Table of Contents





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the fiscal year ended February 28,
2009


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the Transition Period from ____________ to
  ____________





Commission
      file number 1-8798





NU
HORIZONS ELECTRONICS CORP.


(Exact
      name of registrant as specified in its charter)Delaware
            
            11-2621097(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)70
      Maxess Road, Melville, New York
            
            11747(Address
      of principal executive offices)
            
            (Zip
      Code)


(631)
396-5000


(Registrant’s
      telephone number, including area code)Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
            
            Name
      of each exchange on which registeredSecurities
      registered pursuant to Section 12(g) of the Act:Common
      Stock Par Value $.0066 Per Share


(Title
of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈  No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈  No x





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 10-K or any amendment to this
Form 10-K.  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act).  (Check one):


Large-accelerated
      filer  ̈
            Accelerated
      filer xNon-accelerated
      filer  ̈  (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈   No
x





Aggregate
Market Value of Non-Affiliate Stock at August 31, 2008 – approximately
$55,965,000





Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of April 20, 2009.




Common
      Stock – Par Value $.0066
            
            18,538,213Class
            
            Outstanding
      Shares





DOCUMENTS
INCORPORATED BY REFERENCE: Part III of this annual report on Form 10-K
incorporates information by reference from the registrant's definitive proxy
statement.









Table of Contents




NU
HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES


TABLE OF CONTENTS





Form
      10-K
            PageForward Looking Statements
            3PART I:ITEM 1.
            Business
            3-7ITEM 1A.
            Risk Factors
            7-13ITEM 1B.
            Unresolved Staff Comments
            13ITEM 2.
            Properties
            13ITEM 3.
            Legal Proceedings
            14ITEM 4.
            Submission of Matters to a Vote of Security
      Holders
            14PART II:ITEM 5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            15-16ITEM 6.
            Selected Financial Data
            17ITEM 7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operation
            18-28ITEM 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            28ITEM 8.
            Financial Statements and Supplementary
    Data
            F-1
      – F-30ITEM 9.
            Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure
            29ITEM 9A.
            Controls and Procedures
            29-32ITEM 9B.
            Other Information
            32PART III:ITEM 10.
            Directors, Executive Officers and Corporate
      Governance
            32ITEM 11.
            Executive Compensation
            32ITEM 12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            32ITEM 13.
            Certain
      Relationships and Related Transactions, and DirectorIndependence
            33ITEM 14.
            Principal Accountant Fees and Services
            33PART IV:ITEM 15.
            Exhibits and Financial Statement
    Schedules
            34-38Signatures
            
            39Schedule II
            40Exhibit Index
            
            41-44






- 2
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FORWARD LOOKING STATEMENTS:




Statements
in this Form 10-K annual 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 our intentions, beliefs, expectations, strategies,
predictions or any other statements relating to our 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 from time to
time in this Form 10-K annual report for the year ended February 28, 2009, and
in other documents which we file with the Securities and Exchange Commission
("SEC"). 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 we do not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this Form 10-K annual
report.




PART I.




ITEM 1.
            BUSINESS.





GENERAL:





Nu
Horizons Electronics Corp., a Delaware corporation incorporated in 1987, and its
wholly-owned subsidiaries, NIC Components Corp. ("NIC"), Nu Horizons
International Corp. ("International"), NUHC Inc. ("NUC"), Nu Horizons
Electronics Asia PTE LTD ("NUA"), Nu Horizons Electronics Pte Ltd ("NUZ"),
Nu Horizons Electronics Asia Pte Ltd., Korea Branch ("NUK"), Nu Horizons
Electronics GmbH ("NUD," formerly known as Dacom-Süd Electronic Vertriebs GmbH
"Dacom"), Nu Horizons Electronics (Shanghai) Co. Ltd. ("NUS"), Nu Horizons
Electronics Limited ("NUE," formerly known as DT Electronics Limited "DT
Electronics"), C-88 AS ("C-88"), Titan Supply Chain Services Corp. ("Titan"),
Titan Supply Chain Services PTE LTD ("TSC"), Titan Supply Chain Services Limited
("TSE"), Razor Electronics, Inc. ("RAZ"), NuXchange B2B Services, Inc. ("NUX"),
Nu Horizons Electronics Hong Kong Ltd. ("NUO") and its majority-owned
subsidiaries, NIC Components Europe Limited ("NIE"), and NIC Components Asia PTE
LTD. ("NIA") are engaged in the distribution of, and supply chain services for,
high technology active and passive electronic components.




All
references in this report to "the Company," "we," "our" and "us" are to Nu
Horizons Electronics Corp. and its subsidiaries unless the context indicates
otherwise.




Active
components distributed by the Company, principally to original equipment
manufacturers ("OEMs") in the United States, Asia and Europe include mainly
commercial semiconductor products such as memory chips, microprocessors, digital
and linear circuits, microwave, RF and fiber-optic components, transistors and
diodes. The Company also distributes IBM Corporation and Sun Microsystems Inc.
boards, servers, storage and software to OEMs and certain value added services
(referred to herein as "Systems").   Passive components
distributed by NIC, principally to OEMs and other distributors globally, consist
of a high technology line of chip and leaded components, including capacitors,
resistors and related networks.




The
active and passive components distributed by the Company are utilized by the
electronics industry and other industries in the manufacture of sophisticated
electronic products including: industrial instrumentation, computers and
peripheral equipment, consumer electronics, telephone and telecommunications
equipment, satellite communications equipment, cellular communications
equipment, medical equipment, automotive electronics, and audio and video
electronic equipment.




Manufacturers
of electronic components augment their marketing programs through the use of
independent distributors and supply chain service providers such as the Company,
upon which the Company believes they rely to a considerable extent to market and
deliver their products.  The Company offers its customers the
convenience of diverse inventories, rapid delivery, design and technical
assistance, inventory management, forecasting and logistical services and the
availability of product in smaller quantities than generally available directly
from manufacturers.  Generally, companies engaged in the distribution
of active and passive electronic components, such as the Company, are required
to maintain a relatively significant investment in inventories and accounts
receivable.  To meet these requirements, the Company, like other
companies in the industry, typically depends on internally generated funds as
well as external borrowings.


- 3
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ITEM
      1.
            BUSINESS
      (Continued):





Management’s
policy is to manage, maintain and control the bulk of its inventories from its
stocking facilities in Southaven, Mississippi; Singapore; Hong Kong;
Guadalajara, Mexico; Coventry, England; and Buckingham, England.  As
additional franchise line opportunities become available to the Company, the
need for branch level inventories may be necessary and desirable in order to
better serve the specific needs of local markets.





Product
Segments:





Our
products can be divided into two general classes consisting of active electronic
components and passive components. Both operating segments have operations in
the Americas, Asia and Europe.  These broad categories are also the
basis used to determine our operating segments for financial reporting purposes.
A description of each operating group and its business is presented below.
Further financial information regarding the Company’s reportable segments and
foreign and domestic operations can be found in Note 13 to the Company’s
financial statements appearing in Item 8 of this Form 10-K report.





Active
Electronic Components:





The
Company is a distributor of a broad range of active electronic components
including semiconductor products, as well as display, illumination, power and
system products, to commercial and military OEMs in the United States, Europe
and Asia.  The Company is a franchised distributor of active components for
approximately 37 product lines. Significant franchised product lines include
Atmel Corporation, Exar Corporation, Integrated Device Technology Inc., Linear
Technology Corporation, Marvell Technology Group Ltd., Micrel Incorporated,
Micron Technology, Inc., ON Semiconductor Corp., Renesas Technology Corp., ST
Microelectronics N.V., Vitesse Semiconductor Corp., SMSC and Xilinx
Inc., among others.  Additionally, the Company distributes preeminent
products from Sharp Corporation, Kyocera Corporation and Toshiba Corporation for
displays; and Emerson Electric Co. and Murata Manufacturing Co. for power
solutions.  The Company also distributes Systems from IBM Corporation
and Sun Microsystems Inc.




The
Company’s franchise agreements authorize it to sell all or part of the product
line of a manufacturer on a non-exclusive basis.  Under these agreements,
each manufacturer will generally grant credits for any subsequent price
reduction by such manufacturer and inventory return privileges whereby the
Company can return to each manufacturer for credit or exchange a percentage,
generally ranging from 5% to 10%, of the inventory purchased from said
manufacturer during quarterly or semi-annual periods.  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 managing its inventory levels in accordance with business
demands.





Passive
Components and Relationship with Nippon:





The
passive components segment includes 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
prime source of qualified products to over 9,000 OEMs worldwide.




NIC is
the exclusive outlet in North America for Nippon Industries Co. Ltd.’s (Japan)
("Nippon") brand of passive components, with a license for the use of the Nippon
brand.  The Company has a License Agreement with Nippon dated as of
September 1, 2000 under which the Company has been granted an exclusive license
to use the Nippon brand in the United States, Mexico, Central and South America
and the Caribbean and on a non-exclusive licensed basis for the rest of the
world.  The License Agreement has an initial term of ten years and
automatically renews for successive one-year periods unless the Company or
Nippon terminates the License Agreement 90 days prior to the end of the initial
or any renewal term.




Due to
certain market situations, NIC, with Nippon’s consent, has also established
several manufacturing associations with U.S. and Taiwan based manufacturers to
supply NIC with a portion of its product requirements under the NIC
brand.  NIC intends to continue to give Nippon priority, however, in
acquiring Nippon’s products whenever Nippon’s technology and pricing are
commensurate with market requirements.


- 4
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ITEM
      1.
            BUSINESS
      (Continued):





Sales
and Marketing:





Management’s
strategy for long-term success has been to focus the Company’s sales and
marketing efforts towards the following industry segments, both domestically and
abroad: industrial, telecom/datacom, medical instrumentation, microwave and RF,
fiber-optic, consumer electronics, security and protection devices, office
equipment, computers and computer peripherals, factory automation and
robotics.  In order to help achieve its 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.




All sales
are made through customers’ or the Company’s purchase
orders.  Semiconductors are sold primarily via telephone and
Electronic Data Interchange by the Company’s in-house staff of approximately
145salespersons,
and by a combined field sales force of approximately 300salespersons and field
application engineers.  The Company maintains branch sales facilities
located as follows:





UNITED
      STATES:
              
              EASTERN
      REGION
              Alabama
      - Huntsville
              Florida
      - Ft. Lauderdale and Orlando
              Georgia
      - Atlanta
              Maryland
      - Columbia
              Massachusetts
      - Boston
              New
      Jersey - Mt. Laurel (Philadelphia) and Pine Brook
              New
      York - Melville (Long Island) and Rochester
              North
      Carolina - Raleigh
              Ohio
      - Cleveland
              
              WESTERN
      REGION
              Arizona
      - Phoenix
              California
      – Irvine, Los Angeles, San Diego and San Jose
              Colorado
      - Denver
              Illinois
      - Chicago
              Minnesota
      - Minneapolis
              Oregon
      – Portland
              Texas
      – Austin, Dallas
              Utah
      – Salt Lake City
              Washington
      State - Bellevue
            FOREIGN:
              
              CANADA
              Montreal
              Ottawa
              Toronto
              Vancouver
              
              ASIA
              Singapore
              China
      – Beijing, Chendu, Hangzhou, Nanjing,  Shanghai, Shenzhen and
      Wuhan
              Hong
      Kong
              India
      - Bangalore, Chennai, Pune, New
              Delhi
      and Hyderabad
              Penang,
      Malaysia
              Taipei,
      Taiwan
              Bangkok,
      Thailand
              
              AUSTRALIA
              Melbourne
              Sydney
              
              EUROPE
              Buckingham,
      England
              Coventry,
      England
              Hoersholm,
      Denmark
              Silkeborg,
      Denmark
              Munich,
      Germany
              Stockholm,
      Sweden
              Vienna,
      Austria
              Warsaw,
      Poland
              
              MEXICO
              Jalisco
              Chihuahua





NIC’s
passive components are marketed through the services of a national network of
approximately 12 independent sales representative organizations, employing over
100 salespersons, as well as through NIC’s in-house sales and engineering
personnel.  The independent representative organizations do not
represent competing product lines but sell other related
products.  Commissions to such organizations generally range from 2%
to 3% of all sales in a representative’s exclusive territory.


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ITEM
      1.
            BUSINESS
      (Continued):





NIC has
developed a national network of three global distributors and approximately 25
regional distributor locations which market passive components on a
non-exclusive basis.  These distributors have entered into agreements
with NIC whereby they are required to purchase from NIC a prescribed initial
inventory.  These distributors are protected by NIC against price
reductions and are granted certain inventory return and other privileges, which
to date have not been material.  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 9,000 OEMs worldwide.





Customer
Concentration:





No single
customer accounted for more than 10% of the Company’s consolidated sales for the
year ended February 28,2009.  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, 2009, there was one manufacturer that represented more than 10% of
the Company’s inventory on a consolidated basis.  This supplier
accounted for an aggregate of approximately $30,494,000 of total
inventory.  Electronic components distributed by the Company generally
are presently readily available; however, from time to time the electronics
industry has experienced a shortage or surplus of certain electronic
products.




For the
year ended February 28, 2009, the Company purchased inventory from one supplier
that was in excess of 10% of the Company’s total purchases.  Purchases
from this supplier were approximately $189,998,000 for the fiscal
year.





Competition
and Regulation:





The
Company competes with many companies that distribute semiconductors, systems and
passive electronic components and, to a lesser extent, companies that
manufacture such products and sell them directly to OEMs and other distributors.
The Company also competes for customers with some of its own suppliers. Many of
these companies have substantially greater assets and possess greater financial
and personnel resources than those of the Company.  In addition,
certain of these companies possess independent franchise agreements to carry
semiconductor product lines which the Company does not carry, but which it may
desire to have.  Competition is based primarily upon inventory
availability, quality of service, knowledge of product and price.  The
Company believes that the distribution of passive electronic components under
its own label is a competitive advantage.




The
Company’s competitive ability to price its imported active and passive
components could be adversely affected by increases in tariffs, duties, changes
in the United States’ trade treaties with Japan, Taiwan or other foreign
countries, transportation strikes and the adoption of Federal laws containing
import restrictions.  In addition, the cost of the Company’s imports
could be subject to governmental controls and international currency
fluctuations.  Because imports are paid for with U.S. dollars, the
decline in value of United States currency as against foreign currencies would
cause increases in the dollar prices of the Company’s imports from Japan and
other foreign countries.  Although the Company has not experienced any
material adverse effect to date in its ability to compete or maintain its profit
margins as a result of any of the foregoing factors, no assurance can be given
that such factors will not have a material adverse effect in the
future.




The
Sarbanes-Oxley Act of 2002 and rules promulgated thereunder by the SEC and the
Nasdaq Stock Market have imposed substantial new or enhanced regulations and
disclosure requirements in the areas of corporate governance (including director
independence, director selection and audit, corporate governance and
compensation committee responsibilities), equity compensation plans, auditor
independence, pre-approval of auditor fees and services and disclosure and
internal control procedures.  We are committed to industry best
practices in these areas and believe we are in compliance with the relevant
rules and regulations.


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ITEM
      1.
            BUSINESS
      (Continued):





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 April 20, 2009, the Company’s backlog was approximately
$80,339,000as
compared to a backlog of approximately $131,219,000 at May 7,
2008.  All of the orders on backlog as of April 20, 2009 are
reasonably expected to be filled in the fiscal year ending February 28,
2010.





Employees:





As of
February 28, 2009, the Company employed 741 persons: 51 in management, 448 in
sales and sales support, 63 in product and purchasing, 52in finance, accounting
and human resources, 22 in management information systems, 26 in operations and
79 in quality control, shipping, receiving and warehousing.  The
Company believes that its employee relations are satisfactory.





Available
Information:





We file
reports with the SEC.  The public may read and copy any materials
filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington D.C., 20549.  The public may obtain information about
the operation of the SEC’s Public Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
about issuers such as us that file electronically with the SEC.




In
addition, we make available free of charge on our website at http://www.nuhorizons.com
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) under the Exchange Act as soon as reasonably practical
after we electronically file such material with, or furnish it to, the
SEC.




Our Board
of Directors has adopted a Code of Ethics that applies to the Company’s
Chairman, Chief Executive Officer and senior financial officers. This Code of
Ethics is posted on the Company’s website at www.nuhorizons.com in the Investor
Relations section. Any amendment of the Code of Ethics or waiver thereof
applicable to any director or executive officer of the Company, including the
Chief Executive Officer or any senior financial officer, will be disclosed on
the Company’s website within four business days of the date of such amendment or
waiver. In the case of a waiver, the nature of the waiver, the name of the
person to whom the waiver was granted and the date of the waiver will also be
disclosed.




The Board
of Directors has also adopted, and we have posted in the Investor Relations
section of our website, written Charters for each of the Board’s standing
committees. We will provide without charge, upon a stockholder’s request to 70
Maxess Rd., Melville, NY 11747, Attention: Secretary, a copy of the Company's
Code of Ethics, or the Charter of any standing committee of the
Board.





ITEM 1A.
            RISK
      FACTORS.





Risk
Factors:





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





The
semiconductor industry historically has experienced periodic fluctuations in
product supply and demand, often associated with changes in technology and
manufacturing capacity, and is generally considered to be highly
cyclical.  The Company’s revenue closely follows the strength or
weakness of the semiconductor market. The Company’s total sales in the last five
fiscal years have increased from approximately $412,013,000 in fiscal year 2005
to $750,954,000 in fiscal year 2009. A technology industry down cycle,
particularly in the semiconductor sector, could adversely affect the Company’s
operating results in the future.





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ITEM
      1A.
            RISK
      FACTORS (Continued):





Recent
turmoil in the credit markets and the financial services industry and the
current economic recession may negatively impact the Company’s business, results
of operations, financial condition or liquidity.





Recently,
the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and upheaval characterized by the bankruptcy,
failure, collapse or sale of various financial institutions and an unprecedented
level of intervention from the United States federal government. While the
ultimate outcome of these events cannot be predicted, they may have a material
adverse effect on the Company’s liquidity and financial condition if its ability
to borrow money to finance its operations from its existing lenders under its
bank credit agreements or obtain credit from trade creditors were to be
impaired. In addition, the recent economic recession could also adversely impact
our customers’ ability to finance the purchase of electronic components from us
or our suppliers’ ability to provide us with product, either of which may
negatively impact the Company’s business and results of
operations.  The economic recession has resulted in decreased sales,
which has negatively affected the Company’s business, results of operations,
financial condition and liquidity notwithstanding certain cost-cutting measures
taken by the Company in response to such decreased sales.  In the
event that the economic recession continues, the Company may be forced to take
additional cost-cutting measures which may adversely affect the Company’s
ability to execute its business plan, resulting in further negative impact on
the Company’s business, results of operations, financial condition and
liquidity.





If
the Company is unable to maintain its relationships with key suppliers, the
Company’s sales could be adversely affected.





In fiscal
2009, purchases of products and services from one supplier exceeded 10% of the
Company’s purchases on a consolidated basis. As a result, in the event that this
supplier or a number of the Company's other suppliers experiences financial
difficulties or is not willing to do business with the Company in the future on
terms acceptable to management, there could be a material adverse effect on the
Company’s business, results of operations, financial condition or
liquidity.




Additionally,
in the event that the Company’s suppliers are unable or unwilling to provide
products to the Company the Company’s relationships with its customers could be
materially adversely affected because the Company’s customers depend on the
Company’s distribution of electronic components and computer products from the
industry’s leading suppliers.





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





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





The volume and
timing of customer sales may vary and could materially affect the Company’s
results of operations, financial condition or liquidity.




The
volume and timing of purchase orders placed by the Company’s customers are
affected by a number of factors, including variation in demand for customers’
products, customer attempts to manage inventory, changes in product design or
specifications and changes in the customers’ manufacturing
strategies.  The Company often does not obtain long-term purchase
orders or commitments but instead works with its customers to develop nonbinding
forecasts of future requirements.  Based on such nonbinding forecasts,
the Company makes commitments regarding the level of business that it will seek
and accept, the timing of production schedules and the levels and utilization of
personnel and other resources.  A variety of conditions, both specific
to each individual customer and generally affecting each customer’s industry,
may cause customers to cancel, reduce or delay orders that were either
previously made or anticipated.  Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered or products completed, customized, special
ordered, or discontinued and, in certain circumstances, payment for materials
purchased and charges associated with such cancellation, reduction or
delay.  Significant or numerous cancellations, reductions or delays in
orders by customers, or any inability of customers to pay for services provided
by the Company or to pay
for components and materials purchased by it on such customers’ behalf, could
have a material adverse effect on the Company’s results of operations, financial
condition or liquidity.


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ITEM
      1A.
            RISK
      FACTORS (Continued):




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





A
significant portion of the Company’s working capital consists of accounts
receivable from customers. If customers responsible for a significant amount of
accounts receivable were to become insolvent or otherwise unable to pay for
products and services, or were to become unwilling or unable to make payments in
a timely manner, the Company’s business, results of operations, financial
condition or liquidity could be adversely affected.





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





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




Some of
the Company’s competitors may have greater financial, personnel, capacity and
other resources than it has. As a result, the Company’s competitors may be in a
stronger position to respond quickly to potential acquisitions and other market
opportunities, new or emerging technologies and changes in customer
requirements.  Additional competition has emerged from third party
logistics providers, fulfillment companies, catalogue distributors and on-line
distributors and brokers.




Additionally,
prices for the Company’s products tend to decrease over their life cycle. Such
decreases often result in decreased gross profit margins for the Company. There
is also substantial and continuing pressure from customers to reduce their total
cost for products. Suppliers may also seek to reduce the Company’s margins on
the sale of their products in order
to increase their own profitability. The Company expends substantial amounts on
the value creation services required to remain competitive, retain existing
business and gain new customers, and the Company must evaluate the expense of
those efforts against the impact of price and margin reductions.




Further,
the manufacturing of electronic components and computer products is increasingly
shifting to lower-cost production facilities in Asia, most notably China.
Suppliers in Asia have traditionally had lower gross profit margins than those
in the United States and Europe, and typically charge lower prices in the Asian
markets for their products, which places pressure on the Company to lower its
prices to meet competition.




Thus, the
Company’s consolidated gross profit margins have declined over time, from 19.1%
in fiscal 2005 to 15.1% in fiscal 2009.  If the Company is unable to
effectively compete in its industry or is unable to maintain acceptable gross
profit margins, its business could be materially adversely
affected.





The
Company may not have adequate or cost-effective liquidity or capital
resources.





The
Company needs cash to make interest payments on and to refinance indebtedness,
and for general corporate purposes, such as funding its ongoing working capital
and capital expenditure needs. At February 28, 2009, the Company had cash, cash
equivalents, and short-term investments of approximately $4,793,000. At February
28, 2009, the Company was not in compliance with certain covenants under its
U.S. credit line, for which it was required to obtain an amendment and waiver,
which was obtained on April 27, 2009.  Consequently, the Company
currently has access to credit lines of $155,000,000, of which $23,400,000 is
currently being borrowed. The Company’s ability to satisfy its cash needs
depends on its ability to generate cash from operations, to access its existing
credit lines and to access the financial markets, all of which are subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control.




The
Company may in the future need to access the financial markets to satisfy its
cash needs. Under the terms of any external financing, the Company may incur
higher than expected financing expenses and become subject to additional
restrictions and covenants. For example, the Company’s existing debt agreements
contain restrictive covenants, including covenants requiring compliance with
specified financial ratios and, unless the Company obtains a waiver from its
lending banks, a failure to comply with these or any other covenants may result
in an event of default. In connection with the


- 9
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 Table of Contents




ITEM
      1A.
            RISK
      FACTORS (Continued):





aforementioned
amendment and waiver obtained on April 27, 2009, the Company agreed to (i)
reduce the maximum amount available to be borrowed under the Revolving Credit
Line from $150,000,000 to $120,000,000, (ii) increase the interest rate payable
under its Revolving Credit Line to (x) the lead bank’s prime rate plus 1.75% or
(y) LIBOR plus 3.5%, at the option of the Company, (iii) increase its commitment
fee from .25% to .50% and (iv) pay fees of $125,000. As a result of these
amendments, the Company will incur higher interest and bank expenses in fiscal
2010.  An additional increase in the Company’s financing costs or a
breach of debt instrument covenants could have a material adverse effect on the
Company.





The
agreements governing the Company’s financings contain various covenants and
restrictions that, in certain circumstances, could limit its ability
to:


§   grant
liens on assets;


§   make
restricted payments (including paying dividends on capital stock or redeeming
or  repurchasing capital stock);


§   make
investments;


§   merge,
consolidate or transfer all or substantially all of its assets;


§   incur
additional debt; or


§   engage
in certain transactions with affiliates.





As a
result of these covenants and restrictions, the Company may be limited in how it
conducts its business and may be unable to raise additional debt, compete
effectively, make investments, or engage in other activities that may be
beneficial to its business.





Products
sold by the Company may be found to be defective and, as a result, warranty
and/or product liability claims may be asserted against the Company which may
have a material adverse effect on the Company.





Products
sold by the Company are at prices that are significantly lower than the cost of
the equipment or other goods in which they are incorporated.  Since a
defect or failure in a product could give rise to failures in the end products
that incorporate them (and claims for consequential damages against the Company
from its customers), the Company may face claims for damages that are
disproportionate to the sales and profits it receives from the products
involved. While the Company and its suppliers specifically exclude consequential
damages in their standard terms and conditions, the Company’s ability to avoid
such liabilities may be limited by the laws of some of the countries where it
does business. The Company’s business could be materially adversely affected as
a result of a significant quality or performance issue in the products sold by
the Company, if it is required to pay for the damages that result. Although the
Company currently has product liability insurance, such insurance is limited in
coverage and amount.





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





The
Company's operations outside the United States generated approximately 36% of
sales in fiscal year 2009 and 31% and 25%, respectively, in fiscal years 2008
and 2007.  As a result of the Company’s foreign sales and locations,
the Company’s operations are subject to a variety of risks that are specific to
international operations, including the following:





§   potential
restrictions on transfers of funds;


§   foreign
currency fluctuations;


§   import
and export duties and value added taxes;


§   import
and export regulation changes that could erode profit margins or restrict
exports;


§   changing
foreign tax laws and regulations;


§   potential
military conflicts, political instability and terrorism;


§   inflexible
employee contracts in the event of business downturns;


§   uncertainties
arising from local business conditions and cultural considerations;
and


§   the
burden and cost of compliance with foreign laws.





Manufacturing
of electronic component is increasingly shifting to lower-cost production
facilities in Asia, and most notably the People’s Republic of China. The
Company’s business and prospects have been and could continue to be adversely
affected by the shift to the Asian marketplace.  In addition, the
Company has operations in several locations in emerging or developing economies
that have a potential for higher risk.





- 10
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 Table of Contents




ITEM
      1A.
            RISK
      FACTORS (Continued):





The
Company may not adequately manage its international operations.





The
Company anticipates that its foreign subsidiaries will engage in substantial
regional operations.  The Company currently manages its Asian and
European subsidiaries, and plans to continue to manage future foreign
subsidiaries, on a decentralized basis, with local and regional management
retaining responsibility for day-to-day operations, profitability and the growth
of these subsidiaries.  If the Company fails to maintain or implement
effective controls, it may experience inconsistencies in the operating and
financial practices among its subsidiaries, which may harm its business, results
of operations and liquidity.





If
the Company is unable to recruit and retain key personnel necessary to operate
its businesses, its ability to compete successfully will be adversely
affected.





The
Company is heavily dependent on its current executive officers, management and
technical personnel.  The loss of any key employee or the inability to
attract and retain qualified personnel could adversely affect the Company’s
ability to execute its current business plans.  Competition for
qualified personnel is intense, and the Company might not be able to retain its
existing key employees or attract and retain any additional
personnel.





The
Company relies heavily on its internal information systems which, if not
properly functioning, could materially adversely affect the Company’s
business.





The
Company’s current global operations reside on the Company’s technology
platforms. Any of these systems are subject to electrical or telecommunications
outages, computer hacking or other general system failure. Failure of its
internal information systems or material difficulties in upgrading its global
financial system could have material adverse effects on the Company’s
business.




The
Company’s response to the subpoenas received from the Securities Exchange
Commission has required and may continue to require a significant amount of
management time and attention and significant expenditure of funds, which may
disrupt or have a negative impact on our business and adversely affect our
results of operations.





Both the
Company and its wholly-owned subsidiary Titan Supply Chain Services received
subpoenas from the SEC on April 13, 2007 in an action captioned "In the Matter
of Vitesse Semiconductor Corp." requiring them to produce documents related to
their business relationship with Vitesse.  The Company and Titan have
been fully cooperating with the SEC investigation.




In April
2007, the Company’s Audit Committee commenced its own related internal
investigation.  On April 10, 2009, the Company announced that the
Audit Committee completed its internal investigation, which concluded that there
is not presently sufficient evidence that the Company or its officers or
employees aided and abetted in any alleged violations of the securities laws by
Vitesse, that the Company appropriately adjusted its inventory for Vitesse
product purchases, returns and sales and that there was evidence of internal
control, inventory management and record keeping deficiencies.  The
Company, in consultation with the Audit Committee, has remediated, or is in the
process of remediating, these deficiencies.




The
Company’s response to the SEC investigation and its own internal investigation
has required a significant amount of management time and
attention.  The Company understands that the SEC investigation is
ongoing and may result in additional inquiries, but cannot predict the outcome
of such investigation or when it will be completed.  In addition,
although the internal investigation is completed, if any new or additional
evidence becomes available, the Audit Committee will promptly consider such
evidence to determine whether any further investigation or action is
warranted.  Accordingly, any additional inquiries by the SEC or by the
internal investigation may continue to demand significant management time and
attention, which could continue to disrupt or have a negative impact on our
business.


- 11
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 Table of Contents




ITEM
      1A.
            RISK
      FACTORS (Continued):





If
the Company fails to maintain an effective system of internal controls or
discovers material weaknesses in its internal controls over financial reporting,
it may not be able to report its financial results accurately or timely or to
detect fraud, which could have a material adverse effect on its
business.





An
effective internal control environment is necessary for the Company to produce
reliable financial reports and is important in its efforts to prevent financial
fraud. The Company is required to periodically evaluate the effectiveness of the
design and operation of its internal controls over financial reporting. These
evaluations may result in the conclusion that enhancements, modifications or
changes to internal controls are necessary or desirable. While management
evaluates the effectiveness of the Company’s internal controls on a regular
basis, these controls may not always be effective. For example, the internal
investigation of the business relationship between the Company and Vitesse found
evidence of internal control, inventory management and record keeping
deficiencies. In addition, there are inherent limitations on the effectiveness
of internal controls including collusion, management override, and failure of
human judgment. In addition, control procedures are designed to reduce rather
than eliminate business risks. If the Company fails to maintain an effective
system of internal controls or if management or the Company’s independent
registered public accounting firm were to discover material weaknesses in the
Company’s internal controls, it may be unable to produce reliable financial
reports or prevent fraud and it could have a material adverse effect on the
Company’s business. In addition, the Company may be subject to sanctions or
investigation by regulatory authorities, such as the Securities and Exchange
Commission or The Nasdaq Stock Exchange.  Any such actions could
result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of the Company’s financial statements, which could
cause the market price of its common stock to decline or limit the Company’s
access to other forms of capital.




The regulatory
authorities in the jurisdictions for which the Company ships product could levy
substantial fines on the Company or limit its ability to export and re-export
products if the Company ships product in violation of applicable export
regulations.




A
significant percentage of the Company’s sales are made outside of the United
States through the exporting and re-exporting of product. Many of the products
the Company sells are either manufactured in the United States or based on U.S.
technology ("U.S. Products"). As a result, in addition to the local
jurisdictions’ export regulations applicable to individual shipments, U.S.
Products are subject to the Export Administration Regulations ("EAR") when
exported and re-exported to and from all international jurisdictions. Licenses
or proper license exceptions may be required by local jurisdictions’ export
regulations, including EAR, for the shipment of certain U.S. Products to certain
countries, including China, India, Russia, and other countries in which the
Company operates. Non-compliance with the EAR or other applicable export
regulations can result in a wide range of penalties including the denial of
export privileges, fines, criminal penalties, and the seizure of commodities. In
the event that any export regulatory body determines that any shipments made by
the Company violate the applicable export regulations, the Company could be
fined significant sums and/or its export capabilities could be restricted, which
could have a material adverse effect on the Company’s business.





The Company may
be subject to intellectual property rights claims, which are costly to defend,
could require payment of damages or licensing fees and could limit the Company’s
ability to use certain technologies in the future.





The
Company sells products and utilizes processes that are highly innovative and may
be subject to allegations of infringement or other violations of intellectual
property rights. Without limiting the generality of the foregoing, the Company
notes that in recent years certain companies in the business of acquiring
patents not for the purpose of developing technology but with the intention of
aggressively seeking licensing revenue from purported infringers have made an
increasing number of claims against the Company and/or its customers. In some
cases, depending on the nature of the
claim, the Company may be able to seek indemnification from its suppliers for
itself and its customers against such claims, but there is no assurance that it
will be successful in obtaining such indemnification.




Intellectual
property right infringement claims, with or without merit, can be time-consuming
and costly to litigate or settle and can divert management resources and
attention. If successful they may require the Company to pay damages or seek
royalty or license arrangements, which may not be available on commercially
reasonable terms. The payment of any such damages or royalties may significantly
increase the Company’s operating expenses and harm its operating results and
financial condition. Also, royalty or license arrangements may not be available
at all. The Company may have to stop selling certain products or using
technologies, which could affect the Company’s ability to compete
effectively.


- 12
-
 Table of Contents




ITEM
      1A.
            RISK
      FACTORS (Continued):





The
Company’s goodwill and intangible assets could become impaired, which could
reduce the value of its assets and reduce its net income in the year in which
the write off occurs.





Goodwill
represents the excess of the cost of an acquisition over the fair value of the
assets acquired. The Company also attributes value to certain identifiable
intangible assets, which consist primarily of customer relationships and
non-competition agreements.  The Company will incur impairment charges
on goodwill or identifiable intangible assets if it determines that the fair
values of such assets are less than the current carrying values.  The
Company evaluates on an annual basis or earlier if events or circumstances have
occurred that indicate all, or a portion of the carrying amount of goodwill may
no longer be recoverable, in which case an impairment charge to net income would
become necessary.




Based
upon the results of such testing the Company concluded that a portion of its
goodwill was impaired and, as such recorded a non-cash impairment charge of
$7,443,000 or $0.41 per basic and diluted share for the year ended February 28,
2009. The impairment charge did not impact the Company’s consolidated cash flows
or liquidity.  No impairment existed as of February 28, 2009 with
respect to the Company’s identifiable intangible assets.  See Note 1
to the Company’s financial statements appearing in Item 8 and ‘Critical
Accounting Policies" in Management’s Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-K for further discussion of
the impairment testing of goodwill.




A
continued decline in general economic conditions could impact the judgments and
assumptions used to determine the fair value of the Company’s businesses and the
Company could be required to record an additional impairment charge in the
future which potentially could reduce the Company’s total assets, as well as
reduce net income.





ITEM 1B.
            UNRESOLVED
      STAFF COMMENTS.




None.





ITEM 2.
            PROPERTIES.





On July
7, 2008, the Company entered into an amendment of its existing lease agreement
for its facility in Melville, Long Island, New York.  The facility is
approximately 44,000 square feet and will serve as the Company’s executive and
corporate offices, including its NIC subsidiary.  The lease term was
extended to February 28, 2019 at an annual base rent of $840,579 for the period
from January 1, 2009 through December 31, 2009, with 3.5% annual escalations
thereafter.




On May
12, 2008, the Company entered into an amendment of its existing lease agreement
for its existing warehouse facility in Southaven, Mississippi.  The
premises consists of approximately 96,600 square feet.  The amended
lease term was extended to November 13, 2018 at an annual base rent of $411,465
for the period from December 1, 2008 through November 30, 2013 and $444,305 for
the period from December 1, 2013 through November 30, 2018.




The
Company also leases warehouse space in the United Kingdom, Singapore and Hong
Kong.  The United Kingdom lease is approximately 7,200 square feet and
the lease term is from July 24, 2008 to July 23, 2018.  The annual
base rent is approximately 34,500 British pounds.  The Singapore
warehouse is approximately 17,600 square feet and the lease term is from October
1, 2007 until November 30, 2009.  The annual base rent is 302,000
Singapore dollars.  The Hong Kong warehouse is approximately 6,600
square feet and the lease term is from August 1, 2007 until July 31,
2009.  The annual base rent is 545,000 Hong Kong dollars.




The
Company also leases space for twenty-six (26) branch sales offices in the United
States, two (2) in Canada, sixteen (16) in Asia Pacific, one (1) in Australia,
two (2) in England, two (2) in Denmark and one (1) in Germany, which range in
size from 300 square feet to 9,600 square feet, with lease terms that expire
between March 31, 2009 and August 10, 2018.  Annual base rentals range
from $2,400 to $188,000 with aggregate base rentals approximating
$2,359,000.




The
Company believes it can obtain extensions of the leases scheduled to expire in
fiscal 2010 on substantially similar terms to those currently in
effect.





- 13
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 Table of Contents




ITEM 3.
            LEGAL
      PROCEEDINGS.





At times
the Company is involved in various lawsuits incidental to its business. At
February 28, 2009, management does not believe any litigation matter is material
to its financial statements.




In April
2007, the Company received subpoenas in connection with the SEC’s investigation
entitled “In the Matter of Vitesse Semiconductor Corp.”  The Company
is continuing to fully cooperate with the investigation by the SEC. The Company
conducted its own related internal investigation under the direction of the
Audit Committee (the internal investigation, together with the SEC
investigation, the "Vitesse Matter").  On April 9, 2009, the Audit
Committee announced the completion of its internal investigation, which
concluded that there is not presently sufficient evidence that the Company or
its officers or employees aided and abetted in any alleged violations of the
securities laws by Vitesse, that the Company appropriately adjusted its
inventory for Vitesse product purchases, returns and sales and that there was
evidence of internal control, inventory management and record keeping
deficiencies.  The Company, in consultation with the Audit Committee,
has remediated, or is in the process of remediating, these
deficiencies.  Management is presently unable to predict the outcome
or the duration 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.




On or
about October 4, 2007, a Consolidated Amended Class Action Complaint for
Securities Fraud ("Amended Complaint") was filed in the United States District
Court for the District of California in the matter entitledLouis Grasso, individually and on
behalf of all others similarly situated, Plaintiff, v. Vitesse Semiconductor
Corporation, Louis Tomasetta, Yatin Mody, Eugene F. Hovanec, Silicon Valley
Bank, Nu Horizons Electronics Corp, Titan Supply Chain Services, Corp. (Formerly
Known as Titan Logistics Corp.), and KPMG LLP, Defendants.Pursuant to the
Amended Complaint, Nu Horizons, Titan, Silicon Valley Bank, and KPMG LLP were
added as defendants to the putative class action which had been commenced by
certain purchasers of Vitesse common stock.  In the Amended Complaint,
plaintiff alleges that Nu Horizons and Titan violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks
rescission or unspecified damages on behalf of a purported class which purchased
Vitesse common stock during the period from January 27, 2003 to and including
April 27, 2006. As of February 28, 2009, a class has not been certified. The
complaint against Nu Horizons was dismissed with prejudice.  The
plaintiffs have not determined whether they will appeal that
ruling.  Nu Horizons will vigorously defend any such
appeal.





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





During
the fourth quarter of the fiscal year ended February 28, 2009, no matters were
submitted to a vote of security holders through the solicitation of proxies or
otherwise.





- 14
-
 Table of Contents




PART II.





ITEM 5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.





a)
            The
      Company’s common stock is traded on The Nasdaq Global Market under the
      symbol "NUHC".  The following table sets forth, for the periods
      indicated, the high and low sales prices for the Company’s common stock as
      reported by The Nasdaq Global
Market.





FISCAL
      YEAR 2008:
            
            High
            
            
            LowFirst Quarter
            
            $
            12.83
            
            
            $
            9.03Second Quarter
            
            
            13.74
            
            
            
            8.30Third Quarter
            
            
            9.66
            
            
            
            6.00Fourth Quarter
            
            
            7.44
            
            
            
            5.40FISCAL
      YEAR 2009:First Quarter
            
            $
            6.99
            
            
            $
            5.29Second Quarter
            
            
            5.73
            
            
            
            4.50Third Quarter
            
            
            4.95
            
            
            
            1.20Fourth Quarter
            
            
            2.00
            
            
            
            1.00FISCAL
      YEAR 2010:First Quarter (through April 20,
      2009)
            
            $
            2.80
            
            
            $
            1.45





b)
            As
      of April 20, 2009, the Company’s common stock was owned by approximately
      659 holders of record and 3,810 beneficial
  holders.





c)
            The
      Company does not anticipate that it will pay any dividends in the
      foreseeable future.  The Company currently intends to retain
      future earnings for use in the operation and development of its business
      and for potential acquisitions.  In addition, the terms of the
      Company’s loan agreement limit the payment of dividends to no more than
      25% of the Company’s consolidated net income.  No dividends were
      paid in fiscal years 2009 and 2008.








- 15
-
 Table of Contents


ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
(Continued):





Performance
Graph:





The
following graph compares the performance of the Company’s common stock for the
periods indicated with the performance of the NASDAQ Composite Index and the
average performance of a group consisting of the Company’s peer companies. The
Peer Group consists of Arrow Electronics, Inc., Avnet, Inc., Bell Microproducts,
Inc., and Jaco Electronics, Inc. The Company has removed Agilysys, Inc., and All
American Semiconductor, Inc. from its peer group as Agilysys, Inc. is no longer
in the same business as the remaining Peer Group and All American Semiconductor,
Inc. is no longer trading on a major stock exchange. The graph assumes $100
invested on February 28, 2004 in the Company, the NASDAQ Composite Index,
and the Peer Group. Total return indices reflect reinvestment dividends and are
weighted on the basis of market capitalization at the time of each reported data
point.














2/04
            2/05
            2/06
            2/07
            2/08
            2/09Nu
      Horizons Electronics Corp.
            100.00
            72.53
            90.84
            102.81
            61.81
            20.81NASDAQ
      Composite
            100.00
            84.76
            78.48
            80.36
            78.29
            50.47Peer
      Group
            100.00
            95.57
            121.05
            152.88
            134.46
            68.24








- 16
-
 Table of Contents




ITEM 6.
            SELECTED
      FINANCIAL DATA.





For
      the Years EndedFebruary
      28,
                2009
            
            
            February
      29,
                2008
            
            
            February
      28,
                2007
            
            
            February
      28,
                2006
            
            
            February
      28,
                2005(As
      Restated)
            
            
            (As
      Restated)
            
            
            (As
      Restated)INCOME
      STATEMENT DATA(1):Continuing
      Operations:Net sales
            
            $
            750,954,000
            
            
            $
            747,170,000
            
            
            $
            668,591,000
            
            
            $
            499,515,000
            
            
            $
            412,013,000Gross profit on
    sales
            
            
            113,693,000
            
            
            
            120,399,000
            
            
            
            114,325,000
            
            
            
            90,006,000
            
            
            
            78,839,000Gross profit
      percentage
            
            
            15.1
            %
            
            
            16.1
            %
            
            
            17.1
            %
            
            
            18.0
            %
            
            
            19.1
            %Operating
      Income before GoodwillImpairment
      Charge
            
            
            683,000
            
            
            
            7,926,000
            
            
            
            19,434,000
            
            
            
            10,658,000
            
            
            
            7,443,000Goodwill
      Impairment Charge
            
            
            7,443,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Operating
      Income (loss)
            
            
            (6,760,000
            )
            
            
            7,926,000
            
            
            
            19,434,000
            
            
            
            10,658,000
            
            
            
            7,443,000Net
      (loss) income
            
            $
            (9,235,000
            )
            
            $
            2,519,000
            
            
            $
            7,717,000
            
            
            $
            3,413,000
            
            
            $
            2,584,000Earnings
      (loss) per common share:Basic
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .43
            
            
            $
            .20
            
            
            $
            .15Diluted
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .41
            
            
            $
            .19
            
            
            $
            .15




As
      of
                February
      28,
                2009
            
            
            As
      of
                February
      29,
                2008
            
            
            As
      of
                February
      28,
                2007
            
            
            As
      of
                February28,
                2006
            
            
            As
      of
                February28,
                2005(As
      Restated)
            
            
            (As
      Restated)
            
            
            (As
      Restated)BALANCE
      SHEET DATA(1):Working
      capital
            
            $
            147,141,000
            
            
            $
            204,456,000
            
            
            $
            171,230,000
            
            
            $
            179,417,000
            
            
            $
            144,243,000Total
      assets
            
            
            251,355,000
            
            
            
            318,343,000
            
            
            
            267,989,000
            
            
            
            247,055,000
            
            
            
            181,125,000Total
      bank debt
            
            
            23,400,000
            
            
            
            69,903,000
            
            
            
            32,327,000
            
            
            
            50,600,000
            
            
            
            22,800,000Long-term
      liabilities
            
            
            19,443,000
            
            
            
            73,056,000
            
            
            
            37,303,000
            
            
            
            53,455,000
            
            
            
            26,266,000Shareholders’
      equity
            
            
            143,977,000
            
            
            
            151,194,000
            
            
            
            147,747,000
            
            
            
            135,138,000
            
            
            
            127,688,000





(1)
            See
      Note 2 of the Financial Statements contained in Item
  8.








- 17
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 Table of Contents


ITEM 7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





For an
understanding of the Company and the significant factors that influenced the
Company's performance during the past three fiscal years, the following
discussion should be read in conjunction with the description of the business
appearing in Item 1 of this Form 10-K annual report and the consolidated
financial statements, including the related notes, and other information
appearing in Item 8 of this Form 10-K annual report.  The Company
operates on a fiscal year ending on the last day of February.





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 OEMs of electronic products.




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 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 recent
years, there has been a shift in production of electronic components to Asia due
to lower cost.  The Company recognized the industry shift to overseas
production and the need to serve its suppliers and customers on a global
basis.  As a result, the Company adopted a strategy of expanding its
Asian and European operations by investing in human resources and expanding its
sales force and engineering personnel.  In prior years, we invested in
Asia and currently we have 19 offices, with a warehouse in each of Singapore and
Hong Kong.  Sales in Asia for the year ended February 28, 2009 were
18% higher than the year ended February 29, 2008.  However, due to the
current economic recession, sales in Asia declined by 21% in the fourth quarter
of fiscal 2009, compared to the same period in the prior fiscal
year.




In fiscal
2007, we continued our growth strategy of expanding our European presence by
acquiring DT Electronics on August 29, 2006, with 48 employees and a warehouse
in Coventry, England. In fiscal 2008, we opened our first office in Munich,
Germany and on June 6, 2007, the Company acquired Dacom, a franchised electronic
component distributor, based in Munich, Germany.  In addition, to
further expand our European presence, in September 2008, we acquired C-88, a
franchised electronic components distributor based in Hoersholm, Denmark, near
Copenhagen.  The DT Electronics, Dacom and the C-88 acquisitions have
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 $4,042,000 in cash as of the acquisition date, including
transaction costs of $542,000.  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 February 28, 2009, the present value of the minimum
payment of $500,000 has been recorded as a short- and long-term liability as Due
to seller 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 year ended February 28, 2009, no additional amount
above the $500,000 minimum has been recorded as C-88 is currently not projected
to attain the first earnings milestone established in the purchase
agreement.




During
fiscal 2008, we modified our Systems business by focusing the business on higher
margin value-added engagements with mid-tier customers and creating a new
selling organization.  Systems sales for the year ended February 28,
2009 increased 16.9% over the year ended February 29, 2008 primarily due to a
one-time sale to a large customer on a product that was being
discontinued.






- 18
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 Table of Contents





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Overview(Continued):





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.




Due to
the current 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 one week
furlough program during the Company’s first quarter of fiscal 2010. Finally, the
Company adjusted its commission plans to reduce commission rates in fiscal
2010.  Collectively, the Company expects these actions to result in
approximately $10,000,000 to $12,000,000 in savings annually, excluding
approximately $1,151,000 of severance cost incurred in fiscal 2009.




In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 142
("SFAS 142") "Goodwill and Other Intangible Assets," the Company is required to
evaluate the carrying value of its goodwill for potential impairment on an
annual basis or an interim basis if there are indicators of potential
impairment.  In the fourth quarter of 2009, the Company conducted an
evaluation of its goodwill for potential impairment which resulted in $7,443,000
in non-cash charges for the fiscal year ended February 28, 2009.




The
Company is continuing to fully cooperate with the investigation by the SEC in
the action captioned "In the Matter of Vitesse Semiconductor Corp." and
conducted its own related internal investigation under the direction of the
Audit Committee (referred to herein as the "Vitesse Matter").  On
April 9, 2009, the Audit Committee announced the completion of its 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. The Company has incurred approximately
$3,577,000, $2,602,000 and $75,000 for the fiscal years ended 2009, 2008, and
2007, respectively, for professional fees.  Cumulatively, $6,254,000
of expense for professional fees has 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 will
decline in future fiscal 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.




In the
fourth quarter of fiscal 2008, the Company reevaluated its accounting policy for
revenue reporting for its Titan division which provides primarily supply chain
services.  In accordance with EITF 99-19, "Reporting Revenue Gross as
a Principal vs. Net as an Agent," the Company has revised its revenue
presentation to net as an agent and therefore reduced sales and cost of sales in
fiscal years 2008 and 2007 by $69,209,000 and $70,252,000,
respectively.  Titan revenue is now reported in sales as a fee for
services for all periods presented.  There was no change to net income
resulting from this change in classification.




The
Company’s business, financial condition, operating results and cash flows can be
impacted by a number of factors, including but not limited to those set forth
below in "Management’s Discussion and Analysis of Financial Condition and
Results of Operations," any one of which could cause our actual results to vary
materially from recent results or from our anticipated future results. For a
discussion identifying additional risk factors and important factors that could
cause actual results to differ materially from those anticipated, also see the
discussions in "Forward-Looking Statements," "Risk Factors" and "Notes to
Consolidated Financial Statements" in this annual report on Form
10-K.





- 19
-
 Table of Contents





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Overview(Continued):





Sales
Analysis:





The table
below provides a year-over-year summary of sales by operating segment for active
electronic components and passive components for the Company:





Three-Year
Analysis of Sales:  By Operating Segment




Year
      Ended
            
            
            Percentage
      ChangeFebruary
      28,
              2009
            
            
            %
      of Total
            
            
            February
      29,
              2008
            
            
            %
      of Total
            
            
            February
      28,
              2007
            
            
            %
      of Total
            
            
            2009
      to 2008
            
            
            2008
      to 2007(Dollars
      in thousands)Sales
      by Type:Active
      ElectronicComponents
            
            $
            697,270
            
            
            
            92.9
            %
            
            $
            688,131
            
            
            
            92.1
            %
            
            $
            602,183
            
            
            
            90.1
            %
            
            
            1.3
            %
            
            
            14.3
            %PassiveComponents
            
            
            53,684
            
            
            
            7.1
            
            
            
            59,039
            
            
            
            7.9
            
            
            
            66,408
            
            
            
            9.9
            
            
            
            (9.1
            )
            
            
            (11.1
            )$
            750,954
            
            
            
            100.0
            %
            
            $
            747,170
            
            
            
            100.0
            %
            
            $
            668,591
            
            
            
            100.0
            %
            
            
            0.5
            %
            
            
            11.8
            %





The table
below provides a year-over-year summary of sales by geographic area for the
Company:





Three-Year
Analysis of Sales:  By Geography




Year
      Ended
            
            
            Percentage
      ChangeFebruary
      28,
              2009
            
            
            %
      of Total
            
            
            February
      29,
              2008
            
            
            %
      of Total
            
            
            February
      28,
              2007
            
            
            %
      of Total
            
            
            2009
      to 2008
            
            
            2008
      to 2007(Dollars
      in thousands)Sales
      by Geographic Area:North
      America
            
            $
            479,125
            
            
            
            63.8
            %
            
            $
            512,749
            
            
            
            68.7
            %
            
            $
            533,598
            
            
            
            79.8
            %
            
            
            (6.6
            )%
            
            
            (3.9
            )%Asia
            
            
            204,361
            
            
            
            27.2
            
            
            
            172,932
            
            
            
            23.1
            
            
            
            111,483
            
            
            
            16.7
            
            
            
            18.2
            
            
            
            55.1Europe
            
            
            67,468
            
            
            
            9.0
            
            
            
            61,489
            
            
            
            8.2
            
            
            
            23,510
            
            
            
            3.5
            
            
            
            9.7
            
            
            
            161.5$
            750,954
            
            
            
            100.0
            %
            
            $
            747,170
            
            
            
            100.0
            %
            
            $
            668,591
            
            
            
            100.0
            %
            
            
            0.5
            %
            
            
            11.8
            %





For the
year ended February 28, 2009, net sales increased to $750,954,000 from
$747,170,000 for the prior year. Net loss for the year ended February 28, 2009
was $9,235,000or
$.51 per basic and diluted shares as compared to net income of $2,519,000 or
$.14 per basic and diluted shares in the prior fiscal year. The net loss for
fiscal 2009 is primarily attributed to the $7,443,000 goodwill impairment
charge, $3,577,000 of professional fees for the Vitesse Matter and $1,151,000 of
severance related to the reductions in workforce.




Sales of
active electronic components increased 1.3% in fiscal 2009 over 2008 primarily
due to an increase in System sales and the acquisition of C-88 in September
2008, and 14.3% in fiscal 2008 over 2007 primarily due to our acquisitions and
growth in Europe as detailed below.




Sales of
passive components declined in fiscal 2009 compared to fiscal 2008 by 9.1%
primarily due to the recent global economic recession and 11.1% in fiscal 2008
compared to fiscal 2007 primarily due to the loss of several large OEM
customers.




North
American sales in fiscal 2009 have decreased compared to the prior year
primarily due to the transfer of business to Asia and a decrease in North
America sales during the second half of fiscal 2009 due to the recent global
economic recession.




Sales in
Asia increased 18.2% in fiscal 2009 and 55.1% in fiscal 2008 when compared to
the prior year due to our continued growth and the continued transfer of
business to Asia from North America.


- 20
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 Table of Contents





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Sales Analysis
(Continued):





Europe
sales have increased 9.7% in fiscal 2009 and 161.5% in fiscal 2008 compared to
the prior year primarily due to market expansion in England, driven by our
acquisition of DT Electronics in England on August 29, 2006, the commencement of
operations in Germany, followed by our acquisition of Dacom in Munich, Germany
in June 2007, and the acquisition of C-88 in Denmark in September
2008.





Results of
Operations:





The
following table sets forth for the fiscal years ended February 2009, 2008 and
2007, certain items in the Company’s consolidated statements of operations
expressed as a percentage of net sales.





Years
      EndedFebruary
      28,
                2009
            
            
            February
      29,
                2008
            
            
            February
      28,
                2007(As
      Restated)Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of sales
            
            
            84.9
            
            
            
            83.9
            
            
            
            82.9Gross
      profit
            
            
            15.1
            
            
            
            16.1
            
            
            
            17.1Selling,
      general and administrative expenses
            
            
            15.0
            
            
            
            15.1
            
            
            
            14.2Goodwill
      impairment charge
            
            
            1.0
            
            
            
            0.0
            
            
            
            0.0Interest
      expense
            
            
            0.4
            
            
            
            0.6
            
            
            
            0.6Interest
      (income)
            
            
            0.0
            
            
            
            0.0
            
            
            
            (0.1
            )Income
      (loss) before taxes and minority interest
            
            
            (1.3
            )
            
            
            0.5
            
            
            
            2.4Income
      tax provision (benefit)
            
            
            (0.1
            )
            
            
            0.1
            
            
            
            1.2Income
      (loss) after taxes, before minority interests
            
            
            (1.2
            )
            
            
            0.4
            
            
            
            1.2Minority
      interests
            
            
            0.0
            
            
            
            0.0
            
            
            
            0.1Net
      income (loss)
            
            
            (1.2
            )
            
            
            0.3
            
            
            
            1.2





Fiscal Year 2009 versus
2008


Results of
Operations:





Consolidated
net sales for the year ended February 28, 2009 were $750,954,000 as compared to
$747,170,000 for the comparable period of the prior year, an increase of
$3,784,000 or 0.5%.




Sales of
active electronic components for the year ended February 28, 2009 were
$697,270,000as
compared to $688,131,000 for the comparable period of the prior year, an
increase of approximately $9,139,000 or 1.3%.  This sales increase is
primarily due an increase of System sales of $8,524,000, the expansion of its
line card and customer base, and the acquisition of C-88, partially offset by a
decrease in sales during the second half of fiscal 2009 due to the recent global
economic recession.  The recent economic and credit crisis makes it
difficult for management to estimate the Company’s overall sales volume and
earnings for fiscal 2010. Management believes, however, that in the near term
the industry will continue to experience a global decline in overall sales
volume as compared to recent prior periods.




Passive
components sales for the year ended February 28, 2009 were $53,684,000 compared
to $59,039,000 for the year ended February 29, 2008, a decrease of $5,355,000 or
9.1%, primarily due to the recent global economic recession. Several major
customers curtailed or halted production of certain programs in the second half
of fiscal 2009.




Consolidated
gross margin was 15.1% in fiscal 2009 as compared to 16.1% for the comparable
period of the prior year.    The decline in gross margin for
the year ended February 28, 2009 is attributed to an increase in lower margin
sales in the Asia/Pacific markets in order to secure high volume business from
large Asian contract manufacturers and a change in product mix to include a
higher amount of lower margin business in North America and Europe. Reduced
supplier discounts aggregating $2,630,000, higher freight costs of $1,579,000
and a Systems sale of $13,841,000 at a low margin to a large customer of an
end-of-life product, among other factors, also contributed to the decline in
gross profit margin during the year ended February 28, 2009.











- 21
-
 Table of Contents




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Results of Operations
(Continued):




As a
percentage of sales, selling, general and administrative expenses decreased to
15.0% from 15.1% in the comparable period of the prior year.  Selling,
general and administrative expenses increased $537,000 or 0.5% over the prior
period primarily due to: (i) an increase of $987,000 for operating expenses
attributed to our newly acquired C-88 operation, (ii) a $975,000 increase in
professional fees related to the Vitesse Matter; (iii) an increase of $890,000
in severance related to the reduction in workforce during the third and fourth
quarter of 2009; (iv) $261,000 of increased warehouse costs for
severance  related to the consolidation of the Company’s Melville, New
York warehouse into the expanded Mississippi warehouse; and (v) an increase in
other selling and general and administrative expenses of $311,000. These
increases were partially offset by a decrease of $2,887,000 inselling and
administrative expenses primarily due to a reduction in workforce during the
third and fourth quarters of fiscal 2009 and a salary reduction program
implemented in the fourth quarter of fiscal 2009.




In the
fourth quarter of 2009, the Company conducted an evaluation of its goodwill for
potential impairment which resulted in an impairment charge to the active
electronics components segment of $7,443,000 or $0.41 per basic and diluted
shares in non-cash charges in the year ended February 28, 2009.




Interest
expense decreased 31.3% to$3,141,000 for the year
ended February 28, 2009 from $4,570,000 from the prior period primarily due to
lower average borrowings and lower average interest rates compared to the prior
year period.




Income
tax expense as a percentage of income before provision for income tax and
minority interest ("effective tax rate") was a benefit of 8.5% and a provision
of 21.3% for the years ended February 28, 2009, and February 29, 2008,
respectively.  The effective tax rate is lower than the statutory rate
of 35% for the year ended February 28, 2009, primarily due to 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. Also, in
preparing our fiscal 2008 tax return, we determined that certain tax adjustments
for permanent items to the Company’s tax provision were required resulting in
the recording of an additional tax benefit of $662,000for the year ended
February 28, 2009.  There was no income tax benefit recognized for the
goodwill impairment charge of $7,443,000 recorded for the period ended February
28, 2009.  The effective tax rate is lower than the statutory rate of
35% for the year ended February 29, 2008 primarily due to lower international
tax rates than United States statutory rate caused by the tax benefit associated
with the election in 2008 to permanently reinvest foreign income in the
respective foreign country, partially offset by penalties and interest
associated with the correction of errors in our United States federal and state
income tax returns for prior fiscal years.  Refer to Note 9 of the
Notes to Consolidated Financial Statements for a reconciliation of our income
tax (benefit) provision for 2008.




Net loss
for the year ended February 28, 2009 was $9,235,000 or $.51 per basic and
diluted share as compared to net income of $2,519,000 or $0.14 per basic and per
diluted share for the year ended February 29, 2008. The net loss for fiscal 2009
is primarily attributed to the $7,443,000 goodwill impairment charge, $3,577,000
of professional fees for the Vitesse Matter and $1,151,000 of severance related
to the reduction in workforce.





Fiscal Year 2008 versus 2007
(as restated)


Results of
Operations:




Consolidated
net sales for the year ended February 29, 2008 were $747,170,000 as compared to
$668,591,000 for the comparable period of the prior year, an increase of
$78,579,000 or 11.8%.




Sales of
active electronic components for the year ended February 29, 2008 were
$688,131,000as
compared to $602,183,000 for the comparable period of the prior year, an
increase of approximately $85,948,000 or 14.3%.  Management believes
this sales increase is due to increased market share resulting from the industry
consolidation, the Company's increased sales personnel, the expansion of both
its line card (franchised suppliers) and its global customer base, and
acquisitions.  This was partially offset by a decline in the sales of
Systems.




Passive
components sales for the year ended February 29, 2008 were $59,039,000 compared
to $66,408,000 for the year ended February 28, 2007, a decrease of $7,369,000 or
11.1%.  This decrease is primarily due to the loss of several large
OEM customers, which management believes shifted their production to competitor
contractors in Asia.





- 22
-
 Table of Contents


ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Results of Operations
(Continued):





Consolidated
gross profit margin as a percentage of net sales was 16.1% for the year ended
February 29, 2008 as compared to 17.1% for the year ended February 28,
2007.  The decreased margin is due to product mix, and increased order
size of lower margin business coupled with increased sales in the Asian market,
which requires lower selling prices due to volume demand from large Asian
contract manufacturers.





As a
percentage of sales, operating expenses increased to 15.1% as compared to 14.2%
in the prior year.  Operating expenses increased to $112,473,000 for
the year ended February 29, 2008 from $94,891,000 for the year ended February
28, 2007, an increase of $17,582,000 or 18.5%.  The dollar increase in
operating expenses was primarily due to increases in the following expense
categories:  Approximately $10,240,000 or 58% of the increase was for
personnel related costs resulting from increased staffing levels and related
commissions to support increased sales including staffing for our start-up
operation in Germany which had no operations in fiscal
2007.  Approximately $4,100,000 or 23% of the increase was for
professional fees due to the prior year's financial statement restatement (see
Note 2 to the Financial Statements) and ongoing SEC inquiry and the Company's
related internal investigation of the Vitesse Matter.  Approximately
$3,242,000 or 19% of the increase was a result of net increases in various other
expenses and fees such as rent, utilities, telephone, insurance, and computer
expenses, among others, which represent an aggregate 4% of the Company’s total
overhead.




Interest
expense increased to $4,570,000 for the year ended February 29, 2008 as compared
to $3,850,000 for the year ended February 28, 2007.  This increase in
interest expense resulted from higher levels of bank borrowings during the 2008
fiscal year to support the increase in accounts receivable and inventory levels,
as well as the effect of increased interest rates on those borrowings during
such fiscal year.




The
effective tax rate was 21.3% and 49.4% in fiscal 2008 and 2007,
respectively.   The effective tax rate for fiscal 2008 was
impacted by lower international tax rates than the United States statutory rate
caused by the tax benefit associated with the election in 2008 to permanently
reinvest foreign income in the respective foreign country partially offset by
Federal and state interest and penalties associated with the correction of
errors in our United States federal and state income tax returns for prior
fiscal years and stock option related tax benefits. The effective tax rate was
49.4% in fiscal 2007 and was impacted by interest and penalties of $745,000
related to the correction of errors in our U.S. Federal return and state income
taxes.




Net
income for the year ended February 29, 2008 was $2,519,000 or $.14 per basic and
diluted shares as compared to $7,717,000 or $.43 per basic and $.41 per diluted
share for the year ended February 28, 2007.





Liquidity and Capital
Resources:




The
Company's current ratio (current assets divided by current liabilities) was
2.7:1 at February 28, 2009. Working capital was $147,141,000 at February 28,
2009 as compared to $204,456,000 at February 29, 2008.




In fiscal
2009, approximately $49,350,000 of cash was repaid under the Company’s Revolving
Credit Line (as defined below) which repayment was funded by cash flow from
operations, primarily due to a decrease in accounts receivable and a decrease in
inventory.  The Company used $4,042,000 and $2,186,000 to fund its
acquisition of C-88 and capital expenditures, respectively.




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 February 28, 2009, borrowings under the Revolving
Credit Line incurred interest at either (i) the lead bank’s prime rate or (ii)
LIBOR plus 1.75%, at the option of the Company, through September 30, 2011, the
due date of the loan.  On August 29, 2008, the Company entered into an
amendment to the Revolving Credit Line which increased the interest rate on
borrowings by 25 basis points to LIBOR plus 1.75% and increased the commitment
fee by 50 basis points.  The interest rate at February 28, 2009 was
3.25%.   Direct borrowings under the Revolving Credit Line were
$14,950,000 at February 28, 2009, and $64,300,000 at February 29, 2008. As of
February 28, 2009, the Company was in violation of certain required bank
covenants and subsequently obtained an amendment and waiver of such covenants
from its bank lending group.  In connection with the aforementioned
waiver obtained on April 27, 2009, the Company agreed to (i) reduce
the


- 23
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ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Liquidity and Capital
Resources (Continued):





maximum
amount available to be borrowed under the Revolving Credit Line from
$150,000,000 to $120,000,000, (ii) increase the interest rate payable under its
Revolving Credit Line to (x) the lead bank’s prime rate plus 1.75% or (y) LIBOR
plus 3.5%, at the option of the Company, (iii) increase its commitment fee from
..25% to .50% and (iv) pay fees of $125,000. As a result of these amendments, the
Company will incur higher interest and bank expenses in fiscal
2010.




On
November 20, 2006, the Company entered into a revolving credit agreement with a
Singapore bank to provide a $30,000,000 secured line of credit to the Company’s
Asian subsidiaries and thereby finance the Company’s Asian operations (the
"Singapore Credit Line").  Borrowings under the Singapore Credit Line
utilize an asset-based formula based on a certain percentage of outstanding
accounts receivable and inventory levels at any given month
end.  Borrowings under the Singapore Credit Line bear interest at
SIBOR plus 1.5%.  The interest rate at February 28, 2009 was 2.64% and
at February 29, 2008 was 5.4%.  Direct borrowings under the Singapore
Credit Line were $5,000,000 at February 28, 2009 and February 29, 2008. The
Singapore Credit Line expires on November 20, 2009.  Management
believes it will be able to extend the Singapore Credit Line before it expires
on terms that are substantially the same as the existing terms; however, no
assurances can be given in this regard.




The
Company also has a receivable financing agreement with a bank in England (the
"U.K. Credit Line") which provides for maximum borrowings of £2,500,000
(approximately $3,575,000) at February 28, 2009, which bears interest at the
bank's base rate plus 1.55%.  The interest rate at February 28, 2009
was 4.55% and at February 29, 2008 was 5.25%.  The Company owed
$1,944,000 and $603,000 at February 28, 2009 and February 29, 2008,
respectively.  The U.K. Credit Line renews annually in
July.  Management believes it will be able to extend the U.K. Credit
Line on terms that are substantially the same as the existing terms; however, no
assurances can be given in this regard.




The
Company has a bank credit agreement with a bank in Denmark ("the Danish Credit
Line") which provides for maximum borrowings of 10,072,000 Danish Kroner
(approximately $1,694,000) as of February 28, 2009, at the current prevailing
interest rate (7.9% at February 28, 2009).  Borrowings under the
Danish Credit Line were 8,953,000 Danish Kroner ($1,506,000) at February 28,
2009.  Management believes it will be able to extend the Danish Credit
Line on terms that are substantially the same as the existing terms; however, no
assurances can be given in this regard.




At
February 28, 2009, after giving effect to the waiver, the Company had
approximately $79,350,000 in the aggregate available under all of its bank
credit facilities.




In
September 2008, we acquired C-88, a franchised electronic components distributor
based in Hoersholm, Denmark. Pursuant to the terms of the purchase agreement,
the Company paid $4,042,000 in cash including acquisition costs.  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. 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.  Minimum payments of $300,000 and $200,000 are due to the
seller in the fourth quarter of fiscal 2010 and the fourth quarter of fiscal
2011, respectively.




On August
29, 2006, the Company acquired DT Electronics, a company engaged in the
electronics components business in the United Kingdom.  The initial
purchase price for DT Electronics as of the acquisition date was
$5,731,000.  The transaction also provides for potential additional
payments to the seller in three installments through 2009 from a guaranteed
minimum of approximately $1,611,000 to a maximum of approximately $4,989,000,
which amounts are calculated using current exchange rates.  Payments
of any amounts above the minimum are contingent upon the attainment of certain
earnings milestones by DT Electronics during the three year
period.  The Company has accrued the maximum estimated payment
currently since DT Electronics has achieved the earnings milestones established
by the agreement.  The DT Electronics acquisition was funded from
existing cash on hand and all three installment payments have been
completed.




On June
6, 2007, the Company acquired Dacom in Germany for $2,857,000 from cash on
hand.




The
Company anticipates that its resources provided by its cash flow from operations
and the aforementioned bank agreements, together with any amendments or
extensions thereof, will be sufficient to finance its operations for at least
the next twelve-month period.


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ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Critical Accounting Policies
and Estimates:





The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.  The preparation
of these financial statements requires the Company to make significant estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and
liabilities.  The Company evaluates its estimates, including those
related to bad debts, inventories, intangible assets, income taxes and
contingencies and litigation, on an ongoing basis.  The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  Actual results may
differ from these estimates under different assumptions or
conditions.




The
Company believes the following critical accounting policies, among others,
involve the more significant judgments and estimates used in the preparation of
its consolidated financial statements:




Operating Segments -
In the fourth quarter of fiscal 2009, theCompany  reevaluated
its accounting policy for operating segments and identified two operating
segments under the requirements of FAS 131 ("Disclosure About Segments of an
Enterprise and Related Information") consisting of active electronic components
and passive components.




The
active electronic components segment includes mainly commercial semiconductor
products such as memory chips, microprocessors, digital and linear circuits,
microwave, RF and fiber-optic components, transistors, diodes and systems
products.  Passive components distributed by NIC, principally to OEMs,
contractors and other distributors globally, consist of a high technology line
of surface mount and leaded components, including capacitors, resistors,
inductors and circuit protection components.




Revenue Recognition -
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 104, "Revenue Recognition in Financial Statements" ("SAB
104").  Under SAB 104, revenue is recognized when the title and risk
of loss have passed to the customer, there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the sales
price is determinable and collectability is reasonably assured.  The
Company recognizes revenues at time of shipment of its products and sales are
recorded net of discounts and returns.




In the
fourth quarter of fiscal 2008, the Company reevaluated its accounting policy for
revenue reporting for its Titan division which provides primarily supply chain
services.  In accordance with EITF 99-19, "Reporting Revenue Gross as
a Principal vs. Net as an Agent," the Company has revised its revenue
presentation for its Titan division to net as an agent and therefore reduced
sales and cost of sales in fiscal years 2008 and 2007 by $69,209,000
and  $70,252,000, respectively.  Titan revenue is now
reported in sales as a fee for services for all periods
presented.  There was no change to net income resulting from this
change in classification.




Allowance for Doubtful
Accounts - The Company maintains allowances for doubtful accounts for
estimated bad debts.  Our estimate of the allowances needed is based
on the ability of the Company’s customers to make payments.  If the
ability of the customers to make payments were to deteriorate, additional
allowances might be required thereby reducing our operating
income.  For example, at fiscal year end, each additional 1% accounts
receivable allowance would reduce operating income by approximately $1,150,000
for the year ended February 28, 2009.




Inventory Valuation -
Inventories are recorded at the lower of cost or market.  Write-downs
of inventories to market value are based upon product franchise agreements
governing price protection, stock rotation and obsolescence, as well as
assumptions about future demand, market conditions and the ability to return
inventory pursuant to our distributor franchise agreements.  In prior
periods, reserves required for obsolescence were not material to our financial
statements.  If assumptions about future demand or actual market
conditions are less favorable than those projected by management, additional
write-downs of inventories could be required.  For example, at fiscal
year end, each additional 1% of obsolete inventory or inventory that the Company
was unable to return pursuant to its distributor or related agreements, would
reduce operating income by approximately $1,106,000 for the year ended February
28, 2009.








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ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Critical Accounting Policies
and Estimates (Continued):





Accounting
for Income Taxes–
Management's judgment is required in determining the provision for income taxes,
deferred tax assets and liabilities and the need for a valuation allowance
against net deferred tax assets.Realization
ofthe carrying value of
the Company's deferred tax assets is dependent upon, among other things, our
ability to generate sufficient future taxable income in certain tax
jurisdictions.We record
a valuation allowance to reduce our deferred tax assets to the amount that
management determines is more likely than not to be realized. In assessing
whether a valuation allowance is required, we consider a variety of factors,
including the scheduled reversal of deferred tax liabilities, future taxable
income, and prudent and feasible tax planning strategies.Should the Company determine that it is
not more likely than not that it will be able to realize all or part of its
deferred tax assets in the future, a valuation allowance will be recorded
against the deferred tax assets with a corresponding charge to income in the
period such determination is made.




In addition, the Company establishes
reserves for uncertain tax positions unless such positions are determined to be
"more likely than not" of being sustained upon examination, based on their
technical merits. That is, for financial reporting purposes, the Company only
recognizes tax benefits taken on the tax return that it believes are "more
likely than not" of being sustained. There is considerable judgment involved in
determining whether positions taken on the tax return are "more likely than not"
of being sustained. As a result, there may be differences between the
anticipated and actual outcomes of these matters that may result in reversals of
reserves or the need for additional tax liabilities in excess of the reserved
amounts.  To the extent such adjustments are warranted, the Company's
effective tax rate may potentially fluctuate as a result.




Goodwill and Other
Indefinite-Lived Intangible Assets – In assessing the recoverability of
our goodwill and other indefinite-lived intangible assets, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If it is determined that impairment
indicators are present and that the assets will not be fully recoverable, their
carrying values are reduced to estimated fair value. Impairment indicators
include, among other conditions, cash flow deficits, an historic or anticipated
decline in revenue or operating profit, adverse legal or regulatory
developments, and a material decrease in the fair value of some or all of the
assets. Assets are grouped at the lowest levels for which there are identifiable
cash flows that are largely independent of the cash flows generated by other
asset groups. Changes in strategy and/or market conditions could significantly
impact these assumptions, and thus we may be required to record impairment
charges for those assets not previously recorded.




The
Company evaluates goodwill and other indefinite–lived intangible assets on an
annual basis or earlier if events or circumstances have occurred that indicate
all, or a portion of the carrying amount of such assets may no longer be
recoverable, in which case an impairment charge to net income would become
necessary.




Goodwill
is reviewed for impairment using a two-step process.  The first step
of the impairment test requires the identification of the reporting units and
comparison of the fair value of each of the reporting units to the respective
carrying value.  The Company identified the reporting units to be
tested to be:  Nu Horizons Europe Limited ("NUE") in England, Nu
Horizons Electronics GmbH ("NUD") in Germany and C-88 AS ("C-88") in Denmark.
These reporting units were identified as the only reporting units with goodwill
attributed to them and all of these reporting units are part of the active
electronic components operating segment.  If the carrying value of the
reporting unit is less than its fair value, no impairment exists and the second
step is not performed.  If the carrying value of the reporting unit is
higher than the fair value, the second step must be performed to compute the
amount of goodwill impairment, if any.  In the second step, the
impairment is computed by comparing the implied fair value of the reporting unit
goodwill with the carrying amount of that goodwill.  If the carrying
amount of the reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment charge is recognized for the excess.




Based
upon the results of the impairment testing, the Company concluded that all of
its goodwill attributed to NUE was impaired and, as such, recorded a non-cash
impairment charge of $7,443,000 or $0.41 per basic and diluted shares for the
year ended February 28, 2009. The impairment charge did not impact the Company’s
consolidated cash flows or liquidity.  No impairment existed as of
February 28, 2009 with respect to the Company’s identifiable intangible
assets.





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ITEM 7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Critical Accounting Policies
and Estimates (Continued):





Recent Accounting
Pronouncements Affecting the Company:




In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, "The
Hierarchy of Generally Accepted Accounting Principles" ("Statement No. 162").
Statement No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in preparation of the financial
statements of non-governmental entities that are presented in conformity with
U.S. GAAP (the GAAP hierarchy).  Statement No. 162 will become
effective sixty days following the Securities and Exchange Commission’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles."  The adoption of Statement No. 162 is not expected to
materially impact the Company’s consolidated financial position or results of
operations.




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), "Business Combinations" ("Statement
No. 141(R)"). Statement No. 141(R) changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. It also requires that transaction
costs be expensed as incurred. Statement No. 141(R) is effective for annual
periods beginning after December 15, 2008 and should be applied
prospectively for all business combinations entered into after the date of
adoption. The Company will adopt Statement No. 141(R) in the first quarter of
fiscal 2010 but it is not expected to materially impact the Company’s
consolidated financial position or results or operations and will impact the
manner in which the Company accounts for future acquisitions.




In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, "Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51" ("Statement No. 160"). Statement No. 160 requires that
noncontrolling interests be reported as a component of shareholders’ equity; net
income attributable to the parent and the noncontrolling interest be separately
identified in the consolidated statement of operations; changes in the parent’s
ownership interest be treated as equity transactions if control is maintained;
and upon a loss of control, any gain or loss on the interest be recognized in
the statement of operations. Statement No. 160 also requires expanded
disclosures to clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. Statement No. 160 is
effective for annual periods beginning after December 15, 2008 and should be
applied prospectively. However, the presentation and disclosure requirements of
the statement shall be applied retrospectively for all periods presented. The
adoption of the provisions of Statement No. 160 is not expected to materially
impact the Company’s consolidated financial position or results of
operations.




In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("Statement No. 157").  Statement No.
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements.  Specifically, Statement No. 157 sets forth a
definition of fair value, and establishes a hierarchy prioritizing the inputs to
valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to
unobservable inputs.  The provisions of Statement No. 157 are
generally required to be applied on a prospective basis, except to certain
financial instruments accounted for under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," for which the provisions of
Statement No. 157 should be applied retrospectively.  The Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years.  The
Company adopted Statement No. 157 in the first quarter of fiscal 2009 and there
was no material impact on the Company’s financial position or results of
operations.





Off-Balance Sheet
Arrangements:





As of
February 28, 2009, the Company had no off-balance sheet
arrangements.


- 27
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 Table of Contents


ITEM 7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued):





Contractual
Obligations:





Contractual
      Obligations
            
            Total
            
            
            Less
      than
              1
      year
            
            
            1-3
              years
            
            
            3-5
              Years
            
            
            More
      than
              5
      yearsRevolving
      Credit Lines with Interest(1)
            
            $
            25,586,000
            
            
            $
            9,452,000
            
            
            $
            16,134,000
            
            
            $
            —
            
            
            $
            —Equipment
      Leases
            
            
            258,000
            
            
            
            258,000
            
            
            
            —
            
            
            
            —
            
            
            
            —Operating
      Leases
            
            
            19,573,000
            
            
            
            3,723,000
            
            
            
            4,914,000
            
            
            
            3,601,000
            
            
            
            7,335,000Employment
      Agreements(2)
            
            
            3,929,000
            
            
            
            —
            
            
            
            720,000
            
            
            
            1,441,000
            
            
            
            1,768,000Total
            
            $
            49,346,000
            
            
            $
            13,433,000
            
            
            $
            21,768,000
            
            
            $
            5,042,000
            
            
            $
            9,103,000




(1)
              Amounts
      represent an estimate of the interest expense on the revolving credit
      lines based on the outstanding balances as of February 28, 2009 until the
      expiration date of the revolving credit lines at an estimated rate of
      interest.




(2)
              Base
      salary excluding potential
bonuses.




At April
20, 2009, the Company had $144,677,000 of purchase orders outstanding with
suppliers which generally can be cancelled with 30 days notice.





Inflationary
Impact:





Since the
inception of operations, inflation has not significantly affected the Company’s
operating results.  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.






ITEM 7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





Interest
Rate Risk:





All of
the Company’s bank debt and the associated interest expense are sensitive to
changes in the level of interest rates.  The Company’s credit
facilities bear interest based on fluctuating interest rates.  The
interest rate under its Revolving Credit Line is tied to the prime or LIBOR
rate, the interest rate under its UK Credit Line is tied to the Bank of
England's base rate, and the interest rate under the Singapore Credit Line is
tied to SIBOR; all of these interest rates may fluctuate over time based on
economic conditions.  A hypothetical 100 basis point (one percentage
point) increase in interest rates would have resulted in incremental interest
expense of approximately $679,000 for the year ended February 28, 2009 and
$601,000 for the year ended February 29, 2008.  As a result, the
Company is subject to market risk for changes in interest rates and could be
subjected to increased or decreased interest payments if market rates fluctuate
and the Company is in a borrowing mode.  The Company has not entered
into any instruments, such as interest rate swaps, in an effort to manage its
interest rate risk.





Foreign
Currency Exchange Rate Risk:





The
Company has several foreign subsidiaries in Asia, the United Kingdom, Germany,
Denmark and Canada.  The Company does business in more than one dozen
countries and currently generates approximately 36% of its revenues from outside
North America.  The Company’s ability to sell its products in foreign
markets may be affected by changes in economic, political or market conditions
in the foreign markets in which the Company does business.




The
Company’s total assets in its foreign subsidiaries were $93,707,000 and
$87,293,000 at February 28, 2009 and February 29, 2008, respectively, translated
into U.S. dollars at the closing exchange rates on such dates. The Company also
acquires certain inventory from foreign suppliers at prices denominated in
foreign currencies and, as such, faces risk due to adverse movements in foreign
currency exchange rates.  These risks could have a material impact on
the Company’s results in future periods.  The potential loss based on
end of period balances and prevailing exchange rates resulting from a
hypothetical 10% strengthening of the dollar against foreign currencies was not
material in the quarter or year ended February 28, 2009 or the year ended
February 29, 2008.  The Company does not currently employ any currency
derivative instruments, futures contracts or other currency hedging techniques
to mitigate its risks in this regard.





Industry
Risk:





The
electronic component industry is cyclical which can cause significant
fluctuations in sales, gross profit margins and profits, from year to
year.  For example, during calendar 2001, the industry experienced a
severe decline in the demand for electronic components, which caused sales to
decrease by 56%.  The prior year reflected a 74% increase in net
sales.  It is difficult to predict the timing of the changing cycles
in the electronic component industry.


- 28
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 Table of Contents






ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS




For
      The Years EndedFebruary
      28,
              2009
            
            
            February
      29,
              2008
            
            
            February
      28,
              2007(As
      Restated,
              see
      Note 2)NET
      SALES
            
            $
            750,954,000
            
            
            $
            747,170,000
            
            
            $
            668,591,000COSTS
      AND EXPENSES:Cost
      of sales
            
            
            637,261,000
            
            
            
            626,771,000
            
            
            
            554,266,000Selling,
      general and administrative expenses
            
            
            113,010,000
            
            
            
            112,473,000
            
            
            
            94,891,000Goodwill
      impairment charge
            
            
            7,443,000
            
            
            
            —
            
            
            
            —757,714,000
            
            
            
            739,244,000
            
            
            
            649,157,000OPERATING
      INCOME (LOSS)
            
            
            (6,760,000
            )
            
            
            7,926,000
            
            
            
            19,434,000OTHER
      (INCOME) EXPENSE:Interest
      expense
            
            
            3,141,000
            
            
            
            4,570,000
            
            
            
            3,850,000Interest
      income
            
            
            (100,000
            )
            
            
            (241,000
            )
            
            
            (580,000
            )3,041,000
            
            
            
            4,329,000
            
            
            
            3,270,000INCOME
      (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND MINORITY
      INTERESTS
            
            
            (9,801,000
            )
            
            
            3,597,000
            
            
            
            16,164,000Provision
      (benefit)for income taxes
            
            
            (837,000
            )
            
            
            766,000
            
            
            
            7,991,000INCOME
      (LOSS) BEFORE MINORITY INTERESTS
            
            
            (8,964,000
            )
            
            
            2,831,000
            
            
            
            8,173,000Minority
      interest in earnings of subsidiaries
            
            
            271,000
            
            
            
            312,000
            
            
            
            456,000NET
      (LOSS) INCOME
            
            $
            (9,235,000
            )
            
            $
            2,519,000
            
            
            $
            7,717,000NET
      (LOSS) INCOME PER COMMON SHAREBasic
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .43Diluted
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .41WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDINGBasic
            
            
            18,043,834
            
            
            
            17,931,356
            
            
            
            17,871,671Diluted
            
            
            18,043,834
            
            
            
            18,582,130
            
            
            
            18,641,475





See
accompanying notes






F-1
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS





February
      28,
                2009
            
            
            February
      29,
                2008-
      ASSETS -CURRENT
      ASSETS:Cash
            
            $
            4,793,000
            
            
            $
            3,886,000Accounts
      receivable – less allowances of  $3,438,000 and
      $4,269,000, respectively
            
            
            111,572,000
            
            
            
            150,270,000Inventories
            
            
            107,877,000
            
            
            
            134,691,000Deferred
      tax asset
            
            
            3,323,000
            
            
            
            3,135,000Prepaid
      expenses and other current assets
            
            
            4,979,000
            
            
            
            4,306,000TOTAL
      CURRENT ASSETS
            
            
            232,544,000
            
            
            
            296,288,000PROPERTY,
      PLANT AND EQUIPMENT – NET
            
            
            4,827,000
            
            
            
            4,529,000OTHER
      ASSETS:Cost
      in excess of net assets acquired
            
            
            5,020,000
            
            
            
            9,925,000Intangibles
      – net
            
            
            3,742,000
            
            
            
            2,500,000Other
      assets
            
            
            5,222,000
            
            
            
            5,101,000TOTAL
      ASSETS
            
            $
            251,355,000
            
            
            $
            318,343,000-
      LIABILITIES AND SHAREHOLDERS’ EQUITY -CURRENT
      LIABILITIES:Accounts
      payable
            
            $
            67,133,000
            
            
            $
            79,236,000Accrued
      expenses
            
            
            8,202,000
            
            
            
            8,615,000Due
      to seller
            
            
            296,000
            
            
            
            3,245,000Bank
      debt
            
            
            8,450,000
            
            
            
            603,000Income
      taxes payable
            
            
            1,322,000
            
            
            
            133,000TOTAL
      CURRENT LIABILITIES
            
            
            85,403,000
            
            
            
            91,832,000LONG
      TERM LIABILITIESBank
      debt
            
            
            14,950,000
            
            
            
            69,300,000Due
      to seller
            
            
            190,000
            
            
            
            —Executive
      retirement plan
            
            
            2,400,000
            
            
            
            1,684,000Deferred
      tax liability
            
            
            1,903,000
            
            
            
            2,072,000TOTAL
      LONG TERM LIABILITIES
            
            
            19,443,000
            
            
            
            73,056,000MINORITY
      INTEREST IN SUBSIDIARIES
            
            
            2,532,000
            
            
            
            2,261,000COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITY:Preferred
      stock, $1 par value, 1,000,000 shares authorized; none issued or
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $.0066 par value, 50,000,000 shares authorized; 18,578,946
      and
              18,392,457
      shares issued and outstanding as of February 28, 2009 and
              February
      29, 2008, respectively
            
            
            122,000
            
            
            
            121,000Additional
      paid-in capital
            
            
            56,386,000
            
            
            
            54,979,000Retained
      earnings
            
            
            87,386,000
            
            
            
            96,621,000Other
      accumulated comprehensive  income (loss)
            
            
            83,000
            
            
            
            (527,000
            )TOTAL
      SHAREHOLDERS’ EQUITY
            
            
            143,977,000
            
            
            
            151,194,000TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            251,355,000
            
            
            $
            318,343,000See
      accompanying notes






F-2
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY




Shares
            
            
            Common
              Stock
            
            
            Additional
              Paid-in
              Capital
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Income
      (Loss)
            
            
            Comprehensive
              Income
            
            
            Total
              Shareholders’
              EquityBalance
      at February 28, 2006 (asestated,
      see Note 2)
            
            
            17,431,482
            
            
            $
            115,000
            
            
            $
            48,629,000
            
            
            $
            86,385,000
            
            
            $
            9,000
            
            
            $
            —
            
            
            $
            135,138,000Exercise
      of stock options
            
            
            463,552
            
            
            
            3,000
            
            
            
            2,723,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,726,000Income
      tax benefit from stock options exercised
            
            
            —
            
            
            
            —
            
            
            
            1,413,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,413,000Stock
      option expense
            
            
            —
            
            
            
            —
            
            
            
            443,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            443,000Issuance
      of restricted stock
            
            
            263,000
            
            
            
            2,000
            
            
            
            304,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            306,000Foreign
      currency translation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,000
            
            
            
            4,000
            
            
            
            4,000Net
      income (as restated, see Note 2)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            7,717,000
            
            
            
            —
            
            
            
            7,717,000
            
            
            
            7,717,000Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,721,000Balance
      at February 28, 2007 (asrestated,
      see Note 2)
            
            
            18,158,034
            
            
            
            120,000
            
            
            
            53,512,000
            
            
            
            94,102,000
            
            
            
            13,000
            
            
            
            
            
            
            
            147,747,000Exercise
      of stock options
            
            
            27,000
            
            
            
            —
            
            
            
            210,000
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            210,000Income
      tax benefit from stock optionsexercised
            
            
            —
            
            
            
            —
            
            
            
            45,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            45,000Stock
      option expense
            
            
            —
            
            
            
            —
            
            
            
            490,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            490,000Issuance
      of restricted stock
            
            
            207,423
            
            
            
            1,000
            
            
            
            722,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            723,000Foreign
      currency translation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (540,000
            )
            
            
            (540,000
            )
            
            
            (540,000
            )Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,519,000
            
            
            
            —
            
            
            
            2,519,000
            
            
            
            2,519,000Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,979,000Balance
      at February 29, 2008
            
            
            18,392,457
            
            
            
            121,000
            
            
            
            54,979,000
            
            
            
            96,621,000
            
            
            
            (527,000
            )
            
            
            
            
            
            
            151,194,000Exercise
      of stock options
            
            
            91,582
            
            
            
            1,000
            
            
            
            354,000
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            355,000Income
      tax benefit from stock awardsexercised
            
            
            —
            
            
            
            —
            
            
            
            5,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,000Stock
      option expense
            
            
            —
            
            
            
            —
            
            
            
            309,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            309,000Issuance
      of restricted stock
            
            
            109,849
            
            
            
            
            
            
            
            818,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            818,000Retirement
      of restricted shares
            
            
            (14,942
            )
            
            
            
            
            
            
            (79,000
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (79,000
            )Foreign
      currency translation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            610,000
            
            
            
            610,000
            
            
            
            610,000Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (9,235,000
            )
            
            
            —
            
            
            
            (9,235,000
            )
            
            
            (9,235,000
            )Comprehensive
      (loss) income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (8,625,000
            )Balance
      at February 28, 2009
            
            
            18,578,946
            
            
            $
            122,000
            
            
            $
            56,386,000
            
            
            $
            87,386,000
            
            
            $
            83,000
            
            
            
            —
            
            
            $
            143,977,000





See
accompanying notes




F-3
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
CASH FLOWS




For
      The Years EndedFebruary
      28,
              2009
            
            
            February
      29,
              2008
            
            
            February
      28,
              2007(As
      Restated,
              see
      Note 2)INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS:Cash
      flows from operating activities:Cash
      received from customers
            
            $
            789,991,000
            
            
            $
            716,847,000
            
            
            $
            722,922,000Cash
      paid to suppliers and employees
            
            
            (728,820,000
            )
            
            
            (732,359,000
            )
            
            
            (700,393,000
            )Interest
      paid
            
            
            (3,035,000
            )
            
            
            (4,500,000
            )
            
            
            (4,129,000
            )Interest
      received
            
            
            100,000
            
            
            
            241,000
            
            
            
            580,000Income
      taxes paid
            
            
            (2,148,000
            )
            
            
            (11,191,000
            )
            
            
            (2,701,000
            )Net
      cash provided by (used in) operating activities
            
            
            56,088,000
            
            
            
            (30,962,000
            )
            
            
            16,279,000Cash
      flows from investing activities:Capital
      expenditures
            
            
            (2,186,000
            )
            
            
            (2,808,000
            )
            
            
            (1,069,000
            )Acquisition
      payment  DT Electronics
            
            
            (3,410,000
            )
            
            
            (1,744,000
            )
            
            
            (6,098,000
            )Acquisition
      of Dacom-Süd Electronic Vertriebs
              GmbH
            
            
            —
            
            
            
            (2,593,000
            )
            
            
            —Acquisition
      payment C-88
            
            
            (4,042,000
            )
            
            
            —
            
            
            
            —Net
      cash (used in) investing activities
            
            
            (9,638,000
            )
            
            
            (7,145,000
            )
            
            
            (7,167,000
            )Cash
      flows from financing activities:Borrowings
      under revolving credit line
            
            
            298,720,000
            
            
            
            317,605,000
            
            
            
            214,933,000(Repayments)
      under revolving credit line
            
            
            (345,223,000
            )
            
            
            (280,029,000
            )
            
            
            (236,305,000
            )Proceeds
      from exercise of stock options
            
            
            355,000
            
            
            
            210,000
            
            
            
            2,726,000Realized
      tax benefit of compensation expense
            
            
            (5,000
            )
            
            
            —
            
            
            
            1,413,000Proceeds
      from settlement of subordinated note
            
            
            —
            
            
            
            —
            
            
            
            2,000,000Net
      cash (used in) provided by financing activities
            
            
            (46,153,000
            )
            
            
            37,786,000
            
            
            
            (15,233,000
            )Effect
      of exchange rate changes
            
            
            610,000
            
            
            
            (540,000
            )
            
            
            (5,000
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            907,000
            
            
            
            (861,000
            )
            
            
            (6,126,000
            )Cash
      and cash equivalents, beginning of year
            
            
            3,886,000
            
            
            
            4,747,000
            
            
            
            10,873,000Cash
      and cash equivalents, end of year
            
            $
            4,793,000
            
            
            $
            3,886,000
            
            
            $
            4,747,000





See
accompanying notes




F-4
 Table of Contents


NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)




For
      The Years EndedFebruary
      28,
              2009
            
            
            February
      29,
              2008
            
            
            February
      28,
              2007(As
      Restated,
              see
      Note 2)RECONCILIATION
      OF NET (LOSS) INCOME TO NET CASH FROM OPERATING ACTIVITIESNET
      (LOSS) INCOME
            
            $
            (9,235,000
            )
            
            $
            2,519,000
            
            
            $
            7,717,000Adjustments:Depreciation and
      amortization
            
            
            2,239,000
            
            
            
            1,768,000
            
            
            
            1,392,000Bad
      debt reserve
            
            
            (341,000
            )
            
            
            —
            
            
            
            447,000Goodwill
      impairment charge
            
            
            7,443,000
            
            
            
            —
            
            
            
            —Loss on disposal of fixed
      asset
            
            
            27,000
            
            
            
            —
            
            
            
            —Deferred income
    tax
            
            
            (431,000
            )
            
            
            (1,760,000
            )
            
            
            198,000Income tax benefit from stock
      awards exercised
            
            
            5,000
            
            
            
            —
            
            
            
            —Minority interest
            
            
            271,000
            
            
            
            312,000
            
            
            
            456,000Stock based
      compensation
            
            
            1,127,000
            
            
            
            1,258,000
            
            
            
            749,000Retirement plan
            
            
            716,000
            
            
            
            484,000
            
            
            
            600,000Changes
      in assets and liabilities - net of effect ofacquisitions:Accounts
    receivable
            
            
            39,038,000
            
            
            
            (29,301,000
            )
            
            
            (14,541,000
            )Inventories
            
            
            26,813,000
            
            
            
            (1,926,000
            )
            
            
            9,009,000Prepaid
      expenses and other current assets
            
            
            (673,000
            )
            
            
            319,000
            
            
            
            (2,697,000
            )Other assets
            
            
            (88,000
            )
            
            
            23,000
            
            
            
            (2,410,000
            )Accounts
      payable and accrued expenses
            
            
            (8,675,000
            )
            
            
            6,533,000
            
            
            
            6,191,000Income taxes
            
            
            (2,148,000
            )
            
            
            (11,191,000
            )
            
            
            4,178,000Due to seller
            
            
            —
            
            
            
            —
            
            
            
            4,990,000Net
      cash provided by (used in) operating activities
            
            $
            56,088,000
            
            
            $
            (30,962,000
            )
            
            $
            16,279,000Supplemental
      Disclosures of Cash FlowInformation:Non-cash
      transactions:Issuance
      of restricted stock
            
            $
            818,000
            
            
            $
            723,000
            
            
            $
            306,000





See
accompanying notes




F-5
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS






1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:





a.
            Organization:





Nu
Horizons Electronics Corp. and its subsidiaries (both wholly- and
majority-owned) (collectively, the "Company"), are wholesale and export
distributors of active electronic components and passive electronic components
throughout the United States, Asia, Australia and Europe.




b.
            Principles
      of Consolidation:





The
consolidated financial statements include the accounts of Nu Horizons
Electronics Corp. and its wholly-owned subsidiaries, NIC Components Corp.
("NIC"), Nu Horizons International Corp. ("International"), NUHC Inc. ("NUC"),
Nu Horizons Electronics Asia PTE LTD ("NUA"), Nu Horizons Electronics Pty Ltd
("NUZ"), Nu Horizons Electronics NZ Ltd. ("NUN"), Nu Horizons Electronics
(Shanghai) Co Ltd. ("NUS"), Nu Horizons Electronics Asia Pte Ltd. Korea ("NUK"),
Nu Horizons Electronics Limited ("NUE," formerly known as DT Electronics Limited
("DT Electronics"), Nu Horizons Electronics GmbH ("NUD," formerly known as
Dacom-Süd Electronic Vertriebs GmbH "Dacom"), C-88 AS ("C-88"), Titan Supply
Chain Services Corp. ("Titan"), Titan Supply Chain Services PTE LTD ("TSC"),
Titan Supply Chain Services Limited ("TSE"), Razor Electronics, Inc. ("RAZ"),
NuXchange B2B Services, Inc. ("NUX"), Nu Horizons Electronics Hong Kong Ltd.
("NUO") and its majority-owned subsidiaries, NIC Components Europe Limited
("NIE") and NIC Components Asia PTE LTD ("NIA").  All intercompany
balances and transactions have been eliminated.





c.
            Use
      of Estimates:





In
preparing financial statements in accordance with accounting principles
generally accepted in the United States, management makes certain estimates and
assumptions that affect reported amounts and
disclosures.   Actual results could differ from those
estimates.





d.
            Concentration
      of Credit Risk/Fair Value:





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist 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 institutions and believes the
Company’s risk is not material.  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 variable interest rates on these instruments approximate market
interest rates.





e.
            Cash
      and Cash Equivalents:





The
Company considers all highly liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents.





f.
            Allowance
      for Doubtful Accounts:





The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.  The allowances for doubtful accounts are determined using a
combination of factors, including the length of time the receivables are
outstanding, the current business environment, and historical
experience.






F-6
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued):




g.
            Inventories:





Inventories,
which consist primarily of goods held for resale, are stated at the lower of
cost (first-in, first-out method) or market.  In excess of 90% of the
Company’s total inventories are covered by product line distributor agreements
whereby the Company has the right to return certain slow-moving and obsolete
inventory to its suppliers.  Obsolescence charges for inventory not
covered by such agreements have not been material to date.





h.
            Depreciation:





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





Office
      equipment
            5
      yearsFurniture
      and fixtures
            5 –
      12 yearsComputer
      equipment
            5
      years





Leasehold
improvements are amortized over the shorter of the useful life or 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.





i.
            Income
      Taxes:





The
Company follows the asset and liability method of accounting for income
taxes.  Deferred income tax assets and liabilities are recognized for
the estimated future tax impact of differences between the financial statement
carrying amounts of assets and liabilities and their respective tax
bases.  Deferred income tax assets and liabilities are measured
considering all expected future events other than enactments of changes in tax
laws or rates.  Based upon historical and projected levels of taxable
income and analysis of other key factors, the Company records a valuation
allowance against its deferred tax assets, as deemed necessary, to state such
assets at their net realizable value.  The effect on deferred income
tax assets and liabilities of a change in tax rates is recognized in earnings in
the period in which the new rate is enacted.




Effective
March 1, 2007, the Company adopted the Financial Accounting Standards Board
("FASB") Interpretation No. 48,"Accounting for
Uncertainty in Income Taxes, aninterpretation
of FASB Statement No. 109"("FIN
48").  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return.  For benefits to be recognized in the financial statements, a tax
position must be more-likely-than-not to be sustained upon examination by the
taxing authorities based on the technical merits of the position. The amount
recognized is measured as the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. The interpretation
also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.




In
preparing the fiscal 2007 tax returns, developing the fiscal 2008 tax provision,
and reviewing the Company’s accounting for income taxes in connection with the
application of FIN 48, the Company determined that there were errors in the
prior years' tax returns and the application of FASB Statement No. 109 –
Accounting for Income Taxes.  Consequently, there was an
understatement of the Company’s provision for income tax expense for prior
periods and the related U.S. income tax obligations, requiring the restatement
of the Company’s financial statements for the fiscal year ended February 28,
2007 (see Note 2).  After giving effect to the restatement, the
subsequent adoption of FIN 48 did not have a material effect on the Company’s
financial statements.  With few exceptions, the Company is no longer
subject to U.S. federal, state or local income tax examinations by tax
authorities for years prior to fiscal 2005. The Company is currently under
examination by the Internal Revenue Service for fiscal 2006 and fiscal 2007.
Earlier years related to certain foreign jurisdictions remain subject to
examination. Various state and foreign income tax returns are currently under
examination.  For the years under examination and for those still
subject to examination, the Company does not expect any significant changes in
taxable income.  While the Company intends to contest any future tax
assessments for potential audit issues, no assurance can be provided that the
Company would ultimately prevail.






F-7
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued):





j.
            Revenue
      Recognition:





The
Company recognizes revenue in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB
104").  Under SAB 104, revenue is recognized when there is persuasive
evidence of an arrangement, delivery has occurred or services have been
rendered, the sales price is determinable, and collectability is reasonably
assured.  Revenue typically is recognized at time of
shipment.  Sales are recorded net of discounts, rebates, and returns
in accordance with EITF 01-09, "Accounting for Consideration Given By a Vendor
to a Customer (Including a Reseller of the Vendor's Products)."





In the
fourth quarter of 2008, the Company reevaluated its accounting policy for
revenue reporting for its Titan division which provides primarily supply chain
services.  In accordance with EITF 99-19, "Reporting Revenue Gross as
a Principal vs. Net as an Agent," the Company has revised its revenue
presentation to net as an agent and therefore reduced sales and cost of sales in
fiscal years 2008 and 2007 by $69,209,000 and $70,252,000,
respectively.  Titan revenue is now reported in sales as a fee for
services for all periods presented.  There was no change to net income
resulting from this change in classification.





k.
            Shipping
      and Handling Costs:





Shipping
and handling costs incurred by the Company are included in cost of sales and
aggregated $3,369,000, $1,790,000 and $932,000 for fiscal 2009, 2008 and 2007,
respectively.





l.
            Advertising
      and Promotion Costs:





Advertising
and promotion costs, which are included in general and administrative expenses,
are expensed as incurred.  For fiscal 2009, 2008 and 2007, such costs
aggregated $661,000, $899,000 and $385,000, respectively.





m.
            Earnings
      Per Common Share:





Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average shares outstanding during the period.  Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares used in the basic earnings (loss) per
share calculation, plus the number of common shares that would be issued
assuming conversion of all potentially dilutive securities
outstanding.  Such securities, shown below, presented on a common
share equivalent basis have been included in the per share
computations:





Years
      EndedFebruary
      28,
              2009
            
            
            February
      29,
              2008
            
            
            February
      28,
              2007NUMERATORNet
      (loss) income
            
            $
            (9,235,000
            )
            
            $
            2,519,000
            
            
            $
            7,717,000DENOMINATORWeighted
      average sharesoutstanding
      – Basic
            
            
            18,043,834
            
            
            
            17,931,356
            
            
            
            17,871,671Assumed
      conversion of stockoptions
      and restricted shares
            
            
            —
            
            
            
            650,774
            
            
            
            769,804Weighted
      average shares –Diluted
            
            
            18,043,834
            
            
            
            18,582,130
            
            
            
            18,641,475Net
      (loss) income per share:Basic
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .43Diluted
            
            $
            (.51
            )
            
            $
            .14
            
            
            $
            .41





The above
calculations for fiscal years 2009, 2008 and 2007 exclude 1,823,147, 344,750 and
165,750 options, respectively and 480,453, 109,000, and0 restricted shares,
respectively, as their effect was antidilutive.






F-8
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued):





n.
            Stock-Based
      Compensation:





Effective
March 1, 2006, the Company adopted the provisions of FASB Statement No. 123
(revised 2004), "Share-Based Payment" ("Statement No. 123R"), which requires
share-based payment ("SBP") awards exchanged for employee services to be
measured at fair value and expensed in the consolidated statements of operations
over the requisite employee service period.





Prior to
March 1, 2006, the Company accounted for SBP awards under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", which utilized
the intrinsic value method and did not require any expense to be recorded in the
consolidated financial statements if the exercise price of the award was not
less than the market price of the underlying stock on the date of
grant.  The Company elected to adopt, for periods prior to March 1,
2006, the disclosure requirements of FASB Statement No. 123, "Accounting for
Stock-Based Compensation", as amended by FASB Statement No. 148, "Accounting for
Stock-Based Compensation – Transition and Disclosure" (collectively, "Statement
No. 123") which used a fair value based method of accounting for SBP
awards.





Statement
No. 123R requires companies to record compensation expense for stock options
measured at fair value, on the date of grant, using an option-pricing
model.  The fair value of the Company's stock options is determined
using the Black-Scholes valuation model, which is consistent with the Company's
valuation techniques previously utilized under Statement No. 123.





The fair
value of each option was estimated on the date of grant using the Black-Scholes
method with the following weighted average assumptions.





2009
            
            
            2008
            
            
            2007Option
      Plans:Dividends
            
            
            —
            
            
            
            —
            
            
            
            —Expected
      term *
            
            5 –
      7 years
            
            
            2 –
      7 years
            
            
            2 –
      7 yearsRisk
      free interest rate **
            
            3.28%
      to 3.75%
            
            
            
            4.0
            %
            
            
            4.0
            %Volatility
      rate ***
            
            42.5%
      to 60.1%
            
            
            
            58.4
            %
            
            
            55.6
            %





*The
expected term represents the weighted average period the option is expected to
be outstanding and based primarily on the historical exercise behavior of
employees.




** The
risk-free rate interest rate is based on the United States Treasury zero-coupon
yield with a maturity that approximates the expected term of the
option.




*** The
volatility rate is measured using historical daily price changes of the
Company’s common stock over the expected term of the option.





The
following table shows the weighted average fair value of options using the fair
value approach under SFAS 123:





2009
            
            
            2008
            
            
            2007Weighted
      average fair value of options granted during the year
            
            $
            1.67
            
            
            $
            4.79
            
            
            $
            7.11







F-9
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued):





o.
            Cost
      in Excess of Net Assets Acquired ("Goodwill and Other Intangible
      Assets"):





In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill
must be tested at least annually for impairment at the reporting unit level. If
an indication of impairment exists, the Company is required to determine if such
goodwill's implied fair value is less than the carrying value in order to
determine the amount, if any, of the impairment loss required to be recorded.
Impairment indicators include, among other conditions, cash flow deficits, an
historic or anticipated decline in revenue or operating profits, adverse legal
or regulatory developments, accumulation of costs significantly in excess of
amounts originally expected to acquire the asset and/or a material decrease in
the fair value of some or all of the assets. The Company performs the required
impairment tests of goodwill annually.





Goodwill
is reviewed for impairment using a two-step process.  The first step
of the impairment test requires the identification of the reporting units and
comparison of the fair value of each of the reporting units to the respective
carrying value.  The Company identified the reporting units to be
tested to be:  Nu Horizons Europe Limited ("NUE") in England, Nu
Horizons Electronics GmbH ("NUD") in Germany and C-88 AS ("C-88") in Denmark.
These reporting units were identified as the only reporting units with goodwill
attributed to them and all of these reporting units are part of the active
electronics component operating segment.  If the carrying value of the
reporting unit is less than its fair value, no impairment exists and the second
step is not performed.  If the carrying value of the reporting unit is
higher than the fair value, the second step must be performed to compute the
amount of goodwill impairment, if any.  In the second step, the
impairment is computed by comparing the implied fair value of the reporting unit
goodwill with the carrying amount of that goodwill.  If the carrying
amount of the reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment charge is recognized for the excess.  The
Company determined the fair value of the associated reporting units using a
present value of future cash flows approach and a total enterprise value
multiple of similar companies to the reporting units.





Based
upon the results of the impairment testing, the Company concluded that all of
its goodwill attributed to NUE was impaired and, as such recorded a non-cash
impairment charge of $7,443,000 or $0.41 per basic and diluted shares for the
year ended February 28, 2009. The impairment charge did not impact the Company’s
consolidated cash flows or liquidity.





The
Company allocates a certain value to other intangible assets acquired during
certain acquisitions (See Note 3) which consist of customer relationships and
non-competition agreements.  Amortization is computed on the
straight-line method over the estimated useful life of the other intangible
assets ranging from two to seventeen years.  Other intangible assets
are reviewed for impairment whenever changes in circumstances or events may
indicate that the carrying amounts may not be recoverable.  If the
fair value is less than the carrying amount of the net asset, a loss is
recognized for the difference between the fair value and the carrying
amount.  No impairment was noted for other intangible assets during
fiscal 2009, 2008 and 2007.





p.
            Long-Lived
      Assets, Other Than Goodwill and Other
  Intangibles:





The
Company reviews its long-lived assets for impairment in accordance with FASB
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires the Company
to review its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any such asset may not be
recoverable. The estimate of cash flow, which is used to determine
recoverability, is based upon, among other things, certain assumptions about
future operating performance. The Company's estimates of undiscounted cash flow
may differ from actual cash flow due to such factors including technological
advances, changes to the Company's business model, or changes in the Company's
capital strategy or planned use of long-lived assets. If the sum of the
undiscounted cash flows, excluding interest, is less than the carrying value,
the Company would recognize an impairment loss, measured as the amount by which
the carrying value exceeds the fair value of the asset. No impairment was noted
during fiscal 2009, 2008 and 2007.





q.
            Foreign
      Currency Translation/Other Comprehensive
Income:





Assets
and liabilities of the Company’s foreign subsidiaries are translated at the
balance sheet exchange rates, while income and expenses are translated at
average rates for the period.  Translation gains and losses are
reported as a component of accumulated other comprehensive income on the
statement of shareholders’ equity in accordance with SFAS No. 130, "Reporting
Comprehensive Income."






F-10
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)





1.
            ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued):





r.
            Segment
      Reporting:





Operating
segments are defined as components of an enterprise for which discrete financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.  The Company’s operations are classified into two
reportable business segments:  active electronic components and
passive components.





s.
            Reclassifications:





Certain
prior years' information has been reclassified to conform to current year's
reporting presentation.





t.
            Recent
      Accounting Pronouncements Affecting the
Company:





In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, "The
Hierarchy of Generally Accepted Accounting Principles" ("Statement No. 162").
Statement No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in preparation of the financial
statements of non-governmental entities that are presented in conformity with
U.S. GAAP (the GAAP hierarchy).  Statement No. 162 will become
effective sixty days following the Securities and Exchange Commission’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles."  The adoption of Statement No. 162 is not expected to
materially impact the Company’s consolidated financial position or results of
operations.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), "Business Combinations" ("Statement
No. 141(R)"). Statement No. 141(R) changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. It also requires that transaction
costs be expensed as incurred. Statement No. 141(R) is effective for annual
periods beginning after December 15, 2008 and should be applied
prospectively for all business combinations entered into after the date of
adoption. The Company will adopt Statement No. 141(R) in the first quarter of
fiscal 2010 and will impact the manner in which the Company accounts for future
acquisitions.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, "Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51" ("Statement No. 160"). Statement No. 160 requires that
noncontrolling interests be reported as a component of shareholders’ equity; net
income attributable to the parent and the noncontrolling interest be separately
identified in the consolidated statement of operations; changes in the parent’s
ownership interest be treated as equity transactions if control is maintained;
and upon a loss of control, any gain or loss on the interest be recognized in
the statement of operations. Statement No. 160 also requires expanded
disclosures to clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. Statement No. 160 is
effective for annual periods beginning after December 15, 2008 and should be
applied prospectively. However, the presentation and disclosure requirements of
the statement shall be applied retrospectively for all periods presented. The
adoption of the provisions of Statement No. 160 is not expected to materially
impact the Company’s consolidated financial position or results of
operations.





In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
("Statement No. 157").  Statement No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements.  Specifically, Statement No. 157 sets forth a definition
of fair value, and establishes a hierarchy prioritizing the inputs to valuation
techniques, giving the highest priority to quoted prices in active markets for
identical assets and liabilities and the lowest priority to unobservable
inputs.  The provisions of Statement No. 157 are generally required to
be applied on a prospective basis, except to certain financial instruments
accounted for under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," for which the provisions of Statement No. 157 should be
applied retrospectively.  The Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years.  The Company adopted Statement No.
157 in the first quarter of fiscal 2009 and there was no material impact on the
Company’s financial position or results of operations.






F-11
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


2.
            RESTATEMENT
      OF FISCAL 2007 FINANCIAL
STATEMENTS:





In
preparing the fiscal 2007 tax returns, developing the fiscal 2008 tax provision,
and reviewing the Company’s accounting for income taxes in connection with the
application of the provision of Financial Accounting Standards Board ("FASB")
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Tax – an
Interpretation of FASB Statement No. 109", the Company determined that there
were errors in the prior years' tax returns and the application of FASB
Statement No. 109 – Accounting for Income Taxes.  Consequently, there
was an understatement of the Company’s provision for income tax expense for
prior periods and the related U.S. income tax obligations, a majority of which
related to the Company’s foreign operations, requiring the restatement of the
Company’s financial statements for the fiscal year ended February 28, 2007 as
previously reported in a Form 10-K/A for the year ended February 28, 2007 and
reflected in this Form 10-K annual report.





The
following table summarizes the impact of the restatement discussed above on the
previously issued Consolidated Financial Statements as of February 28, 2007 and
for the year ended February 28, 2007.  The adjustments below include
interest and penalties associated with filing amended tax returns.





As
      of February 28, 2007As
      Previously
              Reported
            
            
            Adjustment
            
            
            As
      RestatedConsolidated
      Balance SheetPrepaid
      expenses and other current assets
            
            $
            4,454,000
            
            
            $
            171,000
            
            
            $
            4,625,000Deferred
      tax asset
            
            
            —
            
            
            
            3,082,000
            
            
            
            3,082,000Accrued
      expenses
            
            
            6,650,000
            (1)
            
            
            186,000
            
            
            
            6,464,000
            (1)Income
      taxes payable
            
            
            3,927,000
            
            
            
            4,252,000
            
            
            
            8,179,000Deferred
      tax liability
            
            
            2,369,000
            
            
            
            356,000
            
            
            
            2,725,000Minority
      interest
            
            
            1,912,000
            
            
            
            36,000
            
            
            
            1,948,000Additional
      paid-in capital
            
            
            50,670,000
            
            
            
            2,842,000
            
            
            
            53,512,000Retained
      earnings
            
            
            98,521,000
            
            
            
            (4,419,000
            )
            
            
            94,102,000





For
      the Year Ended February 28, 2007As
      Previously
              Reported
            
            
            Adjustment
            
            
            As
      RestatedConsolidated
      Statement of OperationsProvision
      for income taxes
            
            $
            5,826,000
            
            
            $
            2,165,000
            
            
            $
            7,991,000Minority
      interest in earnings of subsidiaries
            
            
            425,000
            
            
            
            31,000
            
            
            
            456,000Net
      income
            
            
            9,913,000
            
            
            
            (2,196,000
            )
            
            
            7,717,000Net
      income per common share:Basic
            
            $
            .55
            
            
            $
            (.12
            )
            
            $
            .43Diluted
            
            $
            .53
            
            
            $
            (.12
            )
            
            $
            .41





For
      the Year Ended February 28, 2007As
      Previously
              Reported
            
            
            Adjustment
            
            
            As
      RestatedConsolidated
      Statement of Cash FlowsIncome
      taxes paid
            
            $
            (1,564,000
            )
            
            $
            (1,137,000
            )
            
            $
            (2,701,000
            )Realized
      tax benefit of compensation expense
            
            
            276,000
            
            
            
            1,137,000
            
            
            
            1,413,000Net
      income
            
            
            9,913,000
            
            
            
            (2,196,000
            )
            
            
            7,717,000Deferred
      income tax
            
            
            1,030,000
            
            
            
            (832,000
            )
            
            
            198,000Minority
      interest
            
            
            425,000
            
            
            
            31,000
            
            
            
            456,000Accounts
      payable and accrued expenses
            
            
            6,432,000
            (1)
            
            
            (241,000
            )
            
            
            6,191,000
            (1)Income
      taxes
            
            
            2,077,000
            
            
            
            2,101,000
            
            
            
            4,178,000





(1)
            Accrued
      expenses were reclassified for February 28, 2007 to reflect the February
      28, 2009 presentation.  Due to seller of $1,611,000, Executive
      retirement plan of $1,200,000 and an Inventory reclassification were
      recorded for February 28, 2007.  The reclassified balance is
      $6,464,000 at February 28, 2007.






F-12
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


3.
            ACQUISITIONS:





On August
29, 2006, the Company acquired the outstanding shares of DT Electronics, an
entity engaged in the electronic components distribution business in the United
Kingdom.  This acquisition enabled the Company to expand its presence
in Europe.  The operating results of DT Electronics are reflected in
the accompanying financial statements since the date of
acquisition.




The
transaction provided for potential additional payments to the sellers
("Earnout") in three installments through 2009 from a guaranteed minimum of
£850,000 (approximately $1,744,000) to a maximum of £2,549,000 (approximately
$5,154,000), which amounts were calculated at different exchange rates using the
exchange rate at the payment date.  Payments of any amounts above the
minimum were contingent upon the attainment of certain earnings milestones by DT
Electronics during the three-year period.  In August 2008, the Company
made its final payment to the sellers for $3,410,000, representing the maximum
Earnout since DT Electronics had achieved the earnings milestones established by
the agreement. The final payment in U.S. dollars using current exchange rates
increased the total purchase price of DT Electronics from $11,087,000 to
$11,252,000, resulting in an increase of $165,000 to the cost in excess of net
assets acquired.




The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition:


Purchase
      price
            
            $
            10,885,000Direct
      acquisition costs
            
            
            367,000Total
      purchase price
            
            $
            11,252,000Allocation
      of purchase price:Accounts
      receivable
            
            $
            7,434,000Inventory
            
            
            3,142,000Other
      current assets
            
            
            11,000Fixed
      assets
            
            
            91,000Accounts
      payable/accrued expenses
            
            
            (4,490,000
            )Bank
      credit line
            
            
            (3,099,000
            )Taxes
      payable
            
            
            (325,000
            )Other
            
            
            (9,000
            )Customer
      relationships
            
            
            2,438,000Cost
      in excess of net assets acquired
            
            
            6,059,000Total
      purchase price
            
            $
            11,252,000





The
acquisition has been accounted for using the purchase method of accounting in
accordance with SFAS No. 141, "Business Combinations."  The purchase
price was first allocated to tangible and any identifiable intangible
assets.  The excess purchase price was allocated to goodwill, which
amounted to $6,059,000.  The goodwill is not tax
deductible.  The Company allocated $2,438,000 to customer
relationships which will be amortized over 17 years.




In the
fourth quarter of fiscal 2009, the Company conducted an evaluation of its
goodwill for potential impairment. Based upon the results of the impairment
testing, the Company concluded that all of its goodwill attributed to the DT
Electronics acquisition was impaired and, as such recorded a non-cash impairment
charge of $7,443,000 or $0.41 per share both basic and diluted for the year
ended February 28, 2009. For a more detailed discussion of the Company’s
goodwill evaluation see Note 1 (o).




On June
6, 2007, the Company acquired Dacom, an entity engaged in the electronic
components distribution business in Germany.  The acquisition
furthered the Company’s expansion in Europe.  The operating results of
Dacom are reflected in the accompanying financial statements since the date of
acquisition.




The Dacom
acquisition has been accounted for using the purchase method of accounting in
accordance with SFAS No. 141, "Business Combinations."  The following
table presents the allocations of the aggregate purchase price for the Dacom
acquisition based on the estimated fair values of assets acquired and
liabilities assumed.






F-13
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


3.
            ACQUISITIONS
      (Continued):





The
purchase price for Dacom as of the acquisition date was $2,857,000, including
transaction costs of $464,000.  The purchase price allocated to
goodwill was $2,287,000.  The goodwill is not tax
deductible.  The Company allocated $170,000 to customer relationships
which will be amortized over 17 years.




The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of the Dacom acquisition:


Purchase
      price
            
            $
            2,393,000Direct
      acquisition costs
            
            
            464,000Total
      purchase price
            
            $
            2,857,000Allocation
      of purchase price:Cash
            
            $
            264,000Accounts
      receivable
            
            
            307,000Inventory
            
            
            650,000Other
      current assets
            
            
            90,000Fixed
      assets
            
            
            6,000Accounts
      payable/accrued expenses
            
            
            (800,000
            )Bank
      credit line
            
            
            (38,000
            )Taxes
      payable
            
            
            (79,000
            )Customer
      relationships
            
            
            170,000Cost
      in excess of net assets acquired
            
            
            2,287,000Total
      purchase price
            
            $
            2,857,000




On
September 9, 2008, the Company acquired all the outstanding shares of C-88, a
franchised distributor of electronic components based in Hoersholm,
Denmark.  This acquisition will further expand the Company’s presence
in Europe.  The operating results of C-88 are reflected in the
accompanying financial statements since the date of acquisition.




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 purchase agreement, the
Company paid $4,042,000 in cash as of the acquisition date, including
transaction costs of $542,000.  The purchase price was first allocated
to tangible and identifiable intangible assets.  The excess purchase
price was allocated to goodwill which amounted to $2,373,000 and is attributed
to the active electronics components segment.  The goodwill is not tax
deductible.  The Company allocated $1,600,000 to customer
relationships and $20,000 for non-compete agreements which will be amortized
over 10 years and 2 years, respectively.  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 February 28, 2009, the present value of
the minimum payment of $500,000 has been recorded as a short- and long-term
liability as Due to seller on the Company's consolidated balance sheet as 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 year ended February 28, 2009, no additional amount
above the $500,000 minimum has been recorded as C-88 is currently not projected
to attain the first earnings milestone established in the purchase
agreement.






F-14
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


3.
            ACQUISITIONS
      (Continued):





The
following table presents the allocations of the aggregate purchase price for the
C-88 acquisition based on the estimated fair values of assets acquired and
liabilities assumed.


Purchase
      price
            
            $
            3,500,000Direct
      acquisition costs
            
            
            542,000Total
      purchase price, net of cash acquired
            
            $
            4,042,000Allocation
      of purchase price:Cash
            
            
            77,000Accounts
      receivable
            
            
            3,396,000Inventory
            
            
            786,000Other
      current assets
            
            
            105,000Fixed
      assets
            
            
            22,000Other
      assets
            
            
            6,000Accounts
      payable/accrued expenses
            
            
            (3,030,000
            )Bank
      credit line
            
            
            (900,000
            )Taxes
      payable
            
            
            (413,000
            )Customer
      relationships
            
            
            1,600,000Non
      compete agreement
            
            
            20,000Cost
      in excess of net assets acquired
            
            
            2,373,000Total
      purchase price, net of cash acquired
            
            $
            4,042,000





The
changes in the carrying amount of goodwill for the year ended February 28, 2009
and February 29, 2008 are as follows:





Fiscal
      2009
            
            
            Fiscal
      2008Balance
      beginning of fiscal year
            
            $
            9,925,000
            
            
            $
            8,332,000Acquisition
      of Dacom
            
            
            —
            
            
            
            2,287,000Acquisition
      of C-88
            
            
            2,373,000
            
            
            
            —Reallocation
      of DT Electronics customer relationships
            
            
            —
            
            
            
            (2,438,000
            )Goodwill
      impairment charge DT Electronics
            
            
            (7,443,000
            )
            
            
            —Other
      adjustments to fair value of net assets acquired
            
            
            165,000
            
            
            
            1,744,000Balance
      at end of fiscal year
            
            $
            5,020,000
            
            
            $
            9,925,000





The
following table summarizes the customer relationships and non-compete agreement
as of February 28, 2009 and February 29, 2008 from the acquisitions outlined
above:





Fiscal
      2009
            
            
            Fiscal
      2008Customer
      relationships
            
            $
            4,208,000
            
            
            $
            2,608,000Non
      compete agreements
            
            
            20,000
            
            
            
            —Accumulated
      amortization
            
            
            (486,000
            )
            
            
            (108,000
            )Net
            
            $
            3,742,000
            
            
            $
            2,500,000





Amortization
expense for fiscal 2009 and 2008 was $378,000 and $108,000, respectively and
will be $338,000 and $333,000 for fiscal 2010 and 2011, respectively, and
$327,000 for each of fiscal 2012 through 2014.






F-15
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)





3.
            ACQUISITIONS
      (Continued):





The
following unaudited pro forma information of the Company is provided to give
effect to the DT Electronics, Dacom and C-88 acquisitions assuming they occurred
as of March 1, 2006, the beginning of the earliest period
presented:





Years
      EndedFebruary
      28,
              2009
            
            
            February
      29,
              2008
            
            
            February
      28,
              2007(As
      Restated,
              see
      Note 2)Net
      sales
            
            $
            760,397,000
            
            
            $
            765,752,000
            
            
            $
            709,993,000Net
      (loss) income
            
            
            (9,082,000
            )
            
            
            2,570,000
            
            
            
            8,435,000Net
      (loss) income per share:Basic
            
            $
            (.50
            )
            
            $
            .14
            
            
            $
            .47Diluted
            
            $
            (.50
            )
            
            $
            .14
            
            
            $
            .45





The
proforma amounts above reflect interest on the purchase price assuming each
acquisition occurred as of March 1, 2006, with interest calculated at the
Company's borrowing rate under its domestic credit facility (see Note 6) for the
respective period. The proforma net earnings above assume an incremental income
tax provision at the Company's statutory consolidated tax rate for the
respective fiscal period.  The information presented above is for
illustrative purposes only and is not indicative of results that would have been
achieved if the acquisition had occurred as of the beginning of the Company's
2007 fiscal year or of future operating performance.





4.
            PROPERTY,
      PLANT AND EQUIPMENT:





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





February
      28,
              2009
            
            
            February
      29,
              2008Furniture,
      fixtures and equipment
            
            $
            10,829,000
            
            
            $
            10,685,000Computer
      equipment
            
            
            9,478,000
            
            
            
            9,222,000Leasehold
      improvements
            
            
            1,106,000
            
            
            
            1,255,00021,413,000
            
            
            
            21,162,000Less:  accumulated
      depreciation and amortization
            
            
            16,586,000
            
            
            
            16,633,000$
            4,827,000
            
            
            $
            4,529,000





Depreciation
expense for the 2009, 2008 and 2007 years aggregated $1,860,000, $1,660,000, and
$1,392,000, respectively.






F-16
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)





5.
            ACCRUED
      EXPENSES:





Accrued
expenses consist of the following:





February
      28,
              2009
            
            
            February
      29,
              2008Commissions
            
            $
            1,706,000
            
            
            $
            2,131,000Goods
      and services tax
            
            
            1,137,000
            
            
            
            860,000Compensation
      and related benefits
            
            
            1,350,000
            
            
            
            674,000Sales
      returns
            
            
            758,000
            
            
            
            891,000Professional
      fees
            
            
            461,000
            
            
            
            670,000Deferred
      rent
            
            
            343,000
            
            
            
            347,000Other
            
            
            2,447,000
            
            
            
            3,042,000Total
            
            $
            8,202,000
            
            
            $
            8,615,000





6.
            BANK
      DEBT:





Bank
Debt: Revolving Credit Lines




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 February 28, 2009, borrowings under the Revolving
Credit Line incurred interest at either (i) the lead bank’s prime rate or (ii)
LIBOR plus 1.75%, at the option of the Company, through September 30, 2011, the
due date of the loan.  On August 29, 2008, the Company entered into an
amendment to the Revolving Credit Line which increased the interest rate on
borrowings by 25 basis points to LIBOR plus 1.75% and increased the commitment
fee by 50 basis points.  The interest rate at February 28, 2009 was
3.25%.   Direct borrowings under the Revolving Credit Line were
$14,950,000 at February 28, 2009, and $64,300,000 at February 29, 2008. As of
February 28, 2009, the Company was in violation of certain required bank
covenants and subsequently obtained an amendment and waiver of such covenants
from its bank lending group.  In connection with the aforementioned
waiver obtained on April 27, 2009, the Company agreed to (i) reduce the maximum
amount available to be borrowed under the Revolving Credit Line from
$150,000,000 to $120,000,000, (ii) increase the interest rate payable under its
Revolving Credit Line to (x) the lead bank’s prime rate plus 1.75% or (y) LIBOR
plus 3.5%, at the option of the Company, (iii) increase its commitment fee from
..25% to .50% and (iv) pay fees of $125,000.




On
November 20, 2006, the Company entered into a revolving credit agreement with a
Singapore bank to provide a $30,000,000 secured line of credit to the Company’s
Asian subsidiaries and thereby finance the Company’s Asian operations (the
"Singapore Credit Line").  Borrowings under the Singapore Credit Line
utilize an asset-based formula based on a certain percentage of outstanding
accounts receivable and inventory levels at any given month
end.  Borrowings under the Singapore Credit Line bear interest at
SIBOR plus 1.5%.  The interest rate at February 28, 2009 was 2.64% and
at February 29, 2008 was 5.4%.  Direct borrowings under the Singapore
Credit Line were $5,000,000 at February 28, 2009 and February 29, 2008. The
Singapore Credit Line expires on November 20, 2009.




Bank
Debt: Bank Credit Lines




The
Company also has a receivable financing agreement with a bank in England (the
"U.K. Credit Line") which provides for maximum borrowings of £2,500,000
(approximately $3,575,000) at February 28, 2009, which bear interest at the
bank's base rate plus 1.55%.  The interest rate at February 28, 2009
was 4.55% and at February 29, 2008 was 5.25%.  The Company owed
$1,944,000 and $603,000 at February 28, 2009 and February 29, 2008,
respectively.  The U.K. Credit Line renews annually in
July.




The
Company has a bank credit agreement with a bank in Denmark ("the Danish Credit
Line") which provides for maximum borrowings of 10,072,000 Danish Kroner
(approximately $1,694,000) as of February 28, 2009, at the current prevailing
interest rate (7.9% at February 28, 2009).  Borrowings under the
Danish Credit Line were 8,953,000 Danish Kroner ($1,506,000) at February 28,
2009.




At
February 28, 2009, the Company had approximately $79,350,000 in the aggregate
available under all of its bank credit facilities.






F-17
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


7.
            STOCK-BASED
      COMPENSATION PLANS:





a.
            Stock
      Options:





Stock
options granted to date under each of the Company’s 1998 and 2000 Stock Option
Plans, 2000 Key Employee Stock Option Plan and 2002 Key Employee Stock Incentive
Plan generally expire ten years after the date of grant and become exercisable
in two equal annual installments commencing one year from date of
grant.  Stock options granted under the Company’s Outside Director
Stock Option Plan and 2000 and 2002 Outside Directors’ Stock Option Plans expire
ten years after the date of grant and become exercisable in three equal
installments beginning on the date of grant and on the succeeding two
anniversaries thereof.





A summary
of options granted and related information for the years ended February 28,
2009, February 29, 2008, and February 28, 2007 is as follows:





Options
            
            
            Weighted
      Average Exercise
PriceOutstanding
      February 28, 2006
            
            
            2,563,408
            
            
            $
            6.56Granted
            
            
            60,000
            
            
            
            12.46Exercised
            
            
            (463,552
            )
            
            
            5.86Cancelled
            
            
            (33,038
            )
            
            
            7.92Outstanding
      February 28, 2007
            
            
            2,126,818
            
            
            
            6.85Granted
            
            
            60,000
            
            
            
            8.91Exercised
            
            
            (27,000
            )
            
            
            7.81Cancelled
            
            
            —
            
            
            
            —Outstanding
      February 29, 2008
            
            
            2,159,818
            
            
            
            6.90Granted
            
            
            120,000
            
            
            
            3.77Exercised
            
            
            (91,582
            )
            
            
            3.88Cancelled
            
            
            (11,513
            )
            
            
            7.43Outstanding
      February 28, 2009
            
            
            2,176,723
            
            
            $
            6.85Aggregate
      intrinsic value of outstanding optionsat
      February 28, 2009
            
            $
            16,800Options
      exercisable at the end of each fiscal year:February 28, 2007
            
            
            2,045,693
            
            
            $
            6.70February 29, 2008
            
            
            2,099,818
            
            
            
            6.81February 28, 2009
            
            
            2,056,723
            
            
            
            6.99






F-18
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


7.
            STOCK-BASED
      COMPENSATION PLANS (Continued):





a.
            Stock
      Options (continued):





The
following table summarizes information about stock options outstanding as of
February 28, 2009:





Outstanding
            
            
            ExercisableRange
      of exercise
                prices
            
            Number
      of
                shares
            
            Weighted
      average
                remaining
                contractual
      life
            
            Weighted
      average
                exercise
      price
            
            
            Number
                exercisable
            
            
            Weighted
      average
                exercise
      price$1.52
      to $6.44
            
            
            1,328,473
            
            2.62
      years
            
            $
            4.89
            
            
            
            1,228,473
            
            
            $
            4.99$7.31
      to $14.62
            
            
            836,250
            
            4.11
      years
            
            $
            9.81
            
            
            
            816,250
            
            
            $
            9.83$18.33
            
            
            12,000
            
            1.53
      years
            
            $
            18.33
            
            
            
            12,000
            
            
            $
            18.332,176,723
            
            
            
            
            
            
            
            
            2,056,723





The
aggregate intrinsic value above of $16,800 represents the total pre-tax
intrinsic value (the difference between the Company’s closing stock price on the
last trading day of  fiscal 2009 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option
holders had all option holders exercised their options on February 28,
2009.  This amount changes based on the fair market value of the
Company’s common stock.  The total intrinsic value of options
exercised for fiscal 2009 was $203,000.




Cash
received from option exercises during the 2009, 2008 and 2007 fiscal years was
$355,000, $210,000, and $2,726,000, respectively and is included within the
financing activities section in the accompanying consolidated statements of cash
flows.





b.
            Restricted
      Common Stock:





Subject
to the terms and conditions of the 2002 Key Employee Stock Incentive Plan, as
amended, the compensation committee may grant shares of restricted common
stock.  Shares of restricted stock awarded may not be sold,
transferred, pledged or assigned until the end of the applicable period of
restriction established by the compensation committee and specified in the award
agreement.  Compensation expense is recognized on a straight-line
basis as shares become free of forfeiture restrictions (i.e., vest), which is a
five or seven year period from the date of grant.  For fiscal years
2009, 2008 and 2007, the Company recorded compensation expense aggregating
$818,000, $723,000 and $306,000, respectively, relating to the vesting of
restricted stock.






F-19
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)








7.
            STOCK-BASED
      COMPENSATION PLANS (Continued):





b.
            Restricted
      Common Stock (Continued):





Summary
of Non-Vested Shares:





The
following information summarizes the changes in non-vested restricted stock for
the years ended February 28, 2009, 2008 and 2007:





Shares
            
            
            Weighted
      Average
                Grant
      Date
                Fair
      ValueNon-vested
      shares at March 1, 2006
            
            
            —
            
            
            $
            —Granted
            
            
            263,000
            
            
            
            9.98Vested
            
            
            —
            
            
            
            —Non-vested
      shares at March 1, 2007
            
            
            263,000
            
            
            
            9.98Granted
            
            
            218,000
            
            
            
            11.16Vested
            
            
            (23,286
            )
            
            
            8.45Forfeited
            
            
            (4,430
            )
            
            
            9.13Non-vested
      shares at March 1, 2008
            
            
            453,284
            
            
            
            10.63Granted
            
            
            136,500
            
            
            
            4.80Vested
            
            
            (53,513
            )
            
            
            10.01Forfeited
            
            
            (26,651
            )
            
            
            10.03Non-vested
      shares at February 28, 2009
            
            
            509,620
            
            
            $
            9.16








As of February 28, 2009,
there was total unrecognized compensation cost of $3,910,000related to non-vested shares
and stock options which is expected to be recognized over a weighted average
period of 2.8 years.  We have reserved 919,587 shares for issuance for
stock options and restricted stock at February 28, 2009.




The
Company recorded, as a component of selling and general and administrative
expenses, a charge of $1,127,000 ($702,000 net of related taxes), $1,213,000
($745,000 net of related taxes) and $749,000 ($460,000 net of related taxes) for
the years ended February 28, 2009, February 29, 2008 and February 28, 2007,
respectively, relating to the expensing of stock options and restricted
stock.





8.
            MINORITY
      INTERESTS IN SUBSIDIARIES:





Minority
interests at February 28, 2009 and February 29, 2008 represent a 15% minority
interest in NIA and a 20% minority interest in NIE.






F-20
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)





9.
            INCOME
      TAXES (RESTATED):





Components
of income (loss) before income taxes are as follows:





2009
            
            
            2008
            
            
            2007(As
      Restated)Domestic
            
            $
            (15,804,000
            )
            
            $
            1,129,000
            
            
            $
            7,464,000Foreign
            
            
            6,003,000
            
            
            
            2,468,000
            
            
            
            8,700,000$
            (9,801,000
            )
            
            $
            3,597,000
            
            
            $
            16,164,000





The
provision (benefit) for income taxes is comprised of the following:





2009
            
            
            2008
            
            
            2007Current:
            
            
            
            
            
            
            
            (As
      Restated)Federal provision
      (benefit)
            
            $
            (1,940,000
            )
            
            $
            1,245,000
            
            
            $
            4,907,000State and local provision
      (benefit)
            
            
            (47,000
            )
            
            
            306,000
            
            
            
            1,269,000Foreign provision
            
            
            1,590,000
            
            
            
            1,351,000
            
            
            
            1,521,000Deferred:Federal benefit
            
            
            (604,000
            )
            
            
            (1,520,000
            )
            
            
            (197,000
            )State and local
      benefit
            
            
            (3,000
            )
            
            
            (250,000
            )
            
            
            (7,000
            )Foreign provision
      (benefit)
            
            
            167,000
            
            
            
            (366,000
            )
            
            
            498,000$
            (837,000
            )
            
            $
            766,000
            
            
            $
            7,991,000





As of
February 28, 2009, the Company had approximately $4,842,000 of federal net
operating loss ("NOL").  The Company has the ability and intends to
carryback the entire NOL to earlier tax years.  Accordingly, the
Company has recorded a current tax benefit.





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





2009
            
            
            2008
            
            
            2007(As
      Restated)Provision
      (benefit) at statutory rate
            
            
            (35.0
            )%
            
            
            35.0
            %
            
            
            35.0
            %Interest
      and penalties
            
            
            (1.3
            )%
            
            
            6.6
            %
            
            
            4.6
            %State
      taxes provided, net of Federal tax benefit
            
            
            (0.7
            )%
            
            
            4.4
            %
            
            
            5.5
            %International
      tax rate differential
            
            
            (7.0
            )%
            
            
            (41.9
            )%
            
            
            3.7
            %Goodwill
      impairment charge
            
            
            26.6
            %
            
            
            —
            
            
            
            —Stock
      options benefit
            
            
            —
            
            
            
            (6.4
            )%
            
            
            —Cash
      surrender value officer’s life insurance
            
            
            (6.8
            )%
            
            
            9.5
            %
            
            
            —Change
      in valuation allowance
            
            
            8.5
            %
            
            
            23.3
            %
            
            
            —Other
            
            
            7.2
            %
            
            
            (9.2
            )%
            
            
            0.6
            %Provision
      (benefit) for income taxes
            
            
            (8.5
            )%
            
            
            21.3
            %
            
            
            49.4
            %








The
Company provides for deferred taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS 109"), which requires the asset and liability approach
for measuring deferred tax assets and liabilities due to temporary differences
existing at year-end using currently enacted tax rates.  The Company
assesses the recoverability of the deferred tax assets and determines if a
valuation allowance is necessary under a "more likely than not"
approach.  The Company analyzes its ability to utilize deferred tax
assets by considering future taxable income, reversal of tangible temporary
differences and available tax planning strategies.






F-21
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


9.
            INCOME
      TAXES (RESTATED) (Continued):





The
components of the net deferred tax assets and tax liabilities are as
follows:





2009
            
            
            2008Deferred
      tax assets:Accounts
    receivable
            
            $
            1,042,000
            
            
            $
            1,293,000Inventory
            
            
            902,000
            
            
            
            1,422,000Accrued expenses
            
            
            712,000
            
            
            
            554,000Stock options
            
            
            813,000
            
            
            
            616,000Foreign net operating loss
      carryforward
            
            
            1,880,000
            
            
            
            1,302,000State
      net operating loss carryforward
            
            
            115,000
            
            
            
            —Foreign
      tax credits carryover
            
            
            160,000
            
            
            
            —Other
            
            
            386,000
            
            
            
            (7,000
            )Total
      deferred tax assets
            
            
            6,010,000
            
            
            
            5,180,000Valuation
    allowance
            
            
            (1,672,000
            )
            
            
            (839,000
            )Net
      deferred tax assets
            
            $
            4,338,000
            
            
            $
            4,341,000Deferred
      tax liabilities:Fixed assets
            
            $
            (996,000
            )
            
            $
            (1,141,000
            )Intangibles
            
            
            (1,410,000
            )
            
            
            (1,393,000
            )Income on Domestic International
      Sales Corp.
            
            
            (512,000
            )
            
            
            (637,000
            )Other
            
            
            —
            
            
            
            (107,000
            )Total
      deferred tax liabilities
            
            $
            (2,918,000
            )
            
            $
            (3,278,000
            )Net
      deferred tax asset
            
            $
            1,420,000
            
            
            $
            1,063,000








The
Company has not provided for federal or state and local income taxes applicable
to the undistributed earnings of its foreign subsidiaries of approximately
$12,619,000 as of February 28, 2009, as these earnings are considered
permanently reinvested.  Upon distribution in the form of dividends or
otherwise, the Company would be subject to U.S. income taxes (less applicable
foreign tax credits) and withholding taxes payable to the various foreign
countries.





As of
February 28, 2009 the Company had various state NOLs of approximately
$2,300,000.  These NOLs begin to expire in the years ended 2014
through 2029.





As of
February 28, 2009, the Company had approximately $5,826,000 of foreign
NOLs.   A portion of these NOLS begin to expire in 2013 through
2029, while certain foreign NOLs have an indefinite life.





In
accordance with SFAS No. 109, Accounting for Income Taxes, a tax asset will be
recognized when it is more likely than not to be realized.  The
Company has evaluated and determined that certain NOLs are more likely than not
to be realized.  During fiscal 2009 and 2008, the Company recorded a
valuation allowance of $1,672,000 and $839,000 respectively, related to a
foreign NOL due to uncertainty regarding our ability to utilize such NOL in the
future.





The
Company had approximately $160,000 of foreign tax credits carryover which will
expire in 2019.





The
Company is routinely audited by federal, state and foreign tax authorities with
respect to its income taxes.  The Company regularly reviews and
evaluates the likelihood of audits assessments and believes there are no
uncertain tax positions to be recorded.  The Company is currently
under audit by the Internal Revenue Service for the years ended February 28,
2007 and 2006; by New York State for years ended February 2007 through 2005; by
North Carolina for years ended February 2007 and 2008.  To the extent
that the Company would be required to pay additional taxes on an assessment, the
Company’s effective tax rate could be materially impacted.






F-22
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)








9.
            INCOME
      TAXES (RESTATED) (Continued):





The
Company adopted the provisions of FIN 48 on March 1, 2007.  The
adoption did not result in the recognition of any unrecognized tax
benefits.  As of February 28, 2009, the Company has no unrecognized
tax benefits. The Company recognizes interest accrued related to unrecognized
tax benefits in interest expense and penalties as a tax
expense.  During fiscal 2009, the Company incurred $102,000 of expense
related to penalties.  As of February 28, 2009, the Company has
accrued approximately $325,000 for the payment of interest and penalties,
primarily related to amended federal, state and local tax returns filed for
years ended February 2005 and 2006.





10.
            EMPLOYEE
      BENEFIT PLANS:





On
January 13, 1987, the Company’s Board of Directors approved the adoption of an
employee stock ownership plan (ESOP).  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.  No contributions have been made to the ESOP for the
three years ended February 28, 2009.  At February 28, 2009, the ESOP
owned 314,729 shares of the Company’s common stock at an average price of
approximately $3.45 per share.  Additionally, the ESOP holds
approximately $539,000 as of December 31, 2008 (the most recent period for which
a financial statement is available) in trust for participants who are able to
diversify their investments under the plan. In April, 2008, the Board of
Directors approved a resolution to proceed with filing an application with the
Internal Revenue Service ("IRS") to terminate this ESOP.  IRS approval
to terminate the plan is still pending.





In
January 1991, the Company 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, 2009, February 29, 2008, and
February 28, 2007 were $226,000, $279,000, and $307,000,
respectively.





11.
            COMMITMENTS
      AND CONTINGENCIES:





Employment Contracts:





On
September 13, 1996, the Company signed employment contracts (the "Contracts"),
as amended, with two of its senior executives for a continually renewing
five-year term.  The Contracts specified 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 those officers to an annual bonus equal to 3.33%
(6.7% in the aggregate) of the Company’s consolidated earnings before income
taxes. On the termination of his Contract, each executive is entitled to certain
payments, as follows:





·
            Due
      to death or Disability (as defined in the Contracts), salary at the rate
      of 50% and benefits for a five (5) year
period.


·
            For
      Cause (as defined in the Contracts), solely base salary through the date
      of termination.


·
            Termination
      other than for death, disability or cause, shall be deemed to be a
      "Retirement" under the Retirement Plan discussed
  below.


·
            Following
      a Change in Control (as defined in the Contracts),  a
      lump  sum  equal  to  three  times  the  average  total
      compensation paid to the applicable  employee with respect to
      the five fiscal years of the Company prior to the Change of
      Control,  minus $100.






F-23
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


11.
            COMMITMENTS
      AND CONTINGENCIES (Continued):




Executive
Retirement Plan:





On
December 1, 2004, the Board of Directors approved the adoption of the Nu
Horizons Executive Retirement Plan (the "Retirement Plan"). Pursuant to the
terms of the Retirement Plan, the Company will provide an unfunded retirement
benefit to certain executive employees of the Company and its subsidiaries upon
such executive's retirement (as defined in the Retirement Plan).  At
the time the Board of Directors approved the Retirement Plan, they determined
that the participation of Mr. Nadata, Chairman of the Board and Chief Executive
Officer, and Mr. Schuster, President, each a Founder (as defined in the
Retirement Plan), would be contingent upon the execution and delivery by each of
them of an amendment to his respective Contract, which amendment would provide
that a termination of employment other than for death, disability or cause would
be
a  "Retirement"  under  the  Retirement  Plan.  As
a result the "Effective Date" of the Retirement Plan is March 28, 2005, the date
of such execution and delivery.  Upon his Retirement, each executive
will be entitled to receive an annual benefit in an amount determined by the
number of years of service the executive has provided to the Company, ranging
from a minimum of $310,000 for 20 years of service to a maximum of $393,000 for
25 years of service.  The Company has accrued $2,400,000 and
$1,684,000 at February 28, 2009 and 2008, respectively.





Leases:





On July
7, 2008, the Company entered into an amendment of its existing lease agreement
for its facility in Melville, Long Island, New York.  The facility is
approximately 44,000 square feet and will serve as the Company’s executive and
corporate offices, including its NIC subsidiary.  The lease term was
extended to February 28, 2019 at an annual base rent of $840,579 for the period
from January 1, 2009 through December 31, 2009, with 3.5% annual escalations
thereafter.





On May
12, 2008, the Company entered into an amendment of its existing lease agreement
for its existing warehouse facility in Southaven, Mississippi.  The
premises consists of approximately 96,600 square feet.  The amended
lease term was extended to November 13, 2018 at an annual base rent of $411,465
for the period from December 1, 2008 through November 30, 2013 and $444,305 for
the period from December 1, 2013 through November 30, 2018.





The
Company also leases certain other sales offices, warehouses and other
properties, which leases include various escalation clauses, renewal options,
and other provisions.  Aggregate minimum rental commitments under
non-cancelable operating leases are as follows:


Fiscal
      2010
            
            $
            3,723,000Fiscal
      2011
            
            
            2,608,000Fiscal
      2012
            
            
            2,306,000Fiscal
      2013
            
            
            1,872,000Fiscal
      2014
            
            
            1,729,000Thereafter
            
            
            7,335,000





Rent and
real estate tax expense was $4,476,000, $4,473,000, and $3,559,000, for the
years ended February 28, 2009, February 29, 2008, and February 28, 2007,
respectively.






F-24
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


11.
            COMMITMENTS
      AND CONTINGENCIES (Continued):





Litigation
and Legal Proceedings:





At times
the Company is involved in various lawsuits incidental to its business. At
February 28, 2009, management does not believe any litigation matter is material
to its financial statements.





In April
2007, the Company received subpoenas in connection with the SEC’s investigation
entitled “In the Matter of Vitesse Semiconductor Corp.”  The Company
is continuing to fully cooperate with the investigation by the SEC. The Company
conducted its own related internal investigation under the direction of the
Audit Committee (the internal investigation, together with the SEC
investigation, the "Vitesse Matter").  On April 9, 2009, the Audit
Committee announced the completion of its internal investigation and 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. The
Company has incurred approximately $3,577,000, $2,602,000 and $75,000 for the
fiscal years ended 2009, 2008, and 2007, respectively, for professional
fees.  Cumulatively, $6,254,000 of expense for professional fees has
been incurred to date since fiscal 2007 related to the Vitesse
Matter.





On
or about October 4, 2007, a Consolidated Amended Class Action Complaint for
Securities Fraud ("Amended Complaint") was filed in the United States District
Court for the District of California in the matter entitledLouis Grasso, individually and on
behalf of all others similarly situated, Plaintiff, v. Vitesse Semiconductor
Corporation, Louis Tomasetta, Yatin Mody, Eugene F. Hovanec, Silicon Valley
Bank, Nu Horizons Electronics Corp, Titan Supply Chain Services, Corp. (Formerly
Known as Titan Logistics Corp.), and KPMG LLP, Defendants.Pursuant to the
Amended Complaint, Nu Horizons, Titan, Silicon Valley Bank, and KPMG LLP were
added as defendants to the putative class action which had been commenced by
certain purchasers of Vitesse common stock.  In the Amended Complaint,
plaintiff alleges that Nu Horizons and Titan violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks
rescission or unspecified damages on behalf of a purported class which purchased
Vitesse common stock during the period from January 27, 2003 to and including
April 27, 2006. As of February 28, 2009, a class has not been certified. The
complaint against Nu Horizons was dismissed with prejudice.  The
plaintiffs have not determined whether they will appeal that
ruling.  Nu Horizons will vigorously defend any such
appeal.





12.
            MAJOR
      SUPPLIERS/CUSTOMERS:





Suppliers:





For the
year ended February 28, 2009, the Company purchased inventory from one supplier
that was in excess of 10% of the Company’s total purchases.  Purchases
from this supplier were approximately $189,998,000, for the fiscal
year.  47% of total accounts payable as of February 28, 2009 related
to this supplier.





For the
year ended February 29, 2008, the Company purchased inventory from one supplier
that was in excess of 10% of the Company’s total purchases.  Purchases
from this supplier were approximately $193,584,000, for the fiscal
year.  16% of total accounts payable as of February 29, 2008 related
to this supplier.





For the
year ended February 28, 2007, the Company purchased inventory from three
suppliers that was in excess of 10% of the Company’s total
purchases.  Purchases from these suppliers were approximately
$121,160,000, $111,522,000 and $62,745,000 for the fiscal year.  53%
of total accounts payable as of February 28, 2007 related to these
suppliers.





Customers:





For the
years ended February 28, 2009, February 29, 2008, and February 28, 2007, no one
customer accounted for more than 10% of the Company's total sales.






F-25
 Table of Contents
  NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


13.
            BUSINESS
      SEGMENT AND GEOGRAPHIC INFORMATION:





Nu
Horizons Electronics Corp. and its subsidiaries, both wholly- and
majority-owned, are wholesale and export distributors of active electronic
components and passive components and systems products throughout the United
States, Asia, Australia and Europe. The Company has two operating segments under
the requirements of FAS 131 ("Disclosure About Segments of an Enterprise and
Related Information") consisting of active electronic components and passive
components.





The
active electronic components segment includes mainly commercial semiconductor
products such as memory chips, microprocessors, digital and linear circuits,
microwave, RF and fiber-optic components, transistors, diodes and systems
products.  Passive components distributed by NIC, principally to OEMs,
contractors and other distributors globally, consist of a high technology line
of surface mount and leaded components, including capacitors, resistors,
inductors and circuit protection components.





Each
operating segment has its own management team that is led by a group president
and includes regional presidents within the segment that manage certain
functions within the segment. Each segment also has discrete financial reporting
that is evaluated at the corporate level on which operating decisions and
strategic planning for the Company are made. Sales and marketing within each
operating group are structured to transact business with its customers and
suppliers along specific product lines or geography.  Both segments
rely on the support services provided at the corporate level.





Sales and
operating income (loss), by segment for the fiscal years are as
follows:





Prior
period segment data was adjusted to conform to the current period
presentation.





2009
            
            
            2008
            
            
            2007Sales:Active
      electronic components
            
            $
            697,270,000
            
            
            $
            688,131,000
            
            
            $
            602,183,000Passive
      components
            
            
            53,684,000
            
            
            
            59,039,000
            
            
            
            66,408,000$
            750,954,000
            
            
            $
            747,170,000
            
            
            $
            668,591,000





2009
            
            
            2008
            
            
            2007Operating
      income (loss):Active
      electronic components
            
            $
            7,004,000
            
            
            $
            12,235,000
            
            
            $
            17,032,000Passive
      components
            
            
            (292,000
            )
            
            
            445,000
            
            
            
            3,209,000Corporate
            
            
            (13,472,000
            )
            
            
            (4,754,000
            )
            
            
            (807,000
            )$
            (6,760,000
            )
            
            $
            7,926,000
            
            
            $
            19,434,000





Total
assets by segment for the end of the fiscal years are as follows:





2009
            
            
            2008Total
      assets:Active
      electronic components
            
            $
            208,057,000
            
            
            $
            274,124,000Passive
      components
            
            
            43,298,000
            
            
            
            44,219,000$
            251,355,000
            
            
            $
            318,343,000






F-26
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)


13.
            BUSINESS
      SEGMENT AND GEOGRAPHIC INFORMATION
(Continued):





The
Company’s business is conducted in the Americas, Europe and
Asia/Pacific.





Revenues,
by geographic area, for the fiscal years are as follows:





2009
            
            
            2008
            
            
            2007Americas
            
            $
            479,125,000
            
            
            $
            512,749,000
            
            
            $
            533,598,000Europe
            
            
            67,468,000
            
            
            
            61,489,000
            
            
            
            23,510,000Asia/Pacific
            
            
            204,361,000
            
            
            
            172,932,000
            
            
            
            111,483,000$
            750,954,000
            
            
            $
            747,170,000
            
            
            $
            668,591,000








Total
assets, by geographic area, at the end of the fiscal years are as
follows:





2009
            
            
            2008Americas
            
            $
            157,648,000
            
            
            $
            231,050,000Europe
            
            
            18,092,000
            
            
            
            16,149,000Asia/Pacific
            
            
            75,615,000
            
            
            
            71,144,000$
            251,355,000
            
            
            $
            318,343,000





The net
book value of long-lived assets by geographic area, as at the end of the fiscal
years are as follows:





2009
            
            
            2008Americas
            
            $
            4,176,000
            
            
            $
            3,903,000Europe
            
            
            309,000
            
            
            
            187,000Asia/Pacific
            
            
            342,000
            
            
            
            439,000$
            4,827,000
            
            
            $
            4,529,000






F-27
 Table of Contents




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (CONTINUED)





14.
            SELECTED
      QUARTERLY FINANCIAL DATA
(Unaudited):





Three
      Month Period EndedFebruary
      28,
              2009
            
            
            November
      30,
              2008
            
            
            August
      31,
              2008
            
            
            May
      31,
              2008Net
      sales
            
            $
            150,770,000
            
            
            $
            188,219,000
            
            
            $
            211,813,000
            
            
            $
            200,152,000Cost
      of sales
            
            
            127,357,000
            
            
            
            159,709,000
            
            
            
            180,969,000
            
            
            
            169,226,000Selling,
      general and administrative
            
            
            26,933,000
            
            
            
            28,653,000
            
            
            
            29,277,000
            
            
            
            28,147,000Goodwill
      impairment charge
            
            
            7,443,000
            
            
            
            —
            
            
            
            —
            
            
            
            —Interest
      expense, net
            
            
            489,000
            
            
            
            740,000
            
            
            
            880,000
            
            
            
            932,000Provision
      (benefit) for income taxes
            
            
            (686,000
            )
            
            
            (1,127,000
            )
            
            
            403,000
            
            
            
            573,000Minority
      interest
            
            
            (34,000
            )
            
            
            94,000
            
            
            
            92,000
            
            
            
            119,000Net  (loss)
      income
            
            $
            (10,732,000
            )
            
            $
            150,000
            
            
            $
            192,000
            
            
            $
            1,155,000Net
              Income
      (loss) per Common ShareBasic
            
            $
            (.59
            )
            
            $
            .01
            
            
            $
            .01
            
            
            $
            .06Diluted
            
            $
            (.59
            )
            
            $
            .01
            
            
            $
            .01
            
            
            $
            .06Weighted
      Average per Common  Shares OutstandingBasic
            
            
            18,069,326
            
            
            
            18,067,795
            
            
            
            18,066,923
            
            
            
            17,971,317Diluted
            
            
            18,069,326
            
            
            
            18,067,795
            
            
            
            18,206,320
            
            
            
            18,211,529





Three
      Month Period EndedFebruary
      29,
              2008
            
            
            November
      30,
              2007
            
            
            August
      31,
              2007
            
            
            May
      31,
              2007(As
      Restated)Net
      sales
            
            $
            193,683,000
            
            
            $
            192,886,000
            
            
            $
            185,369,000
            
            
            $
            175,232,000Cost
      of sales
            
            
            165,817,000
            
            
            
            161,050,000
            
            
            
            154,274,000
            
            
            
            145,630,000Selling,
      general and administrative
            
            
            28,657,000
            
            
            
            30,271,000
            
            
            
            27,884,000
            
            
            
            25,661,000Interest
      expense, net
            
            
            1,213,000
            
            
            
            1,161,000
            
            
            
            1,042,000
            
            
            
            913,000Provision
      (benefit) for income taxes
            
            
            (2,423,000
            )
            
            
            653,000
            
            
            
            1,286,000
            
            
            
            1,250,000Minority
      interest
            
            
            (5,000
            )
            
            
            125,000
            
            
            
            102,000
            
            
            
            90,000Net
      Income (loss)
            
            $
            424,000
            
            
            $
            (374,000
            )
            
            $
            781,000
            
            
            $
            1,688,000Net
      Income (loss) per Common ShareBasic
            
            $
            .02
            
            
            $
            (.02
            )
            
            $
            .04
            
            
            $
            .09Diluted
            
            $
            .02
            
            
            $
            (.02
            )
            
            $
            .04
            
            
            $
            .09Weighted
      Average per Common  Shares OutstandingBasic
            
            
            17,939,325
            
            
            
            18,377,582
            
            
            
            18,371,908
            
            
            
            18,217,603Diluted
            
            
            18,231,184
            
            
            
            18,377,582
            
            
            
            19,237,927
            
            
            
            19,046,335






Note:
            As
      discussed in Footnote 1, the revenue and cost of sales for quarters ended
      November 30, 2007 and prior have been reclassified.






F-28
 Table of Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




The Board
of Directors and Shareholders


Nu
Horizons Electronics Corp.





We have
audited the accompanying consolidated balance sheets of Nu Horizons Electronics
Corp. (the "company") as of February 28, 2009 and February 29, 2008, and
the related consolidated statements of operations, shareholders’ equity, and
cash flows for the years then ended.  Our audit also included the
financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the company’s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Nu Horizons
Electronics Corp. at February 28, 2009 and February 29, 2008, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects the information set forth therein.





As
discussed in Note 1 to the consolidated financial statements, the company
adopted FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109," effective March 1,
2007.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Nu Horizons Electronics
Corp.’s internal control over financial reporting as of February 28, 2009,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated April 29, 2009 expressed an unqualified opinion
thereon.





/s/ ERNST
& YOUNG LLP


Melville,
New York


April 29,
2009






F-29
 Table of Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






The Board
of Directors and Stockholders


Nu
Horizons Electronics Corp.


Melville,
New York





We have
audited the accompanying consolidated statements of operations, shareholders’
equity and cash flows for the year ended February 28, 2007 of Nu Horizons
Electronics Corp. and subsidiaries (the Company).  Our audit also
included the financial statement schedule listed in the Index at Item 15(a) as
it relates to the year ended February 28, 2007.  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 audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.





In our
opinion, the consolidated statements of operations, shareholders' equity and
cash flows referred to above present fairly, in all material respects, the
results of operations and cash flows of Nu Horizons Electronics Corp. and
subsidiaries for the year ended February 28, 2007 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.





As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 123(R) - "Share-Based
Payments", as revised, effective March 1, 2006.





As
discussed in Note 2 to the consolidated financial statements, the Company
previously restated its consolidated financial statements for the year ended
February 28, 2007.






/s/ LAZAR
LEVINE & FELIX LLP





New York,
New York


May 7,
2007


(November
21, 2007, as to the effects


of
the restatement discussed in Note 2)






F-30
 Table of Contents







ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





None





ITEM 9A.
            CONTROLS
      AND PROCEDURES.




Evaluation
of Disclosure Controls and Procedures




We
maintain disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e) and 15d-15(e)) that are designed to ensure that information required
to be disclosed by us in the reports that we file or submit to the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified by the Commission’s rules and forms, and that information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.




Based
upon the evaluation that was conducted as of the end of the period covered by
this report, management, including our Chief Executive Officer and Chief
Financial Officer have concluded that as of the end of the period covered by
this Annual Report on Form 10-K, the Company’s disclosure controls and
procedures were effective as of February 28, 2009.




Management’s
Annual Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting. Our internal control over financial
reporting includes those policies and procedures that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;


·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of our financial statements in accordance with generally
      accepted accounting principles in the United States, and that our receipts
      and expenditures are being made only in accordance with authorizations of
      our management and directors; and


·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Management
has assessed the effectiveness of our system of internal control over financial
reporting as of February 28, 2009.  In making this assessment,
management used the framework in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO").  Based on our assessment and the
criteria set forth by COSO, management believes that Nu Horizons maintained
effective internal control over financial reporting as of February 28,
2009.  The effectiveness of our internal control over financial
reporting has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in its attestation report which is included
herein.




Inherent
Limitations on Effectiveness of Controls




Our
system of internal control over financial reporting was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.






- 29
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ITEM
      9A.
            CONTROLS
      AND PROCEDURES (Continued):





Inherent
Limitations on Effectiveness of Controls (Continued)





All
internal control systems, no matter how well designed and operated, can provide
only reasonable assurance with respect to financial statement preparation and
presentation.  Our management does not expect that our disclosure
controls and procedures will prevent all errors and fraud.  Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
within the Company have been detected, even with respect to those systems of
internal control that are determined to be effective.  These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple errors or
mistakes.  The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.  Over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of these inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.  Our system contains self
monitoring mechanisms, and actions are taken to correct deficiencies as they are
identified.





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ITEM
      9A.
            CONTROLS
      AND PROCEDURES (Continued):




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Shareholders


Nu
Horizons Electronics Corp.





We have
audited Nu Horizons Electronics Corp.’s (the "company") internal control over
financial reporting as of February 28, 2009, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the "COSO criteria"). The company’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Annual Report of Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial
reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Nu Horizons Electronics Corp. maintained, in all material respects,
effective internal control over financial reporting as of February 28,
2009, based on the COSO criteria.  We have also
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Nu Horizons
Electronics Corp. as of February 28, 2009 and February 29, 2008, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
the years then ended and our report dated April 29, 2009 expressed an
unqualified opinion thereon.







/s/ ERNST & YOUNG LLP


Melville,
New York


April 29,
2009






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ITEM
      9A.
            CONTROLS
      AND PROCEDURES (Continued):




Changes
in Internal Controls




In
connection with the internal investigation of the Vitesse Matter, it came to
management’s attention that there were certain deficiencies in the Company’s
internal controls related to inventory management, record keeping and approval
of contract amendments.  As a result, during the fiscal quarter ended
February 28, 2009, the Company adopted both a document retention policy and a
contract approval policy.




Except as previously set forth, there
were no changes made in our internal controls over financial reporting that
occurred during our most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect our internal controls
over financial reporting.







ITEM 9B.
            OTHER
      INFORMATION.





On April
27, 2009, the Company and its lending banks (the “Lenders”) entered into a fifth
amendment (the “Fifth Amendment”) to the secured revolving credit agreement
dated as of January 31, 2007, as amended to date (the “Credit Agreement”) with
the Lenders.  Pursuant to the Fifth Amendment, the Company agreed to a
reduction in the maximum amount available to be borrowed under the Credit
Agreement from $150,000,000 to $120,000,000 and to an increased interest rate
equal to, at the option of the Company, the lead bank’s prime rate plus 1.75% or
LIBOR plus 3.5%.  The Company further agreed to a .25% increase in the
commitment fee and a one-time amendment fee in the amount of
$125,000.  A copy of the Fifth Amendment is attached as Exhibit 10.36
to this Annual Report on Form 10-K.




PART III




ITEM 10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.





The
information required in response to this Item is incorporated herein by
reference to our proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.




The Board
of Directors has adopted a Code of Ethics that applies to our Chairman, Chief
Executive Officer and senior financial officers.  You can find a link
to the Code of Ethics in the Investor Relations section of our website at: www.nuhorizons.com.  The
Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K
regarding an amendment to, or a waiver from, a provision of its Code of Ethics
that applies to the registrant’s principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions and that relates to any element of its Code of
Ethics by posting such information on its website.





ITEM
      11.
            EXECUTIVE
      COMPENSATION.





The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.





ITEM 12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.





The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.





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ITEM 13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.





The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.





ITEM 14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.





The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.








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PART IV.





ITEM 15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES.




(a)
      (1) The
      following consolidated financial statements of the registrant and its
      subsidiaries are filed as a part of this report:PageReports
      of Independent Registered Public Accounting Firms
                              F-29
      – F30Consolidated
      Statements of Operations for the three years ended February 28, 2009,
      February 29, 2008, and February 28, 2007 (as restated)
                              F-1Consolidated
      Balance Sheets as of February 28, 2009 and February 29,
    2008
                              F-2Consolidated
      Statements of Changes in Shareholders’ Equity for the three years ended
      February 28, 2009, February 29, 2008, and February 28, 2007 (as
      restated)
                              F-3Consolidated
      Statements of Cash Flows for the three years ended February 28, 2009,
      February 29, 2008 and, February 28, 2007 (as restated)
                              F4
      - F-5Notes
      to Consolidated Financial Statements
                              F-6
      – F28(a)
      (2) Schedule
      II – Valuation and Qualifying Accounts and Reserves
                              40(a)
      (2) See
      exhibits required – Item (b) below(b)
      Exhibits




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(b)
            ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES:




EXHIBIT
              NUMBER
            DESCRIPTION3.1
            Certificate
      of Incorporation, as amended (Incorporated by Reference to Exhibit 10.14
      to the Company’s Quarterly Report on Form 10-Q for the Quarter ended
      November 30, 2000).3.2
            By-laws,
      as amended (Incorporated by Reference to Exhibit 3.2 to the Company’s
      Annual Report on Form 10-Q for the quarter ended August 31,
      2007).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).10.1
            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).




10.2
            Employment
      and Change of Control Agreements dated September 13, 1996, between Company
      and Arthur Nadata (Incorporated by Reference to Exhibit 10.16 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended August 31,
      1996).10.3
            Employment
      and Change of Control Agreements dated September 13, 1996, between Company
      and Richard Schuster (Incorporated by Reference to Exhibit 10.17 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended August 31,
      1996).10.4
            Form
      of Indemnity Agreements between the Company and Messrs. Gardner, Nadata,
      Polimeni, Schuster, Siegel, Novick and Freudenberg (Incorporated by
      Reference to Exhibit 10.1 to Form 10-Q for the quarter ended May 31,
      2008).10.5
            1998
      Stock Option Plan, as amended (Incorporated by Reference to Exhibit 4 to
      the Company’s Registration Statement on Form S-8,
      No.333-82805).10.6
            2000
      Stock Option Plan (Incorporated by Reference to Exhibit 4 to the Company’s
      Registration Statement on Form S-8, No.333-51188).10.7
            2000
      Key Employee Stock Option Plan (Incorporated by reference to Exhibit 4 to
      the Company’s Registration Statement on Form S-8 No.
      333-51192).10.8
            2000
      Outside Directors’ Stock Option Plan (Incorporated by reference to Exhibit
      4 to the Company’s Registration Statement on Form S-8 No.
      333-51190).10.9
            Amended
      and Restated Credit Agreement dated as of January 31, 2007 between the
      Company and eight banks (Incorporated by reference to Exhibit 10.1 to Form
      8-K dated January 31, 2007).10.10
            Consent
      and First Amendment to Amended and Restated Credit Agreement dated as of
      June 6, 2007 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated
      June 12, 2007).10.11
            Waivers
      to Amended and Restated Credit Agreement dated as of October 25, 2007
      (Incorporated by reference to Exhibit 10.1 to Form 8-K dated October 29,
      2007).








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ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENTS AND SCHEDULES:





(b)
            Exhibits
      (continued):





EXHIBIT
              NUMBER
            DESCRIPTION10.12
            Second
      Amendment to Amended and Restated Credit Agreement dated as of January 4,
      2008 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated January
      7, 2008).10.13
            Third
      Amendment to Amended and Restated Credit Agreement dated as of May 30,
      2008.10.14
            Consent
      and Fourth Amendment to Amended and Restated Credit Agreement dated as of
      August 29, 2008 (Incorporated by reference to Exhibit 10.1 for Form 10-Q
      for quarter ended August 31, 2008).10.15
            2002
      Key Employee Stock Incentive Plan, as amended.10.16
            2002
      Outside Directors Stock Option Plan (Incorporated by reference to Exhibit
      4.1 to the Company’s Registration Statement on Form S-8 No.
      333-103626).10.17
            Nu
      Horizons Executive Retirement Plan (Incorporated by reference to Exhibit
      10.1 to Form 8-K dated March 28, 2005).10.18
            Amendment
      to Employment Agreement between the Company and Arthur Nadata dated as of
      March 28, 2005. (Incorporated by reference to Exhibit 10.2 to Form 8-K
      dated March 28, 2005).10.19
            Amendment
      to Employment Agreement between the Company and Richard Schuster dated as
      of March 28, 2005. (Incorporated by reference to Exhibit 10.3 to Form 8-K
      dated March 28, 2005).10.20
            Employment
      Agreement between the Company and Kurt Freudenberg dated as of May 25,
      2006 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated May 24,
      2006).10.21
            Agreement
      between the Company and Kurt Freudenberg dated January 3, 2008
      (Incorporated by reference to Exhibit 10.1 to Form 8-K dated January 7,
      2008).10.22
            Share
      Purchase Agreement dated as of August 29, 2006 by and among the Company,
      Nu Horizons Electronics Europe Limited, Anthony Frere, Geoffrey Rose,
      David Zelkha and Others (Incorporated by reference to Exhibit 10.1 to Form
      8-K dated August 29, 2006).10.23
            Guaranty
      dated as of November 20, 2006 by the Company in favor of The Hong Kong and
      Shanghai Banking Corporation Limited (Incorporated by reference to Exhibit
      10.1 to Form 8-K dated November 20, 2006).10.24
            Compensation
      of Non-Employee Directors (Incorporated by Reference to Exhibit 10.2 of
      Form 10-Q for the quarter ended November 30, 2008).10.27
            Share
      Purchase and Transfer Agreement between Nu Horizons Electronics GmbH and
      Inge Merl dated June 6, 2007 (Incorporated by reference to Exhibit 10.1 to
      Form 8-K dated June 12, 2007).





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ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENTS AND SCHEDULES:





(b)
            Exhibits
      (continued):





EXHIBIT
              NUMBER
            DESCRIPTION10.28
            Share
      Purchase Agreement between C-88 Holding ApS and Company dated as of
      September 9, 2008 (Incorporated by reference to Exhibit 10.2 to Form 10-Q
      for the quarter ended August 31, 2008).10.29
            Separation
      Agreement between C. David Bowers and the Company dated as of December 5,
      2008 (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
      quarter ended August 31, 2008).10.30
            Option
      Surrender Agreement between Arthur Nadata and the Company dated April 6,
      2009.10.31
            Option
      Surrender Agreement between Richard Schuster and the Company dated April
      6, 2009.10.32
            Agreement
      of Lease between Reckson Operating Partnership, L.P., and the Company,
      dated as of July 11, 1996.10.33
            First
      Amendment of Lease by and between Rechler Equity B-1 LLC and the Company,
      dated as of July 7, 2008.10.34
            Industrial
      Lease Agreement by and between Industrial Developments International, Inc.
      and the Company, dated as of August 29, 2006.10.35
            First
      Amendment to Industrial Lease Agreement, dated May 12,
    2008.10.36
            Fifth
      Amendment and Waivers to Credit Agreement dated as of April 27,
      2009.





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ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENTS AND SCHEDULES:





(b)
            Exhibits
      (continued):





EXHIBIT
              NUMBER
            DESCRIPTION21.
            Nu
      Horizons Electronics Corp. & Subsidiaries Organizational (Legal
      Entity) Structure as of February 28, 2009.23.
            Consents
      of Independent Registered Public Accounting Firms.31.1
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
            Certification
      of the Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





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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 NADATAArthur
      NadataCEO
      (Principal Executive Officer)By:
            /s/
      KURT FREUDENBERGKurt
      FreudenbergExecutive
      Vice President, Treasurer and
              Chief
      Financial Officer(Principal
      Financial andAccounting
      Officer)





Pursuant
to the requirements of the Securities Exchange 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
              
              DATEBy:
              /s/
      ARTHUR NADATA
              
              Chairman
      of the Board, Chief Executive Officer and Director
              
              April
      29, 2009Arthur
      NadataBy:
              /s/
      RICHARD SCHUSTER
              
              President,
      Chief Operating Officer, Secretary and Director
              
              April
      29, 2009Richard
      SchusterBy:
              /s/
      KURT FREUDENBERG
              
              Executive
      Vice President, Treasurer, Chief Financial Officer and
      Director
              
              April
      29, 2009Kurt
      FreudenbergBy:
              /s/
      HERBERT M. GARDNER
              
              Director
              
              April
      29, 2009Herbert
      M. GardnerBy:
              /s/
      MARTIN NOVICK
              
              Director
              
              April
      29, 2009Martin
      NovickBy:
              /s/
      DOMINIC A. POLIMENI
              
              Director
              
              April
      29, 2009Dominic
      A. PolimeniBy:
              /s/
      DAVID SIEGEL
              
              Director
              
              April
      29, 2009David  Siegel






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SCHEDULE II




NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES





SCHEDULE
II—VALUATION AND QUALIFYING


ACCOUNTS
AND RESERVES





Three
Years Ended February 28, 2009





Description
            
            Balance
      at
              Beginning
              of period
            
            
            Additions
              charged
      to costs and expenses
            
            
            Write-offs
            
            
            Balance
      at end
              of periodValuation
      account deducted in the balance sheet from the asset to which it
      applies:Allowance
      fordoubtful
      accounts-accounts
      receivable2009
            
            $
            4,269,000
            
            
            $
            (341,000
            )
            
            $
            490,000
            
            
            $
            3,438,0002008
            
            $
            4,985,000
            
            
            
            —
            
            
            $
            716,000
            
            
            $
            4,269,0002007
            
            $
            4,702,000
            
            
            $
            447,000
            
            
            $
            164,000
            
            
            $
            4,985,000








Description
            
            Balance
      at
              Beginning
              of period
            
            
            Additions
              charged
      to costs and expenses
            
            
            Write-offs
            
            
            Balance
      at end
              of periodValuation
      account deducted in the balance sheet from the asset to which it
      applies:Inventory
      Reserve2009
            
            $
            3,475,000
            
            
            $
            153,000
            
            
            $
            910,000
            
            
            $
            2,718,0002008
            
            $
            3,690,000
            
            
            $
            510,000
            
            
            $
            725,000
            
            
            $
            3,475,0002007
            
            $
            3,880,000
            
            
            $
            24,000
            
            
            $
            214,000
            
            
            $
            3,690,000




Description
              
              Balance
      at
                Beginning
                of period
              
              
              Increase
      inallowance
              
              
              Decrease
      inallowance
              
              
              Balance
      at end
                of periodValuation
      allowance on foreign tax loss carryforward (Note 9)2009
              
              $
              839,000
              
              
              $
              833,000
              
              
              $
              —
              
              
              $
              1,672,0002008
              
              $
              —
              
              
              $
              839,000
              
              
              $
              —
              
              
              $
              839,000


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SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549











EXHIBIT INDEX





to





FORM
10-K





FOR THE
FISCAL YEAR ENDED FEBRUARY 28, 2009





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
            DESCRIPTION3.1
            Certificate
      of Incorporation, as amended (Incorporated by Reference to Exhibit 10.14
      to the Company’s Quarterly Report on Form 10-Q for the Quarter ended
      November 30, 2000).3.2
            By-laws,
      as amended (Incorporated by Reference to Exhibit 3.2 to the Company’s
      Annual Report on Form 10-Q for the quarter ended August 31,
      2007).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).10.1
            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).


10.2
            Employment
      and Change of Control Agreements dated September 13, 1996, between Company
      and Arthur Nadata (Incorporated by Reference to Exhibit 10.16 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended August 31,
      1996).10.3
            Employment
      and Change of Control Agreements dated September 13, 1996, between Company
      and Richard Schuster (Incorporated by Reference to Exhibit 10.17 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended August 31,
      1996).10.4
            Form
      of Indemnity Agreements between the Company and Messrs. Gardner, Nadata,
      Polimeni, Schuster, Siegel, Novick and Freudenberg (Incorporated by
      Reference to Exhibit 10.1 to Form 10-Q for the quarter ended May 31,
      2008).10.5
            1998
      Stock Option Plan, as amended (Incorporated by Reference to Exhibit 4 to
      the Company’s Registration Statement on Form S-8,
      No.333-82805).


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EXHIBIT
INDEX (Continued)




EXHIBIT
              NUMBER
            DESCRIPTION


10.6
            2000
      Stock Option Plan (Incorporated by Reference to Exhibit 4 to the Company’s
      Registration Statement on Form S-8, No.333-51188).10.7
            2000
      Key Employee Stock Option Plan (Incorporated by reference to Exhibit 4 to
      the Company’s Registration Statement on Form S-8 No.
      333-51192).10.8
            2000
      Outside Directors’ Stock Option Plan (Incorporated by reference to Exhibit
      4 to the Company’s Registration Statement on Form S-8 No.
      333-51190).10.9
            Amended
      and Restated Credit Agreement dated as of January 31, 2007 between the
      Company and eight banks (Incorporated by reference to Exhibit 10.1 to Form
      8-K dated January 31, 2007).10.10
            Consent
      and First Amendment to Amended and Restated Credit Agreement dated as of
      June 6, 2007 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated
      June 12, 2007).10.11
            Waivers
      to Amended and Restated Credit Agreement dated as of October 25, 2007
      (Incorporated by reference to Exhibit 10.1 to Form 8-K dated October 29,
      2007).10.12
            Second
      Amendment to Amended and Restated Credit Agreement dated as of January 4,
      2008 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated January
      7, 2008).10.13
            Third
      Amendment to Amended and Restated Credit Agreement dated as of May 30,
      2008.10.14
            Consent
      and Fourth Amendment to Amended and Restated Credit Agreement dated as of
      August 29, 2008 (Incorporated by reference to Exhibit 10.1 for Form 10-Q
      for quarter ended August 31, 2008).10.15
            2002
      Key Employee Stock Incentive Plan, as amended.10.16
            2002
      Outside Directors Stock Option Plan (Incorporated by reference to Exhibit
      4.1 to the Company’s Registration Statement on Form S-8 No.
      333-103626).10.17
            Nu
      Horizons Executive Retirement Plan (Incorporated by reference to Exhibit
      10.1 to Form 8-K dated March 28, 2005).10.18
            Amendment
      to Employment Agreement between the Company and Arthur Nadata dated as of
      March 28, 2005. (Incorporated by reference to Exhibit 10.2 to Form 8-K
      dated March 28, 2005).10.19
            Amendment
      to Employment Agreement between the Company and Richard Schuster dated as
      of March 28, 2005. (Incorporated by reference to Exhibit 10.3 to Form 8-K
      dated March 28, 2005).10.20
            Employment
      Agreement between the Company and Kurt Freudenberg dated as of May 25,
      2006 (Incorporated by reference to Exhibit 10.2 to Form 8-K dated May 24,
      2006).






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EXHIBIT
INDEX (Continued)




EXHIBIT
                NUMBER
              DESCRIPTION10.21
              Agreement
      between the Company and Kurt Freudenberg dated January 3, 2008
      (Incorporated by reference to Exhibit 10.1 to Form 8-K dated January 7,
      2008).10.22
              Share
      Purchase Agreement dated as of August 29, 2006 by and among the Company,
      Nu Horizons Electronics Europe Limited, Anthony Frere, Geoffrey Rose,
      David Zelkha and Others (Incorporated by reference to Exhibit 10.1 to Form
      8-K dated August 29, 2006).10.23
              Guaranty
      dated as of November 20, 2006 by the Company in favor of The Hong Kong and
      Shanghai Banking Corporation Limited (Incorporated by reference to Exhibit
      10.1 to Form 8-K dated November 20, 2006).10.24
              Compensation
      of Non-Employee Directors (Incorporated by Reference to Exhibit 10.2 of
      Form 10-Q for the quarter ended November 30, 2008).10.27
              Share
      Purchase and Transfer Agreement between Nu Horizons Electronics GmbH and
      Inge Merl dated June 6, 2007 (Incorporated by reference to Exhibit 10.1 to
      Form 8-K dated June 12, 2007).10.28
              Share
      Purchase Agreement between C-88 Holding ApS and Company dated as of
      September 9, 2008 (Incorporated by reference to Exhibit 10.2 to Form 10-Q
      for the quarter ended August 31, 2008).10.29
              Separation
      Agreement between C. David Bowers and the Company dated as of December 5,
      2008 (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
      quarter ended August 31, 2008).10.30
              Option
      Surrender Agreement between Arthur Nadata and the Company dated April 6,
      2009.10.31
              Option
      Surrender Agreement between Richard Schuster and the Company dated April
      6, 2009.10.32
              Agreement
      of Lease between Reckson Operating Partnership, L.P., and the Company,
      dated as of July 11, 1996.10.33
              First
      Amendment of Lease by and between Rechler Equity B-1 LLC and the Company,
      dated as of July 7, 2008.10.34
              Industrial
      Lease Agreement by and between Industrial Developments International, Inc.
      and the Company, dated as of August 29, 2006.10.35
              First
      Amendment to Industrial Lease Agreement, dated May 12,
    2008.10.36
              Fifth
      Amendment and Waivers to Credit Agreement dated as of April 27,
      2009.




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EXHIBIT
INDEX (Continued)




EXHIBIT
              NUMBER
            DESCRIPTION21.
            Nu
      Horizons Electronics Corp. & Subsidiaries Organizational (Legal
      Entity) Structure as of February 28, 2009.23.
            Consents
      of Independent Registered Public Accounting Firms.31.1
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
            Certification
      of the Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.