##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2006
 or
 o
    
    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 0-16345
 SED International Holdings, Inc.
 (Exact name of Company as specified in its charter)
 GEORGIA(State or other jurisdiction 
of incorporation or organization)
    
    22-2715444(I.R.S. Employer
Identification No.)
 4916 North Royal Atlanta Drive, Tucker, Georgia(Address of principal executive offices)
    
    30084(Zip Code)
 Companys telephone number, including area code:
770-491-8962
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    
    9Item 2.
    
    Properties
    
    
    9Item 3.
    
    Legal Proceedings
    
    
    10Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5.
    
    Market Price of the Companys Common Stock, Related
Shareholder Matters and Issuer Purchases of Stock
    
    
    11Item 6.
    
    Selected Financial Data Five Year Financial Summary
    
    
    12Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 7A.
    
    Quantitative and Qualitative Disclosures About Market
Risk
    
    
    21Item 8.
    
    Financial Statements and Supplementary Data
    
    
    22Reports of Independent Registered Public Accounting Firm
    
    
    22Consolidated Balance Sheets
    
    
    24Consolidated Statements of Operations
    
    
    25Consolidated Statements of Shareholders Equity
    
    
    26Consolidated Statements of Cash Flows
    
    
    27Notes to Consolidated Financial Statements
    
    
    28Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    40Item 9A.
    
    Controls and Procedures
    
    
    40Item 9B.
    
    Other Information
    
    
    40PART IIIItem 10.
    
    Directors and Executive Officers of the Company
    
    
    41Item 11.
    
    Executive Compensation
    
    
    41Item 12.
    
    Security Ownership of Certain Beneficial Owners and
Management
    
    
    41Item 13.
    
    Certain Relationships and Related Transactions
    
    
    41Item 14.
    
    Principal Accounting Fees and Services
    
    
    41PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    42Supplemental Information to be furnished with Reports Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
    
    
    45Signatures
    
    
    
    
    47EX-10.55 EMPLOYMENT AGREEMENT/ JONATHAN ELSTEREX-10.56 AMENDMENT TO EMPLOYMENT AGREEMENT/ BARRY DIAMONDEX-10.57 LEASE AGREEMENT/ ZENITH LABORNETEX-10.58 FIRST AMENDMENT OF LEASE DATED 9-19-05EX-10.59 LEASE AGREEMENT EXTENSION DATED 3-20-06EX-10.60 LOAN AND SECURITY AGREEMENT/ WACHOVIA BANK NATIONAL ASSOCIATIONEX-14 CODE OF ETHICS DATED 9-2-02EX-21 SUBSIDIARIES OF THE COMPANYEX-31.1 SECTION 302 CERTIFICATION OF PEOEX-31.2 SECTION 302 CERTIFICATION OF PFOEX-32.1 SECTION 906 CERTIFICATION OF PEOEX-32.2 SECTION 906 CERTIFICATION OF PFOEX-99.1 ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2005EX-99.2 PROXY STATEMENTS, FORMS OF PROXY OR OTHER PROXY MATERIALS
   Certain
statements made in this Annual Report on Form 10-K are forward-looking statements
 regarding the plans and objectives of management for future operations. Such statements involve known
 and unknown risks, uncertainties and other factors that may cause our actual results, performance or
 achievements to be materially different from any future results, performance or achievements expressed
 or implied by such forward-looking statements. The forward-looking statements included herein are based
 on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based,
 in part, on assumptions involving judgments with respect to, among other things, future economic,
 competitive and market conditions and future business decisions, all of which are difficult or impossible
 to predict accurately and many of which are beyond our control. Although we believe that our assumptions
 underlying the forward-looking statements are reasonable, any of the assumptions could prove
 inaccurate and, therefore, there can be no assurance that the forward-looking statements included
 in this report will prove to be accurate. In light of the significant uncertainties inherent in the
 forward-looking statements included herein particularly in view of the current state of our operations,
 the inclusion of such information should not be regarded as a statement by us or any other person that
 our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those
 expressed or implied by such forward-looking statements include, but are not limited to, the factors set
 forth herein under the headings Business, Risk Factors and Managements
 Discussion and Analysis of Financial Condition and Results of Operations. We undertake no obligation
 to revise or update publicly any forward-looking statements for any reason.




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PART I
 
 Item 1. Business
 (a) General Development of Business
       (b) Financial Information about Industry Segments
  (c) Narrative Description of Business
 2




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Products and Vendors
      Sales and Marketing
  3




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www.sedonline.com
    Customers
  4




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Competition
   Seasonality
  Employees
  (d) Financial Information about Foreign and Domestic Operations and Export Sales
  (e) Available Information
    5




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Item 1A. Risk Factors
  Risks and Uncertainties
  
    
    Continuation of distribution agreements SED operates under formal but cancelable
distribution agreements with certain of its suppliers. If these agreements were
cancelled, SED would be forced to obtain its products through wholesalers. This would
reduce SEDs profit margin on the affected products.
    
    Availability of certain products From time to time, due to production limitations
or heavy demand, SED may only be able to purchase a limited amount of popular products
from its suppliers.
    
    Product margins SED operates in a very competitive business environment.
Accordingly, product margins are continually under pricing pressure. From time to
time, SED receives price protection and other considerations from its vendors. While
SED has no reason to believe such vendor consideration will not continue, no assurance
can be given that such price protection and other considerations will continue to be
received in the future.
    
    Vendor credit SED significantly relies on its suppliers for trade credit. Changes
by the suppliers in their credit terms could force SED to obtain less favorable
financing for its purchases.
    
    Product obsolescence SED offers a broad line of products that are subject to fast
technological obsolescence, which increases the risk of inventory markdown. Through its
vendor agreements, SED has certain stock return privileges, which vary from supplier to
supplier. SED believes stock return programs will continue in the future, but can give
no assurance about whether these programs will continue.
    
    Consumer ElectronicsSED has entered into the distribution of consumer
electronics, which is highly competitive. Some of SEDs competitors have substantially
greater financial, marketing and distribution resources than SED and SED may be unable
to successfully compete with these companies. Failure to successfully penetrate this
market could have an adverse impact on SEDs cash flows, financial position and
operating results.
    
    Credit decisions and losses SED maintains an experienced customer credit
staff and relies on customer payment history and third party data to make customer
credit decisions. Nevertheless, SED may experience customer credit losses in excess of
its expectations. SED maintains credit insurance
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policies for certain customers located in the United States and select Latin American
countries (subject to certain terms and conditions). However, the terms of the credit
insurance agreement require SED to maintain certain minimum standards and policies with
respect to extending credit to customers. If SED does not adhere to such policies, the
insurance companies may not pay claims submitted by SED.
 
    
    Proportionate control of general and administrative costs SED attempts to control
its overhead costs to keep such costs in line with its sales volume. As sales volumes
fluctuate, SED must continually monitor its overhead costs and make adjustments timely
and appropriately. Failure to control overhead costs could have an adverse impact on
SEDs cash flows, financial position and operating results.
    
    Uncertain and possibly volatile economic and political environment in Latin America
  The general economic and political environment in both of the countries in which SED
operates in Latin America is uncertain and, at times, volatile. As a result of these
conditions, SED could experience unexpected costs from its operations in these
countries.
    
    Availability of credit facilities SED has operated under a formal credit facility
with a bank for many years that was subject to certain collateral limitations and
contained certain covenants. During September 2005 a new credit facility was obtained.
No assurance can be given that SED will be able to maintain compliance with financial
covenants, or obtain waivers in the event of non-compliance, in the future. Failure to
maintain compliance with the financial covenants could adversely affect SEDs ability
to obtain vendor credit and the overall business operations. The principal credit
facility, which expires in August 2008, is further described in Note 4.
    
    Cash flows While not presently expected, SEDs continued operations in Latin
America may require additional capital infusion (in the form of advance notes from the
parent company or other debt borrowings by a subsidiary). The credit facility restricts
the future funding by the parent company of Latin American operations. Operating needs
and regulatory matters may restrict SEDs ability to repatriate cash flows from the
foreign subsidiaries to the United States.
    
    Competition SED operates in a highly competitive environment. The computer
wholesale distribution industry is characterized by intense competition, based
primarily on product availability, credit availability, price, speed of delivery,
quality and depth of product lines and training, service and support. Weakness in
demand in the market intensifies the competitive environment in which the SED operates.
SED competes with a variety of regional, national and international wholesale
distributors, some of which have greater financial resources than SED. SED also faces
competition from companies entering or expanding into the logistics and product
fulfillment and e-commerce supply chain services market.
    
    Loss of Significant Customers Customers do not have an obligation to make
purchases from SED. In some cases, SED has made adjustments to its systems, vendor
offerings, and processes, and made staffing decisions, in order to accommodate the
needs of a significant customer. In the event a significant customer decides to make
its purchases from another distributor, experiences a significant change in demand from
its own customer base, becomes financially unstable, or is acquired by another company,
SEDs receipt of revenues may be significantly affected, resulting in an adverse effect
on SEDs business.
    
    Dependence on Information Systems SED is highly dependent upon its internal
computer and telecommunication systems to operate its business. There can be no
assurance that SEDs information systems will not fail or experience disruptions, that
SED will be able to attract and retain qualified personnel necessary for the operation
of such systems, that SED will be able to expand and improve its information systems,
that SED will be able to convert to new systems efficiently, or that SED will be able
to integrate new programs effectively with its existing programs. Any of such problems
could have an adverse effect on SEDs business.
    
    Dependence on Independent Shipping Companies SED relies on arrangements with
independent shipping companies, such as Federal Express and United Parcel Service, for
the delivery of its products from vendors and to customers. The failure or inability of
these shipping companies to deliver products, or the unavailability of their shipping
services, even temporarily, could have a material adverse effect on
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SEDs business. SED may also be adversely affected by an increase in freight surcharges
due to rising fuel costs and added security. There can be no assurance that SED will be
able to pass along the full effect of an increase in these surcharges to its customers.
 
    
    Foreign Currency Exchange Risks; Exposure to Foreign Markets SED conducts
business in countries outside of the United States, which exposes SED to fluctuations
in foreign currency exchange rates. SED may enter into short-term forward exchange or
option contracts to hedge this risk; nevertheless, fluctuations in foreign currency
exchange rates could have an adverse effect on SEDs business. In particular, the value
of SEDs equity investment in foreign countries may fluctuate based upon changes in
foreign currency exchange rates. These fluctuations, which are recorded in a cumulative
translation adjustment account, may result in losses in the event a foreign subsidiary
is sold or closed at a time when the foreign currency is weaker than when SED initially
invested in the country.
  
    
    Changes in Income Tax and Other Regulatory Legislation SED operates in compliance
with applicable laws and regulations. When new legislation is enacted with minimal
advance notice, or when new interpretations or applications of existing laws are made,
SED may need to implement changes in its policies or structure. SED makes plans for its
structure and operations based upon existing laws and anticipated future changes in the
law.
  
    
    Changes in Accounting Rules  SED prepares its financial statements in conformity
with accounting principles generally accepted in the United States. These accounting
principles are subject to interpretation by the Financial Accounting Standards Board,
the Public Company Accounting Oversight Board, the Securities and Exchange Commission,
the American Institute of Certified Public Accountants and various other bodies formed
to interpret and create appropriate accounting policies. A change in these policies or
a new interpretation of an existing policy could have a significant effect on our
reported results and may affect our reporting of transactions before a change is
announced.
    
    Exposure to Natural Disasters, War, and Terrorism SEDs headquarters facilities
and some of its logistics centers as well as certain vendors and customers are located
in areas prone to natural disasters such as floods, hurricanes, tornadoes, or
earthquakes. In addition, demand for SEDs services is concentrated in major
metropolitan areas. Adverse weather conditions, major electrical failures or other
natural disasters in these major metropolitan areas may disrupt SEDs business should
its ability to distribute products be impacted by such an event.
   
    
    Volatility of Common Stock Price Because of the foregoing factors, as well as
other variables affecting SEDs operating results, past financial performance should
not be considered a reliable indicator of future performance, and investors should not
use historical trends to anticipate results or
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trends in future periods. In addition, SEDs participation in a highly dynamic industry
often results in significant volatility of the common stock price. Some of the factors
that may affect the market price of the common stock, in addition to those discussed
above, are changes in investment recommendations by securities analysts, changes in
market valuations of competitors and key vendors, and fluctuations in the overall stock
market, but particularly in the technology sector.
 
    
    Our Common Stock Is A Penny Stock Which May Restrict The Ability Of Stockholders
To Sell Our Common Stock In The Secondary Market. The Securities and Exchange
Commission has adopted regulations which generally define penny stock to be an equity
security that has a market price, as defined, of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions, including
an exception of an equity security that is quoted on a national securities exchange.
Our common stock is now traded on the Pink Sheets® LLC over the counter market. Thus,
the trading or our common stock is subject to rules that impose additional sales
practice requirements on broker-dealers who sell them. For example, the broker-dealer
must make a special suitability determination for the purchaser of such securities and
have received the purchasers written consent to the transactions prior to the
purchase. Additionally, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Securities and Exchange Commission relating to the
penny stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered underwriter, and current quotations for the
securities, and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealers presumed control over the market. Finally,
among other requirements, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the limited
market in penny stocks. The penny stock rules, may restrict the ability of our
stockholders to sell our common stock in the secondary market.
 
    
    Our Common Stock Has Been Thinly Traded, Liquidity Is Limited Our common stock is
now traded on the Pink Sheets® LLC over the counter market, which provides
significantly less liquidity than a securities exchange (such as the American or New
York Stock Exchange) or an automated quotation system (such as the Nasdaq National
Market or SmallCap Market). Often there is currently a limited volume of trading in
our common stock, and on many days there has been no trading activity at all.
Purchasers of shares of our common stock may find it difficult to resell their shares
at prices quoted in the market or at all.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
     9




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Item 3. Legal Proceedings
    
 Item 4. Submission of Matters to A Vote of Security Holders
  10




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PART II
 
 Item 5.
    
    Market for the Companys Common Stock, Related Shareholder Matters and Issuer Purchases of
Equity Securities
  Bid PriceHigh
    
    LowFiscal year 2006First
    
    $
    .55
    
    
    $
    .35Second
    
    
    .53
    
    
    
    .35Third
    
    
    .80
    
    
    
    .39Fourth
    
    
    1.03
    
    
    
    .55Fiscal year 2005First
    
    
    1.95
    
    
    
    1.25Second
    
    
    1.48
    
    
    
    .65Third
    
    
    1.05
    
    
    
    .59Fourth
    
    
    .66
    
    
    
    .40
    11




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Item 6.
    
    Selected Financial Data Five Year Financial Summary
 Year ended June 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Statement of operations data:Net sales
    
    $
    412,371,000
    
    
    $
    380,864,000
    
    
    $
    371,741,000
    
    
    $
    413,148,000
    
    
    $
    423,881,000Cost of sales
    
    
    390,968,000
    
    
    
    364,091,000
    
    
    
    355,168,000
    
    
    
    393,724,000
    
    
    
    403,792,000Gross profit
    
    
    21,403,000
    
    
    
    16,773,000
    
    
    
    16,573,000
    
    
    
    19,424,000
    
    
    
    20,089,000Selling, general and administrative expenses
    
    
    17,958,000
    
    
    
    17,195,000
    
    
    
    18,536,000
    
    
    
    24,961,000
    
    
    
    20,628,000Depreciation and amortization expense
    
    
    422,000
    
    
    
    868,000
    
    
    
    1,233,000
    
    
    
    1,614,000
    
    
    
    2,081,000Foreign currency transaction loss (gain)
    
    
    512,000
    
    
    
    (244,000
    )
    
    
    14,000
    
    
    
    581,000
    
    
    
    (9,000
    )Loss (gain) on disposal of assets
    
    
    
    
    
    
    31,000
    
    
    
    (30,000
    )
    
    
    (3,000
    )
    
    
    13,000Impairment charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,000
    
    
    
    Operating (loss) income
    
    
    2,511,000
    
    
    
    (1,077,000
    )
    
    
    (3,180,000
    )
    
    
    (7,768,000
    )
    
    
    (2,624,000
    )Interest expense  net
    
    
    1,389,000
    
    
    
    691,000
    
    
    
    246,000
    
    
    
    470,000
    
    
    
    265,000Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,513,000
    
    
    
    Income (loss) before income taxes and
cumulative effect of a change in accounting
principle and discontinued operations
    
    
    1,122,000
    
    
    
    (1,768,000
    )
    
    
    (3,426,000
    )
    
    
    2,275,000
    
    
    
    (2,889,000
    )Income tax expense (benefit)
    
    
    931,000
    
    
    
    680,000
    
    
    
    801,000
    
    
    
    613,000
    
    
    
    (1,390,000
    )Income (loss) from continuing operations
    
    
    191,000
    
    
    
    (2,448,000
    )
    
    
    (4,227,000
    )
    
    
    1,662,000
    
    
    
    (1,499,000
    )Gain (loss) from discontinued operations
    
    
    193,000
    
    
    
    (154,000
    )
    
    
    (42,000
    )
    
    
    (4,742,000
    )
    
    
    (3,009,000
    )Income (loss) before cumulative effect of a
change in accounting principle
    
    
    384,000
    
    
    
    (2,602,000
    )
    
    
    (4,269,000
    )
    
    
    (3,080,000
    )
    
    
    (4,508,000
    )Cumulative effect of a change in accounting
principle, net of income tax benefit of
$75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,297,000Net income (loss)
    
    $
    384,000
    
    
    $
    (2,602,000
    )
    
    $
    (4,269,000
    )
    
    $
    (3,080,000
    )
    
    $
    (10,805,000
    )Basic and diluted Income (loss)
per share:From continuing operations
    
    $
    .05
    
    
    $
    (.63
    )
    
    $
    (1.10
    )
    
    $
    0.43
    
    
    $
    (0.39
    )From discontinued operations
    
    
    .05
    
    
    
    .04
    
    
    
    (0.01
    )
    
    
    (1.24
    )
    
    
    (0.78
    )Before cumulative effect of a change in
accounting principle
    
    
    .10
    
    
    
    (.67
    )
    
    
    (1.11
    )
    
    
    (0.81
    )
    
    
    (1.17
    )Cumulative effect of a change in accounting
principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.63
    )Basic and diluted income (loss) per share
    
    $
    .10
    
    
    $
    (.67
    )
    
    $
    (1.11
    )
    
    $
    (0.81
    )
    
    $
    (2.80
    )Weighted average number of shares outstanding:Basic
    
    
    3,872,000
    
    
    
    3,871,000
    
    
    
    3,856,000
    
    
    
    3,816,000
    
    
    
    3,862,000Diluted
    
    
    3,884,000
    
    
    
    3,871,000
    
    
    
    3,856,000
    
    
    
    3,816,000
    
    
    
    3,862,000
 At June 30,2006
    
    2005
    
    2004
    
    2003
    
    2002Balance sheet data:Working capital
    
    $
    20,528,000
    
    
    $
    20,632,000
    
    
    $
    22,001,000
    
    
    $
    25,514,000
    
    
    $
    24,063,000Total assets
    
    
    75,315,000
    
    
    
    70,783,000
    
    
    
    69,219,000
    
    
    
    86,170,000
    
    
    
    80,562,000Shareholders equity
    
    
    21,469,000
    
    
    
    21,823,000
    
    
    
    23,606,000
    
    
    
    27,716,000
    
    
    
    27,852,000
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   12




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
    
    Continuation of distribution agreements SED operates under formal but
cancelable distribution agreements with certain of its suppliers. If these agreements
were cancelled, SED would be forced to obtain its products through wholesalers. This
would reduce SEDs profit margin on the affected products.
    
    Availability of certain products From time to time, due to production
limitations or heavy demand, SED may only be able to purchase a limited amount of
popular products from its suppliers.
    
    Product margins SED operates in a very competitive business environment.
Accordingly, product margins are continually under pricing pressure. From time to time,
SED receives price protection and other considerations from its vendors. While SED has
no reason to believe such vendor consideration will not continue, no assurance can be
given that such price protection and other considerations will continue to be received
in the future.
    
    Vendor credit SED significantly relies on its suppliers for trade credit.
Changes by the suppliers in their credit terms could force SED to obtain less favorable
financing for its purchases.
    
    Product obsolescence SED offers a broad line of products that are subject to
fast technological obsolescence, which increases the risk of inventory markdown. Through
its vendor agreements, SED has certain stock return privileges, which vary from supplier
to supplier. SED believes stock return programs will continue in the future, but can
give no assurance about whether these programs will continue.
    
    Consumer Electronics SED has entered into the distribution of consumer
electronics, which is highly competitive. Some of SEDs competitors have substantially
greater financial, marketing and distribution resources than SED and SED may be unable to
successfully compete with these companies. Failure to successfully penetrate this market
could have an adverse impact on SEDs cash flows, financial position and operating
results.
    
    Credit decisions and losses SED maintains an experienced customer credit staff
and relies on customer payment history and third party data to make customer credit
decisions. Nevertheless, SED may experience customer credit losses in excess of its
expectations. SED maintained credit insurance for customers located in the United States
through February 1, 2004 and maintains insurance in many Latin American countries
(subject to certain terms and conditions). However, the terms of the credit insurance
agreement require SED to maintain certain minimum standards and policies with respect to
extending credit to customers. If SED does not adhere to such policies, the insurance
companies may not pay claims submitted by SED.
    
    Proportionate control of general and administrative costs SED attempts to
control its overhead costs to keep such costs in line with its sales volume. As sales
volumes fluctuate, SED must continually monitor its overhead costs and make adjustments
timely and appropriately.
 13




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##### Table of Contents




    
    Uncertain and possibly volatile economic and political environment in Latin America
  The general economic and political environment in the countries in which SED operates
in Latin America is uncertain and, at times, volatile. As a result of these conditions,
SED could experience unexpected costs from its operations in these countries.
    
    Availability of credit facilities SED operates under a formal credit facility
with a bank obtained in September 2005 that is subject to certain collateral limitations
and certain covenants. SED from time to time has violated the financial covenants
associated with previous credit agreements, but was successful in negotiating waivers of
such violations. No assurance can be given that SED will be able to maintain compliance
with financial covenants, or obtain waivers in the event of non-compliance, in the
future. Failure to maintain compliance with the financial covenants could adversely
affect SEDs ability to obtain vendor credit and the overall business operations. The
principal credit facility, which expires in October 2008, is further described in Note 4
to SEDs Consolidated Financial Statements.
    
    Cash flows While not presently anticipated, SEDs continued operation in Latin
America may require additional capital infusion in the form of loans from the parent
company or other debt borrowings by the subsidiary. The September 2005 credit facility
places certain restrictions on the future funding of Latin American operations (see Note
4).
  Results of Continuing Operations
  Year Ended June 30,2006
    
    
    2005
    
    
    2004Net sales
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %Cost of sales, including buying and occupancy expense
    
    
    94.81
    %
    
    
    95.60
    %
    
    
    95.54
    %Gross profit
    
    
    5.19
    %
    
    
    4.40
    %
    
    
    4.46
    %Selling, general and administrative expenses
    
    
    4.35
    %
    
    
    4.51
    %
    
    
    4.99
    %Depreciation and amortization expense
    
    
    .10
    %
    
    
    .23
    %
    
    
    0.33
    %Foreign currency transactions loss (gain)
    
    
    .13
    %
    
    
    (.06
    )%
    
    
    Operating income (loss)
    
    
    .61
    %
    
    
    (.28
    )%
    
    
    (0.86
    )%Interest expense, net
    
    
    .34
    %
    
    
    .18
    %
    
    
    0.06
    %Income (loss) from continuing operations before income taxes
    
    
    .27
    %
    
    
    (.46
    )%
    
    
    (0.92
    )%Income tax expense
    
    
    .22
    %
    
    
    .18
    %
    
    
    .22
    %Income(loss) from continuing operations
    
    
    .05
    %
    
    
    (.64
    )%
    
    
    (1.14
    )%
 Fiscal 2006 Compared to Fiscal 2005
  14




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##### Table of Contents



Year EndedJune 30,
    
    
    Change2006
    
    
    2005
    
    
    Amount
    
    
    Percent($ in Millions)United States:Domestic
    
    $
    271.8
    
    
    $
    267.5
    
    
    $
    4.3
    
    
    
    1.6
    %Export
    
    
    64.1
    
    
    
    59.5
    
    
    
    4.6
    
    
    
    7.7
    %Latin America
    
    
    76.5
    
    
    
    53.9
    
    
    
    22.6
    
    
    
    41.9
    %Consolidated
    
    $
    412.4
    
    
    $
    380.9
    
    
    $
    31.5
    
    
    
    8.3
    %
        15




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##### Table of Contents



Fiscal 2005 Compared to Fiscal 2004
  Year EndedJune 30,
    
    
    Change2005
    
    
    2004
    
    
    Amount
    
    
    Percent($ in Millions)United States:Domestic
    
    $
    267.5
    
    
    $
    265.7
    
    
    $
    1.8
    
    
    
    .7
    %Export
    
    
    59.5
    
    
    
    60.0
    
    
    
    (.5
    )
    
    
    (.8
    )%Latin America
    
    
    53.9
    
    
    
    46.0
    
    
    
    7.9
    
    
    
    17.2
    %Consolidated
    
    $
    380.9
    
    
    $
    371.7
    
    
    $
    9.2
    
    
    
    2.5
    %
         16




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##### Table of Contents



Discontinued Operations
     Quarterly Data
  Quarter EndedSept 30,
    
    
    Dec 31,
    
    
    Mar 31,
    
    
    June 30,
    
    
    Sept 30,
    
    
    Dec 31,
    
    
    Mar 31,
    
    
    June 30,2004
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2006
    
    
    2006(In thousands, except per share data)Net sales
    
    $
    90,695
    
    
    $
    96,854
    
    
    $
    96,207
    
    
    $
    97,108
    
    
    $
    102,298
    
    
    $
    102,986
    
    
    $
    109,557
    
    
    $
    97,530Gross profit
    
    
    4,227
    
    
    
    4,383
    
    
    
    4,179
    
    
    
    3,984
    
    
    
    4,484
    
    
    
    5,275
    
    
    
    5,666
    
    
    
    5,978Operating income (loss)
    
    
    (127
    )
    
    
    194
    
    
    
    (661
    )
    
    
    (483
    )
    
    
    1
    
    
    
    756
    
    
    
    1,069
    
    
    
    685Income (loss) from continuing
operations
    
    
    (328
    )
    
    
    (124
    )
    
    
    (1,064
    )
    
    
    (932
    )
    
    
    (459
    )
    
    
    158
    
    
    
    441
    
    
    
    51Income (loss) from discontinued
operations
    
    
    (38
    )
    
    
    (32
    )
    
    
    (18
    )
    
    
    (66
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    200Net income(loss)
    
    $
    (366
    )
    
    $
    (156
    )
    
    $
    (1,082
    )
    
    $
    (998
    )
    
    $
    (466
    )
    
    $
    158
    
    
    $
    441
    
    
    $
    251Income (loss) per share:From continuing operations
    
    $
    (.08
    )
    
    $
    (.03
    )
    
    $
    (.28
    )
    
    $
    (.24
    )
    
    $
    (.12
    )
    
    $
    .04
    
    
    $
    .11
    
    
    $
    .02From discontinued operations
    
    $
    (.01
    )
    
    $
    (.01
    )
    
    
    
    
    
    $
    (.02
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    .05
 Debt Obligations and Contractual Obligations
  Payments Due By PeriodContractual Obligations
    
    TOTAL
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Operating Leases
    
    $
    2,614,000
    
    
    $
    958,000
    
    
    $
    741,000
    
    
    $
    652,000
    
    
    $
    263,000Credit Facility
    
    
    17,532,000
    
    
    
    17,532,000
    
    
    
    
    
    
    
    
    
    
    
    $
    20,146,000
    
    
    $
    18,490,000
    
    
    $
    741,000
    
    
    $
    652,000
    
    
    $
    263,000
 17




---



##### Table of Contents



Off-Balance Sheet Arrangements
   Liquidity and Capital Resources
       18




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##### Table of Contents



19




---



##### Table of Contents



Critical Accounting Policies and Estimates
 Allowance for Doubtful Accounts  Methodology
  Inventories  Slow Moving , Obsolescence, and Lower of Cost or Market
  Accrued Liabilities
  Financial Instruments
    Inflation and Price Levels
  20




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
  Foreign Currency Exchange
     21




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 
 Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Shareholders
SED International Holdings, Inc. and Subsidiaries
    /s/ J.H. Cohn LLP 
 22




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     /s/ Ernst & Young LLP 
 23




---



##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 June 30,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,426,000
    
    
    $
    3,082,000Trade
accounts receivable, less allowance for doubtful accounts of $437,000 (2006) and $535,000 (2005)
    
    
    33,584,000
    
    
    
    30,759,000Inventories, net
    
    
    32,720,000
    
    
    
    33,812,000Deferred income taxes, net
    
    
    58,000
    
    
    
    62,000Other current assets
    
    
    3,586,000
    
    
    
    1,877,000Total current assets
    
    
    74,374,000
    
    
    
    69,592,000Property and equipment, net
    
    
    941,000
    
    
    
    1,191,000Total assets
    
    $
    75,315,000
    
    
    $
    70,783,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    31,480,000
    
    
    $
    30,505,000Accrued and other current liabilities
    
    
    4,834,000
    
    
    
    4,865,000Revolving credit facility
    
    
    17,532,000
    
    
    
    13,590,000Total liabilities
    
    
    53,846,000
    
    
    
    48,960,000Commitments and contingenciesShareholders equity:Preferred stock, $1.00 par value; 129,500 shares
authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000,000 shares authorized, 5,583,347
(2006) and 5,576,538 (2005) shares issued, 3,888,856 (2006) and 3,885,837
(2005) shares outstanding
    
    
    56,000
    
    
    
    56,000Additional paid-in capital
    
    
    68,584,000
    
    
    
    68,595,000Accumulated deficit
    
    
    (29,596,000
    )
    
    
    (29,980,000
    )Accumulated other comprehensive loss
    
    
    (4,488,000
    )
    
    
    (3,732,000
    )Treasury stock, 1,694,491 (2006) and 1,690,701 (2005) shares, at cost
    
    
    (13,087,000
    )
    
    
    (13,083,000
    )Unearned compensation  stock awards
    
    
    
    
    
    
    (33,000
    )Total shareholders equity
    
    
    21,469,000
    
    
    
    21,823,000Total liabilities and shareholders equity
    
    $
    75,315,000
    
    
    $
    70,783,000
  24




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##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Year Ended June 30,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    412,371,000
    
    
    $
    380,864,000
    
    
    $
    371,741,000Cost of sales
    
    
    390,968,000
    
    
    
    364,091,000
    
    
    
    355,168,000Gross profit
    
    
    21,403,000
    
    
    
    16,773,000
    
    
    
    16,573,000Selling, general and administrative expenses,
excluding depreciation and amortization expense
(including
$1,000,000 to a related party in 2004)
    
    
    17,958,000
    
    
    
    17,195,000
    
    
    
    18,536,000Depreciation and amortization expense
    
    
    422,000
    
    
    
    868,000
    
    
    
    1,233,000Foreign currency transactions loss (gain)
    
    
    512,000
    
    
    
    (244,000
    )
    
    
    14,000Loss (gain) on disposal of assets
    
    
    
    
    
    
    31,000
    
    
    
    (30,000
    )Operating income (loss)
    
    
    2,511,000
    
    
    
    (1,077,000
    )
    
    
    (3,180,000
    )Interest expense  net of interest income of
$220,000 in 2004
    
    
    1,389,000
    
    
    
    691,000
    
    
    
    246,000Income (loss) before income taxes and
discontinued operations
    
    
    1,122,000
    
    
    
    (1,768,000
    )
    
    
    (3,426,000
    )Income tax expense
    
    
    931,000
    
    
    
    680,000
    
    
    
    801,000Income (loss) from continuing operations
    
    
    191,000
    
    
    
    (2,448,000
    )
    
    
    (4,227,000
    )Gain (loss) from discontinued operations
    
    
    193,000
    
    
    
    (154,000
    )
    
    
    (42,000
    )Net income (loss)
    
    $
    384,000
    
    
    $
    (2,602,000
    )
    
    $
    (4,269,000
    )Basic and diluted income (loss) income per share:From continuing operations
    
    $
    .05
    
    
    $
    (.63
    )
    
    $
    (1.10
    )From discontinued operations
    
    
    .05
    
    
    
    (.04
    )
    
    
    (0.01
    )Basic and diluted income (loss) per share
    
    $
    .10
    
    
    $
    (.67
    )
    
    $
    (1.11
    )Weighted average number of shares outstanding:Basic
    
    
    3,872,000
    
    
    
    3,871,000
    
    
    
    3,856,000Diluted
    
    
    3,884,000
    
    
    
    3,871,000
    
    
    
    3,856,000
  25




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##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    TotalPar
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    Compensation
    
    
    StockholdersShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Shares
    
    
    Cost
    
    
    Stock Awards
    
    
    EquityBALANCE JUNE 30, 2003
    
    
    5,563,206
    
    
    $
    56,000
    
    
    $
    68,442,000
    
    
    $
    (23,109,000
    )
    
    $
    (4,531,000
    )
    
    
    1,687,345
    
    
    $
    (13,052,000
    )
    
    $
    (90,000
    )
    
    $
    27,716,000Amortization of stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,000
    
    
    
    29,000Stock awards cancelled
    
    
    
    
    
    
    
    
    
    
    23,000
    
    
    
    
    
    
    
    
    
    
    
    3,756
    
    
    
    (31,000
    )
    
    
    8,000Stock based compensation
    
    
    
    
    
    
    
    
    
    
    106,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,000Exercise of stock options
    
    
    6,666
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    (400
    )
    
    
    
    
    
    
    
    
    
    
    3,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,269,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,269,000
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,248,000
    )BALANCE JUNE 30, 2004
    
    
    5,569,872
    
    
    
    56,000
    
    
    
    68,574,000
    
    
    
    (27,378,000
    )
    
    
    (4,510,000
    )
    
    
    1,690,701
    
    
    
    (13,083,000
    )
    
    
    (53,000
    )
    
    
    23,606,000Amortization of stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    20,000Stock based compensation
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,000Exercise of stock options
    
    
    6,666
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,602,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,602,000
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,824,000
    )BALANCE JUNE 30, 2005
    
    
    5,576,538
    
    
    
    56,000
    
    
    
    68,595,000
    
    
    
    (29,980,000
    )
    
    
    (3,732,000
    )
    
    
    1,690,701
    
    
    
    (13,083,000
    )
    
    
    (33,000
    )
    
    
    21,823,000Reclassification of unvested
stock awards  adoption of
SFAS 123 (R)
    
    
    
    
    
    
    
    
    
    
    (33,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Stock based compensation
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Treasury shares purchased
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,790
    
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )Exercise of stock options
    
    
    6,668
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,000Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (756,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (756,000
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (372,000
    )BALANCE JUNE 30, 2006
    
    
    5,583,347
    
    
    $
    56,000
    
    
    $
    68,584,000
    
    
    $
    (29,596,000
    )
    
    $
    (4,488,000
    )
    
    
    1,694,491
    
    
    $
    (13,087,000
    )
    
    $
    
    
    
    $
    21,469,000
  26




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##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended June 30,2006
    
    
    2005
    
    
    2004Operating activities:Net income (loss)
    
    $
    384,000
    
    
    $
    (2,602,000
    )
    
    $
    (4,269,000
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    422,000
    
    
    
    868,000
    
    
    
    1,233,000Deferred tax assets
    
    
    4,000
    
    
    
    (2,000
    )
    
    
    Stock compensation
    
    
    20,000
    
    
    
    38,000
    
    
    
    135,000Provision for losses on accounts receivable
    
    
    475,000
    
    
    
    560,000
    
    
    
    1,218,000Gain (loss) on sale of assets
    
    
    
    
    
    
    31,000
    
    
    
    (30,000
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (3,944,000
    )
    
    
    (13,000
    )
    
    
    4,830,000Other receivable
    
    
    
    
    
    
    500,000
    
    
    
    9,529,000Inventories ,net
    
    
    452,000
    
    
    
    (3,053,000
    )
    
    
    2,911,000Other assets
    
    
    (2,086,000
    )
    
    
    238,000
    
    
    
    (340,000
    )Trade accounts payable
    
    
    1,912,000
    
    
    
    (215,000
    )
    
    
    (7,538,000
    )Accrued and other current liabilities
    
    
    337,000
    
    
    
    (48,000
    )
    
    
    (3,539,000
    )Net cash (used in) provided by operating
activities
    
    
    (2,024,000
    )
    
    
    (3,698,000
    )
    
    
    4,140,000Investing activities:Purchase of equipment
    
    
    (182,000
    )
    
    
    (463,000
    )
    
    
    (603,000
    )Net cash used in investing activities
    
    
    (182,000
    )
    
    
    (463,000
    )
    
    
    (603,000
    )Financing activities:Net proceeds from issuance of stock
    
    
    2,000
    
    
    
    3,000
    
    
    
    3,000Net borrowings (repayments) under revolving credit
facility
    
    
    3,942,000
    
    
    
    2,742,000
    
    
    
    (1,975,000
    )Net repayments of short-term bank debt of foreign
subsidiaries
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Purchase of treasury stock
    
    
    (4,000
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    3,940,000
    
    
    
    2,745,000
    
    
    
    (1,987,000
    )Effect of exchange rate changes on cash
    
    
    (390,000
    )
    
    
    418,000
    
    
    
    (2,319,000
    )Increase (decrease) in cash and cash equivalents
    
    
    1,344,000
    
    
    
    (998,000
    )
    
    
    (769,000
    )Cash and cash equivalents:Beginning of year
    
    
    3,082,000
    
    
    
    4,080,000
    
    
    
    4,849,000End of year
    
    $
    4,426,000
    
    
    $
    3,082,000
    
    
    $
    4,080,000Supplemental Disclosures of Cash Flow Information 
cash paid during the year for:Interest paid
    
    $
    1,438,000
    
    
    $
    693,000
    
    
    $
    465,000Income tax payments
    
    $
    976,000
    
    
    $
    679,000
    
    
    $
    649,000
  27




---



##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004
 1. Description of Business
    2. Summary of Significant Accounting Policies
 Principles of Consolidation
 Risks and Uncertainties
  
    
    Continuation of distribution agreements The Company operates under formal but
cancelable distribution agreements with certain of its suppliers. If these agreements
were cancelled, the Company would be forced to obtain its products through
wholesalers. This would reduce the Companys profit margin on the affected products.
    
    Availability of certain products From time to time, due to production
limitations or heavy demand, the Company may only be able to purchase a limited amount
of popular products from its suppliers.
    
    Product margins The Company operates in a very competitive business environment.
Accordingly, product margins are continually under pricing pressure. From time to
time, the Company receives price protection and other considerations from its vendors.
While the Company has no reason to believe such vendor consideration will not
continue, no assurance can be given that such price protection and other
considerations will continue to be received in the future.
 28




---



##### Table of Contents




    
    Vendor credit The Company significantly relies on its suppliers for trade
credit. Changes by the suppliers in their credit terms could force the Company to
obtain less favorable financing for its purchases.
    
    Product obsolescence The Company offers a broad line of products that are
subject to fast technological obsolescence, which increases the risk of inventory
markdown. Through its vendor agreements, the Company has certain stock return
privileges, which vary from supplier to supplier. The Company believes stock return
programs will continue in the future, but can give no assurance about whether these
programs will continue.
    
    Consumer ElectronicsThe Company has entered into the distribution of consumer
electronics, which is highly competitive. Some of the Companys competitors have
substantially greater financial, marketing and distribution resources than the Company
and the Company may be unable to successfully compete with these companies. Failure
to successfully penetrate this market could have an adverse impact on the Companys
cash flows, financial position and operating results.
    
    Credit decisions and losses The Company maintains an experienced customer
credit staff and relies on customer payment history and third party data to make
customer credit decisions. Nevertheless, the Company may experience customer credit
losses in excess of its expectations. The Company maintains credit insurance policies
for certain customers located in the United States and select Latin American countries
(subject to certain terms and conditions). However, the terms of the credit insurance
agreement require the Company to maintain certain minimum standards and policies with
respect to extending credit to customers. If the Company does not adhere to such
policies, the insurance companies may not pay claims submitted by the Company.
    
    Proportionate control of general and administrative costs The Company attempts
to control its overhead costs to keep such costs in line with its sales volume. As
sales volumes fluctuate, the Company must continually monitor its overhead costs and
make adjustments timely and appropriately. Failure to control overhead costs could
have an adverse impact on the Companys cash flows, financial position and operating
results.
    
    Uncertain and possibly volatile economic and political environment in Latin America
  The general economic and political environment in both of the countries in which
the Company operates in Latin America is uncertain and, at times, volatile. As a
result of these conditions, the Company could experience unexpected costs from its
operations in these countries.
    
    Availability of credit facilities The Company has operated under a formal credit
facility with a bank for many years that was subject to certain collateral limitations
and contained certain covenants. During September 2005 a new credit facility was
obtained. No assurance can be given that the Company will be able to maintain
compliance with financial covenants, or obtain waivers in the event of non-compliance,
in the future. Failure to maintain compliance with the financial covenants could
adversely affect the Companys ability to obtain vendor credit and the overall
business operations. The principal credit facility, which expires in August 2008, is
further described in Note 4.
    
    Cash flows While not presently expected, the Companys continued operations in
Latin America may require additional capital infusion (in the form of advance notes
from the parent company or other debt borrowings by a subsidiary). The credit facility
restricts the future funding by the parent company of Latin American operations.
Operating needs and regulatory matters may restrict the Companys ability to
repatriate cash flows from the foreign subsidiaries to the United States.
 29




---



##### Table of Contents



Revenue Recognition
 Concentrations of Credit Risk
 Use of Estimates
 Cash Equivalents
 Accounts Receivable
 Allowance for Doubtful Accounts
 Inventories
 Property and Equipment
 30




---



##### Table of Contents



Foreign Currency Translation 
 Income Taxes 
 Earnings Per Common Share (EPS)
 Stock-Based Compensation  Accounting
for Stock Based Compensation issued to Employees
  Year Ended June 30,2005
    
    
    2004Net loss, as reported
    
    $
    (2,602,000
    )
    
    $
    (4,269,000
    )Stock based-compensation included in reported net
income
    
    
    18,000
    
    
    
    106,000Stock based-compensation under fair value reporting
    
    
    (64,000
    )
    
    
    (375,000
    )Pro forma net loss
    
    $
    (2,648,000
    )
    
    $
    (4,538,000
    )Basic and diluted loss per share:As reported
    
    $
    (.67
    )
    
    $
    (1.11
    )Pro forma
    
    $
    (.68
    )
    
    $
    (1.18
    )
 31




---



##### Table of Contents



2005
    
    2004Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    80.2
    %
    
    
    75.7
    %Risk free interest rate
    
    
    3.6
    %
    
    
    3.5
    %Expected life, in years
    
    
    5.0
    
    
    
    6.4
 Reclassification
 3. Property and Equipment
  June 30,2006
    
    
    2005Furniture and equipment
    
    $
    10,407,000
    
    
    $
    10,316,000Leasehold improvements
    
    
    2,109,000
    
    
    
    2,093,000Other
    
    
    119,000
    
    
    
    119,00012,635,000
    
    
    
    12,528,000Less accumulated depreciation and amortization
    
    
    11,694,000
    
    
    
    11,337,000$
    941,000
    
    
    $
    1,191,000
  4. Credit Facilities
   32




---



##### Table of Contents



5. Income Taxes
  June 30,2006
    
    
    2005Net deferred tax assets (liabilities):U.S. federal and state operating loss carry-forwards
    
    $
    22,810,000
    
    
    $
    22,758,000Unremitted foreign earnings
    
    
    (2,794,000
    )
    
    
    (2,737,000)Translation gain/loss on unremitted foreign earnings
    
    
    1,704,000
    
    
    
    1,416,000Depreciation and amortization
    
    
    210,000
    
    
    
    226,000Allowance for accounts receivable
    
    
    145,000
    
    
    
    182,000Inventories
    
    
    486,000
    
    
    
    494,000Allowance for sales returns
    
    
    25,000
    
    
    
    19,000Employee benefits and compensation
    
    
    20,000
    
    
    
    25,000Reserves and accruals
    
    
    212,000
    
    
    
    102,000Sales tax
    
    
    11,000
    
    
    
    173,000Stock options
    
    
    78,000
    
    
    
    83,000Available tax credits
    
    
    328,000
    
    
    
    328,000Other
    
    
    102,000
    
    
    
    146,00023,337,000
    
    
    
    23,215,000Valuation allowance
    
    
    (23,279,000
    )
    
    
    (23,153,000
    )Total
    
    $
    58,000
    
    
    $
    62,000
   Year Ended June 30,2006
    
    
    2005
    
    
    2004United States
    
    
    (1,011,000
    )
    
    
    (3,682,000
    )
    
    
    (5,572,000
    )Foreign
    
    
    2,133,000
    
    
    
    1,914,000
    
    
    
    2,146,000Total
    
    $
    1,122,000
    
    
    $
    (1,768,000
    )
    
    $
    (3,426,000
    )
 33




---



##### Table of Contents



Year Ended June 30,2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    6,000State
    
    
    6,000
    
    
    
    (3,000
    )
    
    
    18,000Foreign
    
    
    921,000
    
    
    
    685,000
    
    
    
    703,000927,000
    
    
    
    682,000
    
    
    
    727,000Deferred:Foreign
    
    
    4,000
    
    
    
    (2,000
    )
    
    
    74,0004,000
    
    
    
    (2,000
    )
    
    
    74,000$
    931,000
    
    
    $
    680,000
    
    
    $
    801,000
  Year Ended June 30,2006
    
    2005
    
    2004Statutory federal rates (benefit)
    
    
    34.0
    %
    
    
    (34.0
    %)
    
    
    (34.0
    %)State income taxes net of federal income tax benefit
    
    
    7.2
    
    
    
    (7.7)
    
    
    
    0.5Non-deductible Items
    
    
    1.6
    
    
    
    0.9
    
    
    
    Permanent difference true-up
    
    
    1.8
    
    
    
    
    
    
    
    0.4US Tax on unremitted foreign earnings
    
    
    36.8
    
    
    
    138.7
    
    
    
    Valuation allowance
    
    
    (24.0
    )
    
    
    (60.3)
    
    
    
    120.1Brazil net operating loss write-off
    
    
    
    
    
    
    
    
    
    
    119.3Write-off of investment in Brazil
    
    
    
    
    
    
    
    
    
    
    (189.0
    )Foreign taxes in excess of federal statutory Rate
    
    
    17.7
    
    
    
    (1.2)
    
    
    
    1.4Other
    
    
    7.9
    
    
    
    2.1
    
    
    
    4.7Total
    
    
    83.0
    %
    
    
    38.5
    %
    
    
    23.4
    %
  6. Lease Obligations
   Year Ending June 30,2007
    
    $
    958,0002008
    
    
    741,0002009
    
    
    652,0002010
    
    
    263,000$
    2,614,000
 34




---



##### Table of Contents



7. Shareholders Equity
   WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at June 30, 2003
    
    
    800,884
    
    
    $
    2.87
    
    
    
    
    
    
    
    Granted
    
    
    125,000
    
    
    $
    1.81
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (212,950
    )
    
    $
    2.61
    
    
    
    
    
    
    
    Exercised
    
    
    (7,066
    )
    
    $
    .48
    
    
    
    
    
    
    
    Outstanding at June 30, 2004
    
    
    705,868
    
    
    $
    2.69
    
    
    
    
    
    
    
    Granted
    
    
    10,000
    
    
    $
    .79
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (26,000
    )
    
    $
    4.21
    
    
    
    
    
    
    
    Exercised
    
    
    (6,666
    )
    
    $
    .44
    
    
    
    
    
    
    
    Outstanding at June 30, 2005
    
    
    683,202
    
    
    $
    2.69
    
    
    
    
    
    
    
    Exercised
    
    
    (6,668
    )
    
    $
    .44
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (158,625
    )
    
    $
    2.80
    
    
    
    
    
    
    
    Outstanding at June 30, 2006
    
    
    517,909
    
    
    $
    2.60
    
    
    
    5.4
    
    
    $
    31,500Exercisable at June 30, 2004
    
    
    628,604
    
    
    $
    2.88
    
    
    
    
    
    
    
    Exercisable at June 30, 2005
    
    
    652,286
    
    
    $
    2.67
    
    
    
    
    
    
    
    Exercisable at June 30, 2006
    
    
    502,509
    
    
    $
    2.61
    
    
    
    5.3
    
    
    $
    30,460
  35




---



##### Table of Contents



Outstanding OptionsWeightedAverage
    
    Weighted
    
    Exercisable OptionsRemaining
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$0.0000
 $1.0130
    
    
    92,500
    
    
    
    6.7
    
    
    $
    .6395
    
    
    
    79,500
    
    
    $
    0.5969$1.0131  $2.0260
    
    
    257,500
    
    
    
    5.3
    
    
    $
    1.9443
    
    
    
    257,500
    
    
    $
    1.9443$2.0261  $3.0390
    
    
    78,000
    
    
    
    7.5
    
    
    $
    2.4428
    
    
    
    78,000
    
    
    $
    2.4428$5.0651  $6.0780
    
    
    60,584
    
    
    
    3.1
    
    
    $
    5.8800
    
    
    
    60,584
    
    
    $
    5.8800$6.0781  $7.0910
    
    
    5,250
    
    
    
    3.7
    
    
    $
    6.8200
    
    
    
    5,250
    
    
    $
    6.8200$7.0911  $8.1040
    
    
    18,800
    
    
    
    3.7
    
    
    $
    7.8889
    
    
    
    16,400
    
    
    $
    7.8814$9.1171  $10.1300
    
    
    5,275
    
    
    
    1.1
    
    
    $
    10.1120
    
    
    
    5,275
    
    
    $
    10.1120
 Restricted Stock
 Year Ended June 30,2006
    
    2005
    
    2004Shares of restricted stock-beginning of year
    
    
    17,000
    
    
    
    21,250
    
    
    
    48,937Vested
    
    
    (4,250
    )
    
    
    (4,250
    )
    
    
    (23,931
    )Canceled
    
    
    
    
    
    
    
    
    
    
    (3,756
    )Shares of restricted stock-end of year
    
    
    12,750
    
    
    
    17,000
    
    
    
    21,250
  Shareholder Rights Agreement
 8. Employee Benefit Plan
  36




---



##### Table of Contents



9. Segment Information
   United States
    
    Latin America
    
    Eliminations
    
    ConsolidatedFiscal 2006Net sales to unaffiliated customers
    
    $
    335,824,000
    
    
    $
    76,547,000
    
    
    
    
    
    
    $
    412,371,000Gross profit
    
    $
    15,112,000
    
    
    $
    6,291,000
    
    
    
    
    
    
    $
    21,403,000Income from continuing operations
    
    $
    371,000
    
    
    $
    2,140,000
    
    
    
    
    
    
    $
    2,511,000Total assets at year-end
    
    $
    68,555,000
    
    
    $
    19,002,000
    
    
    $
    (12,242,000
    )
    
    $
    75,315,000Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    Net sales to unaffiliated customers
    
    $
    327,006,000
    
    
    $
    53,858,000
    
    
    
    
    
    
    $
    380,864,000Gross profit
    
    $
    12,025,000
    
    
    $
    4,748,000
    
    
    
    
    
    
    $
    16,773,000(Loss) income from continuing
operations
    
    $
    (3,142,000
    )
    
    $
    2,065,000
    
    
    
    
    
    
    $
    (1,077,000
    )Total assets at year-end
    
    $
    87,400,000
    
    
    $
    14,387,000
    
    
    $
    (31,004,000
    )
    
    $
    70,783,000Fiscal 2004
    
    
    
    
    
    
    
    
    
    
    Net sales to unaffiliated customers
    
    $
    325,641,000
    
    
    $
    46,100,000
    
    
    
    
    
    
    $
    371,741,000Gross profit
    
    $
    11,937,000
    
    
    $
    4,636,000
    
    
    
    
    
    
    $
    16,573,000(Loss) income from continuing
operations
    
    $
    (5,244,000
    )
    
    $
    2,064,000
    
    
    
    
    
    
    $
    (3,180,000
    )Total assets at year-end
    
    $
    87,195,000
    
    
    $
    12,856,000
    
    
    $
    (30,860,000
    )
    
    $
    69,191,000
   ConsumerMicrocomputer
    
    Wireless Telephone
    
    Electronics
    
    HandlingYear Ended June 30,
    
    Products
    
    Products
    
    Products
    
    Revenue
    
    Total2006
    
    $
    349,126,000
    
    
    $
    29,508,000
    
    
    $
    32,466,000
    
    
    $
    1,271,000
    
    
    $
    412,371,0002005
    
    $
    310,747,000
    
    
    $
    45,541,000
    
    
    $
    23,374,000
    
    
    $
    1,202,000
    
    
    $
    380,864,0002004
    
    $
    300,761,000
    
    
    $
    67,191,000
    
    
    $
    2,578,000
    
    
    $
    1,211,000
    
    
    $
    371,741,000
  10. Significant Vendors
  37




---



##### Table of Contents



11. Supplemental Disclosures
  Balance at
    
    Charged toBeginning
    
    Costs and
    
    
    
    
    
    Balance atYear Ended June 30,
    
    of Year
    
    Expenses
    
    Deductions (1)
    
    End of Year2006
    
    $
    535,000
    
    
    $
    475,000
    
    
    $
    (573,000
    )
    
    $
    437,0002005
    
    $
    616,000
    
    
    $
    560,000
    
    
    $
    (641,000
    )
    
    $
    535,0002004
    
    $
    2,749,000
    
    
    $
    1,218,000
    
    
    $
    (3,351,000
    )
    
    $
    616,000
 
 (1)
    
    Deductions represent actual write-offs of specific accounts receivable charged
against the allowance account, net of amounts recovered.  Balance at
    
    Charged toBeginning
    
    Costs and
    
    
    
    
    
    Balance atYear Ended June 30,
    
    of Year
    
    Expenses
    
    Deductions (1)
    
    End of Year2006
    
    $
    1,060,000
    
    
    $
    
    
    
    $
    (23,000
    )
    
    $
    1,037,0002005
    
    $
    916,000
    
    
    $
    186,000
    
    
    $
    (42,000
    )
    
    $
    1,060,0002004
    
    $
    1,051,000
    
    
    $
    41,000
    
    
    $
    (176,000
    )
    
    $
    916,000
 
 (1)
    
    Deductions to allowance represent increases or decreases in the valuation allowances
based on the market value of the inventories. 12. Discontinued Operations
      38




---



##### Table of Contents



13. Liabilities Under Employment Agreement and Contingent Liabilities
  Item 14. Legal Proceedings
     39




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   
 Item 9B. Other Information
  40




---



##### Table of Contents



PART III
 
 Item 10. Directors And Executive Officers Of The Company
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership Of Certain Beneficial Owners And Management
  
 Item 13. Certain Relationships And Related Transactions
  
 Item 14. Principal Accounting Fees And Services.
  41




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  Financial Statements.
 
    
    Report of Independent Registered Public Accounting Firm (J.H Cohn, LLP-2006 and 2005)
    
    Report of Independent Registered Public Accounting Firm (Ernst & Young, LLP-2004)
    
    Consolidated Balance Sheets at June 30, 2006 and 2005
    
    Consolidated Statements of Operations for the years ended June 30, 2006, 2005 and 2004
    
    Consolidated Statements of Shareholders Equity for the years ended June 30,
2006, 2005 and 2004
    
    Consolidated Statements of Cash Flows for the years ended June 2006, 2005 and 2004
    
    Notes to Consolidated Financial Statements
 Financial Statement Schedules.
 
    
    Schedule II:Valuation and Qualifying Accounts is filed herewith under
Supplemental Disclosures in Note 11 to the Consolidated Financial Statements.
 Schedules other than the schedule presented are omitted because the information required is not
applicable or the required information is shown in the consolidated financial statements or
notes thereto.
 Exhibits Incorporated by Reference or Filed with this Report.
 ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation of the Company (1).3.2
    
    Amendment to Articles of Incorporation (2).3.3
    
    Bylaws of the Company (3).4.1
    
    Form of Rights Agreement, dated as of October 31, 1996 between the Company and National City
Bank (4).10.7
    
    Southern Electronics Corporation 1988 Restricted Stock Plan, together with related form of
Restricted Stock Agreement (5).10.8
    
    First Amendment dated November 7, 1989 to Southern Electronics Corporation 1988 Restricted Stock
Plan (6).10.9
    
    Second Amendment dated July 17, 1992 to Southern Electronics Corporation 1988 Restricted Stock
Plan (7).10.10
    
    Form of Southern Electronics Corporation 1991 Stock Option Plan, together with related forms of
Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement (8).10.11
    
    First Amendment dated July 17, 1992 to Southern Electronics Corporation 1991 Stock Option Plan
(9).10.12
    
    Second Amendment dated August 30, 1996 to Southern Electronics Corporation 1991 Stock Option
Plan (10).10.14
    
    Employment Agreement dated November 7, 1989, between the Company, SED International and Jean
 42




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ExhibitNumber
    
    DescriptionDiamond (11), as amended by form of Amendment No. 1 dated September 24, 1991 (12).10.23
    
    Form of Non-Qualified Stock Option Agreement for Directors (13).10.24
    
    1995 Formula Stock Option Plan, together with related form of Non-Qualified Stock Option
Agreement (14).10.26
    
    Third Amendment dated September 12, 1996 to the Southern Electronics Corporation Stock Option
Plan (15).10.31
    
    Second Amendment to Employment Agreement effective July 1, 1998 between SED International and
Jean Diamond (16).10.32
    
    1999 Stock Option Plan dated July 20, 1999, together with related forms of Stock Option
Agreement and Restriction Agreement (17).10.33
    
    Third Amendment to Employment Agreement effective December 16, 1998 between SED International
and Jean Diamond (18).10.35
    
    Fourth Amendment to Employment Agreement effective July 1, 1999 between SED International and
Jean Diamond (19).10.38
    
    Form of Indemnification Agreement entered into with each of the directors of the Company and the
Company (20).10.39
    
    Form of Indemnification Agreement entered into with each of the officers of the Company and the
Company (21).10.40
    
    Form of Lease Agreement dated as of April 1, 1999 between Diamond Chip Group, L.L.C. and SED
International (22).10.41
    
    Fourth Amendment to Second Amended and Restated Credit Agreement dated October 12, 2001 between
SED International Holdings, Inc. and Wachovia Bank, N.A. (23).10.42
    
    Employment Agreement effective November 11, 1999 between SED International, Inc. and Barry
Diamond (24).10.43
    
    First Amendment to Employment Agreement effective June 1, 2001 between SED International Inc.
and Barry Diamond (25).10.48
    
    Amendment to Employment Agreement between Jean Diamond and SED International, Inc., dated
September 1, 1999. This amendment is effective as of November 1, 2001(26).10.50
    
    Amendment to Employment Agreement between Barry Diamond and SED International, Inc., dated
September 11, 1999. This amendment is effective as of November 1, 2001(27).10.53
    
    Amendment to Employment Agreement between Jean Diamond and SED International, Inc., dated
September 11, 2002. This amendment is effective as of January 1, 2002 (28).10.55
    
    Employment Agreement effective July 1, 2005 between SED International, Inc. and Jonathan Elster.10.56
    
    Amendment to Employment Agreement between Barry Diamond and SED International, Inc. dated
November 22, 2004.10.57
    
    Lease Agreement dated February 1, 2006 between Zenith LaborNet, Inc. and SED International, Inc.10.58
    
    First Amendment of Lease for 4916 N. Royal Atlanta Drive, Tucker, GA 30084, dated September 19,
2005.10.59
    
    Lease Agreement Extension for 4916 N. Royal Atlanta Drive, Tucker, GA 30084, dated March 20,
2006.10.60
    
    Loan and Security Agreement between SED International, Inc. and Wachovia Bank National
Association, dated September 21, 2005.14
    
    Code of Ethics dated September 2, 2002.21
    
    Subsidiaries of the Company.24
    
    Power of Attorney (see signature page to this Form 10-K).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer.32.1
    
    Section 1350 Certification by Principal Executive Officer.
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ExhibitNumber
    
    Description32.2
    
    Section 1350 Certification by Principal Financial Officer.99.1
    
    Annual report for of the registrant for the fiscal year ended June 30, 2005 (29).99.2
    
    Every proxy statement, form of proxy or other proxy material sent to more than ten of the
registrants security holders with respect to any annual or other meeting of security holders
not previously filed with the Securities and Exchange Commission (29).
 
 1)
    
    Incorporated herein by reference to Exhibit 3.1 from the Companys 1999 Form
10-K.2)
    
    Incorporated herein by reference to Exhibit 3.2 from the Registrants Revised
Definitive Proxy Soliciting Materials filed March 26, 2002 (SEC File No. 000-16345).3)
    
    Incorporated herein by reference to Exhibit 3.3 from the Companys 1999 Form
10-K.4)
    
    Incorporated herein by reference to Exhibit 4.1 from the Companys Current
Report on Form 8-K dated October 30, 1996 (SEC File No. 0-16345).5)
    
    Incorporated herein by reference to Exhibit 10.7 from Companys Annual Report
on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No. 0-16345).6)
    
    Incorporated herein by reference to Exhibit 10.8 from Companys 1990 Form 10-K
(SEC File No. 0-16345).7)
    
    Incorporated herein by reference to Exhibit 10.9 from Companys 1992 Form 10-K
(SEC File No. 0-16345).8)
    
    Incorporated herein by reference to Exhibit 10.10 from Companys Definitive
Supplemental Proxy Statement dated October 18, 1991 (SEC File No. 0-16345).9)
    
    Incorporated herein by reference to Exhibit 10.11 from Companys 1992 Form 10-K
(SEC File No. 0-16345).10)
    
    Incorporated herein by reference to Exhibit 10.12 from Companys Proxy
Statement pertaining to Companys 1995 Annual Meeting of Stockholders dated October 1,
1995 (SEC File No. 0-16345).11)
    
    Incorporated herein by reference to Exhibit 10.14 from Companys Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1989 (SEC File No.
0-16345).12)
    
    Incorporated herein by reference to Exhibit 10.14 from Companys 1991 Form 10-K
(SEC File No. 0-16345).13)
    
    Incorporated herein by reference to Exhibit 10.23 from Companys 1995 Form 10-K
(SEC File No. 0-16345).14)
    
    Incorporated herein by reference to Exhibit 10.24 from Companys Proxy
Statement pertaining to Companys 1995 Annual Meeting of Stockholders dated October 1,
1995 (SEC File No. 0-16345).15)
    
    Incorporated herein by reference to Exhibit 10.26 from Companys Proxy
Statement pertaining to Companys 1996 Annual Meeting of Stockholders dated October 1,
1996 (SEC File No. 0-16345).16)
    
    Incorporated herein by reference to Exhibit 10.31 from Companys 1998 Form
10-K. 44




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17)
    
    Incorporated herein by reference to Exhibit 10.32 from Companys 1999 Form
10-K.18)
    
    Incorporated herein by reference to Exhibit 10.33 from the Companys Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1998 (SEC File No.
0-16345).19)
    
    Incorporated herein by reference to Exhibit 10.35 from Companys 1999 Form
10-K.20)
    
    Incorporated herein by reference to Exhibit 10.38 from Companys 1999 Form
10-K.21)
    
    Incorporated herein by reference to Exhibit 10.39 from Companys 1999 Form
10-K.22)
    
    Incorporated herein by reference to Exhibit 10.40 from Amendment No. 1 to the
Companys Annual Report on Form 10-K/A for the fiscal year ended June 30, 1999 (SEC
File No. 0-16345).23)
    
    Incorporated herein by reference to Exhibit 10.41 from the Registrants (SEC
File No. 000-16345) 2001 Form 10-K.24)
    
    Incorporated herein by reference to Exhibit 10.42 from the Registrants (SEC
File No. 000-16345) 2001 Form 10-K.25)
    
    Incorporated herein by reference to Exhibit 10.43 from the Registrants (SEC
File No. 000-16345) 2001 Form 10-K.26)
    
    Incorporated herein by reference to Exhibit 10.48 from the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2001 (SEC
File No. 000-16345).27)
    
    Incorporated herein by reference to Exhibit 10.50 from the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2001 (SEC
File No. 000-16345).28)
    
    Incorporated herein by reference to Exhibit 10.53 from Companys Annual Report
on Form 10-K for the fiscal year ended June 30, 2002.29)
    
    Supplemental information furnished to the SEC with this Annual Report on Form
10-K filed by the Registrant pursuant to Section 15 (d) of the Securities Exchange Act
of 1934, as amended (the Exchange Act) which shall not be deemed to be filed for
purposed of Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be incorporated by reference into any registration
statement or other document filed under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific reference in such
filing. 
 Supplemental Information to be furnished with Reports Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
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SIGNATURES
  SED International Holdings, Inc.By:
    /s/ LYLE DICKLERLyle DicklerVice President  Finance, Secretary and
Treasurer (principal financial and
accounting officer)  47




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POWER OF ATTORNEY
   /s/ JEAN DIAMOND
    
    Chairman of the BoardJean Diamond
    
    Chief
Executive Officer and Director
(principal executive officer)/s/ LYLE DICKLER
    
    Vice President  Finance,Lyle Dickler
    
    Secretary
and Treasurer (principal
financial and accounting officer)/s/ STEWART I. AARON
    
    DirectorStewart I. Aaron/s/ MELVYN I. COHEN
    
    DirectorMelvyn I. Cohen/s/ JOSEPH SEGAL
    
    DirectorJoseph Segal
 48