounted future cash flows of the related assets, in
          accordance with Statement of Financial Accounting Standards (SFAS) No.
          121, Accounting for the Impairment of Long-lived Assets and for Long-
          lived Assets to be Disposed of.

    h.    Cash and Cash Equivalents:

          For purposes of the statements of cash flows, the Company considers
          all highly liquid investments purchased with a remaining maturity of
          three months or less to be cash equivalents.

                                                                        Page F-8
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

    i.    Earnings Per Common Share:

          Basic and diluted earnings per share have been computed in accordance
          with the adoption of SFAS No. 128. In addition, prior period per share
          data has been restated in accordance with SFAS No. 128.

          The following average shares were used for the computation of basic
          and diluted earnings per share:


                         1998                1997                1996
                   ---------------     ---------------     ---------------
                 
          Basic       8,753,076           8,732,299           7,903,839
          Diluted    10,898,859          10,818,859          10,410,699

    j.    Reclassifications:
 
          Certain prior year information has been reclassified to conform to the
          current year's reporting presentation.

    k.    Stock-Based Compensation:

          SFAS No. 123 "Accounting for Stock Based Compensation", effective
          January 1, 1996, requires the Company to either record compensation
          expense or to provide additional disclosures with respect to stock
          awards and stock option grants made after December 31, 1994. The
          accompanying Notes to Consolidated Financial Statements include the
          disclosures required by SFAS No. 123. No compensation expense is
          recognized pursuant to the Company's stock option plans under SFAS No.
          123 which is consistent with prior treatment under APB No. 25.

    l.    Advertising and Promotion Costs:

          Advertising and promotion costs, which are included in general and
          administrative expenses, are expensed as incurred. For the three years
          ended February 28, 1998, such costs aggregated $774,000, $616,000 and
          $615,000, respectively.

    m.    New Accounting Pronouncements:

          SFAS 130 "Reporting Comprehensive Income" is effective for years
          beginning after December 15, 1997 and early adoption is permitted.
          This statement prescribes standards for reporting comprehensive income
          and its components. Since the Company currently does not have any
          items of other comprehensive income, a statement of comprehensive
          income is not required.

          SFAS 131 "Disclosures About Segments of an Enterprise and Related
          Information", is effective for years beginning after December 15, 1997
          and early adoption is encouraged. The Company will adopt this standard
          in the next fiscal year.

          See also Earnings Per Share, above.

                                                                        Page F-9
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

    n.    Impact of the Year 2000 Issue:

          The year 2000 issue is the result of computer programs being written
          using two digits rather than four to define the applicable year. Any
          of the Company's computer programs that has date-sensitive software
          may recognize a date using "00" as the year 1900 rather than the year
          2000. This could potentially result in a system failure or
          miscalculations causing disruptions of operations including among
          other things, a temporary inability to process transactions, send
          invoices, or engage in other similar normal business activities. The
          Company has ensured that its software is already year 2000 compliant,
          and as such this issue is not expected to have a material effect on
          the operations of the Company.


3.  PROPERTY, PLANT AND EQUIPMENT:

          Property, plant and equipment which is reflected at cost, consists of
          the following:


                                                         1998          1997
                                                      -----------   -----------
             Land                                     $         -   $   266,301
             Building and improvements                          -     1,747,930
             Furniture, fixtures and office                       
               equipment                                6,290,449     5,791,946
             Computer equipment                         3,016,739     2,476,185
             Assets held under capitalized leases         919,834       919,834
             Leasehold improvements                     1,254,364       984,146
                                                      -----------   -----------
                                                       11,481,386    12,186,342
                                                                    
             Less:  accumulated depreciation                      
               and amortization                         5,121,611     4,635,986
                                                      -----------   -----------
                                                                    
                                                      $ 6,359,775   $ 7,550,356
                                                      ===========   ===========

    Depreciation expense including depreciation of capitalized leases for the
    years ended February 28, 1998, February 28, 1997 and February 29, 1996
    aggregated $1,331,133, $825,960 and $756,808, respectively.

    During the current fiscal year the Company completed the sale of the land
    and building that served as its prior corporate headquarters.
    
4.  OTHER ASSETS:

    Other assets as of February 28, 1998 and February 28, 1997 consists of the
    following:

                                                         1998          1997
                                                      ----------    ----------
                                                                    
             Net cash surrender value  life insurance $  937,878    $  869,473
             Debt issue costs  net (Note 7)                    -       151,359
             Other                                        64,848        52,302
                                                      ----------    
                                                      $1,002,726    $1,073,134
                                                      ==========    ==========

                                                                       Page F-10
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
5.  REVOLVING CREDIT LINE:

    On May 23, 1997 the Company entered into a new unsecured revolving line of
    credit with two banks, which currently provides for maximum borrowings of
    $35,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 57.5
    to 112.5 basis points depending on the ratio of the Company's debt to its
    earnings before interest, taxes, depreciation and amortization, at the
    option of the Company through May 23, 2001. Direct borrowings under lines of
    credit were $25,300,000 and $8,000,000 at February 28, 1998 and February 28,
    1997, respectively. The credit agreement contains various covenants
    including certain restrictions on the payment of cash dividends without the
    bank's consent. As of the end of the fiscal year, the Company met all of the
    required covenants.

6.  LONG-TERM DEBT:

    Long-term debt consists of the following:
  
                                                       1998       1997
                                                    ----------  --------
                                                                 
    Term loan payable to bank, due in monthly                    
    installments of $9,321 plus interest at                      
    the bank's prime rate to March 31, 2000         $     -     $354,182
                                                                 
                                                                 
    Various capitalized equipment leases,                        
    interest rates ranging from                                  
    6.78% to 8.38%, maturing in 1997 and 1998.            -       78,947
                                                    ----------  ---------
                                                                 433,129
    Less:  current portion                                -      190,794
                                                    ----------  ---------
                                                    $     -     $242,335
                                                    ==========  =========


    The term loan payable was secured by a pledge of the shares of the common
    stock of the Company purchased with the proceeds of the loans (See Note 10).
    Other equipment loans were secured by the specific equipment acquired.

                                                                       Page F-11
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                -----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
7.  SUBORDINATED CONVERTIBLE NOTES:

    In a private placement completed on August 31, 1994, the Company issued $15
    million principal amount of Subordinated Convertible Notes, which are due in
    $5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
    subordinate in right of payment to all existing and future senior
    indebtedness of the Company. The notes bear interest at 8.25%, payable
    quarterly on November 15, February 15, May 15, and August 15. The notes are
    convertible into shares of common stock at a conversion price of $9.00 per
    share. The cost of issuing these notes was $521,565 and was amortized over
    three years.

    As of February 28, 1998, $7,941,000 of the notes had been converted into
    882,333 shares of common stock and $7,059,000 principal amount of
    subordinated convertible notes remained outstanding which are due in
    increments of $2,353,000 on August 31, 2000, 2001 and 2002.

8.  STOCK OPTIONS:

    Stock options granted to date under the Company's Key Employees Stock
    Incentive Plan and the 1994 Stock Option Plan generally expire five years
    after date of grant and become exercisable in four equal annual installments
    commencing one year from date of grant. Stock options granted under the
    Company's Outside Director Stock Option Plan expire ten years after the date
    of grant and become exercisable in three equal annual installments on the
    date of grant and the succeeding two anniversaries thereof.

    A summary of options granted and related information for the three years
    ended February 28, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                                           
                                                                                          Weighted Average        
                                                                            Options        Exercise Price         
                                                                         -------------    ----------------        
                                                                                                                  
    <S>                                                                  <C>                 <C>                  
    Outstanding, February 28, 1995                                            717,415            $ 6.46           
                   Granted                                                    323,000              9.33           
                   Exercised                                                  (24,420)             4.07           
                   Cancelled                                                  (23,023)             2.86           
                                                                       --------------                             
    Outstanding, February 28, 1996                                            992,972              7.54           
                                                                                                                  
    Weighted average fair value of options granted during the year                               $ 4.50           
                                                                                                 ======           
                                                                                                                  
                   Granted                                                    471,500              8.56           
                   Exercised                                                  (93,495)             1.91           
                   Canceled                                                   (68,750)            10.36           
                                                                       --------------                             
    Outstanding, February 28, 1997                                          1,302,227              8.16           
                                                                                                                  
    Weighted average fair value of options granted during the year                               $ 4.39           
                                                                                                 ======           
                                                                                                                  
                  Granted                                                     118,500              8.30           
                  Exercised                                                   (20,777)             4.98           
                  Canceled                                                    (38,500)            10.14           
                                                                       --------------                             
    Outstanding, February 28, 1998                                          1,361,450              8.20           
                                                                       ==============                             
                                                                                                                  
    Weighted average fair value of options granted during the year                               $ 3.13           
                                                                                                 ======           
                                                                                                                  
         Options exercisable:                                                                                     
         February 29, 1996                                                    159,945              7.35           
         February 28, 1997                                                    381,377              7.86           
         February 28, 1998                                                    673,825              7.52            
</TABLE>

                                                                       Page F-12
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
8.  STOCK OPTIONS (continued):

    Exercise prices for options outstanding as of February 28, 1998 ranged from
    $5.41 to $14.83. The weighted-average remaining contractual life of these
    options is approximately 5 years. Outstanding options at February 28, 1998
    are held by 44 individuals.

    The Company applies APB 25 and related Interpretations in accounting for the
    Option Plans. Accordingly, no compensation cost has been recognized for its
    Option Plans. Had compensation cost for the Option Plans been determined
    using the fair value based method, as defined in SFAS 123, the Company's net
    earnings and earnings per share would have been adjusted to the pro forma
    amounts indicated below:


                                     1998        1997         1996
                                   ----------  ----------  ----------
                                                           
    Net earnings:                                          
      As reported                  $5,297,991  $7,073,560  $9,396,301
      Pro forma                     4,827,590   7,051,451   7,996,865
    Basic earnings per share:                              
      As reported                  $      .61  $      .81  $     1.19
    Pro forma                             .55         .81        1.01
    Diluted earnings per share:                            
      As reported                  $      .52  $      .69  $      .97
      Pro forma                           .47         .68         .83

    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 1998, 1997 and 1996, respectively: expected
    volatility of 45.8%, 48.3% and 39.8%, respectively; risk free interest rate
    of 6.1%, 6.5% and 6.5% for 1998, 1997 and 1996, respectively; and expected
    lives of 1 to 5 years.

    The effects of applying SFAS 123 in the above pro forma disclosures are not
    indicative of future amounts, as they do not include the effects of awards
    granted prior to 1995. Additionally, future amounts are likely to be
    affected by the number of grants awarded since additional awards are
    generally expected to be made at varying amounts.

9.  INCOME TAXES:

    The provision for income taxes is comprised of the following:


                             February       February       February  
                             28, 1998       28, 1997       29, 1996  
                            ----------     ----------     ---------- 
                                                                     
    Current:                                                         
      Federal               $3,103,097     $4,213,767     $5,082,876 
      State and Local          655,559        900,193      1,107,016 
    Deferred:                                                        
      Federal                  (74,103)      (221,867)       178,923 
      State                    (35,007)       (44,397)        34,476 
                                           ----------     ---------- 
                            $3,649,546     $4,847,696     $6,403,291 
                            ==========     ==========     ==========  

                                                                       Page F-13
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
9.  INCOME TAXES (continued):

    The components of the net deferred income tax liability, pursuant to SFAS
    109, as of February 28, 1998 and February 28, 1997 are as follows:

                                               1998                1997    
                                           ------------        ------------
    Deferred Tax Assets:                                                   
      Accounts Receivable                  $   708,610         $   679,600 
      Inventory                                100,300             162,400 
                                           -----------         ----------- 
      Total Deferred Tax Assets                808,910             842,000 
                                           -----------         ----------- 
                                                                           
    Deferred Tax Liabilities                                               
      Fixed Assets                            (184,500)           (112,148)
      Income of Interest Charge DISC        (1,055,805)           (952,000)
      Total Deferred Tax Liabilities        (1,240,305)         (1,064,148)
                                           -----------         ----------- 
                                                                           
    Net Deferred Tax Liabilities           $  (431,395)        $  (222,148)
                                           ===========         ===========  

    The following is a reconciliation of the maximum statutory federal tax rate
    to the Company's effective tax rate:

                                             1998         1997          1996
                                          ---------     ---------    -----------
    Statutory rate                           35.0%        35.0%         35.0%
    State and local taxes                     7.1          7.0           6.5
    Other                                    (1.3)        (1.3)         (1.0)
                                             -----        -----         -----
                                                                  
    Effective tax rate                       40.8%        40.7%         40.5%
                                             =====        =====         =====
                                        
10. EMPLOYEE BENEFIT PLANS:

    On January 13, 1987, the Company's Board of Directors approved the
    termination of the Company's pension plan and approved the adoption of an
    employee stock ownership plan (ESOP) to replace the terminated pension plan.
    The ESOP covers all eligible employees and contributions are determined by
    the Board of Directors. The ESOP purchases shares of the Company's common
    stock using loan proceeds. As the loan is repaid, a pro rata amount of
    common stock is released for allocation to eligible employees. The Company
    makes cash contributions to the ESOP to meet its obligations. Contributions
    to the ESOP for the three years ended February 28, 1998 aggregated $139,950
    for each year.

    On October 31, 1997, the Company, on behalf of the ESOP, entered into an
    additional credit agreement with a bank which provides for a $3,000,000
    revolving line of credit at the bank's prime rate until October 31, 2001.
    Direct borrowings under this line of credit are payable in forty-eight equal
    monthly installments commencing with the fiscal period subsequent to such
    borrowings. At February 28, 1998, there were no direct borrowings
    outstanding under the ESOP line of credit.

    In January 1991, the Company also established a 401-K profit sharing plan to
    cover all eligible employees. The Company's contributions to the plan are
    discretionary, but may not exceed 1% of compensation. Contributions to the
    plan for the three years ended February 28, 1998 were $220,403, $111,585 and
    $90,243, respectively.

                                                                       Page F-14
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------

11. COMMITMENTS:

    (a)   On September 13, 1996, the Company signed employment contracts (the
          "Contracts"), as amended, with three of its senior executives for a
          continually renewing five year term. The Contracts specify a base
          salary of $226,545 for each officer, which shall be increased each
          year by the change in the consumer price index, and also entitle each
          of the officers to an annual bonus equal to 3.33% (10% in the
          aggregate) of the Company's consolidated earnings before income taxes.
          Benefits are also payable upon the occurrence of either a change in
          control of the Company, as defined, or the termination of the
          officer's employment, as defined. The Contracts also provide for
          certain payments of the executives' salaries, performance bonuses and
          other benefits in event of death or disability of the officer for the
          balance of the period covered by the agreement.

    (b)   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. In mid- 1997, the
          Company moved its executive offices and distribution operation to the
          facility. The lease term is from December 17, 1996 to December 16,
          2008 at an annual base rental of $601,290 and provision for a 4%
          annual escalation in each of the last ten years of the term. The
          Company also leases certain other office, warehouse and other
          properties which leases include various escalation clauses, renewal
          options, etc. Aggregate minimum rental commitments under noncancelable
          operating leases are as follows:


                Fiscal 1999                     $1,601,614
                Fiscal 2000                      1,502,220
                Fiscal 2001                      1,342,167
                Fiscal 2002                        935,134
                Fiscal 2003                        683,296
                Thereafter                       4,243,090

          Rent expense was $1,459,325, $712,548, and $587,079 for each of the
          prior three years in the period ending February 28, 1998.

    (c)   The Company has signed a four-year consulting agreement with the 
          former owner of Merit Electonics that commenced on April 29, 1994 and
          terminates on April 28, 1998. The agreement provides for the
          consultant to perform advisory services to Nu Horizons/Merit and to
          receive consulting fees of approximately $665,000 per annum.


12. MAJOR SUPPLIERS:

    For the year ended February 28, 1998, the Company purchased inventory from
    one supplier that was in excess of 10% of the Company's total purchases.
    Purchases from this supplier aggregated approximately $18,872,000.

    For the year ended February 28, 1997, the Company purchased inventory from
    one supplier that was in excess of 10% of the Company's total purchases.
    Purchases from this supplier aggregated approximately $21,385,000.

    For the year ended February 29, 1996, the Company purchased inventory from
    two suppliers that were in excess of 10% of the Company's total purchases.
    Purchases from these suppliers aggregated approximately $33,505,000.

                                                                       Page F-15
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------
                                        
13. BUSINESS SEGMENT INFORMATION:

    The Company's operations have been classified into two business segments:
    Electronic component distribution and industrial contract manufacturing. The
    component distribution segment includes the resale of active and passive
    components to various original equipment manufacturers and distributors. The
    industrial contract-manufacturing segment consists of a subsidiary, which
    provides electronic circuit board and harness assembly services to original
    equipment manufacturers. This segment began operations in September 1991.

    Summarized financial information by business segment for fiscal 1998 and
    1997 is as follows:


                                                    1998            1997
-----------------------------------------------------------------------------
Net sales:                                                       
                                                                 
  Electronic Component Distribution               $221,217,251   $206,417,667
  Industrial Contract Manufacturing                 12,108,157     10,195,040
-----------------------------------------------------------------------------
                                                  $233,325,408   $216,612,707
                                                                 
                                                                 
Operating income (loss):                                         
                                                                 
  Electronic Component Distribution               $  9,430,055   $ 13,019,791
  Industrial Contract Manufacturing                  1,230,848        594,423
-----------------------------------------------------------------------------
                                                  $ 10,660,903   $ 13,614,214
-----------------------------------------------------------------------------
                                                                 
Total assets:                                                    
                                                                 
  Electronic Component Distribution               $ 95,519,254   $ 70,577,102
  Industrial Contract Manufacturing                  4,122,174      4,206,212
-----------------------------------------------------------------------------
                                                  $ 99,641,428   $ 74,783,314
-----------------------------------------------------------------------------
                                                                 
Depreciation and amortization:                                   
                                                                 
  Electronic Component Distribution               $  1,201,732   $    978,684
  Industrial Contract Manufacturing                    286,325        260,283
-----------------------------------------------------------------------------
                                                  $  1,488,057   $  1,238,967
-----------------------------------------------------------------------------
                                                                 
Capital expenditures (including capital leases):                 
                                                                 
                                                                 
  Electronic Component Distribution               $    983,419   $  4,566,196
  Industrial Contract Manufacturing                    193,485        370,316
-----------------------------------------------------------------------------
                                                  $  1,176,904   $  4,936,512
-----------------------------------------------------------------------------

                                                                       Page F-16
<PAGE>
 
                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
                -----------------------------------------------

14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

                                 THREE MONTH PERIOD ENDED
                     -------------------------------------------------
 
                      FEBRUARY      NOVEMBER      AUGUST        MAY
                       28,1998      30, 1997     31, 1997     31, 1997
                     -----------  -----------  -----------  -----------
                                                            
NET SALES            $62,347,646  $60,013,458  $56,798,598  $54,165,706
                     -----------  -----------  -----------  -----------
                                                            
COST OF SALES         48,671,746   47,065,156   44,570,929   42,223,252
                     -----------  -----------  -----------  -----------
                                                            
OPERATING AND        
INTEREST EXPENSES     11,284,786   10,754,379   10,382,809    9,424,814
                     -----------  -----------  -----------  -----------
                                                            
PROVISION FOR                                               
INCOME TAXES             972,310      888,540      773,444    1,015,252
                     -----------  -----------  -----------  -----------
                                                            
NET INCOME           $ 1,418,804  $ 1,305,383  $ 1,071,416  $ 1,502,388
                     ===========  ===========  ===========  ===========
                                                            
BASIC EARNINGS                                              
PER SHARE                   $.16         $.15         $.12         $.17
                     ===========  ===========  ===========  ===========
                                                            
WEIGHTED AVERAGE                                            
NUMBER OF COMMON     
AND COMMON                                 
EQUIVALENT SHARES    
OUTSTANDING            8,753,076    8,753,076    8,746,826    8,739,326
                     ===========  ===========  ===========  ===========
 
                                    THREE MONTH PERIOD ENDED
 
 
                      FEBRUARY     NOVEMBER      AUGUST        MAY
                       28,1997     30, 1996     31, 1996     31, 1996
                     -----------  -----------  -----------  -----------
                                                            
NET SALES            $54,198,484  $53,958,639  $50,783,044  $57,672,540
                     -----------  -----------  -----------  -----------
                                                            
COST OF SALES         42,071,313   41,894,971   39,411,875   44,746,424
                     -----------  -----------  -----------  -----------
                                                            
OPERATING AND                                               
INTEREST EXPENSES      9,517,539    9,138,969    9,103,283    8,807,077
                     -----------  -----------  -----------  -----------
                                                            
PROVISION FOR                                               
INCOME TAXES           1,084,131    1,182,805      916,658    1,664,102
                     -----------  -----------  -----------  -----------
                                                            
NET INCOME           $ 1,525,501  $ 1,741,894  $ 1,351,228  $ 2,454,937
                     ===========  ===========  ===========  ===========
                                                            
BASIC EARNINGS                                              
PER SHARE                   $.17         $.20         $.15         $.29
                     ===========  ===========  ===========  ===========
                                                            
WEIGHTED AVERAGE                                            
NUMBER OF COMMON                                            
AND COMMON                                                  
EQUIVALENT SHARES                                           
OUTSTANDING            8,732,299    8,732,299    8,732,299    8,423,137
                     ===========  ===========  ===========  ===========
                                                                                

                                                                       Page F-17
<PAGE>
 
REPORT OF MANAGEMENT

The management of Nu Horizons Electronics Corp. is responsible for the
preparation of the consolidated financial statements in accordance with
generally accepted accounting principles and for the integrity and objectivity
of all the financial data included in this annual report.  In preparing the
financial statements, management makes informed judgments and estimates as to
the expected effects of events and transactions currently being reported.

To meet this responsibility, the Company maintains a system of internal
accounting controls to provide reasonable assurance that assets are safeguarded,
and that transactions are properly executed and recorded.  The system includes
policies and procedures, and reviews by officers of the Company.

The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's financial statements and the system of internal accounting controls.

The Audit Committee is composed solely of outside directors.  The Committee
meets periodically and, when appropriate, separately with representatives of the
independent accountants and officers of the Company to monitor the activities of
each.

Lazar Levine & Felix LLP, the independent accountants, have been selected by the
Board of Directors to examine the Company's financial statements.  Their report
appears herein.


BY:  /s/ PAUL DURANDO                     BY:  /s/ ARTHUR NADATA
     --------------------------------          -----------------------------
            Paul Durando                              Arthur Nadata
     Vice President, Finance and                      President and
             Treasurer                           Chief Executive Officer

                                                                       Page F-18
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURES:

           The Company had no disagreements on accounting or financial
         disclosure matters with its accountants, nor did it change accountants,
         during the three year period ending February 28, 1998.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:

            NAME                   AGE    POSITION                    
            ----                   ---    --------                    
                                                                      
         Irving Lubman             59     Chief Operating Officer and Chairman
                                          of the Board 
                                                       
         Arthur Nadata             52     President, Chief Executive Officer 
                                          and Director 
                                                       
         Richard S. Schuster       49     Vice-President, Secretary and 
                                          Director       
                                           
         Paul Durando              54     Vice President  Finance, Treasurer 
                                          and Director            
                                                              
         Harvey R. Blau            62     Director            
                                                      
         Herbert M. Gardner        58     Director            
                                                              
         Dominic A. Polimeni       51     Director             
 
           The Company's Certificate of Incorporation provides for a Board of
         Directors consisting of not less than three nor more than eleven
         directors, classified into three classes as nearly equal in number as
         possible, whose terms of office expire in successive years. The
         following table sets forth the directors of the Company.

<TABLE>
<CAPTION>

     Class I                          Class II                          Class III

<S>                         <C>                               <C>
(To Serve Until the               (To Serve Until the               (To Serve Until the
Annual Meeting of                  Annual Meeting of                 Annual Meeting of
Stockholders in 2000)            Stockholders in 1998)             Stockholders in 1999)
---------------------           -----------------------            --------------------  
Paul Durando                        Harvey Blau (1)                    Irving Lubman
Herbert Gardner (1)             Dominic A. Polimeni (1)                Arthur Nadata
                                  Richard S. Schuster
</TABLE>

         (1) Member of Compensation and Audit Committees

             All officers serve at the discretion of the Board. There are no
         family relationships among the directors and officers.

             Irving Lubman has been Chairman of the Board since October 1982
         and Chief Operating Officer since September 1996. Mr. Lubman was Chief
         Executive Officer from October 1982 to September 1996. Mr. Lubman has
         been actively involved in electronic components' distribution since
         1957, when he joined Milgray Electronics Corp., holding the position of
         sales manager until 1968. From 1968 through October 1982, when he
         joined the Company, Mr. Lubman was corporate vice president of Diplomat
         Electronics Corp., also a distributor of electronic components.

             Arthur Nadata has been President and a Director since October 1982
         and Chief Executive Officer since September 1996. Mr. Nadata was also
         the Treasurer of the Company from October 1982 to September 1996. Prior
         to joining the Company in October 1982, Mr. Nadata worked for eighteen
         years for Diplomat Electronics Corp. in various operational and sales
         positions of increasing responsibility, eventually becoming corporate
         vice president of sales and marketing.

                                                                         Page 14
<PAGE>
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued):



           Richard S. Schuster has been Vice President, Secretary and a Director
         since October 1982. For the seven years prior to joining the Company in
         November 1982, Mr. Schuster served as manager of Capar Components
         Corp., an importer and distributor of passive components, and a wholly-
         owned subsidiary of Diplomat Electronics Corp. For the six years prior
         to 1975, Mr. Schuster was employed by International Components Corp.,
         responsible for production, engineering and sales of imported
         semiconductor and passive components.

           Paul Durando has been Vice President, Finance since joining the
         Company in March 1991, Treasurer since September 1996 and has been a
         Director since September 1994. Prior to joining the Company in March
         1991, Mr. Durando served for six years as Executive Vice President of
         Sigma Quality Foods, Inc. From 1977 to 1984, he was Vice President,
         Operations of the Wechsler Coffee Corp. Mr. Durando was also associated
         with Deloitte Haskins & Sells for seven years.

           Harvey R. Blau has been a director of the Company since May 1984. Mr.
         Blau has been a practicing attorney in the State of New York since
         1961, and is a member of the law firm of Blau, Kramer, Wactlar &
         Lieberman, P.C., Jericho, New York, counsel to the Company. Mr. Blau is
         Chairman of the Board of Griffon Corporation and Aeroflex Incorporated
         and is a Director of Reckson Associates Realty Corp.

           Herbert M. Gardner has been a Director of the Company since May 1984.
         For more than the past five years, Mr. Gardner has been Senior Vice
         President of Janney Montgomery Scott Inc., investment bankers and
         Underwriter of the Company's May 1984 public offering. Mr. Gardner is
         Chairman of the Board of Supreme Industries Inc. and a director of
         Transmedia Network, Inc., TGC Industries Inc., Hirsch International
         Corp., American Country Holdings Company and Inmark Enterprises, Inc.

           Dominic A. Polimeni has been a Director of the Company since
         September 1997. Mr. Polimeni has been President, Chief Operating
         Officer and a Director of Questron Technology, Inc. since March 1995,
         and Chairman and Chief Executive Officer of Questron Technology, Inc.
         since February 1996. Mr. Polimeni has been a Managing Director of
         Gulfstream Financial Group, Inc., a privately held financial consulting
         and investment banking firm since August 1990. Prior to that he held
         the position of Chief Financial Officer of Arrow Electronics, Inc.
         ("Arrow") for four (4) years. Mr. Polimeni also practiced as a
         Certified Public Accountant for more than 12 years and was a Partner in
         the New York office of Arthur Young and Company.

                                                                         Page 15
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION:

         The following table sets forth the compensation paid by the Company to
         its Chief Executive Officer and each of the three other executive
         officers for the years ended February 28, 1998, February 28, 1997 and
         February 29, 1996.

                                  SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                       
                                                                       
                                                                       Long Term   
                                   Annual Compensation (1)             Compensation                                  
                                   -----------------------             ------------ 
                                                               Securities
 Name of Principal      Fiscal                                 Underlying     All other (2)
   and Position          Year     Salary        Bonus          Options        Compensation
 -----------------      ------    ------        -----          ----------     -------------
<S>                     <C>      <C>           <C>            <C>                <C>
Irving Lubman           1998     $236,789      $344,370              -            $16,781
COO, Chairman           1997      229,893       446,843        100,000             14,945
of the Board            1996      226,545       586,608         50,000             16,660
                        
Arthur Nadata           1998     $236,789      $344,370              -            $31,374
President and           1997      229,893       446,843        100,000             18,457
CEO                     1996      226,545       586,608         50,000             22,357
                        
Richard Schuster        1998     $236,789      $344,370              -            $18,922
Vice President          1997      229,893       446,843        100,000             16,222
Secretary and           1996      226,545       586,608         50,000             17,663
President, NIC          
Components Corp.        
                        
Paul Durando            1998     $138,942      $ 25,827         15,000            $ 1,389
Vice President,         1997      130,000        33,514         20,000              1,500
Finance and             1996      125,000        45,000         20,000              1,250
Treasurer               
</TABLE>


                     SUMMARY COMPENSATION TABLE  Footnotes


         (1) No Other Annual Compensation is shown because the amounts of
             perquisites and other non-cash benefits provided by the Company do
             not exceed the lesser of $50,000 or 10% of the total annual base
             salary and bonus disclosed in this table for the respective
             officer.

         (2) The amounts disclosed in this column include the Company's
             contributions on behalf of the named executive officer to the
             Company's 401(k)-retirement plan in amounts equal to a maximum of
             1% of the executive officer's annual salary and, for Messrs.
             Lubman, Nadata and Schuster contributions to life insurance
             policies where the Company is not the beneficiary, and the cost to
             the Company of the non-business use of Company automobiles used by
             executive officers.

                                                                         Page 16
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         Employment Contracts

         On September 13, 1996 the Company signed employment contracts (the
         "Contracts"), as amended, with three of its senior executives for a
         continually renewing five year term. The Contracts specify a base
         salary of $226,545 for each officer, which shall be increased each year
         by the change in the consumer price index, and also entitle each of the
         officers to an annual bonus equal to 3.33% (10% in the aggregate) of
         the Company's consolidated earnings before income taxes. Benefits are
         also payable upon the occurrence of either a change in control of the
         Company, as defined, or the termination of the officer's employment, as
         defined. In the event the employee terminates his employment within six
         months after a change in control of the Company, he will receive a lump
         sum payment equal to three-quarters of the remaining compensation under
         his employment agreement. The Contracts also provide for certain
         payments of the executives' salaries, performance bonuses and other
         benefits in the event of death or disability of the officer for the
         balance of the period covered by the agreement.

         The following table sets forth certain information with respect to
         stock options granted to the officers named in the Summary Compensation
         Table during the fiscal year ended February 28, 1998.

                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                              Potential Realizable Value 
                                % of Total       Exercise                     at Assumed Annual Rates of 
              Options         Options Granted      Price         Expiration   Stock Price Appreciation for 
              Granted (1)     to Employees      ($ per share)       Date          Entire Term (2) (3)
              ----------      ---------------   -------------    ----------   ---------------------------- 
<S>            <C>            <C>                 <C>            <C>          <C>               <C>
                                                                                 5%               10%
                                                                               -------           -------
P. Durando     15,000             15.2%            $8.56         9/18/02       $35,400           $78,450

</TABLE>



               OPTIONS/SAR GRANTS IN LAST FISCAL YEAR  Footnotes

         (1) Options were granted for a term of five years, subject to earlier
             termination on termination of employment. Options become
             exercisable in four equal annual installments commencing one year
             from the date of grant.

         (2) These amounts represent assumed rates of appreciation, which may
             not necessarily be achieved. The actual gains, if any, are
             dependent on the market value of the Company's stock at a future
             date as well as the option holder's continued employment throughout
             the vesting period. Appreciation reported is net of exercise price.

         (3) Potential Realizable Value is based on the assumed annual growth
             rates for the five-year option term. Annual growth of 5% results in
             a stock price of $10.92 per share and 10% results in a price of
             $13.79 per share for Mr. Durando on the shares granted at $8.56.
             Actual gains, if any, on stock option exercises are dependent on
             the future performance of the stock as well as the option holder's
             continued employment throughout the vesting period. There can be no
             assurance that the amounts reflected in this table will be
             achieved. Appreciation reported is net of exercise price.

                                                                         Page 17
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         The following table sets forth certain information as to each exercise
         of stock options during the fiscal year ended February 28, 1998 by the
         persons named in the Summary Compensation Table and the fiscal year end
         value of unexercised options:


            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END
                               OPTIONS/SAR VALUES



<TABLE>
<CAPTION>
                                                                                          
                                                                          Number of       Value of Unexercised
                                                                         Unexercised          In-the-Money    
                                                                         Options/SARs         Options/SARs    
                                                                          at FY End             at FY End      
                                                                         ------------     --------------------
 
                          Shares Acquired                                Exercisable/         Exercisable/
                            on Exercise         Value Realized (1)      Unexercisable         Unexercisable
                          ---------------       ------------------      -------------         -------------  
                                                                     
<S>                    <C>                    <C>                          <C>                 <C>        
Irving Lubman                   -                      -                   161,488                     - 
                                                                           137,162                     - 
                                                                                                         
Arthur Nadata                   -                      -                   161,488                     - 
                                                                           137,162                     - 
                                                                                                         
Richard Schuster                -                      -                   161,488                     - 
                                                                           137,162                     - 
                                                                                                         
Paul Durando                    -                      -                    24,375                 $3,412 
                                                                            41,875                     -  
</TABLE>


         (1) Market value less exercise price, before payment of applicable
             federal or state taxes.

                                                                         Page 18
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         Directors who are not employees of the Company receive an annual fee of
         $2,000 for Board Membership and $500 for each Board of Directors or
         Committee meeting attended. There were three meetings of each of the
         Board of Directors and the Compensation Committee during the fiscal
         year ended February 28, 1998. Each director attended or participated in
         all of the meetings of the Board of Directors and the committees
         thereof on which he served, except for two directors, who attended two
         of three board meetings and one of two board and compensation meetings
         respectively.

         For the fiscal year ended February 28, 1998, there was one meeting of
         the Audit Committee. The Company's Audit Committee is involved in
         discussions with the Company's independent public accountants with
         respect to the scope and results of the Company's year-end audit, the
         Company's internal accounting controls and the professional services
         furnished by the independent auditors to the Company. During fiscal
         1997, the Company had no standing Nominating Committee or any committee
         performing similar functions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company's Compensation Committee consisted during fiscal 1997 of
         Messrs. Gardner (Chairman) and Blau. Mr. Gardner is Senior Vice
         President of Janney Montgomery Scott, Inc., investment bankers, which
         acted as placement agent in connection with the Company's $15 million
         private placement of convertible subordinated notes in August 1994. Mr.
         Blau is a partner in the law firm of Blau, Kramer, Wactlar & Lieberman,
         P.C. The Company has utilized, and anticipates that it will continue to
         utilize, the services of Blau, Kramer, Wactlar & Lieberman, P.C. as its
         general counsel.

         In accordance with rules promulgated by the Securities and Exchange
         Commission, the information included under the captions "Compensation
         Committee Report on Executive Compensation" and "Company Stock
         Performance" will not be deemed to be filed or to be proxy soliciting
         material or incorporated by reference in any prior or future filings by
         the Company under the Securities Act of 1933 or the Securities Exchange
         Act of 1934.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         The compensation of the Company's executive officers generally is
         determined by the Compensation Committee of the Board of Directors.
         Each member of the Compensation Committee is a Director who is not an
         employee of the Company or any of its affiliates. The following report
         with respect to certain compensation paid or awarded to the Company's
         executive officers during fiscal 1997 is furnished by the Compensation
         Committee.

GENERAL POLICIES

         The Company's compensation programs are intended to enable the Company
         to attract, motivate, reward and retain management talent required to
         achieve aggressive corporate objectives in a rapidly changing industry,
         and thereby increase stockholder value. It is the Company's policy to
         provide incentives to its senior management to achieve both short-term
         and long-term objectives and to reward exceptional performance and
         contributions to the development of the Company's business. To attain
         these objectives, the Company's executive compensation program includes
         a competitive base salary, coupled with, with respect to certain
         executives, a substantial cash bonus which is "at risk" based on the
         Company's earnings.

         Many of the Company's employees, including its executive officers, also
         are eligible to be granted stock options periodically in order to more
         directly align their interests with the long-term financial interest of
         the Company's stockholders.

                                                                         Page 19
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

RELATIONSHIP OF COMPENSATION TO PERFORMANCE

         The Compensation Committee annually establishes, subject to any
         applicable employment agreements, the salaries, which will be paid to
         the Company's executive officers during the coming year. In setting
         salaries, the Board of Directors takes into account several factors,
         including competitive compensation data, the extent to which an
         individual may participate in the stock option plan maintained by the
         Company and its affiliates, and qualitative factors bearing on an
         individual's experience, responsibilities, management and leadership
         abilities, and job performance.

         Stock options are granted to key employees, including the Company's
         executive officers, by the Compensation Committee of the Board of
         Directors under the Plans. Among the Company's executive officers, the
         number of shares subject to options granted to each individual
         generally depends upon his or her base salary and the level of that
         officer's management responsibility.

         During fiscal 1998, 15,000 options were granted to each outside
         director under the Company's Outside Director Stock Option Plan.
         Options to purchase 15,000 shares were granted to Mr. Durando under the
         Company's Stock Option Plan. Bonuses were paid to three executive
         officers, as set forth in the Summary Compensation Table, pursuant to
         the terms of their employment agreements with the Company and on a
         discretionary basis to Paul Durando, the Company's Vice President,
         Finance and Director. This latter bonus was determined to be
         appropriate by the Compensation Committee in light of Mr. Durando's
         contributions to the Company's performance, his base salary level and
         the level of his management responsibilities.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

         The Company has entered into an employment agreement with Arthur
         Nadata, the Company's President and Chief Executive Officer, pursuant
         to which Mr. Nadata receives a base salary of $226,545, adjusted for
         CPI index increases, and an incentive bonus equal to three and thirty-
         three one-hundredths percent (3.33%) of the Company's consolidated pre-
         tax earnings. In this way, Mr. Nadata's cash compensation is tied
         directly to the Company's profitability.

                                              The Compensation Committee
                                           
                                              Herbert Gardner
                                              Harvey Blau
                                              Dominic Polimeni

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

         Section 16(a) of the Exchange Act requires the Company's executive
         officers, directors and persons who own more than ten percent of a
         registered class of the Company's equity securities ("Reporting
         Persons") to file report of ownership and changes in ownership on Forms
         3, 4 and 5 with the Securities and Exchange Commission (the "SEC") and
         the National Association of Securities Dealers (the "NASD"). These
         Reporting Persons are required by SEC regulation to furnish the Company
         with copies of all Forms 3, 4 and 5 they file with the SEC and NASD.

                                                                         Page 20
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT (CONTINUED)

         Based solely on the Company's review of the copies of the forms it has
         received, the Company believes that all Reporting Persons complied on a
         timely basis with all filing requirements applicable to them with
         respect to transactions during fiscal year 1998.

                        COMPANY STOCK PERFORMANCE GRAPH

         The following Performance Graph compares the Company's cumulative total
         stockholder return on its Common Stock for a five year period (February
         28, 1993 to February 28, 1998) with the cumulative total return of the
         NASDAQ Market Index (which includes the Company) and a peer group of
         companies selected by the Company for purposes of the comparison.
         Dividend reinvestment has been assumed and, with respect to companies
         in the Peer Group, the returns of each such company have been weighted
         to reflect relative stock market capitalization.

                     COMPARE 5 YEAR CUMLATIVE TOTAL RETURN
                      AMONG NU-HORIZONS ELECTRONICS CORP.,
                    NASDAQ MARKET INDEX AND PEER GROUP INDEX


<TABLE>
<CAPTION>

        Measurement Period             Nu Horizons                    NASDAQ                                         
        (Fiscal Year Covered)        Electronics Corp.              Market Index               Peer Group          
        --------------------------------------------------------------------------------------------------
           <S>                          <C>                         <C>                         <C>              
            FYE 3/01/93                  $100.00                     $100.00                     $100.00         
            FYE 2/28/94                   219.28                      127.41                      139.16         
            FYE 2/28/95                   185.30                      121.65                      133.55         
            FYE 2/29/96                   386.05                      167.97                      176.67         
            FYE 2/28/97                   228.54                      201.61                      199.14         
            FYE 2/28/98                   155.96                      274.20                      204.72          
</TABLE>



                     ASSUMES $100 INVESTED ON MARCH 1, 1993
                          ASSUMES DIVIDEND REINVESTED
                      FISCAL YEAR ENDING FEBRUARY 28, 1998

         Peer group includes All American Semiconductor, Arrow Electronics Inc.,
         Avnet Inc., Bell Industries Inc., Bell Microproducts Inc., Jaco
         Electronics Inc., Kent Electronics Corp., Marshall Industries, Pioneer
         Standard Electronics and Reptron Electronics Inc.

                                                                         Page 21
<PAGE>
 
         EXECUTIVE COMPENSATION (Continued):

         Key Employees Stock Incentive Plan:

           The Company has a Key Employees Stock Incentive Plan ("Plan"),
         approved by the stockholders in 1984, as amended in September 1987,
         which presently covers 712,765 shares of Common Stock. Options are
         currently outstanding for 197,450 shares and no shares are currently
         available for grant. The Plan is intended to provide an additional
         means of inducing executives and other "key salaried employees" of the
         Company (which is defined under Section 422A of the Internal Revenue
         Code) to join and remain with the Company by offering them a greater
         share of the Company's stock and a greater identification with the
         Company.

           The Board of Directors or a Committee, which may be appointed and
         maintained by the Board, shall have the power to administer the Plan.
         The Board or Committee has full power and authority: (i) to designate
         participants; (ii) to designate options or any portion thereof as
         Incentive Stock Options ("ISO"); (iii) to determine the terms and
         provisions of respective option agreements (which need not be
         identical) including, but not limited to, provisions concerning the
         time or times when and the extent to which the stock options
         ("Options") and Stock Appreciation Rights ("SARs") may be exercised and
         the nature and duration of restrictions as to transferability or
         constituting substantial risk forfeiture; (iv) to accelerate the right
         to an optionee to exercise in whole or in part any previously granted
         ISO including any options modified to qualify as ISOs; and (v) to
         interpret the provisions and supervise the administration of the Plan.
         The Board has appointed the Compensation Committee to administer the
         Plan.

           The purchase price of each share subject to an Option or any portion
         thereof, which has been designated by the Board or the Committee as an
         ISO, shall not be less than 100% (or 110%, if at the time of grant the
         optionee owns more than 10% of the voting stock of the Company) in the
         case of options designated as ISOs or 85% in case of options not
         designated as incentive stock options, of the fair market value of such
         shares on the date the option is granted. In no event shall the option
         price be less than the par value of the stock.

         1994 Stock Option Plan:

           In September 1994, the Company's stockholders approved the 1994 Stock
         Option Plan (the "1994 Plan"), as amended in September 1996, under
         which key employees and officers of the Company, its subsidiaries and
         affiliates may be granted options to purchase an aggregate of 1,100,000
         shares of the Company's Common Stock. The 1994 Plan is administered by
         the Compensation Committee, consisting of at least two members of the
         Board of Directors. The Compensation Committee, subject to provisions
         in the 1994 Plan, has the authority to designate, in its discretion,
         which persons are to be granted options, the number of shares subject
         to each option, and the period of each option. Each recipient must be
         an employee of the Company at the time of grant and throughout the
         period ending on the day three months before the date of exercise.
         Under the terms of the 1994 Plan, the exercise price of the shares
         subject to each option granted will be not less than 85% nor more than
         100% of the fair market value at the date of grant or 110% of such fair
         market value for options granted to any employee to or director who
         owns stock possessing more than ten percent (10%) of the total combined
         voting power of all classes of stock of the Company. Adjustments will
         be made to the purchase price in the event of stock dividends,
         corporate reorganizations, or similar events. During fiscal 1998,
         98,500 options were granted under the 1994 Plan with exercise prices of
         $8.56 and $5.88. Options are currently outstanding for 1,084,000 shares
         and 16,000 options are currently available for grant. No options to
         purchase shares granted under the 1994 Plan have been exercised.

                                                                         Page 22
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         1994 Stock Option Plan (continued):

           The Compensation Committee of the Board of Directors has the
         responsibility and authority to administer and interpret the provisions
         of the 1994 Plan. The Compensation Committee shall appropriately adjust
         the number of shares for which awards may be granted pursuant to the
         1994 Plan in the event of reorganization, recapitalization, stock
         split, reverse stock split, stock dividend, exchange or combination of
         shares, merger, consolidation, rights offering or any change in
         capitalization. The Board may, from time to time, amend, suspend or
         terminate any or all of the provisions of the 1994 Plan, provided that,
         without the participant's approval, no change may be made which would
         prevent an ISO granted under the 1994 Plan from qualifying as an ISO
         under Section 422A of the Internal Revenue Code of 1986, as amended
         (the "Code") or results in a modification of the ISO under Section
         425(h) of the Code or otherwise alter or impair any right theretofore
         granted to any participant; and further provided that, without the
         consent and approval of the holders of a majority of the outstanding
         shares of Common Stock of the Company present at that meeting at which
         a quorum exists, neither the Board not the Committee may make any
         amendment which (i) changes the class of persons eligible for options;
         (ii) increases (except as provided under Section 1.6 of the 1994 Plan)
         the total number of shares or other securities reserved for issuance
         under the 1994 Plan; (iii) decreases the minimum option prices stated
         in Section 2.2 of the 1994 (other than to change the manner of
         determining Fair Market Value to conform to any then applicable
         provision of the Code or any regulation thereunder); (iv) extends the
         expiration date of the 1994 Plan, or the limit on the maximum term of
         options; or (v) withdraws the administration of the 1994 Plan from a
         committee consisting of two or more members, each of whom is a
         Disinterested Person. With the consent of the Participant affected
         thereby, the Committee may amend or modify any outstanding option in
         any manner not inconsistent with the terms of the 1994 Plan.

         Outside Director Stock Option Plan:

           In September 1994, the Company's stockholders approved the Outside
         Directors Stock Option Plan (the "Director Plan") which covers 150,000
         shares of the Company's Common Stock. The primary purposes of the
         Director Plan are to attract and retain well-qualified persons for
         service as directors of the Company and to provide such outside
         directors with the opportunity to increase their proprietary interest
         in the Company's continued success and further align their interests
         with the interests of the stockholders of the Company through the grant
         of options to purchase shares of the Company's Common Stock.

           All directors of the Company who are not employees of the Company, of
         which there are presently two, are eligible to participate in the
         Director Plan. None of the non-employee directors are eligible to
         participate in any of the other compensation plans of the Company.

           The Board of Directors of the Company may amend the Director Plan
         from time to time in such manner as it may deem advisable. The
         provisions of the Director Plan relating to (i) which directors shall
         be granted options; (ii) the amount of Shares subject to options
         granted; (iii) the price at which shares subject to options may be
         purchased; and (iv) the timing of grants of options shall not be
         amended more than once every six (6) months, other than to comport with
         changes in the Code or the Employee Retirement Income Security Act of
         1974, as amended. No amendment to the Director Plan shall adversely
         affect any outstanding option, however, without the consent of the
         optionee that holds such option.

                                                                         Page 23
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         Outside Director Stock Option (continued):

           The Compensation Committee of the Board of Directors has the
         responsibility and authority to administer and interpret the provisions
         of the Director Plan. The Compensation Committee shall appropriately
         adjust the number of shares for which awards may be granted pursuant to
         the Director Plan in the event of reorganization, recapitalization,
         stock split, reverse stock split, stock dividend, exchange or
         combination of shares, merger, consolidation, rights offering, or any
         change in capitalization.

           Under the Director Plan, each non-employee Director ("Outside
         Director") received options to purchase 10,000 shares of Common Stock
         at a price of $8.25 per share (the price of shares of Common Stock on
         June 1, 1994) and on the June 1 of each subsequent year each non-
         employee director has or will be granted options to purchase 10,000
         shares of Common Stock at a price equal to the closing price of the
         Common Stock on a national securities exchange upon which the Company's
         stock is listed or the average of the mean between the last reported
         "bid" and "asked prices if the Common Stock is not so listed for the
         five business days immediately preceding the date of grant. Options
         awarded to each outside director vest in three equal installments over
         a period of two years, subject to forfeiture under certain conditions
         and shall be exercisable by the Outside Director upon vesting.

         Summary of Fiscal 1998 Stock Option Grants:

           During fiscal 1998, the Company granted options to purchase 15,000
         shares to Mr. Durando at a price of $8.56 per share and options to
         purchase 10,000 shares to each of Messrs. Blau and Gardner at at a
         price of $8.99 per share.

         Employee Stock Ownership Plan:

           In January 1987, the Company adopted an Employee Stock Ownership Plan
         ("ESOP" or "Plan") which covers substantially all of the Company's
         employees. The ESOP is managed by three Trustees, Messrs. Lubman,
         Nadata and Schuster (the "Trustees"), who vote the securities held by
         the Plan (other than securities of the Company which have been
         allocated to employees' accounts).

           The annual contributions to the Plan are to be in such amounts, as
         the Board of Directors in its sole discretion shall determine. Each
         employee who participates in the Plan has a separate account and the
         annual contribution by the Company to an employee's account is not
         permitted to exceed the lesser of $30,000 (or such other limit as may
         be the maximum permissible pursuant to the provisions of Section 415 of
         the Internal Revenue Code and Regulations issued hereunder) or 25% of
         such employee's annual compensation, as defined under the Plan. No
         contributions are required/of, nor shall any be accepted from, any
         employee.

                                                                         Page 24
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION (Continued):

         Employee Stock Ownership Plan (continued):

           All contributions to the Plan are invested in the Company's
         securities (except for temporary investments), the Trustees having the
         right to purchase the Company's securities on behalf of employees. The
         Trustees are considered the stockholder for the purpose of exercising
         all owners' and stockholders' rights, with respect to the Company's
         securities held in the Plan, except for voting with respect to the
         Company's securities held in the Plan, except for voting rights which
         insure to the benefit of each employee who can vote all shares held in
         his account, even if said shares are not vested. Vesting is based upon
         an employee's years of service, employees generally becoming fully
         vested after six years.

           Benefits are payable to employees at retirement or upon death,
         disability or termination of employment, with payments commencing no
         later than sixty days following the last day of the Plan year in which
         such event occurred. Subject to the right of the employee to demand
         payment in the form of the Company's Common Stock, all benefits are
         payable in cash or in Common Stock, at the discretion of the Trustees.

           The Trustees are empowered to borrow funds for the purpose of
         purchasing the Company's securities. The securities so purchased are
         required to be held in an acquisition indebtedness account, to be
         released and made available for reallocation as principal is repaid. In
         May, 1997 the Company, on behalf of the ESOP, entered into a revolving
         credit agreement with its bank which provides for a $3,000,000
         revolving line of credit at the bank's prime rate until May 22, 2001.
         Direct borrowings under this line of credit are payable in forty-eight
         equal monthly installments commencing with the fiscal period subsequent
         to such borrowings. At February 28, 1998, the ESOP owned 446,487 shares
         at an average price of approximately $3.79 per share.

         401(k) Savings Plan

           The Company sponsors a retirement plan intended to be qualified under
         Section 401(k) of the Code. All non-union employees over age 21 who
         have been employed by the Company for at least six months are eligible
         to participate in the plan. Employees may contribute to the plan on a
         tax-deferred basis up to 15% of their total annual salary, but in no
         event more than the maximum permitted by the Code ($9,500 in calendar
         1997). Company contributions are discretionary. Effective with the plan
         year ended February 28, 1998, the Company has elected to make matching
         contributions at the rate of $ .25 per dollar contributed by each
         employee up to a maximum of 1% of an employee's salary vesting at the
         cumulative rate of 20% per year of service starting one year after
         commencement of service and, accordingly, after five years of any
         employee's service with Company, matching contributions by the Company
         are fully vested. As of February 28, 1998 approximately 250 employees
         had elected to participate in the plan. For the fiscal year ended
         February 28, 1998, the Company contributed approximately $220,404 to
         the plan, of which $8,457 was a matching contribution of $2,356 for
         each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,389 for Mr.
         Durando.

                                                                         Page 25
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

           The following table sets forth, as of May 1, 1998, certain
         information with regard to the record and beneficial ownership of the
         Company's Common Stock by (i) all persons known to the Company to be
         beneficial owners of more than 5% of the company's outstanding Common
         Stock, based on filings with the Commission; (ii) each Director, (iii)
         the Company's Chief Executive Officer and the three other most highly
         compensated executive officers of the Company; and (iv) all executive
         officers and Directors as a group.


         <TABLE>
         <CAPTION>
                                   NAME                                     SHARES                   PERCENT   
         -----------------------------------------------------    -----------------------      ----------------
                                                                                                               
         <S>                                                        <C>                          <C>           
         Paul Durando                                                   35,768 (1) (2)                 *       
         Herbert M. Gardner                                             42,862 (3)                     *       
         Harvey R. Blau                                                 37,075 (3)                     *       
         Irving Lubman                                                 232,087 (4) (5)                2.1%     
         Arthur Nadata                                                 472,247 (4) (5) (6)            4.3%     
         Richard S. Schuster                                           491,650 (4) (5)                4.5%     
         Dominic Polimeni                                                           0                  *       
         All officers and directors as a group (7 persons)           1,311,689                        11.9%    
         </TABLE> 

         NOTES:
         ------
 
         (*) Less than 1% of the Company's outstanding stock.

         (1) Includes options exercisable within 60 days for 31,250 shares of
             common stock under the Company's Key Employees Stock Option Plan
             and the 1994 Stock Option Plan.

         (2) Includes 4,518 shares of fully vested common stock owned through
             the Employee's Stock Ownership Plan, which include voting power.

         (3) Includes options exercisable within 60 days for 36,667 shares of
             common stock under the Company's Outside Director Stock Option
             Plan.

         (4) Includes options exercisable within 60 days for 186,150 shares of
             common stock under the Company's Key Employees Stock Option Plan
             and the 1994 Stock Option Plan.

         (5) Includes 14,399 shares of fully vested common stock owned through
             the Employees Stock Ownership Plan, which include voting power.
             These Officers are also Trustees of the Plan.

         (6) Includes 45,398 shares held by his children as to which Mr. Nadata
             disclaims beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

           Harvey R. Blau, a Director of the Company, is a member of Blau,
         Kramer, Wactlar & Lieberman, P.C., general counsels to the Company. For
         the fiscal year ended February 28, 1998, the Company paid $71,614 in
         legal fees to Blau, Kramer, Wactlar & Lieberman, P.C.

           For the fiscal year ended February 28, 1998, the Company received an
         aggregate $740,514 in respect of various electronic components sold to
         Procomponents, Inc. and PCI Manufacturing, two corporations in which
         Mitchell Lubman, Mr. Lubman's brother, is an officer and owns greater
         than ten percent equity interest.

           For the fiscal year ended February 28, 1998, the Company received an
         aggregate $589,676 in respect of various electronic components sold to
         Brevan Electronics, a corporation in which Stuart Schuster, Mr.
         Schuster's brother, is an officer and owns a greater than ten percent
         equity interest.

                                                                         Page 26
<PAGE>
 
PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:

 (a) (1) The following consolidated financial statements of the registrant and
         its subsidiaries are filed as a part of this report:
<TABLE> 
<CAPTION> 
                                                                                                          Page       
                                                                                                      -------------  
         <S>                                                                                               <C>               
         Independent Auditors' Report                                                                      F-1       
                                                                                                                     
         Consolidated Balance Sheets as of February 28, 1998 and February 28, 1997                         F-2       
                                                                                                                     
         Consolidated Statements of Income for the three years in the period ended February 28, 1998       F-3       
                                                                                                                     
         Consolidated Statements of Changes in Shareholders' Equity for the three years in the                       
         period ended February 28, 1998                                                                    F-4       
                                                                                                                     
         Consolidated Statements of Cash Flows for the three years in the period ended February 28,                  
         1998                                                                                              F-5       
                                                                                                                     
         Notes to Consolidated Financial Statements                                                        F-7       
                                                                                                                     
         Schedule II  Valuation and Qualifying Accounts and Reserves                                        34   


 (a) (3) See exhibits required  Item (c) below

 (b)     No reports were filed by the Company on Form 8-K during the last quarter of
         the fiscal year.

 (c)     Exhibits

</TABLE>       

       EXHIBIT
       NUMBER                        DESCRIPTION
--------------------------------------------------------------------------------
 
         3.1     Certificate of Incorporation, as amended (Incorporated by
                 Reference to Exhibit 3.1 to the Company's Annual Report on Form
                 10-K for the year ended February 29, 1988)
            
         3.2     By-laws, as amended (Incorporated by Reference to Exhibit 3.2
                 to the Company's Annual Report on Form 10-K for the year ended
                 February 29, 1988)
            
         3.3     Certificate of Amendment to Certificate of Incorporation
                 (Incorporated by Reference to Exhibit 3.1 to the Company's
                 Quarterly Report on Form 10-Q for the Quarter ended August 31,
                 1994)
            
         4.1     Specimen Common Stock Certificate (Incorporated by Reference as
                 Exhibit 4.1 to the Company's Registration Statement on Form S-
                 1, Registration No. 2-89176).

                                                                         Page 27
<PAGE>
 
PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
 
  (c)    Exhibits (continued):

         EXHIBIT
         NUMBER                           DESCRIPTION
         -----------------------------------------------------------------------
                 
          10.1   The Registrant's Key Employee Incentive Stock Option Plan, as
                 amended (Incorporated by Reference to the Company's
                 Registration statement on form S-8 Registration No. 33-20661).
                 
          10.2   Agreement between the Company and Trustees relating to the
                 Company's Employee Stock Ownership Plan (Incorporated by
                 Reference to Exhibit 10.5 to the Company's Annual Report on
                 Form 10-K for the year ended February 28, 1987).
                 
          10.3   Employment Agreements, as amended, between the Company and
                 Messrs. Lubman, Nadata and Schuster. (Incorporated by Reference
                 to Exhibit 10.7 to the Company's annual report on Form 10-K for
                 the year ended February 28, 1994).
                 
          10.4   Amended and restated Revolving Credit Agreement with National
                 Westminster Bank USA dated as of April 29, 1994 (Incorporated
                 by Reference to Exhibit 10 to the Company's Report on Form 8-K
                 dated April 29, 1994).
                 
          10.5   Asset Purchase Agreement dated April 29, 1994 between Nu
                 Horizons/Merit Electronics Corp., Merit Electronics, Inc. and
                 Robert G. Pipkin (Incorporated by Reference to Exhibit 2 to the
                 Company's Report on Form 8-K dated April 29, 1994).
                 
          10.6   Note Agreement dated August 15, 1994 between the Company and
                 Massachusetts Mutual Life Insurance Company (Incorporated by
                 Reference to Exhibit 10.1 to the Company's Quarterly Report on
                 Form 10-Q for the quarter ended August 31, 1994).
                 
          10.7   Amendment No. 1 to Amended and Restated Revolving Credit
                 Agreement dated as of August 24, 1994 between the Company and
                 National Westminster Bank USA (Incorporated by Reference to
                 Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
                 the quarter ended August 31, 1994).
                 
          10.8   1994 Stock Option Plan (Incorporated by Reference to Exhibit
                 10.3 to the Company's Quarterly Report on Form 10-Q for the
                 quarter ended August 31, 1994).
                 
          10.9   Outside Director Stock Option Plan (Incorporated by Reference
                 to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
                 for the quarter ended August 31, 1994).
                 
          10.10  Agreement dated September 22, 1995 between the Company and Paul
                 Durando (Incorporated by Reference to Exhibit 10.13 to the
                 Company's Quarterly Report on Form 10-Q for the quarter ended
                 August 31, 1995).

                                                                         Page 28
<PAGE>
 
PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
 
  (d)    Exhibits (continued):
  
         EXHIBIT
         NUMBER                           DESCRIPTION
--------------------------------------------------------------------------------
 
          10.11   Amendment No. 2 to Amended and Restated Revolving Credit
                  Agreement and Tenth Amendment to Revolving Credit and Term
                  Loan Agreement dated as of November 29, 1995, between the
                  Company and National Westminster bank, USA. (Incorporated by
                  Reference to Exhibit 10.14 to the Company's Quarterly Report
                  on Form 10Q for the quarter ended November 30, 1995).
                 
          10.12   Amendment No. 3 to Amended and Restated Revolving Credit
                  Agreement and Eleventh Amendment to Revolving Credit and Term
                  Loan Agreement dated as of November 30, 1995, between the
                  Company and National Westminster Bank, USA. (Incorporated by
                  Reference to Exhibit 10.15 to the Company's Quarterly Report
                  on Form 10Q for the quarter ended November 30, 1995).
                 
          10.13   Amendment No. 4 to Amended and Restated Revolving Credit
                  Agreement and Twelfth Amendment to Revolving Credit and Term
                  Loan Agreement dated as of April 8, 1996, between the Company
                  and NatWest Bank N.A. (formerly known as National Westminster
                  Bank, USA). (Incorporated by Reference to Exhibit 10.13 to the
                  Company's Annual Report on Form 10K for the fiscal year ended
                  February 28, 1997).
                 
          10.14   Amendment No. 5 to Amended and Restated Revolving Credit
                  Agreement and Thirteenth Amendment to Revolving Credit and
                  Term Loan Agreement dated as of June 10, 1996, between the
                  Company and Fleet Bank, N.A., formerly known as NatWest Bank
                  N.A., formerly known as National Westminster Bank USA.
                  (Incorporated by Reference to Exhibit 10.14 to the Company's
                  Quarterly Report on Form 10Q for the quarter ended May 31,
                  1996).
                 
          10.15   Employment and Change of Control Agreements dated September
                  13, 1996, between and Company and Irving Lubman. (Incorporated
                  by Reference to Exhibit 10.15 to the Company's Quarterly
                  Report on Form 10Q for the quarter ended August 31, 1996).
                 
          10.16   Employment and Change of Control Agreements dated September
                  13, 1996, between and Company and Arthur Nadata. (Incorporated
                  by Reference to Exhibit 10.16 to the Company's Quarterly
                  Report on Form 10Q for the quarter ended August 31, 1996).
                 
          10.17   Employment and Change of Control Agreements dated September
                  13, 1996, between and Company and Richard Schuster.
                  (Incorporated by Reference to Exhibit 10.17 to the Company's
                  Quarterly Report on Form 10Q for the quarter ended August 31,
                  1996).

                                                                         Page 29
<PAGE>
 
PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
 
  (e)    Exhibits (continued):

         EXHIBIT
         NUMBER                       DESCRIPTION
--------------------------------------------------------------------------------
 
          10.18   Revolving Credit Agreement dated May 23, 1997, between the
                  Company and two banks, Mellon Bank, N.A. and KeyBank National
                  Association.
                  
          10.19   Indemnity Agreements Dated May 23, 1997 between the Company
                  and Messrs. Blau, Durando, Gardner, Lubman, Nadata and
                  Schuster
                  
           11.    Computation of Per Share Earnings
                  
           22.    The following is a list of the Company's subsidiaries:

                                                                 State of
                           Name                                Incorporation
                  -----------------------------------       --------------------

                  NIC Components Corp.                         New York      
                  NIC Eurotech Limited                         United Kingdom
                  Nu Horizons International Corp.              New York      
                  Nu Visions Manufacturing, Inc.               Massachusetts 
                  Nu Horizons/Merit Electronics Corp.          Delaware      
                  Nu Horizons Eurotech Limited                 United Kingdom 

           23.    Accountant's Consent
 
           27.    Financial Data Schedule
 
           99.    Additional Exhibit

                                                                         Page 30
<PAGE>
 
           24.  Accountant's Consent
                --------------------



           We consent to the incorporation by reference in Registration
           Statement numbers 33-11032, 33-20661, 33-88952 and 33-88958 on Form
           S-8 of our opinion dated May 18, 1998 on the consolidated financial
           statements of Nu Horizons Electronics Corp. and subsidiaries included
           in the Corporation's annual report on Form 10-K for the fiscal year
           ended February 28, 1998.



                                              /s/ LAZAR LEVINE & FELIX LLP
                                        ---------------------------------------
                                                LAZAR LEVINE & FELIX LLP
                                              Certified Public Accountants


           New York, New York
           May 22, 1998

                                                                         Page 31
<PAGE>
 
      99.  Additional Exhibit:
           -------------------

        The following undertakings are incorporated by reference into the
      Company's Registration Statement on Form S-8 (Registration Nos. 33-11032,
      22-20661, 33-88952 and 33-88958).

       (a) The undersigned registrant hereby undertakes:

           (1) To file, during any period in which offers or sales are being
           made, a post-effective amendment to this registration statement:

              (i)   To include any prospectus required by section 10(a) (3) of
              the Securities Act of 1933;

              (ii)  To reflect in the prospectus any facts or events arising
              after the effective date of the registration statement (or the
              most recent post-effective amendment thereof) which, individually
              or in the aggregate, represent a fundamental change in the
              information set forth in the registration statement;

              (iii)  To include any material information with respect to the
              plan of distribution not previously disclosed in the registration
              statement or any material change to such information in the
              registration statement;

              Provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do
              not apply if the registration statement is on Form S-3 or Form S-
              8, and the information required to be included in a post-effective
              amendment by those paragraphs is contained in periodic reports
              filed by the registrant pursuant to section 13 periodic reports
              filed by the registrant pursuant to section 13 or section 15(d) of
              the Securities Exchange Act of 1934 that are incorporated by
              reference in the registration statement.

           (2) That, for the purpose of determining any liability under the
           Securities Act of 1933, each such post-effective amendment shall be
           deemed to be a new registration statement relating to the securities
           offered therein, and the offering of such securities at that time
           shall be deemed to be the initial bona fide offering thereof.

           (3) To remove from registration by means of a post-effective
           amendment any of the securities being registered, which remain,
           unsold at the termination of the offering.

       (b) The undersigned registrant hereby undertakes that, for purposes of
       determining any liability under the Securities Act of 1933, each filing
       of the registrant's annual report pursuant to section 13(a) or section
       15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
       filing of an employee benefit plan's annual report pursuant to section
       15(d) of the Securities Exchange Act of 1934) that is incorporated by
       reference in the registration statement shall be deemed to be a new
       registration statement relating to the securities offered therein, and
       the offering of such securities at that time shall be deemed to be the
       initial bona fide offering thereof.

                                                                         Page 32
<PAGE>
 
       99.   Additional Exhibit (Continued):
             ------------------

       (f)  (1) The undersigned registrant hereby undertakes to deliver or
       cause to be delivered with the prospectus to each employee to whom the
       prospectus is sent or given a copy of the registrant's annual report to
       stockholders for its last fiscal year, unless such employee otherwise has
       received a copy of such report, in which case the registrant shall state
       in the prospectus that it will promptly furnish, without charge, a copy
       of such report on written request of the employee.  If the last fiscal
       year of the registrant has ended with 120 days prior to the use of the
       prospectus, the annual report for the fiscal year will be furnished to
       each such employee.

            (2) The undersigned registrant hereby undertakes to transmit or
            cause to be transmitted to all employees participating in the plan
            who do not otherwise receive such material as stockholders of the
            registrant, at the time and in the matter such material is sent to
            its stockholders, copies of all reports, proxy statements and other
            communications distributed to its stockholders generally.

            (3) Where interests in a plan are registered herewith, the
            undersigned registrant and plan hereby undertake to transmit or
            cause to be transmitted promptly, without charge, to any participant
            annual report of the plan filed pursuant to section 15(d) of the
            Securities Exchange Act of 1934 (Form 11-K). If such report is filed
            separately on Form 11-K, such form shall be delivered upon written
            request. If such report is filed as a part of the registrant's
            annual report to stockholders delivered pursuant to paragraph (1) or
            (2) of this undertaking, additional delivery shall not be required.

            (4) If the registrant is a foreign private issuer, eligible to use
            Form 20-F, then the registrant shall undertake to deliver or cause
            to be delivered with the prospectus to each employee to whom the
            prospectus is sent or given, a copy of the registrant's latest
            filing on Form 20-F in lieu of the annual report to stockholders.

              (i) Insofar as indemnification for liabilities arising under the
              Securities Act of 1933, may be permitted to directors, officers
              and controlling persons of the registrant pursuant to the
              foregoing provisions, or otherwise, the registrant has been
              advised that in the opinion of the Securities and Exchange
              Commission such indemnification is against public policy as
              expressed in the Act and is, therefore, unenforceable. In the
              event that a claim for indemnification against such liabilities
              (other than the payment by the registrant of expenses incurred or
              paid by a director, officer or controlling person of the
              registrant in the successful defense of any action, suit or
              proceeding) is asserted by such director, officer or controlling
              person in connection with the securities being registered, the
              registrant will, unless in the opinion of its counsel the matter
              has been settled by controlling precedent, submit to a court of
              appropriate jurisdiction the question whether such indemnification
              by it is against public policy as expressed in the act and will be
              governed by the final adjudication of such issue.

                                                                         Page 33
<PAGE>
 
SCHEDULE II

                 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
                 ----------------------------------------------
                                        
                     SCHEDULE II--VALUATION AND QUALIFYING
                             ACCOUNTS AND RESERVES

                      Three Years Ended February 28, 1998

<TABLE>
<CAPTION>
                                                                     
                               Balance at             Additions                                                      
                                Beginning          charged to costs                                   Balance at end 
      Description               of period            and expenses            Deductions (A)              of period     
      -----------             -----------          ----------------          -------------            --------------
<S>                           <C>                 <C>                      <C>                       <C>
 
Valuation account
 deducted in the
 balance sheet from
 the asset to which
 it applies:
   Allowance for
   doubtful accounts-
   accounts receivable
 
        1998                     $2,192,079                 $315,000                 $144,357               $2,362,722
                            ===============     ====================     ====================      ===================
              
        1997                     $1,509,802                 $701,500                 $ 19,223               $2,192,079
                            ===============     ====================     ====================      ===================
              
        1996                     $  898,359                 $635,000                 $ 23,557               $1,509,802
                            ===============     ====================     ====================      ===================
</TABLE>

(A)    Accounts written off.

                                                                         Page 34
<PAGE>
 
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                     NU HORIZONS ELECTRONICS CORP.            
                                            (Registrant)                      
                                                                              
                                 By: /s/ ARTHUR NADATA                        
                                     -----------------------------------------
                                     Arthur Nadata,                           
                                     President (Principal Operating Officer)  
                                                                              
                                 By: /s/ PAUL DURANDO                         
                                     ----------------------------------------- 
                                     Vice President, Finance              
                                     (Principal Financial and             
                                     Accounting Officer)                   

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:

        SIGNATURE                    CAPACITY                       DATE
        ---------                    --------                       ----
 
By:   /s/ IRVING LUBMAN         Chairman of The Board,           May 22, 1998
    -------------------------   Chief Operating Officer      
      Irving Lubman                                          
                                                             
By:   /s/ ARTHUR NADATA         President, Chief Executive       May 22, 1998
    -------------------------   Officer and Director         
      Arthur Nadata                                          
                                                             
By:   /s/ RICHARD SCHUSTER      Vice President, Secretary        May 22, 1998
    -------------------------   and Director                 
      Richard Schuster                                       
                                                             
By:   /s/ PAUL DURANDO          Vice President, Finance,         May 22, 1998
    -------------------------   Treasurer and Director       
      Paul Durando                                           
                                                             
By:   /s/ HARVEY R. BLAU               Director                  May 22, 1998
    -------------------------                                
      Harvey R. Blau                                         
                                                             
By:   /s/ HERBERT M. GARDNER           Director                  May 22, 1998
    -------------------------                                
      Herbert M. Gardner                                     
                                                             
By:   /s/ DOMINIC A. POLIMENI          Director                  May 22, 1998
    -------------------------                                
      Dominic A. Polimeni                                    

                                                                         Page 35
<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

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

                                 EXHIBIT INDEX

                                      to

                                   FORM 10-K

                  FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998

                ANNUAL 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)


EXHIBIT
NUMBER                              DESCRIPTION
--------------------------------------------------------------------------------
 
11                   Computation of Per Share Earnings
 
27A                  Financial Data Schedule