To Our Shareholders:

Two years ago we first wrote to you that we were executing a business plan that contained three elements:

1. Improving our logistics function (the heart of our business) by means of further use of electronic equipment and automation, job training and incentives, all aimed at increasing productivity and reducing errors.

2. Global sourcing to provide our customers with high-quality product lines they can sell at prices comparable to the "big boxes" while maintaining better than normal margins.

3. Taking our business national.

These have remained the central elements of our business plan:

1. In logistics, we have continued to automate, adding conveyor lines and new material handling equipment to reduce unit labor costs while allowing higher incentive pay to our associates. We also have been continuously updating electronic equipment that ties our logistic activities to our mainframe. As a result, we have been able to reduce unit labor costs even as we pay higher wages. This has resulted in making Moore-Handley a better place to work and substantially reduced turnover.

2. Our globally sourced registered "Hardware House" brands now offer the broadest line of high quality products available to independent hardware dealers. The forty-five product lines now offered include locks, lighting, long handled tools, floor tiles, bath, and much more. Altogether they amount to 2500 SKUs, and carry with them complete merchandising programs including point of purchase displays and advertising aids. Since year-end we have also added substantial management strength to our global sourcing capability, including opening an office in Taiwan.

3. While we have continued our efforts to test systematically the best way to serve customers outside our core Southeast market area, and have acquired customers in about 40 states, we have not yet reached a level of growth in this business we consider satisfactory. We continue to test alternative approaches to this market, as we believe it essential to our further growth.

In our year-end press release we noted that 2003 results included substantial charges for adjustments to receivable amounts estimated to be due from vendors. We believe that we have made changes in accounting procedures that are likely to reduce greatly any future adjustments of this kind.

                                                                                           
/s/ WILLIAM RILEY
/s/ MICHAEL J. GAINES

WILLIAM RILEY
Chairman and Chief Executive Officer
MICHAEL J. GAINES
President and Chief Operating Officer