As used in this Report, "we," "us," "our," "Nu Horizons" or "the Company" means Nu Horizons Electronics Corp. and its subsidiaries unless the context indicates a different meaning.

Forward Looking Statements:

Statements in this Form 10-Q quarterly report may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express the Company's intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed under "Item 1A - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended February 28, 2009 and elsewhere in such Annual Report and from time to time in other documents which the Company files with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to product demand, market and customer acceptance, competition, government regulations and requirements, pricing and development difficulties, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

For a description of the Company's critical accounting policies and an understanding of the significant factors that influenced the Company's performance during the three- and six-month periods ended August 31, 2009 and 2008, this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated condensed financial statements, including the related notes, appearing in Item 1 of this Report, as well as the Company's Annual Report on Form 10-K for the year ended February 28, 2009.

Overview:

Nu Horizons and its wholly- and majority-owned subsidiaries are engaged in the distribution of high technology active and passive electronic components to a wide variety of original equipment manufacturers ("OEMs") of electronic products in the United States, Asia and Europe.

The Company operates in two product segments, active electronic components and passive components. The active electronic components segment includes semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave/RF and fiberoptic components, transistors and diodes. As part of the active electronic components segment, the Company's System business distributes systems from IBM Corporation and Sun Microsystems Inc. The passive components segment includes passive components distributed by NIC and majority-owned subsidiaries NIA and NIE, principally to OEMs, contract manufacturers and other distributors globally, that consist of a high technology line of surface mount and leaded components including capacitors, resistors, inductors and circuit protection components. NIC, NIA and NIE are a primary source of qualified products to over 9,000 OEMs worldwide.

In September 2008, we acquired C-88, a franchised electronic components distributor based in Hoersholm, Denmark, near Copenhagen. The C-88 acquisition has been accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations." Pursuant to the terms of the C-88 purchase agreement, the Company paid $4,044,000 in cash as of the acquisition date, including transaction costs of $544,000. The purchase agreement also provides for potential additional payments to the seller from a minimum of $500,000 up to a maximum $3,500,000. At August 31, 2009, the present value of the minimum payment of $500,000 has been recorded as a short- and long-term liability as accrued expenses and other long-term liabilities on the Company's consolidated balance sheet since a payment of $300,000 is due to the seller during the fourth quarter of fiscal 2010 and a payment of $200,000 is due during the fourth quarter of fiscal 2011. The payment of any amounts in excess of the $500,000 minimum is contingent upon the attainment of certain earnings milestones by C-88 during the three-year period ending August 31, 2011.

In accordance with EITF 95-8 "Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination," the contingent consideration will be accounted for as compensation expense. The compensation is contingent on continued employment of the directors of C-88 and will be accrued over the period ending August 31, 2011 when it is deemed probable that the earnings milestones will be attained. For the three- and six-month periods ended August 31, 2009, no additional amount above the $500,000 minimum has been recorded as C-88 did not attain the first earnings milestone established in the purchase agreement.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the second quarter of fiscal 2010, the Company became a North American Alcatel- Lucent Distributor which is expected to provide us the opportunity to further grow our Systems business. This product line includes enterprise voice solutions such as digital PBX's, VOIP systems, and call center applications and data solutions such as switches, routers and wireless LAN products. Systems sales for the three- and six-month period ended August 31, 2009 decreased 65% and 60%, respectively over the three-and six-month period ended August 31, 2008, primarily due to a one-time sale in the three-month period ended August 31, 2008, to a large customer at a low gross margin on a product that was being discontinued.

It is difficult for the Company, as a distributor, to forecast the material trends of the electronic components industry because the Company does not typically have material forward-looking information available from its customers and suppliers. As such, management relies on the publicly-available information published by certain industry groups and other related analyses to evaluate its longer term prospects. The economic recession makes it difficult for management to estimate the Company's overall sales volume and earnings for the remainder of fiscal 2010.

Net sales for the three-month period ended August 31, 2009 were $156,600,000 as compared to $211,813,000 for the comparable period last year, a decrease of 26.1%. For the six-month period ended August 31, 2009 net sales were $304,360,000 as compared to $411,965,000 or a decrease of 26.1%. The sales decrease for the three- and six month periods is due to the recent global economic recession and a one-time sale in the three-month period ended August 31, 2008, to a large customer on a product that was being discontinued. Sequentially, net sales for the three months ended August 31, 2009 improved by $8,841,000 or 6% from $147,759,000 in the first quarter of fiscal 2010. For the three months ended August 31, 2009 as compared to the same period last year, net sales in North America decreased 32.6%, net sales in Asia decreased 16.3% and net sales in Europe decreased 4.2%. Sequentially, net sales for the three months ended August 31, 2009 in North America and Asia grew 11.9% and 4.4%, respectively, and sales in Europe decreased 16.3 % as compared to the first quarter of fiscal 2010.

Due to ongoing economic recession and related decreased product demand, the Company recently has taken several cost-reduction actions. In the third quarter of fiscal 2009, the Company eliminated its employer contribution match to the employee 401K plan and announced a reduction in its workforce. Additionally, in the fourth quarter of fiscal 2009, the Company announced a further reduction in its workforce and implemented a salary reduction program. Also, the Company invoked a mandatory two-week furlough program during the Company's first six months of fiscal 2010, with one week to be taken in each of the first and second quarters of fiscal 2010. Finally, the Company adjusted its commission plans to reduce commission rates in fiscal 2010.

The Company is continuing to fully cooperate with the investigation by the SEC in the action captioned "In the Matter of Vitesse Semiconductor Corp." The SEC investigation and the related internal investigation are collectively referred to herein as the "Vitesse Matter". On April 9, 2009, the Audit Committee announced the completion of its related internal investigation and provided a summary of its conclusions. The Company's cooperation with the SEC investigation and its own internal investigation has required the Company to incur significant expenses for professional fees and related expenses. For the three- and six-month periods ended August 31, 2009, the Company has incurred approximately $211,000, and $685,000, compared to $1,671,000 and $2,333,000 respectively, for the three- and six-month periods ended August 31, 2008. Cumulatively, $6,939,000 of expense for professional fees have been incurred to date since fiscal 2007 related to the Vitesse Matter. Management believes that as a result of the completion of the internal investigation, the Company's expenditures for professional fees will continue to decline in future fiscal periods when compared to the prior comparable periods. However, management is presently unable to predict the outcome of the SEC investigation and related cost to be incurred by the Company. In addition, although the internal investigation is completed, if any new or additional evidence becomes available, the Audit Committee will consider such additional evidence to determine whether any further investigation or action is warranted.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Overview (continued):

The tables below provide a summary of sales by operating segment for active
electronic components and passive components for the Company for the three and
six months ended August 31, 2009 and 2008:

                                                    Analysis of Sales by Segment

                                                                                                      Percentage
                                                     Quarters Ended August 31,                          Change
                                                                                                       2009 to
                                       2009           % of Total         2008          % of Total        2008
Sales by Segment:
Active Electronic Components       $ 146,146,000        93.3%        $ 196,285,000       92.7%         (25.5)%
Passive Components                    10,454,000        6.7%            15,528,000        7.3%         (32.7)%
                                   $ 156,600,000        100%         $ 211,813,000        100%         (26.1)%



                                                    Analysis of Sales by Segment

                                                                                                      Percentage
                                                    Six Months Ended August 31,                         Change
                                                                                                       2009 to
                                       2009           % of Total         2008          % of Total        2008
Sales by Segment:
Active Electronic Components       $ 285,345,000        93.8%        $ 381,744,000       92.7%         (25.3)%
Passive Components                    19,015,000        6.2%            30,221,000        7.3%         (37.1)%
                                   $ 304,360,000        100%         $ 411,965,000        100%         (26.1)%

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

The tables below provide a summary of sales by geographic area for the Company
for the three and six months ended August 31, 2009 and 2008:

                                                    Analysis of Sales by Geography

                                                                                                         Percentage
                                                      Quarters Ended August 31,                            Change
                                      2009            % of Total          2008          % of Total      2009 to 2008
Sales by Geography:
North America                     $  93,596,000              59.8 %   $ 138,927,000            65.6 %           (32.6 )%
Asia                                 47,201,000              30.1 %      56,385,000            26.6 %           (16.3 )%
Europe                               15,803,000              10.1 %      16,501,000             7.8 %            (4.2 )%
                                  $ 156,600,000               100 %   $ 211,813,000             100 %           (26.1 )%



                                                  Analysis of Sales by Geography

                                                                                                       Percentage
                                                    Six Months Ended August 31,                          Change
                                      2009          % of Total          2008          % of Total      2009 to 2008
Sales by Geography:
North America                     $ 177,273,000            58.2 %   $ 269,284,000            65.4 %           (34.2 )%
Asia                                 92,401,000            30.4 %     109,332,000            26.5 %           (15.5 )%
Europe                               34,686,000            11.4 %      33,349,000             8.1 %             4.0 %
                                  $ 304,360,000             100 %   $ 411,965,000             100 %           (26.1 )%

The following table sets forth, for the three- and six-month periods ended August 31, 2009 and 2008, certain items in the Company's consolidated statements of operations expressed as a percentage of net sales.

                                             Three Months Ended August 31           Six Months Ended August 31
                                               2009                2008              2009                2008
Net sales                                          100.0 %             100.0 %           100.0 %             100.0 %
Cost of sales                                       85.6                85.4              85.7                85.0
Gross profit                                        14.4                14.6              14.3                15.0
Selling, general and administrative
expenses                                            14.6                13.8              14.6                13.9
Interest expense                                     0.2                 0.4               0.2                 0.4
Income (loss) before taxes and
noncontrolling interest                             (0.4 )               0.3              (0.6 )               0.6
Income tax provision (benefit)                      (0.8 )               0.2              (0.5 )               0.2
Income (loss) after taxes, before
noncontrolling interest                              0.4                 0.1              (0.1 )               0.4
Noncontrolling interest                                -                   -                 -                 0.1
Net income (loss)                                    0.3                 0.1              (0.1 )               0.3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations:

Three Months Ended August 31, 2009 compared to Three Months Ended August 31, 2008

Consolidated net sales for the three months ended August 31, 2009 were $156,600,000 as compared to $211,813,000 for the comparable period of the prior year, a decrease of $55,213,000 or 26.1%.

Sales of active electronic components for the three months ended August 31, 2009 were $146,146,000 as compared to $196,285,000 for the comparable period of the prior year, a decrease of approximately $50,139,000 or 25.5%. Passive components sales for the three months ended August 31, 2009 were $10,454,000 compared to $15,528,000 for the three months ended August 31, 2008, a decrease of $5,074,000 or 32.7%. The sales decrease in both segments is primarily due to the global economic recession.

Consolidated gross margin was 14.4% for the three months ended August 31, 2009 as compared to 14.6% for the comparable period of the prior year. The decline in gross margin for the three months ended August 31, 2009 is attributed to a change in product mix to include a higher amount of low margin business. For the three-month period ended August 31, 2009 Asia/Pacific sales were 30.1% of total sales as compared to 26.6% of total sales in the comparable period. For the three-month period ended August 31, 2008, the gross profit margin was reduced as compared to the comparable period of the prior year due to a Systems sale of approximately $13,841,000 at a low margin to a large customer of an end-of life product.

Selling, general and administrative expenses decreased $6,425,000 or 22.0% over the prior period primarily due to (i) a decrease of $5,342,000 in selling and administrative expenses due to a reduction in workforce during the third and fourth quarters of fiscal 2009, a salary reduction program implemented in the fourth quarter of fiscal 2009, lower commission expense as a result of lower sales and a mandatory one- week furlough program invoked during the second quarter of 2010; (ii) a $1,460,000 decrease in professional fees related to the Vitesse Matter; (iii) a $596,000 decrease in travel and entertainment expense primarily attributed to the decrease in sales force as compared to the prior period; and (iv) a decrease of $165,000 in other selling and general administrative expenses. These decreases were partially offset by an increase of $676,000 for operating expenses attributed to our acquisition of C-88 in the third quarter of fiscal 2009, an increase of $237,000 in foreign exchange expense, and an increase of $225,000 in severance expense.

Interest expense decreased 69.4% to $270,000 for the three months ended August 31, 2009 from $882,000 from the prior period primarily due to lower average borrowings compared to the prior year period.

Income tax expense as a percentage of income (loss) before provision for income tax and noncontrolling interest ("effective tax rate") was a benefit of 195.8% and a provision of 58.7% for the three months ended August 31, 2009, and 2008, respectively. The effective tax rate differs significantly from the statutory rate of 35% for the three months ended August 31, 2009, primarily due to tax benefits generated as a result of a U.S. net operating loss, foreign income earned at tax rates lower than the U.S. tax rate, lower state and local income taxes and tax benefit derived from foreign tax credit, partially offset by an increase in the valuation allowance for certain foreign net operating losses.

The comparison of the effective tax provision (benefit) rate between periods is significantly influenced by the level and mix of earnings and losses by taxing jurisdiction. The estimated annual effective tax rate will fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income and changes to actual or forecasted permanent book to tax differences. Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. Furthermore, the effective tax rate may fluctuate as the result of positive or negative changes to the valuation allowance for net deferred tax assets. As a result of these factors, and due to potential changes in the Company's period to period results, fluctuations in the Company's effective tax rate and respective tax provisions or benefits may occur.

As discussed above, during the three months ended August 31, 2009 and 2008, the Company recognized a tax benefit of $1,253,000 and tax provision of $403,000, respectively. The tax benefit for the three months ended August 31, 2009 is primarily attributable to tax benefits derived as a result of higher forecasted U.S. net operating losses and higher forecasted foreign income earned at tax rates lower than the U.S. tax rate.

Net income for the three months ended August 31, 2009 was $543,000 or $.03 per basic and diluted share as compared to net income of $192,000 or $0.01 per basic and per diluted share for the three months ended August 31, 2008.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Six Months Ended August 31, 2009 compared to Six Months Ended August 31, 2008

Consolidated net sales for the six months ended August 31, 2009 were $304,360,000 as compared to $411,965,000 for the comparable period of the prior year, a decrease of $107,605,000 or 26.1%.

Sales of active electronic components for the six months ended August 31, 2009 were $285,345,000 as compared to $381,744,000 for the comparable period of the prior year, a decrease of approximately $96,399,000 or 25.3%. Passive components sales for the six months ended August 31, 2009 were $19,015,000 compared to $30,221,000 for the six months ended August 31, 2008, a decrease of $11,206,000 or 37.1%. The sales decrease in both segments is primarily due the global economic recession.

Consolidated gross margin was 14.3% for the six months ended August 31, 2009 as compared to 15.0% for the comparable period of the prior year. The decline in gross margin for the six months ended August 31, 2009 is attributed to a change in product mix to include a higher amount of low margin business. For the six-month period ended August 31, 2009, Asia/Pacific sales were 30.4% of total sales as compared to 26.5% of total sales in the comparable period. For the six-month period ended August 31, 2008 the gross profit margin was reduced as compared to the comparable period for the prior year due to a Systems sale of approximately $13,841,000 at a low margin to a large customer of an end-of life product.

Selling, general and administrative expenses decreased $12,879,000 or 22.4% over the prior period primarily due to (i) a decrease of $10,545,000 in selling and administrative expenses due to a reduction in workforce during the third and fourth quarters of fiscal 2009, a salary reduction program implemented in the fourth quarter of fiscal 2009, lower commission expense as a result of lower sales and a mandatory two- week furlough program invoked during each of the first and second quarters of 2010; (ii) a $1,648,000 decrease in professional fees related to the Vitesse Matter; (iii) a $1,295,000 decrease in travel and entertainment expense primarily attributed to the decrease in sales force as compared to the prior period; (iv) a decrease of $760,000 in freight out expense primarily attributed to a decrease in sales; and (v) a decrease of $621,000 in other selling and general administrative expenses. These decreases were partially offset by an increase of $1,199,000 for operating expenses attributed to our acquisition of C-88 in the third quarter of fiscal 2009, an increase of $566,000 in foreign exchange expense, and an increase of $225,000 in severance expense.

Interest expense decreased 61.8% to $693,000 for the six months ended August 31, 2009 from $1,816,000 from the prior period primarily due to lower average borrowings compared to the prior year period.

Income tax expense as a percentage of income (loss) before provision for income tax and noncontrolling interest ("effective tax rate") was a benefit of 82.5% and a provision of 38.5% for the six months ended August 31, 2009, and 2008, respectively. The effective tax rate differs significantly from the statutory rate of 35% for the six months ended August 31, 2009, primarily due to tax benefits generated as a result of U.S. net operating loss, foreign income earned at tax rates lower than the U.S. tax rate, lower state and local income taxes and tax benefit derived from foreign tax credit, partially offset by an increase in the valuation allowance for certain foreign net operating losses.

The comparison of the effective tax provision (benefit) rate between periods is significantly influenced by the level and mix of earnings and losses by taxing jurisdiction. The estimated annual effective tax rate will fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income and changes to actual or forecasted permanent book to tax differences. Each quarter, a cumulative adjustment is recorded for any fluctuations in the estimated annual effective tax rate as compared to the prior quarter. Furthermore, the effective tax rate may fluctuate as the result of positive or negative changes to the valuation allowance for net deferred tax assets. As a result of these factors, and due to potential changes in the Company's period to period results, fluctuations in the Company's effective tax rate and respective tax provisions or benefits may occur.

As discussed above, during the six months ended August 31, 2009 and 2008, the Company recognized a tax benefit of $1,414,000 and a tax provision $976,000, respectively. The tax benefit for the six months ended August 31, 2009 is primarily attributable to tax benefits derived as a result of higher forecasted U.S. net operating losses and higher forecasted foreign income earned at tax rates lower than the U.S. tax rate.

Net loss for the six months ended August 31, 2009 was $(401,000) or $(.02) per basic and diluted share as compared to net income of $1,347,000 or $0.07 per basic and per diluted share for the six months ended August 31, 2008.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources:

The Company's current ratio (current assets divided by current liabilities) was 3.0:1 at August 31, 2009. Working capital was $146,994,000 at August 31, 2009 as compared to $147,141,000 at February 28, 2009. As of August 31, 2009 the Company had approximately $19,046,000 of cash and total bank debt of $20,365,000.

On January 31, 2007, the Company entered into an amended and restated secured revolving line of credit agreement with eight banks, which currently provides for maximum borrowings of $120,000,000 (the "Revolving Credit Line"). The Revolving Credit Line provides for borrowings utilizing an asset-based formula predicated on a certain percentage of outstanding domestic accounts receivable and inventory levels at any given month-end. Based on the asset-based formula, the Company may not be able to borrow the maximum amount available under its Revolving Credit Line at all times. At August 31, 2009, borrowings under the Revolving Credit Line incurred interest at either (i) the lead bank's prime rate . . .