##### Table of Contents



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 June 30, 2002
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 0-16345

SED INTERNATIONAL HOLDINGS, INC.

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(Exact name of Company as specified in its charter)


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|-------------------------------------------------------------- |  | ------------------------------------
|GEORGIA                                                        |  | 22-2715444                          
|                                                               |  |                                     
|(State or other jurisdiction
of incorporation or organization) |  | (I.R.S. Employer
Identification No.)
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|4916 North Royal Atlanta Drive, Tucker, Georgia                |  | 30085                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                              
|                                                              
|                                                              
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|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:

COMMON STOCK, $.01 PAR VALUE
(Title of Class)

COMMON STOCK PURCHASE RIGHTS
(Title of Class)

Indicate by check mark whether the Company (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
Company 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 the Companys knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [   ]

The aggregate market value of the voting stock held by nonaffiliates of the
Company was approximately $2.1 million as of October 9, 2002 based upon the
last sale price of the Common Stock as reported on the Nasdaq National Market
on that day.
There were 3,911,016shares of Common Stock, $.01 par value, outstanding at
October 9, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates information by reference from the portions of the
Companys definitive proxy statement for its 2002 annual meeting of
shareholders scheduled to be held on December 11, 2002, which proxy statement
will be filed no later than 120 days after the close of the Companys fiscal
year ended June 30, 2002.

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TABLE OF CONTENTS



|                                                                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                          
|                                                                                                 | Item 1. BUSINESS                                                                             
|                                                                                                 | Item 2. PROPERTIES                                                                           
|                                                                                                 | Item 3. LEGAL PROCEEDINGS                                                                    
|                                                                                                 | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                                                                         
|                                                                                                 | Item 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED SHAREHOLDER MATTERS                
|                                                                                                 | Item 6. SELECTED FINANCIAL DATA FIVE YEAR FINANCIAL SUMMARY                                  
|                                                                                                 | Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                                 | Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                                                                 | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|INDEPENDENT AUDITORS REPORT                                                                    
|SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS                   
|SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS         
|SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|SED INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS         
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                      
|                                                                                                 | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|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                                      
|PART IV                                                                                         
|                                                                                                 | Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                                                                                      
|POWER OF ATTORNEY                                                                               
|CERTIFICATIONS                                                                                  
|LOAN & SECURITY AGMT B/W SED & FLEET CAPITAL                                                    
|AMENDMENT TO EMPLOYMENT AGREEMENT (GERALD DIAMOND)                                              
|AMENDMENT TO EMPLOYMENT AGREEMENT (JEAN DIAMOND)                                                
|AMENDMENT TO THE LOAN AGREEMENT                                                                 
|SUBSIDIARIES OF THE COMPANY                                                                     
|CONSENT OF ERNST & YOUNG                                                                        
|CONSENT OF DELOITTE & TOUCHE LLP                                                                



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##### Table of Contents






PART I




Item 1. BUSINESS



| | (a) |  | General Development of Business
| | --- |  | -------------------------------

SED International Holdings, Inc., a Georgia corporation, and its
wholly-owned operating subsidiary, SED International, Inc., a Georgia
corporation (SED International), were incorporated in 1986 to take over the
operations of the business of the Companys predecessor, Southern
Electronics Distributors, Inc., which was engaged in the wholesale distribution
of consumer electronics products. In fiscal 1999, the Company, formerly a
Delaware corporation, reincorporated as a Georgia corporation. As used herein,
the term Company or the Registrant means SED International Holdings, Inc.
and its subsidiaries, including SED International, unless the context otherwise
indicates.

The Company is a distributor of microcomputer products, including mass
storage products, printers, and other imaging products and wireless products
throughout the United States and Latin America. The Company offers to an
active base of over 6,500 reseller customers a broad inventory of more than
3,500 products from approximately 170 vendors (direct and indirect), including
such market leaders as Hewlett-Packard, Intel, Maxtor, Creative Labs, Acer,
3Com, Toshiba, Envision, and IBM, through a dedicated and highly motivated
sales force. The Company distributes products in the United States from its
strategically located warehouses in Atlanta, Georgia; Miami, Florida; City of
Industry, California; and San Juan, PR. The Company services Latin America
through its wholly-owned subsidiaries SED International do Brasil Ltda. in Sao
Paulo, Brazil; SED International de Colombia Ltda. in Bogota, Colombia and
Intermaco S.R.L. in Buenos Aires, Argentina. The Companys net sales
decreased to $456.4 million in fiscal 2002 from $525.3 million in fiscal 2001,
and the Companys net loss before the cumulative effect of a change in
accounting principle was $4.5 million in fiscal 2002 compared to a net loss of
$5.3 million in fiscal 2001 before impairment changes.

The Company also distributes wireless telephone products in the United
States and to Latin America. The Company is a direct distributor of wireless
telephone products for Audiovox and an indirect distributor for other leading
wireless telephone product vendors such as Motorola, Nokia, and LG Infocomm. In
fiscal 2002, the Companys net sales of microcomputer products generated
approximately 94.7% of the Companys total net sales and wireless telephone
products represented the remaining 5.3%.

The shareholders of the Company approved a one-for-two reverse stock split
in a special meeting of shareholders held on April 26, 2002. As a result of
the reverse split, all holders of the Companys common stock will return their
current share certificates and will receive new certificates which will reduce
the number of shares held on a 1 for 2 basis. The new certificates will have
the same terms as the old certificates. All applicable amounts reflected
herein give retroactive effect to the reverse stock split.

Subsequent to June 30, 2002, the Company terminated its credit facility
with Wachovia Bank, NA, and IBM Global Finance. In October 2002, the Company
entered into a new credit facility with Fleet Capital Corporation which
provides access by the Company to additional credit capacity and liquidity.
Additional information about the agreement with Fleet Capital Corporation may
be found in Liquidity and Capital Resources section of this document.



| | (b) |  | Financial Information about Industry Segments
| | --- |  | ---------------------------------------------

The Company operates in only one business segment.



| | (c) |  | Narrative Description of Business
| | --- |  | ---------------------------------

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Products and Vendors

The Company offers its customers a broad inventory of more than 3,500
products from approximately 170 vendors (direct and indirect), including such
market leaders as Hewlett-Packard, Intel, Maxtor, Creative Labs, Acer, 3Com,
KDS, Envision, Samsung, and Audiovox. The Company is a direct distributor of
wireless telephone products for Audiovox and an indirect distributor for other
leading wireless telephone product vendors such as Motorola, Nokia, and LG
Infocomm. Microcomputer related products accounted for $432.4 million or 94.7%
of the Companys net sales for
fiscal 2002, $491.5 million or 93.6% of net sales in fiscal 2001, and $523.7
million or 85.5% of net sales in fiscal 2000. Approximately $24.0 million or
5.3% of the Companys net sales for fiscal 2002, $33.8 million or 6.4% of
net sales for fiscal 2001, and $88.5 million or 14.5% of net sales for fiscal
2000, consisted of wireless handsets and accessories. The Company
continually evaluates its product mix and inventory levels and maintains
flexibility by adjusting its product offerings based on demand. The
Companys vendors generally warrant the products distributed by the
Company and allow the return of defective products. Generally, the
Companys authorized distributor agreements with its microcomputer and
wireless telephone products vendors permit the Company to sell these
vendors products in the United States and in designated countries in Latin
America.

As a distributor, the Company incurs the risk that the value of its
inventory will be affected by industry-wide forces. Rapid technological change
is commonplace in the microcomputer and wireless industries and can quickly
diminish the marketability of certain items, whose functionality and demand
decline with the appearance of new products. These changes, coupled with price
reductions by vendors, may cause rapid obsolescence of inventory and
corresponding valuation reductions in that inventory. Accordingly, the
Company seeks provisions in its vendor agreements common to industry
practice which provide price protections or credits for declines in inventory
value and the right to return unsold inventory. No assurance can be given,
however, that the Company can negotiate such provisions in each of its
contracts or that such industry practice will continue.

The Company purchases goods from approximately 170 vendors (directly
and indirectly) and has negotiated favorable terms from certain vendors by
purchasing a substantial volume of those vendors products. In fiscal 2002,
2001, and 2000, Maxtor accounted for 37.5%, 23.1%, and 9.7%, respectively, and
Hewlett Packard accounted for 11.9%, 14.6% and 18.7%, respectively, of the
Companys purchases.

There can be no assurance that the Company will be able to maintain its
existing vendor relationships or secure additional vendors as needed. The
Companys vendor relationships typically are non-exclusive and subject to
annual renewal, terminable by either party on short notice, and contain
territorial restrictions that limit the countries in which the Company is
permitted to distribute the products. The loss of a major vendor, the
deterioration of the Companys relationship with a major vendor, the loss or
deterioration of vendor support for certain Company-provided services, the
decline in demand for a particular vendors product, or the failure of the
Company to establish good relationships with major new vendors or other
Virtual Vendor Model distributors could have a material adverse effect on the
Companys business, financial condition and results of operations.

Product orders typically are processed and shipped from the Companys
distribution facilities on the same day an order is received or, in the case of
orders received after customary cutoff time, on the next business day. The
Company relies almost entirely on arrangements with independent shipping
companies for the delivery of its products to United States customers. Products
sold within the Latin American markets are either picked up by the customer, or
delivered to the customers or their agents from the Companys Sao Paulo,
Brazil; Bogota, Colombia and Buenos Aires, Argentina facilities. Generally,
the Companys inventory level of products has been adequate to permit the
Company to be responsive to its customers purchase requirements. From time
to time, however, the Company experiences temporary shortages of certain
products as its vendors experience increased demand or manufacturing
difficulties with respect to their products, resulting in smaller allocations
of such products to the Company.

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Sales and Marketing

The Companys sales are generated by a telemarketing sales force,
which, on June 30, 2002, consisted of approximately 145 people in sales offices
located in Atlanta, Georgia; Miami, Florida; City of Industry, California;
San Juan, Puerto Rico, Sao Paulo, Brazil; Bogota, Colombia and Buenos Aires,
Argentina. Of the total number of salespersons on June 30, 2002, 69 people
focused on sales to customers for export to Latin America and on sales in
Brazil, Colombia and Argentina. Substantially all of the export and Latin
American based salespeople are fluent in Spanish or Portuguese. The
Companys Atlanta sales office maintains a separate telemarketing sales
force for the sale of wireless telephone products to retailers and wireless
telephone carriers and their authorized agents located throughout the United
States and Latin America.

Members of the sales staff are trained through intensive in-house sales
training programs, along with vendor-sponsored product seminars. This training
allows sales personnel to provide customers with product information and to use
their marketing expertise to answer customers questions about important new
product considerations, such as compatibility and capability, while offering
advice on which products meet specific performance and price criteria. The
Companys salespeople are able to analyze quickly the Companys extensive
inventory through a sophisticated management information system and recommend
the most appropriate cost-effective systems and hardware for each customer,
whether that customer is a full-line retailer or an industry-specific reseller.

The Companys domestic sales force is organized in teams generally
consisting of two to four people. The Company believes that teams provide
superior customer service because customers can contact one of several people.
Moreover, the long-term nature of the Companys customer relationships is
better served by teams that increase the depth of the relationship and improve
the consistency of service. It has been the Companys experience that the
team approach results in superior customer service and better employee morale.

Compensation incentives are provided to the Companys salespeople, thus
encouraging them to increase their product knowledge and to establish long-term
relationships with existing and new customers. Customers can telephone their
salespersons using a toll-free number provided by the Company. In addition,
salespeople initiate calls to introduce the Companys existing customers to
new products and to solicit orders. Salespeople also seek to develop new
customer relationships by using targeted mailing lists, vendor leads and
telephone directories of various cities.

The telemarketing salespersons are supported by a variety of marketing
programs. For example, the Company regularly sponsors shows for its
resellers where it demonstrates new product offerings and discusses industry
developments. Also, the Companys in-house marketing staff prepares catalogs
that list available microcomputer and wireless telephone products and routinely
produces marketing materials and advertisements. In addition, the in-house
marketing staff promotes products and services through the Companys
Internet web page (www.sedonline.com) providing 24-hour access to on-line order
entry. The Companys web page provides customers secured access to place
orders and review product specifications at times that are convenient to them.
Customers also can determine on a real-time basis inventory availability,
pricing, and verify the status of previously placed orders through hyperlinks
to certain independent shipping companies.

The Company prides itself on being service oriented and has a number of
on-going value-added services intended to benefit both the Companys vendors
and reseller customers. For example, the Company is committed to training
its salespeople to be technically knowledgeable about the products they sell.
This core competency supplements the sophisticated technical support and
configuration services also provided by the Company. The Company
believes that its salespersons ability to listen to a resellers needs and
recommend a cost-efficient solution strengthens the relationship between the
salesperson and his or her reseller and promotes customer loyalty to the
Company. In addition, the Company provides such other value-added
services as new product demonstrations and technical education programs for
resellers, order fulfillment and electronic ordering, and informational
assistance through the Companys web page (www.sedonline.com).

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Management continually evaluates the Companys product mix and the
needs of its customers in order to minimize inventory obsolescence and carrying
costs. The Companys rapid delivery terms are available to all of its
customers, and the Company seeks to pass through its shipping and handling
costs to its customers.

The Company offers various credit terms including open account, prepay,
credit card, and COD to qualifying customers. The Company closely monitors
customers creditworthiness through its on-line computer system, which contains
detailed information on each customers payment history and other relevant
information. In addition, the Company participates in national and
international credit associations that exchange credit rating information on
customers. The Company establishes reserves for estimated credit losses in
the normal course of business.

Customers

The Company serves an active, nonexclusive customer base of over 6,500
resellers of microcomputer and wireless handset products. Resellers include
value-added resellers, corporate resellers and retailers. The Company
believes the multi-billion dollar microcomputer and wireless telephone
wholesale distribution industries serve customers primarily on a nonexclusive
basis, which provides the Company with significant growth opportunities.
During fiscal 2002, no single customer accounted for more than 11% of the total
company net sales of the Company. The Company believes that most of its
customers rely on distributors as their principal source of microcomputer and
wireless telephone products.

Competition

The microcomputer and wireless telephone distribution industries are
highly competitive, both in the United States and in Latin America.
Competition in these industries is typically characterized by pricing
pressures, product availability and potential obsolescence, speed and accuracy
of delivery, effectiveness of sales and marketing programs, credit
availability, ability to tailor specific solutions to customer needs, quality
of product lines and services, and availability of technical support and
product information. Additionally, the Companys ability to compete
favorably is principally dependent upon its ability to manage inventory and
accounts receivable and to control other operating costs. Successful
management of the Company also requires the Company to react quickly and
appropriately to short and long-term trends, price its products competitively,
increase its net sales and maintain economies of scale.

The Companys competitors include regional, national and international
microcomputer and wireless distributors, many of which have substantially
greater technical, financial and other resources than the Company, as well
as vendors that sell directly to resellers and large resellers that sell to
other resellers. Major competitors include Ingram Micro, Inc., Tech Data
Corporation, D&H, ASI, Brightpoint, Inc., Cellstar Corporation, and Synnex
Information Technologies, Inc. in the United States; and Tech Data Corporation,
Ingram Mico, Inc., and Intcomex Holdings, L.L.C. in Latin America. From time
to time, these competitors may be used as vendors.

Seasonality

The Companys sales currently are not subject to material seasonal
fluctuations although no assurance can be given that seasonal fluctuations will
not develop, especially during the holiday season in the United States and
Latin America. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Quarterly Data; Seasonality.

Employees

As of June 30, 2002, the Company had 372 full-time employees, 145 of
whom were engaged in telemarketing and sales, 167 in administration and 60 in
warehouse management and shipping. Management believes the Companys
relations with its employees are good and the Company has never experienced
a strike or work stoppage. With the exception of the Brazilian
operations, there is no collective bargaining agreement covering
any of the Companys employees.

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Financial Information about Foreign and Domestic Operations and Export Sales

During the fiscal year ended June 30, 1998, the Company began selling
directly to customers in Brazil and Colombia through the Companys
facilities in Sao Paulo, Brazil and Bogota, Colombia. During the fiscal year
ended June 30, 1999, the Company also began selling directly to customers in
Argentina through the Companys facilities in Buenos Aires. Sales are
denominated in the respective local currencies of these countries. For the
fiscal year ended June 30, 2002, 2001 and 2000, approximately 31.8%, 43.7% and
44.2%, respectively, of the Companys net sales were to customers for export
principally into Latin America and direct sales to customers in Brazil,
Colombia and Argentina. See Notes 11 and 15 to the consolidated financial
statements of the Company for additional information concerning the
Companys domestic and foreign operations.




Item 2. PROPERTIES

The Company maintains its executive offices at 4916 North Royal Atlanta
Drive in Atlanta, Georgia, where 53 of its sales employees are also located.
The Company leases its executive, administrative and sales office from
Diamond Chip Group, L.L.C., a Georgia limited liability company comprised of
certain minority shareholders and officers of the Company, previously doing
business as Royal Park Company, a Georgia general partnership. The lease
commenced in April 1999 and expires in September 2006. The facility consists
of approximately 30,000 square feet, with an annual rental of approximately
$277,000 effective October 1, 2002, with annual increases of three percent
through September 30, 2006. The Company has a right of first refusal to
purchase the facility should it be offered for sale. The Company believes
that the lease of its executive offices is on terms no less favorable than
those available from unaffiliated parties.

The Company maintains warehouse facilities in Atlanta, Georgia; City of
Industry, California; Miami, Florida, San Juan Puerto Rico; Sao Paulo, Brazil
(via an agency relationship with Coimex Logistica Integrada S.A.); Bogota,
Colombia and Buenos Aires, Argentina. The Companys distribution facility
in Atlanta, Georgia consists of approximately 100,000 square feet subject to a
lease expiring January 31, 2004. Rental payments for this facility are
approximately $290,000 per annum. The Company believes there is sufficient
additional warehouse and sales office space available for lease at reasonable
prices near its principal facility in the event the Companys growth plans
so require.

The Company leases its sales and distribution facility in Miami,
Florida under a lease expiring March 31, 2004. This facility consists of
approximately 61,000 square feet at an annual rental of approximately $462,000
effective April 1, 2002 and increasing to $478,800 effective April 1, 2003.

The Company also leases an approximately 50,000 square foot facility in
City of Industry, California. The City of Industry facility serves as a
distribution center and sales center for the Company. Annual rental under
the lease is approximately $237,000. Pursuant to its terms, the lease will
expire on March 31, 2005.

On April 1, 1998, the Company began leasing an approximately 102,000
square foot distribution facility in Harrisburg, Pennsylvania. The Company is
obligated for lease payments of approximately $408,000 per year through March
31, 2003. From June 1, 2000 through December 31, 2000 the Company sublet
approximately 51,000 square feet of the facility for approximately $222,000 per
year. The Company entered into a sublease for the entire building beginning on
October 1, 2001 to cover the entire cost of this facility through the end of
the lease on March 31, 2003.

On May 1, 2002 the Company began leasing approximately 4,100 square
feet in Sao Paulo, Brazil under two separate leases, one on each floor. This
facility serves as a sales and administrative office for SED International do
Brasil Distribuidora Ltda., a wholly owned subsidiary of the Company. Total annual lease
expenses are approximately $90,000 per year. These leases will expire on April
30, 2005.

On June 1, 2002 the Company began leasing space in a multi-customer
warehouse, distribution, and logistics oriented facility in Barueri SP,
Brazil. Coimex Logistica Integrada S/A provides the Company with logistic and
distribution services for our entire product mix in Brazil. The base rate for
use of this facility is approximately $600 per month plus a variable charge
which fluctuates in relation to the amount of business processed through the
facility.

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On December 1, 1997, the Company began leasing an approximately 33,000
square foot administrative center and sales office in Bogota, Colombia. The
Bogota center serves as a sales office and distribution facility for SED
International de Colombia Ltda., a wholly owned subsidiary of the Company.
Annual payments total approximately $60,000 per year. The lease will expire on
November 30, 2003.

On November 1, 1998, the Company assumed the lease obligations for
several small facilities in Buenos Aires, Argentina. These facilities consist
of various spaces in the Galeria business complex and are utilized for sales
offices, administrative offices and warehouses by Intermaco S.R.L., a wholly
owned subsidiary of the Company. Aggregate space is approximately 5,500
square feet. Payments total approximately $36,000 annually. The leases expire
at various dates until May 2004.




Item 3. LEGAL PROCEEDINGS

The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not
currently engaged in any legal proceedings that are expected, individually or
in the aggregate, to have a material adverse effect on the Company.




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

The shareholders of the Company approved a one-for-two stock split in a
special meeting of shareholders held on April 26, 2002. As a result of the
reverse stock split, all holders of the Companys common stock will return
their current share certificates and will receive new certificates which will
reduce the number of shares held on a 1 for 2 basis. The new certificates will
have the same terms as the old certificates, and the holders of the new
certificates will the same rights under the new certificates. All applicable
amounts reflected herein give retroactive effect to the reverse stock split.

The shareholders are expected to vote on an amendment to the 1999 stock
option plan to provide for the availability of 400,000 options for key
employees.




PART II




Item 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Until October 4, 2002 the Companys common stock was traded over the
counter and quoted on the NASDAQ National Market System under the symbol
SECX. The Company received notification on September 27, 2002 from NASDAQ
that the Companys common stock will be delisted from the Nasdaq National
Market due to noncompliance with the value of public float requirement of
$5,000,000.00 for continued listing on Nasdaq National Market. The Companys
stock price also has fallen below the $1.00 minimum necessary for continued
listing on the Nasdaq National Market and Nasdaq SmallCap. The Company does
not presently intend to take actions to regain compliance with the Nasdaq
National Market or SmallCap listing standards. The Company is now trading its
common stock on the OTC Bulletin Board (OTCBB) and is currently followed by
three market makers. The OTCBB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter
(OTC) equity securities. OTCBB securities are traded by a community of market
makers that enter quotes and trade reports. The Company expects that SEDs
ticker symbol (SECX) will remain the same.

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The following table sets forth the high and low sales prices for Companys
common stock as reported for each quarter of fiscal 2002 and 2001 as adjusted
for 1 for 2 recapitalization on April 26, 2002. The quotations are
inter-dealer prices without retail mark-ups, mark-downs or commissions and may
not represent actual transactions.

|                 |  |             |      |     |  |   |      | 
|---------------- |  | ----------- | ---- | --- |  | - | ---- | 
|                 |  | Sales Price
|                 |  |            
|                 |  | High        |      | Low
|                 |  |             |      |    
|Fiscal
year 2002 |  |             |      |     |  |   |      | 
|                
|                
|                
|                
|First            |  | $           | 2.38 |     |  | $ | 1.70 | 
|Second           |  | $           | 2.10 |     |  | $ | 1.30 | 
|Third            |  | $           | 2.00 |     |  | $ | .92  | 
|Fourth           |  | $           | 2.08 |     |  | $ | 1.07 | 
|                
|                
|                
|                
|Fiscal
year 2001 |  |             |      |     |  |   |      | 
|                
|                
|                
|                
|First            |  | $           | 9.12 |     |  | $ | 5.00 | 
|Second           |  | $           | 5.38 |     |  | $ | 1.12 | 
|Third            |  | $           | 3.12 |     |  | $ | 1.12 | 
|Fourth           |  | $           | 2.76 |     |  | $ | 1.62 | 

There were 3,911,016 shares of common stock outstanding and approximately
3,000 beneficial owners of the common stock of the Company (including
individual participants in securities position listings) as of October 9, 2002.

The Company has never declared or paid cash dividends on its common
stock. The Company currently intends to retain earnings to finance its
ongoing operations and it does not anticipate paying cash dividends in the
foreseeable future. Future policy with respect to payment of dividends on the
common stock will be determined by the Board of Directors based upon conditions
then existing, including the Companys earnings and financial condition,
capital requirements and other relevant factors. SED International, the
earnings of which would be the primary source of any dividend payments, and the
Company are parties to a revolving credit agreement which contains certain
financial covenants that may impact the Companys ability to pay dividends
in the event the Company should change its policy and choose to issue
dividends. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources.

In November 1998 the Company acquired Intermaco, S.R.L., a Buenos Aires
based distributor of Hewlett Packard products and other computer peripherals.
Pursuant to the terms of an earn-out agreement entered into by the Company in
connection with the acquisition, in February 2000 and April 2001 the Company
issued 200,000 shares and 150,000 shares of its common stock, respectively, to
Eduardo Kerner and Manfredo Kerner. Messrs. Kerner were the sole owners of
Intermaco. Messrs. Kerner are not residents of the United States and the
shares were issued to Messrs. Kerner in a private placement that was not
subject to the United States Securities laws.

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##### Table of Contents






Item 6. SELECTED FINANCIAL DATA FIVE YEAR FINANCIAL SUMMARY

|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |           | 
|---------------------------------------------------------------------------------------------------- | ------- | - | ------------------- | --------- | ---- | - | ----------- | --------- | ---- | - | ----------- | --------- |  | - | ----------- | --------- |  | - | ----------- | --------- | 
|                                                                                                     |         |   | Year ended June 30,
|                                                                                                     |         |   |                    
|                                                                                                     |         |   | 2002                |           | 2001 |   | 2000        |           | 1999 |   | 1998       
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |            
|Income statement data:                                                                               |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Net Sales *                                                                                          |         | $ | 456,388,000         |           |      | $ | 525,338,000 |           |      | $ | 612,140,000 |           |  | $ | 711,450,000 |           |  | $ | 897,381,000 |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cost
of Sales *                                                                                      |         |   | 433,353,000         |           |      |   | 494,383,000 |           |      |   | 573,818,000 |           |  |   | 681,674,000 |           |  |   | 855,289,000 |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Gross profit *                                                                                       |         |   | 23,035,000          |           |      |   | 30,955,000  |           |      |   | 38,322,000  |           |  |   | 29,776,000  |           |  |   | 42,092,000  |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Selling, general and admin expenses*                                                                 |         |   | 27,800,000          |           |      |   | 35,249,000  |           |      |   | 35,597,000  |           |  |   | 52,974,000  |           |  |   | 37,862,000  |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Start-up expenses                                                                                    |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   | 1,400,000   |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Impairment charges                                                                                   |         |   |                     |           |      |   | 6,547,000   |           |      |   |             |           |  |   | 15,386,000  |           |  |   |             |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Operating (loss) income                                                                              |         |   | (4,765,000          | )         |      |   | (10,841,000 | )         |      |   | 2,725,000   |           |  |   | (38,584,000 | )         |  |   | 2,830,000   |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Interest expense-net                                                                                 |         |   | 1,133,000           |           |      |   | 660,000     |           |      |   | 458,000     |           |  |   | 731,000     |           |  |   | 2,728,000   |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|(Loss) earnings before income taxes
and before cumulative effect of a
change in accounting principle |         |   | (5,898,000          | )         |      |   | (11,501,000 | )         |      |   | 2,267,000   |           |  |   | (39,315,000 | )         |  |   | 102,000     |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Income tax (benefit) expense                                                                         |         |   | (1,390,000          | )         |      |   | 344,000     |           |      |   | 578,000     |           |  |   | (1,407,000  | )         |  |   | 357,000     |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|(Loss) earnings before cumulative effect
of a change in accounting principle                         |         |   | (4,508,000          | )         |      |   | (11,845,000 | )         |      |   | 1,689,000   |           |  |   | (37,908,000 | )         |  |   | (255,000    | )        
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cumulative effect of a change in
accounting principle, net of income
tax benefit of $75,000          |         |   | 6,297,000           |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Net (loss) earnings                                                                                  |         | $ | (10,805,000         | )         |      | $ | (11,845,000 | )         |      | $ | 1,689,000   |           |  | $ | (37,908,000 | )         |  | $ | (255,000    | )        
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Basic and diluted (loss) earnings per share:                                                         |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Before cumulative effect of a change in
accounting principle                                         |         | $ | (1.17               | )         |      | $ | (3.27       | )         |      | $ | 0.50        |           |  | $ | (8.72       | )         |  | $ | (0.05       | )        
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cumulative effect of a change in
accounting principle, net of tax                                    |         | $ | (1.63               | )         |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Net (loss) earnings                                                                                  |         | $ | (2.80               | )         |      | $ | (3.27       | )         |      | $ | 0.50        |           |  | $ | (8.72       | )         |  | $ | (0.05       | )        
|                                                                                                     |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|Weighted average number
of shares outstanding                                                        |         |   |                     |           |      |   |             |           |      |   |             |           |  |   |             |           |  |   |             |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Basic   |   |                     | 3,862,000 |      |   |             | 3,618,000 |      |   |             | 3,364,000 |  |   |             | 4,349,000 |  |   |             | 4,801,000 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Diluted |   |                     | 3,862,000 |      |   |             | 3,618,000 |      |   |             | 3,386,000 |  |   |             | 4,349,000 |  |   |             | 4,801,000 | 

|                                           |  |             |            |      |  |      |             |      |  |      |             |  |  |   |             |  |  |   |             | 
|------------------------------------------ |  | ----------- | ---------- | ---- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- |  |  | - | ----------- | 
|                                           |  | At June, 30
|                                           |  |            
|                                           |  | 2002        |            | 2001 |  | 2000 |             | 1999 |  | 1998
|                                           |  |             |            |      |  |      |             |      |  |     
|Balance sheet data:                        |  |             |            |      |  |      |             |      |  |      |             |  |  |   |             |  |  |   |             | 
|                                          
|                                          
|                                          
|                                          
|Working capital                            |  | $           | 28,963,000 |      |  | $    | 30,539,000  |      |  | $    | 36,506,000  |  |  | $ | 45,193,000  |  |  | $ | 107,741,000 | 
|                                          
|                                          
|                                          
|                                          
|Total assets                               |  |             | 80,562,000 |      |  |      | 107,466,000 |      |  |      | 121,319,000 |  |  |   | 141,090,000 |  |  |   | 266,565,000 | 
|                                          
|                                          
|                                          
|                                          
|Long-term obligations
less current portion |  |             | 4,900,000  |      |  |      |             |      |  |      |             |  |  |   | 8,500,000   |  |  |   | 31,000,000  | 
|                                          
|                                          
|                                          
|                                          
|Shareholders equity                       |  |             | 27,852,000 |      |  |      | 42,615,000  |      |  |      | 55,349,000  |  |  |   | 52,810,000  |  |  |   | 106,275,000 | 



|* |  | 2000, 1999, and 1998 have been reclassified in connection with the fiscal
2001 adoption of a new accounting pronouncement.
|- |  | --------------------------------------------------------------------------------------------------------------------------

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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto and the
Selected Consolidated Financial Data included elsewhere herein. Historical
operating results are not necessarily indicative of trends in operating results
for any future period.

Overview

The Company is an international distributor of microcomputer products,
including personal computers, printers and other peripherals, supplies, and
networking products throughout the United States and Latin America. In fiscal
2002, the Companys net sales to customers in the United States represented
approximately 68.2% of total net sales. Net sales for export principally into
Latin America and in-country net sales in Brazil, Colombia and Argentina
represented approximately 31.8% of total net sales for fiscal 2002. Net sales
of microcomputer products generated approximately 94.7% of total net sales and
wireless telephone products represented the remaining 5.3% for fiscal 2002.

The Company incurred a net loss before the cumulative effect of a change
in accounting principle of $4.5 million on net sales of $456.4 million in
fiscal 2002. Net sales during fiscal 2001 and 2000 were $525.3 million and
$612.1 million, respectively. The gross profit as a percentage of net sales
decreased to 5.0% in fiscal 2002 compared to 5.9% in fiscal 2001 and 6.3% in
fiscal 2000. Selling, general and administrative expenses (excluding
impairment charges) as a percentage of net sales were 6.1% in fiscal 2002, 6.7%
in fiscal 2001, and 5.8% in fiscal 2000.

The Company has incurred a decline in net sales in the United States from
fiscal 1998 to 2001. Although net sales in the United States in 2002 compared
to 2001 increased by $15.4 million, the net sale improvement in the United
States was offset by an $84.3 million decrease in net sales in export and Latin
America. The Company has incurred operating losses in either its domestic or
certain of its foreign operations at various times during the past five fiscal
years. Company management is continuing to focus on increasing profit margins
and reducing administrative and overhead costs. There is no assurance the
Company will be successful in its efforts. Failure to improve margins and
reduce overhead could adversely affect the Companys profitability and
financial condition.

Numerous factors and conditions impact the Companys ability to adequately
effect this plan, including, but not limited to, the following:



| |  |  | 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.                                                                                                                                                                              
|
| |  |  | 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.                                        

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| |  |  | 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 also
maintains credit insurance for customers located in the United States
(subject to certain terms and conditions).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Uncertain and possibly volatile economic and political
environment in Latin America- The general economic and political
environment in all 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 operated under a
formal credit facility with a bank for many years that was subject to
certain collateral limitations and contained certain covenants. During
October 2002 a new credit facility was obtained. The new credit
facility provides more flexibility compared to the prior agreement but
also includes covenants and other provisions. The Company consistently
violated the financial covenants associated with the previous credit
agreement, but was successful in negotiating waivers of such
violations. 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 credit facilities are further described in Note 6.
|
| |  |  | Cash flows- The Company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 October
2002 credit facility places certain restrictions on the future funding
of Latin American operations (See Note 6 to the audited consolidated
financial statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

For the Companys domestic operations, all purchases and sales are
denominated in United States dollars. For the Companys operations in Brazil,
Colombia and Argentina, in-country transactions are conducted in the respective
local currencies of these three locations while import purchases are generally
denominated in United States dollars.

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##### Table of Contents



Results of Operations

The following table sets forth, for the years presented, the percentage of net
sales represented by certain items in the Companys consolidated statements of
operations:

|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------- | ---- | ---- |  | ---- | ---- | -- |  |  | ---- | -
|                                                                                                          |  | Year Ended June 30,
|                                                                                                          |  |                    
|                                                                                                          |  | 2002                |      | 2001 |  | 2000
|                                                                                                          |  |                     |      |      |  |     
|Net sales                                                                                                 |  |                     | 100  | %    |  |      | 100  | %  |  |  | 100  | %
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Cost of sales, including buying and occupancy expense                                                     |  |                     | 95.0 |      |  |      | 94.1 |    |  |  | 93.7 |  
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|Gross profit                                                                                              |  |                     | 5.0  |      |  |      | 5.9  |    |  |  | 6.3  |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Selling, general and administrative expenses                                                              |  |                     | 6.1  |      |  |      | 6.7  |    |  |  | 5.8  |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Impairment charges                                                                                        |  |                     |      |      |  |      | 1.3  |    |  |  |      |  
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|Operating (loss) income                                                                                   |  |                     | (1.1 | )    |  |      | (2.1 | )  |  |  | 0.5  |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Interest expense, net                                                                                     |  |                     | 0.2  |      |  |      | 0.1  |    |  |  | 0.1  |  
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|(Loss) earnings before income taxes and before
cumulative effect of a change in accounting
principle      |  |                     | (1.3 | )    |  |      | (2.2 | )  |  |  | 0.4  |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Income tax (benefit) expense                                                                              |  |                     | (0.3 | )    |  |      | 0.1  |    |  |  | 0.1  |  
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|Basic
and diluted (loss) earnings per share:
Before cumulative effect of a
change in accounting principle |  |                     | (1.0 | )    |  |      | (2.3 | )  |  |  | 0.3  |  
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Cumulative effect of a change in accounting
principle, net of    $75,000 tax benefit                      |  |                     | (1.4 | )    |  |      |      |    |  |  |      |  
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  
|Net (loss) earnings                                                                                       |  |                     | (2.4 | )%   |  |      | (2.3 | )% |  |  | 0.3  | %
|                                                                                                          |  |                     |      |      |  |      |      |    |  |  |      |  

Fiscal 2002 Compared to Fiscal 2001

Net sales decreased 13.1%, or $68.9 million, to $456.4 million in fiscal
2002 compared to $525.3 million in fiscal 2001. Information concerning the
Companys domestic and foreign sales is summarized below:

|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |       |   
|-------------- | -------- | - | ---------- | ----- | ------ | - | ------ | ----- | ------- | - | ----- | ----- | - |  | ----- | ----- | --
|               |          |   | Year Ended |       |        |   |        |       |         |   |      
|               |          |   | June 30,   |       | Change
|               |          |   |            |       |       
|               |          |   | 2002       |       | 2001   |   | Amount |       | Percent
|               |          |   |            |       |        |   |        |       |        
|United States: |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |      
|              
|              
|              
|              
|               | Domestic |   | $          | 311.3 |        |   | $      | 295.9 |         |   | $     | 15.4  |   |  |       | 5.2   | % 
|              
|              
|              
|              
|               | Export   |   |            | 75.5  |        |   |        | 105.4 |         |   |       | (29.9 | ) |  |       | (28.3 | )%
|              
|              
|              
|              
|Latin America  |          |   | 70.5       |       |        |   | 125.6  |       |         |   | (55.1 | )     |   |  | (43.9 | )%   
|              
|              
|              
|              
|Elimination    |          |   | (0.9       | )     |        |   | (1.6   | )     |         |   | 0.7   |       |   |  | (43.8 | )%   
|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |       |   
|Consolidated   |          | $ | 456.4      |       |        | $ | 525.3  |       |         | $ | (68.9 | )     |   |  | (13.1 | )%   
|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |       |   

Domestic sales were $311.3 million and $295.9 million in fiscal 2002 and
fiscal 2001, respectively. The increase in domestic sales was due primarily to
an increase in sales to large system integrators and the addition of over 1,700
new customers in fiscal 2002. The overall sales decline resulted from a
decrease in net sales to customers for export principally to Latin America and
a decrease in in-country net sales for Brazil (Magna Distribuidora Ltda.
acquired in December 1997 and now operating as SED International do
Brasil Distribuidora
Ltda.), Colombia (commenced operations in May 1998 and operating as SED
International de Colombia Ltda.) and Argentina (Intermaco S.R.L. acquired in
November 1998). The decrease in Latin American in-country sales was
partially attributable to changes in product mix towards higher margin
product offerings as well as more stringent credit standards in
Brazil. In addition, the 74.2% decrease in the value of the Argentine peso, 19.0%
decrease in the Brazilian real, and the 4.2% decline in the Colombian peso
contributed significantly to the decline in Latin American sales. The

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##### Table of Contents



decrease in
U.S. export sales was primarily due to the economic downturn in the Latin
American countries the Company does business in.

Sales of microcomputer products represented approximately 94.7% of the
Companys net sales in fiscal 2002 compared to 93.6% for fiscal 2001. Sales of
wireless telephone products accounted for approximately 5.3% of the Companys
net sales in fiscal 2002 compared to 6.4% for fiscal 2001.

Gross profit decreased $7.9 million to $23.0 million in fiscal 2002,
compared to $31.0 million in fiscal 2001. Gross profit as a percentage of net
sales decreased to 5.0% in fiscal 2002 from 5.9% in fiscal 2001. The change in
gross profit as a percentage of sales was primarily due to lower sales in Latin
America and the change in the mix of products sold. Overall, the Company
continues to experience pricing pressure in selling products.

Selling, general and administrative expenses (excluding impairment charges
and intangible write offs) for fiscal 2002 decreased 21.1% to $27.8 million,
compared to $35.2 million in fiscal 2001. These expenses as a percentage of
net sales decreased to 6.1% in 2002 compared to 6.7% in fiscal 2001. These
reduced expenses were primarily the result of a reduction in the number of
employees in all of the Companys operations as well as lower bad debts. The
2002 cumulative effect adjustment and the 2001 non-cash impairment charges were
determined based on an analysis of the Companys goodwill and long-lived assets
and the estimated future cash flows of operations associated with such
impairment. See Notes 3 and 5 to the Companys 2002 consolidated financial
statements.

The results of operations of the Company were adversely affected by the
continuing inflationary conditions in Latin America and the devaluation of the
Brazilian, Argentinian, and Colombian currencies. In fiscal 2002, the
approximate devaluation of the Brazilian currency as compared to the U.S.
dollar was 19%. The approximate devaluation of the Argentinian peso in 2002 as
compared to the U.S. dollar was 74.2%. The approximate devaluation of the
Colombian peso in 2002 as compared to the U.S. dollar was approximately 4.2%.
Since the Company has significant U.S. dollar denominated liabilities in Latin
American subsidiaries, the devaluation resulted in foreign currency transaction
losses totaling approximately $11,000 in Argentina and $410,000 in Brazil in
fiscal 2002. The rate of annual interest on the Brazilian lines of credit was
25.4% and 21.0% at June 30, 2002 and 2001, respectively. See Item 7A.

Net interest expense was $1.1 million in fiscal 2002 compared to interest
expense of $0.7 million in fiscal 2001. This net change resulted primarily
from a increase in working capital requirements in fiscal 2002.

In 2002, the Company realized an income tax benefit of $1.9 million
resulting from the adjustment of certain income tax liabilities and refunds
received in the fourth quarter of 2002 related to recent United
States tax legislation which
provided for an extension of the period in which net operating losses could be
carried back, offset in part by income taxes in Colombia and Argentina. At
June 30, 2002, the Company has gross net operating loss carryforwards for U.S.
federal tax purposes of approximately $25 million and $42 million,
respectively, expiring at various dates through 2022 and gross net operating
loss carryforwards for foreign income tax purposes of approximately $10 million
in Brazil, which generally do not expire. At June 30, 2002 and 2001, the
Company has recorded valuation allowances for principally all deferred tax
assets, except for those relating to Intermaco S.R.L., as there is no assurance
that these assets will be realized.

Fiscal 2001 Compared to Fiscal 2000

Net sales decreased 14.2%, or $86.8 million, to $525.3 million in fiscal
2001 compared to $612.1 million in fiscal 2000.

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##### Table of Contents



Information concerning the Companys domestic and foreign sales is summarized
below:

|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |       |   
|-------------- | -------- | - | ---------- | ----- | ------ | - | ------ | ----- | ------- | - | ----- | ----- | - |  | ----- | ----- | --
|               |          |   | Year Ended |       |        |   |        |       |         |   |      
|               |          |   | June 30,   |       | Change
|               |          |   |            |       |       
|               |          |   | 2001       |       | 2000   |   | Amount |       | Percent
|               |          |   |            |       |        |   |        |       |        
|United States: |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |      
|              
|              
|              
|              
|               | Domestic |   | $          | 295.9 |        |   | $      | 341.8 |         |   | $     | (45.9 | ) |  |       | (13.4 | )%
|              
|              
|              
|              
|               | Export   |   |            | 105.4 |        |   |        | 151.8 |         |   |       | (46.4 | ) |  |       | (30.6 | )%
|              
|              
|              
|              
|Latin America  |          |   | 125.6      |       |        |   | 122.0  |       |         |   | 3.6   |       |   |  | 2.9   | %    
|              
|              
|              
|              
|Elimination    |          |   | (1.6       | )     |        |   | (3.5   | )     |         |   | 1.9   |       |   |  | 54.0  | %    
|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |      
|Consolidated   |          | $ | 525.3      |       |        | $ | 612.1  |       |         | $ | (86.8 | )     |   |  | (14.2 | )%   
|               |          |   |            |       |        |   |        |       |         |   |       |       |   |  |       |      

The overall sales decline resulted from a decrease in United States
domestic net sales and a decline in net sales to customers for export
principally to Latin America offset by a net increase in in-country net sales
for Brazil (Magna Distribuidora Ltda. acquired in December 1997 and now
operating as SED International do Brasil Distribuidora Ltda.), Colombia (commenced operations
in May 1998 and operating as SED International de Colombia Ltda.) and Argentina
(Intermaco S.R.L. acquired in November 1998).

The decrease in sales in the United States was primarily due to lower
sales of printers, printer consumables, computer processors and wireless
products which was offset by an increase in sales of mass storage products.
The decrease in U.S. export sales was due primarily to lower sales of printers
and printer consumables. Sales of microcomputer products represented
approximately 93.5% of the Companys net sales in fiscal 2001 compared to 85.5%
for fiscal 2000. Sales of wireless telephone products accounted for
approximately 6.5% of the Companys net sales in fiscal 2001 compared to 14.5%
for fiscal 2000.

Gross profit decreased $7.3 million to $31.0 million in fiscal 2001,
compared to $38.3 million in fiscal 2000. Gross profit as a percentage of net
sales decreased to 5.9% in fiscal 2001 from 6.3% in fiscal 2000. The change in
gross profit as a percentage of sales was primarily due to lower margins on
sales in Latin America and the change in the mix of products sold. Overall,
the Company continues to experience pricing pressure in selling products.

Selling, general and administrative expenses (excluding $6.5 million of
impairment charges for fiscal 2001) decreased 1.0% to $35.3 million, compared
to $35.6 million in fiscal 2000. These expenses as a percentage of net sales
increased to 6.7% in 2001 compared to 5.8% in fiscal 2000. The non-cash
accounting charge was determined based on a detailed analysis of the Companys
long-lived assets and their estimated future cash flows. The analysis resulted
in the identification and measurement of an impairment loss of $5,947,000 in
goodwill and approximately $600,000 in property and equipment. Substantially
all of the goodwill impairment relates to the companys acquired export
distribution rights in connection with the fiscal 1996 acquisition of
substantially all of the net assets of U.S. Computer of North America, Inc.
This impairment results from a gradual, but, significant, decline in sales
volumes and adverse changes in the competitive environment for the distribution
of the corresponding product lines. The goodwill is not considered recoverable through other means. The
impairment loss of approximately $600,000 related to the Companys property and
equipment in Brazil ($400,000) as well as certain domestic assets ($200,000).
Management estimated the undiscounted cash flows to be generated by the assets
for the respective operations and compared them to their carrying values.
Since the estimated undiscounted future cash flows were less than the carrying
value of the assets, the carrying values were adjusted to estimated fair
values.

The results of operations of the Company were adversely affected by the
continuing inflationary conditions in Latin America and the devaluation of the
Brazilian currency. In fiscal 2001, the approximate devaluation of the
Brazilian currency as compared to the U.S. dollar was approximately 25%. Since
the Company has significant U.S. dollar denominated liabilities in Brazil, the
devaluation resulted in translation losses totaling approximately $570,000 in
fiscal 2001.

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Net interest expense was $0.7 million in fiscal 2001 compared to interest
expense of $0.5 million in fiscal 2000. This net change resulted primarily
from a reduction in working capital requirements in fiscal 2001.

Income tax expense was $0.3 million in fiscal 2001 compared to an income
tax expense of $0.6 million in fiscal 2000. The income tax expense resulted
from in-country income taxes on certain Latin America operations. At June 30,
2001, the Company has gross net operating loss carryforwards for U.S. federal
tax purposes of approximately $23 million expiring at various dates through
2016 and gross net operating loss carryforwards for foreign income tax purposes
of approximately $7.9 million in Brazil, which generally do not expire. At
June 30, 2001 and 2000, the Company has recorded valuation allowances for
principally all deferred tax assets, except those relating to Intermaco S.R.L.,
as there is no assurance these assets will be realized.

Quarterly Data

The following table sets forth certain unaudited quarterly historical
consolidated financial data for each of the Companys last eight fiscal
quarters ended June 30, 2002. This unaudited quarterly information has been
prepared on the same basis as the annual information presented elsewhere herein
and, in the Companys opinion, includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the selected
quarterly information. The Companys interim financial statements for the
quarter ended September 30, 2001 have been restated in connection with the
Companys adoption of Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets, subsequent to the issuance of the
September 30, 2001 interim financial statements. The net loss as reported was
$3,137,000 as compared to a net loss of $9,434,000 as restated. In addition,
all per share amounts in the following table give retroactive effect to the
one-for-two reverse stock split on April 26, 2002. The quarterly financial
statements have been reclassified in connection with the Companys fourth
quarter 2001 adoption of the new accounting pronouncement related to income
statement classification of shipping and handling revenues and costs. These
reclassifications had no effect on net earnings (loss). This information
should be read in conjunction with the consolidated financial statements and
Notes thereto included elsewhere herein. The operating results for any quarter
shown are not necessarily indicative of results for any future period.

|                                                          |  |   |                                                     |  |         |   |         |  |          |   |          |   |         |   |         |   |          |   |         |   |  |   |         |   |  |   |         |   |  |   |         |   | 
|--------------------------------------------------------- |  | - | --------------------------------------------------- |  | ------- | - | ------- |  | -------- | - | -------- | - | ------- | - | ------- | - | -------- | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - | 
|                                                          |  |   | Quarter Ended (in thousands, except per share data)
|                                                          |  |   |                                                    
|                                                          |  |   | Sept 30,                                            |  | Dec 31, |   | Mar 31, |  | June 30, |   | Sept 30, |   | Dec 31, |   | Mar 31, |   | June 30,
|                                                          |  |   | 2000                                                |  | 2000    |   | 2001    |  | 2001     |   | 2001     |   | 2001    |   | 2002    |   | 2002    
|                                                          |  |   |                                                     |  |         |   |         |  |          |   |          |   |         |   |         |   |         
|Net sales                                                 |  | $ | 133,565                                             |  |         | $ | 132,155 |  |          | $ | 142,690  |   |         | $ | 116,928 |   |          | $ | 123,836 |   |  | $ | 110,227 |   |  | $ | 117,399 |   |  | $ | 104,926 |  
|                                                         
|                                                         
|                                                         
|                                                         
|Gross profit                                              |  |   | 8,157                                               |  |         |   | 8,649   |  |          |   | 8,200    |   |         |   | 5,949   |   |          |   | 6,538   |   |  |   | 6,451   |   |  |   | 5,549   |   |  |   | 4,497   |  
|                                                         
|                                                         
|                                                         
|                                                         
|Operating income (loss)                                   |  |   | 281                                                 |  |         |   | 678     |  |          |   | (322     | ) |         |   | (11,478 | ) |          |   | (2,821  | ) |  |   | 262     |   |  |   | (727    | ) |  |   | (1,479  | )
|                                                         
|                                                         
|                                                         
|                                                         
|Net earnings (loss) before
change in accounting
principle |  |   | 75                                                  |  |         |   | 230     |  |          |   | (525     | ) |         |   | (11,625 | ) |          |   | (3,137  | ) |  |   | (130    | ) |  |   | (1,146  | ) |  |   | (95     | )
|                                                         
|                                                         
|                                                         
|                                                         
|Net earnings (loss) after change
in accounting principle  |  |   | 75                                                  |  |         |   | 230     |  |          |   | (525     | ) |         |   | (11,625 | ) |          |   | (9,434  | ) |  |   | (130    | ) |  |   | (1,146  | ) |  |   | (95     | )
|                                                         
|                                                         
|                                                         
|                                                         
|Earnings
(loss) per share:                                |  |   |                                                     |  |         |   |         |  |          |   |          |   |         |   |         |   |          |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|                                                         
|                                                         
|                                                         
|                                                         
|Before change in accounting
principle                     |  | $ | 0.02                                                |  |         | $ | 0.06    |  |          |   | ($0.14   | ) |         |   | ($3.00  | ) |          |   | ($0.81  | ) |  |   | ($0.03  | ) |  |   | ($0.30  | ) |  |   | ($0.02  | )
|                                                         
|                                                         
|                                                         
|                                                         
|After change in accounting principle                      |  | $ | 0.02                                                |  |         | $ | 0.06    |  |          |   | ($0.14   | ) |         |   | ($3.00  | ) |          |   | ($2.44  | ) |  |   | ($0.03  | ) |  |   | ($0.30  | ) |  |   | ($0.02  | )

Fourth Quarter Adjustments

In the fourth quarter of fiscal 2002, the Company recorded certain
non-recurring adjustments related to changes in estimates associated with
unclaimed property liabilities ($1.2 million), and the adjustment of income tax
liabilities and the accrual of refunds receivable under recently enacted tax
legislation ($1.9 million). These fourth quarter adjustments resulted in a
reduction of the net loss of approximately $777,000 or $.20 per share for
fiscal year 2002.

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In the fourth quarter of fiscal 2001, the Company recorded certain
non-recurring adjustments related to changes in estimates associated with the
impairment of long-lived assets ($6.5 million) and allowance for doubtful
accounts ($3.3 million). These fourth quarter adjustments totalled
approximately $9.8 million or $1.35 per share increase in the net loss for
fiscal 2001.

Liquidity and Capital Resources

The Companys liquidity requirements arise primarily from the funding of
working capital needs, including inventories and trade accounts receivable.
Historically, the Company has financed its liquidity needs largely through
internally generated funds, borrowings under its credit agreement and vendor
lines of credit. The Company derives all of its operating income and cash flow
from its subsidiaries and relies on payments from its subsidiaries to generate
the funds necessary to meet its obligations. As the Company continues
operations in Latin America, management believes that capital requirements in
Latin America may limit the ability of the Companys subsidiaries in those
countries to make payments to the Company.

Operating activities provided $1.4 million, $2.3 million and $16.5 million
of cash in fiscal 2002, 2001 and 2000, respectively. The cash provided in
fiscal 2002 resulted primarily from decreases in trade acounts receivable of
$2.7 million, inventories of $.7 million, and other assets of $1.7 million,
which was partially offset by decreases in accounts payable and accrued
liabilities of $3.7 million. In fiscal year 2001, the Company
had net cash flows from operating activities in spite of the $11.8
million loss which was the result of significant non cash charges
affecting fiscal 2001, while the net effect of changes in operating
accounts had no significant effect.

Investing activities used $.3 million, $2.3 million and $4.5 million of
cash in fiscal 2002, 2001 and 2000, respectively. The primary use of cash in
fiscal 2002 was for the purchase of equipment for $.3 million.
The use of cash in fiscal 2001 was primarily for the purchase of computer
equipment for $.8 million and for additional payments related to the purchase
of Intermaco S.R.L. amounting to $1.5 million. The significant use of cash in
fiscal 2000 was primarily for the purchase of Intermaco S.R.L. for $1.5 million
and $3.0 million for the purchase of computer equipment and software.

Financing activities provided $4.5 million of cash in fiscal 2002, used
$.4 million of cash in fiscal 2001 and used $8.1 million of cash in fiscal
2000. The net cash provided in fiscal 2002 primarily related to bank
borrowings on the revolving line of credit. The net cash used in financing
activities in fiscal 2001 primarily related to repayment of short-term
borrowings by subsidiaries. The net cash used in financing activities in fiscal
2000 primarily related to repayments of borrowings of $8.5 million under the
Companys credit agreement offset by other net bank borrowings of $435,000.

The Companys cash flows were adversely affected by the unfavorable
changes in exchange rates in the Latin American countries in which the Company
does business. The exchange rate changes had the effect of using approximately
$5.4 million in cash for the year ended June 30, 2002 as compared to using $2.0
million in fiscal 2001 and $.6 million in fiscal 2000.

Subsequent to June 30, 2002, the Company terminated its credit agreement
with Wachovia Bank N.A. (Wachovia), as amended, from time to time, which
provided for borrowing under a line of credit of up to $25 million ($35 million
at June 30, 2001). At June 30, 2002 and 2001, the Company had borrowings of
$4.9 million and no borrowings, respectively, outstanding under this facility.
Maximum borrowings under the Wachovia credit agreement were generally based on
eligible accounts receivable and inventory (as defined in the credit agreement)
less a $9.5 million reserve. This reserve could be drawn upon, if necessary,
to finance obligations to IBM Credit Corporation, which financed the Companys
purchases from certain vendors. Available borrowings under this agreement,
based on collateral limitations at June 30, 2002 and 2001 were $9.9 million and
$23.5 million, respectively ($9.5 million of which would only be available to
finance obligations due to IBM for both years, if necessary).

The Wachovia agreement was secured by accounts receivable and inventory of
SED International, Inc. and required maintenance of certain minimum working
capital and other financial ratios and had certain dividend

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restrictions. The
Company was able to borrow at Wachovias prime rate (4.75% as of June 30, 2002)
plus .50% or the Company was able to fix the interest rate for periods of 30 to
180 days under various interest rate options. The credit agreement required a
commitment fee of .50% of the unused commitment and would have expired on
November 1, 2002. Average borrowings, maximum borrowings, and the weighted
average interest rate for fiscal 2002 were $5.0 million, $19.1 million, and
5.67%, respectively. Average borrowings, maximum borrowings, and the weighted
average interest rate for
fiscal 2001 were $1.2 million, $10.0 million, and 6.75%, respectively. At June
30, 2002, the Company was not in compliance with certain agreement covenants;
however, the Company was not negatively affected because the Company was
successful in negotiating a new $35 million credit facility with Fleet Capital
Corporation and replaced the credit agreement with Wachovia.

On October 7, 2002, the Company entered into a three year, $35 million
credit facility with Fleet Capital Corporation (the Fleet Agreement). The
Fleet Agreement provides for revolving borrowings up to $35 million based upon
the Companys eligible domestic accounts receivable and inventory as defined
therein. Borrowings under the Fleet Agreement accrue interest based upon a
variety of interest rate options depending upon the computation of availability
as defined therein. The interest rates range from the prime rate to the prime
rate plus a margin of .5% or LIBOR plus a margin ranging from 2% to 2.75%. The
Company is also subject to a commitment fee ranging from .25% to .5% on the
unused portion of the facility. Interest is payable monthly. Borrowings under
the Fleet Agreement are secured by substantially all domestic assets of the
Company and 65% of each of the Companys shares in its foreign
subsidiaries,
respectively.

The
Fleet Agreement also contains certain covenants which, among other
things requires that if the Companys availability is less than $5 million at
anytime during the agreement, the Company must restrict or limit capital
expenditures and advances to the Companys Latin American subsidiaries. Also,
if the $5 million threshold is breached the Agreement requires the maintenance
of certain levels of earnings before interest, taxes, depreciation, and
amortization, requires maintenance of minimum fixed charge coverage ratio
beginning in the second quarter of fiscal 2004, and requires the maintenance of
minimum tangible net worth, as defined, of negative $5 million. Based upon the
Companys experience in fiscal 2002 and through the date of entering into the
Fleet Agreement, the Company would have had at least $5 million in availability
under the Fleet Agreement. The Companys availability under the Fleet
Agreement was $11.3 million on October 7, 2002.

The
Companys subsidiary, SED International do Brasil Distribuidora Ltda. operates
under line of credit agreements with several Brazilian banks. Interest rates
on borrowings are negotiated at the time of borrowing. The credit agreements
are secured by the subsidiarys accounts receivable and require the maintenance
of certain financial ratios. At June 30, 2002, the Company had $2.4 million of
borrowings outstanding under these facilities. For the year ended June 30,
2002, average borrowings, maximum borrowings and the weighted average monthly
interest rate under these loan agreements for fiscal 2002 were $2.8 million,
$3.7 million, and 1.94%, respectively.

At June 30, 2002, the Companys subsidiary, SED International de Colombia
Ltda. had no bank borrowings. In addition, the Colombian subsidiary had no
significant borrowings during fiscal 2002.

The carrying value of all bank debt at June 30, 2002 and 2001 approximates
its fair value based on interest rates that are believed to be available to the
Company for debt with similar provisions.

Management believes that its credit agreements together with vendor lines
of credit and internally generated funds, will be sufficient to satisfy its
working capital needs during fiscal 2003. However, no assurance can be given
that the Company will be able to remain in compliance with the financial
covenants associated with the Fleet Agreement, or that the Company will be able
to continue to obtain credit from its vendors in the future. Failure to
maintain compliance under the Fleet Agreement or obtain vendor lines of credit
could significantly and adversely affect the Companys business operations.

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Critical Accounting Policies

Allowance for Doubtful Accounts  Methodology

An allowance for uncollectible accounts has been established based on
collection experience and an assessment of the collectibility of specific
accounts. Management evaluates the collectibility of accounts receivable based
on a combination of factors. Initially, management estimates an allowance for
doubtful accounts as a percentage of accounts
receivable based on historical collections experience. This initial estimate is
periodically adjusted when management becomes aware of a specific customers
inability to meet its financial obligations (e.g., bankruptcy filing) or as a
result of changes in the overall aging of accounts receivable. Management does
not believe the estimate of the allowance for doubtful accounts is likely to be
adversely affected by any individual customer, since the Company is protected
by credit insurance on its significant customers, subject to certain
limitations.

Inventories  Slow Moving and Obsolescence

Most of the Companys vendors allow for either return of goods within a
specified period (usually 90 days) or for credits related to price protection.
However, for other vendor relationships and inventories, the Company is not
protected by vendors from the risk of inventory loss. Therefore, in determining
the net realizable value of inventories, management identifies slow moving or
obsolete inventories that (1) are not protected by vendor agreements from risk
of loss, and (2) are not eligible for return under various vendor return
programs. Based upon these factors, management estimates the net realizable
value of inventories and records any necessary adjustments as a charge to cost
of sales. If inventory return privileges were discontinued in the future, or if
vendors were unable to honor the provisions of certain contracts which protect
the Company from inventory losses, including price protections, the risk of
loss associated with obsolete or slowing moving inventories would increase. The
Companys reserve for obsolete and slowing moving inventories was approximately
$991,000 at June 30, 2002, or 2.65% of gross inventories.

Financial Instruments

The functional currency for the Companys international subsidiaries is
the local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments
are recorded directly to shareholders equity as a component of comprehensive
income.

In January 2001, the Company entered into non-deliverable forward
contracts covering Brazilian R$2,047,000, or US $1,000,000. These contracts
were accounted for as speculative forward contracts. These contracts were
settled in March 2001 at a gain of $33,000. The Company has no future plans to
enter into foreign exchange forward or option contracts to hedge foreign
currency transactions. These were isolated transactions. Generally, it is the
Companys policy not to enter into derivative contracts for speculative trading
purposes.

Inflation and Price Levels

Inflation has not had a significant impact on the Companys business
because of the typically decreasing costs of products sold by the Company. The
Company also receives vendor price protection for a significant portion of its
inventory. In the event a vendor reduces its prices for goods purchased by the
Company prior to the Companys sale of such goods, the Company generally has
been able either to receive a credit from the vendor for the price differential
or to return the goods to the vendor for a credit against the purchase price.

The Latin American countries in which the Company operates have
experienced high rates of inflation and hyperinflation from time to time in the
past. At this time, management estimates that inflation may have a material
impact on the Companys Latin American business operations in the immediate
future (See Item 7A).

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Forward-Looking Statements

The matters discussed herein and in the Letter to Shareholders
accompanying this Annual Report on Form 10-K contain certain forward-looking
statements that represent the Companys expectations or beliefs, including, but
not limited to, statements concerning future revenues and future business
plans. When used by or on behalf of the Company, the words may, could,
should, would, believe, anticipate, estimate, intend, plan and
similar expressions are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Companys control. The Company cautions that various
factors, including the factors described under the captions Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in the Companys Registration Statement on Form S-3 (SEC
File No. 333-35069) as well as general economic conditions and industry trends,
foreign currency fluctuations, the level of acquisition opportunities available
to the Company and the Companys ability to negotiate the terms of such
acquisitions on a favorable basis, a dependence upon and/or loss of key vendors
or customers, the transition to indirect distribution relationships for some
products, the loss of strategic product shipping relationships, customer
demand, product availability, competition (including pricing and availability),
concentrations of credit risks, distribution efficiencies, capacity constraints
and technological difficulties could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company. The Company undertakes no
obligation to update any forward-looking statement.




Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency and
interest rates. The Company distributes many of its products in foreign
countries, primarily in Latin America. Approximately 31.8% of the Companys
total net sales were generated from sales made to resellers located in Latin
American countries during fiscal 2002. The Company manages its risk to foreign
currency rate changes by maintaining foreign currency bank accounts in
currencies in which it regularly transacts business. In January 2001, the
Company entered into non-deliverable forward contracts covering Brazilian
R$2,047,000, or US $1,000,000. These contracts were accounted for as
speculative forward contracts. These contracts were settled in March 2001 at a
gain of $33,000. The Company has no future plans to enter into foreign
exchange forward or option contracts to hedge foreign currency transactions.
These were isolated transactions. Generally, it is the Companys policy not to
enter into derivative contracts for speculative trading purposes.

Latin America Economic Situation and Devaluation

Argentine authorities have implemented a number of monetary and exchange
control measures that primarily included restrictions on the free disposition
of funds deposited with banks and the practical impossibility of making
transfers abroad. On January 6, 2002, the Argentine Congress approved Law No.
25,561 on Public Emergency and Exchange System Reform that introduced dramatic
changes to the economic model implemented until that date and that amended the
Convertibility Law approved in March 1991.

The Central Bank of Argentina established an official and a freely
floating exchange market for transactions originating in Argentina. The
official exchange rate was fixed at ARS (Argentine peso) 1.4 to USD (US
Dollar) 1, and the freely floating exchange rate as of the close of the first
day after the exchange market reopened (January 11, 2002), which had been
suspended since December 23, 2001, ranged from ARS 1.6 to ARS 1.7 to USD 1
(selling rate).

The exchange rate for the ARS as compared to the USD decreased from 1.7
pesos to 1 dollar at January 11, 2002 to 3.9 pesos to 1 dollar at June 30,
2002.

As a result of the change in currency, the Company recorded foreign
currency translation losses as a component of comprehensive loss of
approximately $3.3 million during the year ended June 30, 2002 in connection
with its Argentina-based subsidiary, Intermaco S.R.L. (Intermaco). The
exchange rate at October 4, 2002 was approximately ARS 3.8 to USD 1.

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In connection with procuring inventories for resale in Argentina,
Intermaco has USD denominated liabilities from time to time. The Company
recorded transaction losses totaling $11,000 for the year ended June 30, 2002
in connection with these USD liabilities.

In 2002, Argentina has experienced inflation of nearly 60% and interest
rates are presently 36% annually. While the Argentine government together with
the International Monetary Fund is seeking remedies, no assurance can be given
that the economic situation in Argentina will stabilize. The devaluation,
which commenced in January 2002, could make it more difficult for Argentine
companies to service their commercial and financial obligations due in or tied
to the USD. Any of the foregoing events and a continuation of the Argentine
recession may have a material adverse effect on the Companys business, results
of operations, financial condition, and ability to make payments on the
Companys indebtedness and on the Companys common stock market price. The
information included in the Companys financial statements, and other
documentation, does not contain the potential impact that might arise from the
situation described above and, accordingly, should be analyzed considering that
circumstance.

In addition, the Brazilian real, or $R, has declined from $R 2.31 to USD 1
at June 30, 2001 to $R 2.85 to USD 1 at June 30, 2002. Based on this decline,
the Companys Brazilian subsidiary, SED Brasil Distribuidora Ltda. (SED
Brazil), realized foreign currency translation losses as a component of
comprehensive loss in the year ended June 30, 2002 totaling approximately USD
$552,000. In connection with procuring inventories for resale in Brazil, SED
Brazil has USD denominated liabilities from time to time. SED Brazil recorded
transaction losses totaling $166,000 for the year ended June 30, 2002 in
connection with these USD liabilities. On October 4, 2002, the real had
further declined to $R 3.7 to USD 1. Had the October 4, 2002 exchange rate
been in effect at June 30, 2002, SED Brazil would have recognized additional
translation losses totaling approximately $115,000 and additional transaction
losses on USD denominated liabilities of approximately $729,000. The
information included in the Companys financial statements, and other
documentation, does not contain the potential impact that might arise from
declines in the Brazilian real after June 30, 2002, or those declines which may
occur in the future and, accordingly, should be analyzed considering that
circumstance.

The Companys cash equivalents and short-term investments and its
outstanding debt bear variable interest rates. The rates adjust to market
conditions. Changes in the market rate affects interest earned and paid by the
Company. The Company does not use derivative instruments to offset the
exposure to changes in interest rates. Changes in the interest rates are not
expected to have a material impact on the Companys results of operations.

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##### Table of Contents






Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS REPORT

Board of Directors
SED International Holdings, Inc.

We have audited the accompanying consolidated balance sheet of SED
International Holdings, Inc. and subsidiaries as of June 30, 2002 and 2001, and
the related consolidated statements of operations, shareholders equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 SED
International Holdings, Inc. and subsidiaries as of June 30, 2002 and 2001, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 3, effective July 1, 2001,
the Company adopted
Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

|                                  |  |                      
|--------------------------------- |  | ---------------------
|                                  |  | /s/ ERNST & YOUNG LLP
|                                 
|Atlanta, Georgia
October 11, 2002 |  |                      

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##### Table of Contents






INDEPENDENT AUDITORS REPORT

Board of Directors of SED International Holdings, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders equity, and cash flows of SED International Holdings, Inc. and
subsidiaries for the year ended June 30, 2000. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 provides a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of SED
International Holdings, Inc. and subsidiaries for the year ended June 30, 2000
in conformity with accounting principles generally accepted in the United
States of America.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
September 26, 2000

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##### Table of Contents






SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|--------------------------------------------------------------- | ------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ----------- | ---------- | ---------- | ---- | ----------- | ---------- | ----------- | 
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             | June 30,  
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |           
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             | 2002       |            | 2001
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |     
|                                                                |                                      |                                                                                                                                                                            |                                       | ASSETS                                                                                                     |             |            |            |      |             |            |             | 
|                                                               
|                                                               
|                                                               
|                                                               
|Current assets:                                                 |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Cash and cash equivalents                                                                                  |             | $          | 4,371,000  |      |             | $          | 4,243,000   | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Restricted cash                                                                                            |             |            | 800,000    |      |             |            | 700,000     | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Trade accounts receivable, less allowance for doubtful
accounts of $1,455,000 (2002) and $5,631,000 (2001) |             |            | 33,393,000 |      |             |            | 40,236,000  | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Inventories                                                                                                |             |            | 36,732,000 |      |             |            | 47,507,000  | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Deferred income taxes                                                                                      |             |            | 113,000    |      |             |            | 355,000     | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            |                                       | Other current assets                                                                                       |             |            | 1,364,000  |      |             |            | 2,349,000   | 
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total current assets                                                                                       |             |            | 76,773,000 |      |             |            | 95,390,000  | 
|                                                               
|                                                               
|                                                               
|                                                               
|Property and equipment-net                                      |                                      |                                                                                                                                                                            | 3,789,000                             |                                                                                                            |             |            | 5,708,000  |     
|                                                               
|                                                               
|                                                               
|                                                               
|Intangibles-net of accumulated amortization of $338,000 in 2001 |                                      |                                                                                                                                                                            |                                      |                                                                                                            |             |            | 6,368,000  |     
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total assets                                                                                               |             | $          | 80,562,000 |      |             | $          | 107,466,000 | 
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                | LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |            
|                                                               
|                                                               
|                                                               
|                                                               
|Current liabilities:                                            |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            | Trade accounts payable                |                                                                                                            | $           | 41,024,000 |            |      | $           | 55,449,000 |            
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            | Accrued and other current liabilities |                                                                                                            |             | 4,390,000  |            |      |             | 5,858,000  |            
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      |                                                                                                                                                                            | Short term subsidiary bank debt       |                                                                                                            |             | 2,396,000  |            |      |             | 3,544,000  |            
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total current liabilities                                                                                  |             |            | 47,810,000 |      |             |            | 64,851,000  | 
|                                                               
|                                                               
|                                                               
|                                                               
|Revolving credit facility                                       |                                      |                                                                                                                                                                            | 4,900,000                             |                                                                                                            |             |            |           |     
|Commitments                                                     |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |     
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total liabilities                                                                                          |             |            | 52,710,000 |      |             |            | 64,851,000  | 
|                                                               
|                                                               
|                                                               
|                                                               
|Shareholders equity:                                           |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Preferred stock, $1.00 par value;
129,500 shares authorized, none issued                                                                                                   |                                       |                                                                                                            |             |            |            |      |             |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Common stock, $.01 par value;
100,000,000 shares authorized, 5,563,206 (2002) and
5,563,206 (2001) shares issued, 3,929,510 (2002) and
4,030,477 (2001) shares outstanding |                                       |                                                                                                            | 56,000      |            |            |      | 56,000      |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Additional paid-in capital                                                                                                                                                 |                                       |                                                                                                            | 68,407,000  |            |            |      | 68,417,000  |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Accumulated deficit                                                                                                                                                        |                                       |                                                                                                            | (20,029,000 | )          |            |      | (9,224,000  | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Accumulated other comprehensive loss                                                                                                                                       |                                       |                                                                                                            | (7,499,000  | )          |            |      | (3,564,000  | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Treasury stock, 1,633,696 (2002) and 1,532,728 (2001) shares, at cost                                                                                                      |                                       |                                                                                                            | (12,861,000 | )          |            |      | (12,612,000 | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                      | Unearned compensation  stock awards                                                                                                                                       |                                       |                                                                                                            | (222,000    | )          |            |      | (458,000    | )         
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total shareholders equity                                                                                 |             |            | 27,852,000 |      |             |            | 42,615,000  | 
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 
|                                                                |                                      |                                                                                                                                                                            |                                       | Total liabilities and shareholders equity                                                                 |             | $          | 80,562,000 |      |             | $          | 107,466,000 | 
|                                                                |                                      |                                                                                                                                                                            |                                       |                                                                                                            |             |            |            |      |             |            |             | 

See notes to consolidated financial statements.

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##### Table of Contents






SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |      |           | 
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------- | ----------- | ------------------ | --------- | ---- | ----------- | ----- | --------- | - | ----------- | ---- | --------- | 
|                                                                                                     |                                                                                             |         |             | For the Year Ended
|                                                                                                     |                                                                                             |         |             | June 30,          
|                                                                                                     |                                                                                             |         |             |                   
|                                                                                                     |                                                                                             |         |             | 2002               |           | 2001 |             | 2000 
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |      
|Net sales                                                                                            |                                                                                             | $       | 456,388,000 |                    |           | $    | 525,338,000 |       |           | $ | 612,140,000 |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cost of sales                                                                                        |                                                                                             |         | 433,353,000 |                    |           |      | 494,383,000 |       |           |   | 573,818,000 |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|Gross profit                                                                                         |                                                                                             |         | 23,035,000  |                    |           |      | 30,955,000  |       |           |   | 38,322,000  |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Selling, general and administrative expenses                                                         |                                                                                             |         | 27,800,000  |                    |           |      | 35,249,000  |       |           |   | 35,597,000  |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Impairment charges                                                                                   |                                                                                             |         |             |                    |           |      | 6,547,000   |       |           |   |             |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Operating (loss) income                                                                              |                                                                                             |         | (4,765,000  | )                  |           |      | (10,841,000 | )     |           |   | 2,725,000   |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Interest expense-net                                                                                 |                                                                                             |         | 1,133,000   |                    |           |      | 660,000     |       |           |   | 458,000     |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|(Loss) earnings before income taxes
and before cumulative effect of a change
in accounting principle |                                                                                             |         | (5,898,000  | )                  |           |      | (11,501,000 | )     |           |   | 2,267,000   |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Income tax (benefit) expense                                                                         |                                                                                             |         | (1,390,000  | )                  |           |      | 344,000     |       |           |   | 578,000     |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|(Loss) earnings before cumulative effect
of a change in accounting principle                         |                                                                                             |         | (4,508,000  | )                  |           |      | (11,845,000 | )     |           |   | 1,689,000   |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Cumulative effect of a change in accounting
principle, net of income tax benefit of $75,000 |         |             | 6,297,000          |           |      |             |       |           |   |             |      |          
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|Net (loss) earnings                                                                                  |                                                                                             | $       | (10,805,000 | )                  |           | $    | (11,845,000 | )     |           | $ | 1,689,000   |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|Basic and diluted (loss) earnings per share:                                                         |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Before cumulative effect of a change in
accounting principle                                |         | $           | (1.17              | )         |      | $           | (3.27 | )         |   | $           | 0.50 |          
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Cumulative effect of a change in accounting
principle, net of tax                           |         | $           | (1.63              | )         |      |             |       |           |   |             |      |          
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|Net (loss) earnings                                                                                  |                                                                                             | $       | (2.80       | )                  |           | $    | (3.27       | )     |           | $ | 0.50        |     
|                                                                                                     |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|Weighted average number of shares outstanding:                                                       |                                                                                             |         |             |                    |           |      |             |       |           |   |             |     
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     |                                                                                             | Basic   |             |                    | 3,862,000 |      |             |       | 3,618,000 |   |             |      | 3,364,000 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     |                                                                                             | Diluted |             |                    | 3,862,000 |      |             |       | 3,618,000 |   |             |      | 3,386,000 | 

See notes to consolidated financial statements.

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##### Table of Contents






SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|---------------------------------------------- |  | ------------ | --------- | ---------- |  | -------- | ------ | -------- |  | ------------ | ---------- | -------------- |  | ----- | ----------- | ------------ |  | ------ | ---------- | - |  | ------------ | --------- | ------------- |  | - | ----------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                               |  | Common Stock |           |            |  |          |        | Retained |  | Accumulated  |            | Treasury Stock |  |       |             |              |  |        |            |  
|                                               |  |              |           | Additional |  | Earnings |        | Other    |  |              |            | Unearned       |  | Total
|                                               |  |              |           |            |  | Par      |        | Paid-In  |  | (Accumulated |            | Comprehensive  |  |       |             |              |  |        |            |   |  | Compensation |           | Stockholders'
|                                               |  | Shares       |           | Value      |  | Capital  |        | Deficit) |  | Loss         |            | Shares         |  | Cost  |             | Stock Awards |  | Equity
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |       
|BALANCE JUNE 30, 1999                          |  |              | 5,579,156 |            |  | $        | 56,000 |          |  | $            | 71,768,000 |                |  | $     | 932,000     |              |  | $      | (984,000   | ) |  |              | 2,145,929 |               |  | $ | (17,764,000 | ) |  | $ | (1,198,000 | ) |  | $ | 52,810,000  |  
|                                              
|                                              
|                                              
|                                              
|Stock awards issued                            |  |              |           |            |  |          |        |          |  |              | (180,000   | )              |  |       |             |              |  |        |            |   |  |              | (75,000   | )             |  |   | 621,000     |   |  |   | (441,000   | ) |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Amortization of stock awards                   |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   | 676,000    |   |  |   | 676,000     |  
|                                              
|                                              
|                                              
|                                              
|Stock awards cancelled                         |  |              | (15,700   | )          |  |          |        |          |  |              | (133,000   | )              |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   | 133,000    |   |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Treasury shares purchased                      |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              | 5,083     |               |  |   | (27,000     | ) |  |   |            |   |  |   | (27,000     | )
|                                              
|                                              
|                                              
|                                              
|Issuance of common stock
for business acquired |  |              |           |            |  |          |        |          |  |              | (855,000   | )              |  |       |             |              |  |        |            |   |  |              | (200,000  | )             |  |   | 1,655,000   |   |  |   |            |   |  |   | 800,000     |  
|                                              
|                                              
|                                              
|                                              
|Net earnings                                   |  |              |           |            |  |          |        |          |  |              |            |                |  |       | 1,689,000   |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | 1,689,000   |  
|                                              
|                                              
|                                              
|                                              
|Translation adjustments                        |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        | (599,000   | ) |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (599,000    | )
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|Comprehensive earnings                         |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | 1,090,000   |  
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|BALANCE JUNE 30, 2000                          |  |              | 5,563,456 |            |  |          | 56,000 |          |  |              | 70,600,000 |                |  |       | 2,621,000   |              |  |        | (1,583,000 | ) |  |              | 1,876,012 |               |  |   | (15,515,000 | ) |  |   | (830,000   | ) |  |   | 55,349,000  |  
|                                              
|                                              
|                                              
|                                              
|Stock awards issued                            |  |              |           |            |  |          |        |          |  |              | (1,241,000 | )              |  |       |             |              |  |        |            |   |  |              | (203,978  | )             |  |   | 1,687,000   |   |  |   | (446,000   | ) |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Amortization of stock awards                   |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   | 814,000    |   |  |   | 814,000     |  
|                                              
|                                              
|                                              
|                                              
|Stock awards cancelled                         |  |              | (250      | )          |  |          |        |          |  |              | (2,000     | )              |  |       |             |              |  |        |            |   |  |              | 770       |               |  |   | (2,000      | ) |  |   | 4,000      |   |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Treasury shares purchased                      |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              | 9,924     |               |  |   | (22,000     | ) |  |   |            |   |  |   | (22,000     | )
|                                              
|                                              
|                                              
|                                              
|Issuance of common stock
for business acquired |  |              |           |            |  |          |        |          |  |              | (940,000   | )              |  |       |             |              |  |        |            |   |  |              | (150,000  | )             |  |   | 1,240,000   |   |  |   |            |   |  |   | 300,000     |  
|                                              
|                                              
|                                              
|                                              
|Net loss                                       |  |              |           |            |  |          |        |          |  |              |            |                |  |       | (11,845,000 | )            |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (11,845,000 | )
|                                              
|                                              
|                                              
|                                              
|Translation adjustments                        |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        | (1,981,000 | ) |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (1,981,000  | )
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|Comprehensive loss                             |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (13,826,000 | )
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|BALANCE JUNE 30, 2001                          |  |              | 5,563,206 |            |  |          | 56,000 |          |  |              | 68,417,000 |                |  |       | (9,224,000  | )            |  |        | (3,564,000 | ) |  |              | 1,532,728 |               |  |   | (12,612,000 | ) |  |   | (458,000   | ) |  |   | 42,615,000  |  
|                                              
|                                              
|                                              
|                                              
|Stock awards issued                            |  |              |           |            |  |          |        |          |  |              | (99,000    | )              |  |       |             |              |  |        |            |   |  |              | (16,000   | )             |  |   | 126,000     |   |  |   | (27,000    | ) |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Amortization of stock
awards                   |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   | 158,000    |   |  |   | 158,000     |  
|                                              
|                                              
|                                              
|                                              
|Stock awards cancelled                         |  |              |           |            |  |          |        |          |  |              | 89,000     |                |  |       |             |              |  |        |            |   |  |              | 23,938    |               |  |   | (194,000    | ) |  |   | 105,000    |   |  |   |             |  
|                                              
|                                              
|                                              
|                                              
|Treasury shares purchased                      |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              | 93,030    |               |  |   | (181,000    | ) |  |   |            |   |  |   | (181,000    | )
|                                              
|                                              
|                                              
|                                              
|Net loss                                       |  |              |           |            |  |          |        |          |  |              |            |                |  |       | (10,805,000 | )            |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (10,805,000 | )
|                                              
|                                              
|                                              
|                                              
|Translation adjustments                        |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        | (3,935,000 | ) |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (3,935,000  | )
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|Comprehensive loss                             |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   | (14,740,000 | )
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  
|BALANCE JUNE 30, 2002                          |  |              | 5,563,206 |            |  | $        | 56,000 |          |  | $            | 68,407,000 |                |  | $     | (20,029,000 | )            |  | $      | (7,499,000 | ) |  |              | 1,633,696 |               |  | $ | (12,861,000 | ) |  | $ | (222,000   | ) |  | $ | 27,852,000  |  
|                                               |  |              |           |            |  |          |        |          |  |              |            |                |  |       |             |              |  |        |            |   |  |              |           |               |  |   |             |   |  |   |            |   |  |   |             |  

See notes to consolidated financial statements.

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##### Table of Contents






SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |            |            |             |  
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------- | -------------------------------------------------------------- | --------- | ------------------- | ---------- | ----------- | ---------- | ------- | ---------- | --------- | ---------- | ---------- | ----------- | -
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           | Year ended June 30,
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                    
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           | 2002                |            | 2001        |            | 2000   
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |        
|Operating activities:                                                                        |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Net (loss) earnings                                                                                               |                                                     | $                             | (10,805,000                                                    | )         |                     | $          | (11,845,000 | )          |         | $          | 1,689,000 |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:                        |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Impairment charges for long-lived assets, including cumulative
effect of a change in accounting principle in 2002 |                                                     |                               | 6,365,000                                                      |           |                     |            | 6,547,000   |            |         |            |           |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Depreciation and amortization                                                                                     |                                                     |                               | 2,496,000                                                      |           |                     |            | 2,824,000   |            |         |            | 2,554,000 |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Compensation stock awards                                                                                         |                                                     |                               | 158,000                                                        |           |                     |            | 814,000     |            |         |            | 676,000   |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Provision for losses on accounts receivable                                                                       |                                                     |                               | 1,638,000                                                      |           |                     |            | 4,476,000   |            |         |            | 3,808,000 |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Changes in assets and liabilities                                                                                 |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Restricted cash                                                |           |                     | (100,000   | )           |            |         |            |           |            |            | (700,000    | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Trade accounts receivable                                      |           |                     | 2,661,000  |             |            |         | 4,471,000  |           |            |            | 5,094,000   |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Inventories                                                    |           |                     | 707,000    |             |            |         | (4,774,000 | )         |            |            | 14,359,000  |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Refundable income taxes                                        |           |                     |            |             |            |         |            |           |            |            | 3,801,000   |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Deferred income taxes                                          |           |                     | 242,000    |             |            |         | 5,000      |           |            |            | (70,000     | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Other assets                                                   |           |                     | 1,661,000  |             |            |         | 537,000    |           |            |            | (447,000    | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Trade accounts payable                                         |           |                     | (1,562,000 | )           |            |         | 373,000    |           |            |            | (13,834,000 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Accrued and other current liabilities                          |           |                     | (2,106,000 | )           |            |         | (1,136,000 | )         |            |            | (411,000    | )
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                             |                                                                                                                   | Net cash provided by operating activities           |                               |                                                                | 1,355,000 |                     |            |             | 2,292,000  |         |            |           | 16,519,000 |           
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|Investing activities:                                                                        |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Purchase of equipment                                          |           |                     | (349,000   | )           |            |         | (842,000   | )         |            |            | (3,014,000  | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Purchase of businesses, net of cash acquired                   |           |                     |            |             |            |         | (1,462,000 | )         |            |            | (1,466,000  | )
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                             |                                                                                                                   | Net cash used in investing activities               |                               |                                                                | (349,000  | )                   |            |             | (2,304,000 | )       |            |           | (4,480,000 | )         
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|Financing activities:                                                                        |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Net proceeds of revolving credit facility                      |           |                     | 4,900,000  |             |            |         |            |           |            |            | (8,500,000  | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Net repayments of short term bank debt of foreign subsidiaries |           |                     | (174,000   | )           |            |         | (356,000   | )         |            |            | 435,000     |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     |                               | Purchase of treasury stock                                     |           |                     | (181,000   | )           |            |         | (22,000    | )         |            |            | (27,000     | )
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                             |                                                                                                                   | Net cash provided by (used in) financing activities |                               |                                                                | 4,545,000 |                     |            |             | (378,000   | )       |            |           | (8,092,000 | )         
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|Effect of exchange rate changes on cash                                                      |                                                                                                                   |                                                     | (5,423,000                    | )                                                              |           |                     | (1,981,000 | )           |            |         | (599,000   | )        
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|Increase (decrease) in cash and cash equivalents                                             |                                                                                                                   |                                                     | 128,000                       |                                                                |           |                     | (2,371,000 | )           |            |         | 3,348,000  |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash and cash equivalents                                                                    |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Beginning of year                                                                                                 |                                                     |                               | 4,243,000                                                      |           |                     |            | 6,614,000   |            |         |            | 3,266,000 |           
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|                                                                                             | End of year                                                                                                       |                                                     | $                             | 4,371,000                                                      |           |                     | $          | 4,243,000   |            |         | $          | 6,614,000 |           
|                                                                                             |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |           |           
|Supplemental Disclosures of Cash Flow Information -
Cash paid (received) during the year for |                                                                                                                   |                                                     |                               |                                                                |           |                     |            |             |            |         |            |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     | Interest
paid                 |                                                                | $         | 1,133,000           |            |             | $          | 514,000 |            |           | $          | 725,000    |            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                                                                                                   |                                                     | Income tax (refunds) payments |                                                                | $         | (777,000            | )          |             | $          | 414,000 |            |           | $          | (3,017,000 | )          

See notes to consolidated financial statements.

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##### Table of Contents



SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2002, 2001, and 2000

1.     Summary Of Significant Accounting Policies

Principles of Consolidation-The consolidated financial statements include the
accounts of SED International Holdings, Inc. and its wholly-owned subsidiaries,
SED International, Inc. (formerly Southern Electronics Distributors, Inc.), SED
International do Brasil Distribuidora, Ltda. (formerly SED Magna Distribuidora Ltda.), SED
Magna (Miami), Inc., SED International de Colombia Ltda., Intermaco S.R.L., and
E-store.com, Inc. (collectively the Company). All intercompany accounts and
transactions have been eliminated.

Description of Business-The Company is a wholesale distributor of
microcomputers, computer peripheral products and wireless telephone products,
serving value-added resellers and dealers in the United States and Latin
America. The Company does not require collateral from its customers.

Risks and Uncertainties-The Company has at various times incurred a decline in
net sales in the United States since fiscal 1998 and has incurred operating
losses in either its domestic or certain of its foreign operations at various
times during the past five fiscal years. Company management is continuing to
focus on increasing profit margins and reducing administrative and overhead
costs. There is no assurance the Company will be successful in connection with
these efforts. Failure to effectively implement the plan could adversely
affect the Companys profitability and financial condition.

Numerous factors and conditions impact the Companys ability to adequately
effect this plan, including, but not limited to, the following:



| |  |  | 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.                                                                                                                                                                                                                                                                                                   
|
| |  |  | 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.                                                                                                                                                             
|
| |  |  | 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 also maintains credit
insurance for customers located in the United States and most Latin
American countries (subject to certain terms and conditions).

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| |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Uncertain and possibly volatile economic and political
environment in Latin America- The general economic and political
environment in all 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 operated under
a formal credit facility with a bank for many years that was subject
to certain collateral limitations and contained certain covenants.
During October 2002 a new credit facility was obtained. The new
credit facility provides more flexibility compared to the prior
agreement but also includes covenants and other provisions. The
Company consistently violated the financial covenants associated with
the previous credit agreement, but was successful in negotiating
waivers of such violations. 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 credit facilities are further
described in Note 6.
|
| |  |  | Cash flows- The Companys continued operation in Latin America
may require additional capital infusion (in the form of advance notes
from the parent company or other debt borrowings by the subsidiary).
The October 2002 credit facility restricts the future funding by the
parent company of Latin American operations. Operating needs and
regulatory matters restrict the Companys ability to repatriate cash
flows to the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Revenue Recognition-Sales are recorded upon shipment. The Company allows its
customers to return product for exchange or credit subject to certain
limitations. Provision for estimated losses on such returns are recorded at
the time of sale. Funds received from vendors for product rebates are
accounted for as a reduction of product cost. Shipping and handling revenues
are included in net sales and shipping costs are included in cost of sales.

In 2000, the Emerging Issues Task Force of the FASB reached a consensus on
Issue 00-10, Accounting for Shipping and Handling Fees and Costs(the Issue).
The Company adopted the Issue in the fourth quarter of 2001 and prior year
financial statements have been reclassified to conform to the requirements of
the Issue. There was no effect on net income or loss as a result of the
adoption of the Issue. The net effect of the adoption of the Issue was a
increase in net sales of $1,331,000, $1,902,000, and $2,691,000 in the fiscal
years 2002, 2001 and 2000; an increase in cost of sales of $2,325,000,
$3,395,000 and $4,395,000 in fiscal years 2002, 2001 and 2000; a decrease in
selling, general, and administrative expenses of $994,000, $1,493,000, and
$1,704,000 in fiscal years 2002, 2001, 2000 respectively.

Concentrations of Credit Risk-Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash and trade accounts receivable. The Company generally does not require
collateral from its customers.

Use of Estimates-The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates, and those difference could be significant.

Cash Equivalents-Cash equivalents are short-term investments purchased with a
maturity of three months or less.

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##### Table of Contents



Allowance for Doubtful Accounts-An allowance for uncollectible accounts has
been established based on our collection experience and an assessment of the
collectibility of specific accounts. The Company evaluates the collectibility
of accounts receivable based on a combination of factors. Initially, the
Company estimates an allowance for doubtful accounts as a percentage of
accounts receivable based on historical collections experience. This initial
estimate is
periodically adjusted when the Company becomes aware of a specific customers
inability to meet its financial obligations (e.g., bankruptcy filing) or as a
result of changes in the overall aging of accounts receivable. Management does
not believe the estimate of the allowance for doubtful accounts is likely to be
adversely affected by any individual customer, since the Company is protected
by credit insurance on its significant customers, subject to certain deductible
limitations.

Inventories-Inventories are stated at the lower of cost (first-in, first-out
method) or market and include in-transit inventory of $3,383,000 at June 30,
2002 and $7,332,000 at June 30, 2001. Most of the Companys vendors allow for
either return of goods within a specified period (usually 90 days) or for
credits related to price protection. However, for other vendor relationships
and inventories, the Company is not protected from the risk of inventory loss.
Therefore, in determining the net realizable value of inventories, the Company
identifies slow moving or obsolete inventories that (1) are not protected by
our vendor agreements from risk of loss, and (2) are not eligible for return
under various vendor return programs. Based upon these factors, the Company
estimates the net realizable value of inventories and records any necessary
adjustments as a charge to cost of sales. If inventory return privileges or
price protection programs were discontinued in the future, or if vendors were
unable to honor the provisions of certain contracts which protect the Company
from inventory losses, the risk of loss associated with obsolete and slow
moving inventories would increase.

Property and Equipment-Property and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is computed
principally by the straight-line method over the estimated useful lives of the
related asset, which generally range from three to seven years. Leasehold
improvements are amortized ratably over the lesser of the useful lives of the
improvements or the related lease terms.

Intangible Assets-Intangible assets at June 30, 2001 consisted primarily of
goodwill. Goodwill represents the excess of the cost of an acquired business
over the fair value of net identifiable assets acquired and was amortized using
the straight-line method principally over 30 years. See Note 3.

Long-Lived Assets and Impairment-The Company periodically reviews long-lived
assets, including goodwill, for impairment based on judgments as to the fair
value of such assets primarily based upon future undiscounted cash flows from
related operations. Based on the information available, an impaired asset is
written down to its estimated fair market value generally measured by
discounting estimated future cash flows. See Note 3 and Note 5.

Foreign Currency Translation-The assets and liabilities of foreign operations
are translated at the exchange rates in effect at the balance sheet date, with
related translation gains or losses reported as a separate component of
shareholders equity. The results of foreign operations are translated at the
weighted average exchange rates for the year. Gains or losses resulting from
foreign currency transactions are included in the statement of earnings. See
Note 15.

Earnings Per Common Share (EPS)-Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed using the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares represent additional common
shares assumed to be issued. For the years ended June 30, 2002, 2001, and 2000
(fiscal 2002, 2001, and 2000, respectively) options for approximately
969,000, 321,000, and 1,321,000 common shares, respectively, were excluded from the
diluted EPS calculation due to their antidilutive effect.

Recently Issued Accounting Pronouncements Not Yet Adopted -In August 2001, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets(SFAS 144), which addresses financial accounting and reporting for the
impairment or disposal of long-

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lived assets and supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations for a disposal of a segment of a
business. SFAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The Company will adopt SFAS 144 as
of July 1, 2002 and does not expect that the adoption of the Statement will
have a significant impact on the Companys financial position and results of
operations.

Fair Value of Financial Instruments-Financial instruments that are subject to
fair value disclosure requirements are carried in the consolidated financial
statements at amounts that approximate their fair value.

Reclassifications-Certain prior year balances have been reclassified to conform
with the current year presentation.

2.     Acquisitions

On November 1, 1998, the Company acquired Intermaco S.R.L. (Intermaco), a
Buenos Aires, Argentina, distributor of Hewlett-Packard products and other
computer peripherals. Consideration for the acquisition consisted of an
initial cash payment at closing of $4,417,000, and two subsequent payments
based on a multiple of Intermacos net earnings for each of the succeeding
twelve-month periods. For the first twelve-month period ended October 31,
1999, the Company paid an additional $2,030,000, consisting of $1,230,000 in
cash and 200,000 shares of the Companys common stock valued at $800,000 in
February 2000. For the second twelve-month period ended October 31, 2000, the
Company paid in April 2001 an additional $1,400,000 in cash and issued 150,000
shares of the Companys common stock valued at $300,000. This acquisition was
recorded under the purchase method of accounting. The operating results of the
acquired business is included in the Companys consolidated statements of
operations from the acquisition date.

3.     Newly Adopted Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (SFAS 141) Business Combinations, and Statement No. 142
(SFAS 142), Goodwill and Other Intangible Assets. SFAS 141 prospectively
prohibits the pooling of interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 142 requires companies to
cease amortizing goodwill that existed at June 30, 2001 and establishes a new
method for testing goodwill for impairment on an annual basis (or an interim
basis if an event occurs that might reduce the fair value of a reporting unit
below its carrying value.) Any goodwill resulting from acquisitions completed
after June 30, 2001 is not amortized. SFAS 142 also requires that an
identifiable intangible asset that is determined to have an indefinite useful
economic life not be amortized, but separately tested for impairment using a
fair value based approach. The Company adopted SFAS 142 as of July 1, 2001.
However, the Company did not complete the required transitional impairment
tests until the second quarter ended December 31, 2001. During the three month
period ended December 31, 2001, the Company tested goodwill arising from the
Intermaco acquisition described in Note 2 as of July 1, 2001 primarily
utilizing a valuation technique relying on the expected present value of future
cash flows. As a result of this valuation process as well as the application
of the remaining provisions of SFAS 142, the Company recorded a pre-tax
transitional impairment loss of $6,372,000, representing the write-off of all
of the Companys existing goodwill. This write-off was reported as a
cumulative effect of a change in accounting principle, on a net of tax basis,
as of July 1, 2001 in the Companys consolidated statement of operations.
Prior to the adoption of SFAS 142 on July 1, 2001, the Company amortized this
goodwill over an estimated useful life of 30 years.

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If the Company accounted for goodwill consistent with the provisions of SFAS
142 in prior periods, the Companys net (loss) earnings as reported would have
been as follows after giving effect to the non-amortization provisions of SFAS
142, net of income taxes:

|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | --------- | 
|                                                                                                        |  | Year Ended June 30,
|                                                                                                        |  |                    
|                                                                                                        |  | 2002                |             | 2001 |  | 2000
|                                                                                                        |  |                     |             |      |  |     
|Reported (loss) earnings before the
cumulative effect of a change in
accounting principle               |  | $                   | (4,508,000  | )    |  | $    | (11,845,000 | ) |  | $ | 1,689,000 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Add: amortization expense                                                                               |  |                     |             |      |  |      | 433,000     |   |  |   | 373,000   | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|Adjusted (loss) earnings before the
cumulative effect of a change in accounting
principle, net of taxes |  |                     | (4,508,000  | )    |  |      | (11,412,000 | ) |  |   | 2,062,000 | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|Adjusted net (loss) earnings                                                                            |  | $                   | (10,805,000 | )    |  | $    | (11,412,000 | ) |  | $ | 2,062,000 | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|Basic and dilutive (loss) earnings per share:                                                           |  |                     |             |      |  |      |             |   |  |   |           | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Reported net (loss) earnings before the
cumulative effect of a change in accounting
principle           |  | $                   | (1.17       | )    |  | $    | (3.27       | ) |  | $ | .50       | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Add: amortization expense                                                                               |  |                     |             |      |  | $    | .12         |   |  |   | .11       | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|Adjusted (loss) earnings before the
cumulative effect of a change in accounting
principle, net of taxes |  | $                   | (1.17       | )    |  | $    | (3.15       | ) |  | $ | .61       | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 
|Adjusted net (loss) earnings                                                                            |  | $                   | (2.80       | )    |  | $    | (3.15       | ) |  | $ | .61       | 
|                                                                                                        |  |                     |             |      |  |      |             |   |  |   |           | 

4.     Property and equipment

Property and equipment are comprised of the following:

|                        |                               |   |            |            |      |   |            |            | 
|----------------------- | ----------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | 
|                        |                               |   | June 30,  
|                        |                               |   |           
|                        |                               |   | 2002       |            | 2001
|                        |                               |   |            |            |     
|Property and equipment: |                               |   |            |            |      |   |            |           
|                       
|                       
|                       
|                       
|                        | Furniture and equipment       |   | $          | 12,515,000 |      |   | $          | 13,475,000 | 
|                       
|                       
|                       
|                       
|                        | Leasehold improvements        |   |            | 1,789,000  |      |   |            | 1,312,000  | 
|                       
|                       
|                       
|                       
|                        | Other                         |   |            | 598,000    |      |   |            | 231,000    | 
|                        |                               |   |            |            |      |   |            |            | 
|                        |                               |   | 14,902,000 |            |      |   | 15,018,000 |           
|                       
|                       
|                       
|                       
|                        | Less accumulated depreciation |   |            | 11,113,000 |      |   |            | 9,310,000  | 
|                        |                               |   |            |            |      |   |            |            | 
|                        |                               | $ | 3,789,000  |            |      | $ | 5,708,000  |           
|                        |                               |   |            |            |      |   |            |            | 

Depreciation expense for property and equipment totalled $2,356,000,
$2,391,000, and $2,181,000 for the years ended June 30, 2002, 2001 and 2000,
respectively.

5.     Exit
Costs and  Impairment Charges

In January 2002, the Company decided to discontinue the computer asset recovery
operation of E-Store.com started in fiscal year 2001. In connection with this
decision, the Company recorded expenses totalling $362,000 related to lease
termination of $249,000, severance costs of $60,000, and loss on fixed asset
disposal of $53,000. Loss on fixed asset disposal, severance expenses, and the
lease and utility termination expenses have been classified as facility
closure. All inventory-related exit costs have been classified as cost of
goods sold in the accompanying consolidated statement of operations. The net
loss for the years ended June 30, 2002 and 2001 for the E-Store.com division
was approximately $1,282,000 and $362,000, respectively.

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In the fourth quarter of the year ended June 30, 2001, the Company recorded
non-cash facility closure and impairment charges totaling $6,547,000. The
non-cash accounting charge was determined based on a detailed analysis of the
Companys long-lived assets and their estimated future cash flows. The
analysis resulted in the identification and measurement of an impairment loss
of $5,947,000 in goodwill and approximately $600,000 in property and equipment.
Substantially all of the goodwill impairment relates to the Companys acquired
export distribution rights in connection with the fiscal 1996 acquisition of
substantially all of the net assets of U.S. Computer of North America, Inc.
This impairment results from a gradual, but significant, decline in sales
volumes and adverse changes in the competitive environment for the distribution
of the corresponding product lines. The goodwill is not considered recoverable
through other means. The impairment loss of approximately $600,000 relates to
the Companys property and equipment in Brazil ($400,000) as well as certain
domestic assets ($200,000). Management estimated the undiscounted cash flows
to be
generated by the assets for the respective operations and compared them to
their carrying values. Since the estimated undiscounted future cash flows were
less than the carrying values, the carrying values were adjusted to estimated
fair values.

6.     Credit Facilities

On October 7, 2002, the Company entered into a three year, $35 million credit
facility with Fleet Capital Corporation (the Fleet Agreement). The Fleet
Agreement provides for revolving borrowings up to $35 million based upon the
Companys eligible domestic accounts receivable and inventory as defined
therein. Borrowings under the Fleet Agreement accrue interest based upon a
variety of interest rate options depending upon the computation of availability
as defined therein. The interest rates range from the prime rate to the prime
rate plus a margin of .5%, or the Federal funds rate plus a margin of .5%, or
LIBOR plus a margin ranging from 2% to 2.75%. The Company is also subject to a
commitment fee ranging from .25% to .5% on the unused portion of the facility.
Interest is payable monthly. Borrowings under the Fleet Agreement are secured
by substantially all domestic assets of the Company and 65% of each of the
Companys shares in its foreign subsidiaries, respectively. The Fleet
Agreement matures on October 7, 2005.

The Fleet Agreement also contains
certain covenants which, among other things,
requires that if the Companys availability is less than $5 million at any time
during the agreement, the Company must restrict or limit capital expenditures
and advances to the Companys Latin American subsidiaries. Also, if the $5
million threshhold is breached, the Fleet Agreement requires the maintenance of
certain levels of earnings before interest, taxes, depreciation, and
amortization, requires maintenance of minimum fixed charge coverage ratio
beginning in the second quarter of fiscal 2004, and requires the maintenance of
minimum tangible net worth, as defined, of negative $5 million. Based upon the
Companys experience in fiscal 2002 and through the date of entering into the
Fleet Agreement, the Company would have had at least $5 million in availability
under the Fleet Agreement. The Companys availability under the Fleet
Agreement was $11.3 million on October 7, 2002.

Until October 2002, the Company had a credit agreement with Wachovia Bank N.A.
(Wachovia), which provided for borrowings under a line of credit of up to $25
million and $35 million at June 30, 2002 and 2001, respectively. At June 30,
2002, the Company had $4.9 million outstanding under this facility. Maximum
borrowings under the credit agreement were generally based on eligible accounts
receivable and inventory. Available borrowings under this agreement, based on
collateral limitations at June 30, 2002 and 2001 were $9.9 million and $23.5
million, respectively ($9.5 million of which would only be available to
finance obligations due to IBM Global Financing for both years, if necessary).

The Wachovia credit agreement required maintenance of certain minimum working
capital and other financial ratios and has certain dividend restrictions. The
credit agreement required a commitment fee of .50% of the unused commitment.
Average borrowings, maximum borrowings and the weighted average interest rate
for fiscal 2002 were $4,961,000, $19,100,000, and 5.67% respectively. Average
borrowings, maximum borrowings and the weighted average interest rate for
fiscal 2001 were $1,200,000, $10,000,000 and 6.75%, respectively. At June 30,
2002 the Company was not in compliance with certain financial covenants under
the Wachovia agreement. However, the Company subsequently obtained a new
revolving credit agreement as previously discussed. Since the June 30, 2002
borrowings outstanding under the Wachovia agreement were subsequently
refinanced on a long-term basis under the Fleet Agreement, all such borrowings
have been classified as non-current in the June 30, 2002 balance sheet.

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Subsidiary Bank Debt -The
Companys subsidiary, SED International do Brasil Distribuidora Ltda. operates under line of credit agreements with several Brazilian banks.
Interest rates on borrowings are negotiated at the time of borrowing. The
credit agreements are secured by an $800,000 certificate of deposit and the
subsidiarys accounts receivable and requires the maintenance of certain
financial ratios. At June 30, 2002, there were $2,396,000 of outstanding
borrowings under these
lines of credit. Average borrowings, maximum borrowings and the weighted
average monthly interest rate under these loan agreements for fiscal 2002 were
$2,749,000, $3,685,000, and 1.94%, respectively. At June 30, 2001, the Company
had $3.3 million of borrowings outstanding under these facilities. Average
borrowings, maximum borrowings and the weighted average monthly interest rate
under these loan agreements for fiscal 2001 were $2.5 million, $4.0 million and
1.62%, respectively. The line of credit agreements mature generally within 90
days of issue.

In March 2001, the Companys subsidiary, SED International de Colombia Ltda.,
entered into a six month loan with a Colombian bank. Interest rates on
borrowings are negotiated at the time of borrowing. The credit agreement was
secured by a savings deposit of $.7 million held in a bank in the United
States. At June 30, 2002, the Company had no borrowings under a similar
facility. At June 30, 2001, the Company had $.3 million of borrowings
outstanding under the March 2001 facility. Average borrowings, maximum
borrowings and the weighted average monthly interest rate under this loan
agreement for fiscal 2001 were $.4 million, $.6 million and 2.32%,
respectively.

Following is a summary of the Companys short-term foreign subsidiary bank
debt:

|                                                |  |          |           |          |  |   |           | 
|----------------------------------------------- |  | -------- | --------- | -------- |  | - | --------- | 
|                                                |  | June 30, |           | June 30,
|                                                |  | 2002     |           | 2001    
|                                                |  |          |           |         
|SED International do Brasil Distribuidora Ltda. |  | $        | 2,396,000 |          |  | $ | 3,261,000 | 
|                                               
|                                               
|                                               
|                                               
|SED International de Colombia Ltda.             |  |          |           |          |  |   | 283,000   | 
|                                                |  |          |           |          |  |   |           | 
|                                                |  | $        | 2,396,000 |          |  | $ | 3,544,000 | 
|                                                |  |          |           |          |  |   |           | 

The carrying value of all bank debt at June 30, 2002 and 2001 approximates its
fair value based on interest rates that are believed to be available to the
Company for debt with similar provisions.

7.     Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Companys deferred tax assets are as follows:

|                                                    |  |          |             |      |  |   |             |  
|--------------------------------------------------- |  | -------- | ----------- | ---- |  | - | ----------- | -
|                                                    |  | June 30,
|                                                    |  |         
|                                                    |  | 2002     |             | 2001
|                                                    |  |          |             |     
|U.S. federal and state operating loss carryforwards |  | $        | 10,998,000  |      |  | $ | 8,907,000   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Foreign operating loss carryforwards                |  |          | 3,474,000   |      |  |   | 1,905,000   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Reserves not currently deductible                   |  |          | 1,520,000   |      |  |   | 3,618,000   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Valuation allowance                                 |  |          | (15,879,000 | )    |  |   | (14,075,000 | )
|                                                    |  |          |             |      |  |   |             |  
|                                                    |  | $        | 113,000     |      |  | $ | 355,000     |  
|                                                    |  |          |             |      |  |   |             |  

At June 30, 2002, the Company has gross net operating loss carryforwards for
federal and state income tax purposes in the United States of approximately $25
million and $42 million, respectively, expiring at various dates through 2022
and gross net operating loss carryforwards for income tax purposes in Brazil of
approximately $10 million which generally do not expire. At June 30, 2002
and 2001, the Company has recorded a valuation allowance for principally all
deferred tax assets, except for those relating to Intermaco S.R.L., as there is
no assurance that these assets will be realized.

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Components of income tax expense (benefit) are as follows:

|          |         |   |                     |            |      |   |         |         |  |   |         |         |  
|--------- | ------- | - | ------------------- | ---------- | ---- | - | ------- | ------- |  | - | ------- | ------- | -
|          |         |   | Year Ended June 30,
|          |         |   |                    
|          |         |   | 2002                |            | 2001 |   | 2000   
|          |         |   |                     |            |      |   |        
|Current:  |         |   |                     |            |      |   |         |         |  |   |         |        
|         
|         
|         
|         
|          | Federal |   | $                   | (1,882,000 | )    |   |         |         |  |   |         |         |  
|         
|         
|         
|         
|          | State   |   |                     |            |      |   |         |         |  |   |         |         |  
|         
|         
|         
|         
|          | Foreign |   |                     | 175,000    |      |   | $       | 339,000 |  |   |         | 648,000 |  
|          |         |   |                     |            |      |   |         |         |  |   |         |        
|          |         |   | (1,707,000          | )          |      |   | 339,000 |         |  |   | 648,000 |        
|          |         |   |                     |            |      |   |         |         |  |   |         |        
|Deferred: |         |   |                     |            |      |   |         |         |  |   |         |        
|         
|         
|         
|         
|          | Federal |   |                     |            |      |   |         |         |  |   |         |         |  
|         
|         
|         
|         
|          | State   |   |                     |            |      |   |         |         |  |   |         |         |  
|         
|         
|         
|         
|          | Foreign |   |                     | 242,000    |      |   |         | 5,000   |  |   |         | (70,000 | )
|          |         |   |                     |            |      |   |         |         |  |   |         |        
|          |         |   | 242,000             |            |      |   | 5,000   |         |  |   | (70,000 | )      
|          |         |   |                     |            |      |   |         |         |  |   |         |        
|          |         | $ | (1,465,000          | )          |      | $ | 344,000 |         |  | $ | 578,000 |        
|          |         |   |                     |            |      |   |         |         |  |   |         |        

The Companys effective tax rates differ from statutory rates as follows:

|                                                      |  |                     |       |      |  |      |       |    |  |  |       |  
|----------------------------------------------------- |  | ------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | -
|                                                      |  | Year Ended June 30,
|                                                      |  |                    
|                                                      |  | 2002                |       | 2001 |  | 2000
|                                                      |  |                     |       |      |  |     
|Statutory federal rate (benefit)                      |  |                     | (34.0 | )%   |  |      | (34.0 | )% |  |  | 34.0  | %
|                                                     
|                                                     
|                                                     
|                                                     
|State income taxes net of federal income tax benefits |  |                     | (7.5  | )    |  |      | (3.2  | )  |  |  | 3.6   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Non-deductible goodwill amortization                  |  |                     |      |      |  |      | 15.1  |    |  |  | 3.6   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Net operating loss carryback                          |  |                     | (13.2 | )    |  |      |      |    |  |  |      |  
|                                                     
|                                                     
|                                                     
|                                                     
|Valuation allowance                                   |  |                     | 30.6  |      |  |      | 24.7  |    |  |  | (51.6 | )
|                                                     
|                                                     
|                                                     
|                                                     
|Other                                                 |  |                     | (.7   | )    |  |      | .5    |    |  |  | 35.9  |  
|                                                      |  |                     |       |      |  |      |       |    |  |  |       |  
|                                                      |  |                     | (24.8 | )%   |  |      | 3.1   | %  |  |  | 25.5  | %
|                                                      |  |                     |       |      |  |      |       |    |  |  |       |  

The valuation allowance increased (decreased) during fiscal 2002, 2001, and
2000 by $1,804,000, $1,844,000, and $(1,172,000), respectively.

8.     Lease Obligations

SED International leases its main office facility under an operating lease with
an entity owned by certain minority shareholders and officers of the Company.
Rent expense for this facility for the years ended June 30, 2002, 2001, and
2000 was $267,000, $259,000, and $234,000 respectively. This lease, as of
October 2002, provides for an annual rent of $277,000 with annual increases of
3% through September 2006. The Company leases additional distribution center
and sales office space under other operating leases. Rent expense, net of
sublease rental income, under all operating leases for the years ended June 30,
2002, 2001, and 2000 was $1,359,000, $1,622,000, and $1,736,000, respectively.

The Company is obligated under lease agreements for its closed Harrisburg
distribution center and portions of other distribution centers which are not
being utilized by the Company. Most of such distribution space has been sublet
to third parties. Sublease rental income was $494,000, $738,000, and $240,000
for the years ended June 30, 2002, 2001, and 2000, respectively.

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As of June 30, 2002, future minimum rental commitments under noncancelable
operating leases and rental income under sublease agreements are:

|                     |  |        |           |               |  |   |         | 
|-------------------- |  | ------ | --------- | ------------- |  | - | ------- | 
|                     |  | Future |           | Sublease     
|Year Ending June 30, |  | Rent   |           | Rental Income
|                     |  |        |           |              
|2003                 |  | $      | 1,559,000 |               |  | $ | 377,000 | 
|                    
|                    
|                    
|                    
|2004                 |  |        | 1,241,000 |               |  |   |         | 
|                    
|                    
|                    
|                    
|2005                 |  |        | 565,000   |               |  |   |         | 
|                    
|                    
|                    
|                    
|2006                 |  |        | 300,000   |               |  |   |         | 
|                    
|                    
|                    
|                    
|2007                 |  |        | 75,000    |               |  |   |         | 
|                     |  |        |           |               |  |   |         | 
|                    
|                    
|                    
|                    
|                     |  | $      | 3,740,000 |               |  | $ | 377,000 | 
|                     |  |        |           |               |  |   |         | 

9. Shareholders Equity

Common StockDuring fiscal years 2002, 2001, and 2000, the Company repurchased
93,030, 9,924, and 5,083 shares, respectively, of its common stock in open
market and private transactions for $181,000, $22,000, and $27,000,
respectively.

Stock OptionsThe Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees(APB 25), and
related Interpretations in accounting for its employee stock options because,
as discussed below, the alternative fair value accounting for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, no compensation expense is
recognized if the exercise price of the Companys employee stock options equals
the market price of the underlying stock on the date of grant.

The Company maintains stock option plans under which 1,317,617 shares of common
stock have been reserved at June 30, 2002 for outstanding and future incentive
and nonqualified stock option grants as well as stock awards to directors,
officers, and key employees. Incentive stock options must be granted at not less than the fair market value
of the common stock at the date of grant and expire 10 years from the date of
grant. Nonqualified stock options may be granted at a price of not less than
85% of the fair market value of the common stock at the date of grant and
expire 20 years from the date of grant. Options granted under the plans are
exercisable in installments ranging from 20% to 50% per year. Upon the
occurrence of a change of control (as defined), all outstanding options
become immediately exercisable.

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Stock option activity, including options issued to non-employee directors, and
related information under these plans is as follows:

|                                      |           |  |           |            |                |   |          |      | 
|------------------------------------- | --------- |  | --------- | ---------- | -------------- | - | -------- | ---- | 
|                                      |           |  |           |            |                |   | Weighted
|                                      |           |  |           |            |                |   | Average 
|                                      |           |  | Shares    |            | Exercise Price
|                                      |           |  |           |            |               
|Shares under options at June 30, 1999 |           |  | 839,168   |            |                | $ | 9.76     |     
|                                     
|                                     
|                                     
|                                     
|                                      | Granted   |  |           | 644,025    |                |   |          | 5.99 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Cancelled |  |           | (156,800   | )              |   |          | 7.38 | 
|                                      |           |  |           |            |                |   |          |     
|Shares under options at June 30, 2000 |           |  | 1,326,393 |            |                |   | 10.18    |     
|                                     
|                                     
|                                     
|                                     
|                                      | Granted   |  |           | 83,550     |                |   |          | 5.45 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Cancelled |  |           | (1,088,549 | )              |   |          | 8.58 | 
|                                      |           |  |           |            |                |   |          |     
|Shares under options at June 30, 2001 |           |  | 321,394   |            |                |   | 14.14    |     
|                                     
|                                     
|                                     
|                                     
|                                      | Granted   |  |           | 746,500    |                |   |          | 1.91 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Cancelled |  |           | (99,300    | )              |   |          | 4.00 | 
|                                      |           |  |           |            |                |   |          |     
|Shares under options at June 30, 2002 |           |  | 968,594   |            |                |   | 3.17     |     
|                                      |           |  |           |            |                |   |          |     
|Options exercisable at June 30:       |           |  |           |            |                |   |          |     
|                                     
|                                     
|                                     
|                                     
|                                      | 2000      |  |           | 595,097    |                |   | $        | 9.78 | 
|                                     
|                                     
|                                     
|                                     
|                                      | 2001      |  |           | 103,868    |                |   |          | 6.86 | 
|                                     
|                                     
|                                     
|                                     
|                                      | 2002      |  |           | 802,738    |                |   |          | 2.96 | 

The following table summarizes information pertaining to all options
outstanding and exercisable at June 30, 2002:

|                |                |             |                     |              |                     |          |           |             |          |          |   |      |  |  |         |         |  |  |   |      | 
|--------------- | -------------- | ----------- | ------------------- | ------------ | ------------------- | -------- | --------- | ----------- | -------- | -------- | - | ---- |  |  | ------- | ------- |  |  | - | ---- | 
|                |                |             | Outstanding Options |              | Exercisable Options
|                |                |             |                     |              |                    
|                |                |             |                     |              |                     |          | Weighted  |             |          |          |   |      |  |  |         |         |  |  |  
|                |                |             |                     |              |                     |          | Average   |             | Weighted |          |   |      |  |  |         |         | 
|                |                |             |                     |              |                     |          | Remaining |             | Average  |          |   |      |  |  | Average
|Range of        |                | Number      |                     | Contractual  |                     | Exercise |           | Number      |          | Exercise
|Exercise Prices |                | Outstanding |                     | Life (Years) |                     | Price    |           | Exercisable |          | Price   
|                |                |             |                     |              |                     |          |           |             |          |         
|                | $1.19 - $3.00  |             |                     | 730,750      |                     |          |           | 9.74        |          |          | $ | 1.92 |  |  |         | 655,052 |  |  | $ | 1.96 | 
|               
|               
|               
|               
|                | $5.88
- $10.13 |             |                     | 237,844      |                     |          |           | 5.06        |          |          | $ | 6.41 |  |  |         | 147,686 |  |  | $ | 6.41 | 

Fair ValueThe weighted average fair value of options granted in fiscal 2002,
2001, and 2000 was $1.92, $4.70, and $3.80, respectively, using the
Black-Scholes option pricing model with the following assumptions:

|                        |  |                     |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | ------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  | Year Ended June 30,
|                        |  |                    
|                        |  | 2002                |      | 2001 |  | 2000
|                        |  |                     |      |      |  |     
|Dividend yield          |  |                     | 0.0  | %    |  |      | 0.0  | % |  |  | 0.0  | %
|                       
|                       
|                       
|                       
|Expected volatility     |  |                     | 61.5 | %    |  |      | 84.5 | % |  |  | 57.0 | %
|                       
|                       
|                       
|                       
|Risk free interest rate |  |                     | 4.9  | %    |  |      | 5.3  | % |  |  | 5.9  | %
|                       
|                       
|                       
|                       
|Expected life, in years |  |                     | 10.0 |      |  |      | 10.0 |   |  |  | 6.9  |  

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If compensation cost for grants under the Companys stock option plans in
fiscal 2002, 2001, and 2000 had been determined based on the fair value at the
date of grant consistent with the method of SFAS 123, the Companys pro forma
net (loss) earnings and net (loss) earnings per share would have been as
follows:

|                                                                 |  |                     |             |      |  |      |             |   |  |   |         | 
|---------------------------------------------------------------- |  | ------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | ------- | 
|                                                                 |  | Year Ended June 30,
|                                                                 |  | 2002                |             | 2001 |  | 2000
|                                                                 |  |                     |             |      |  |     
|Pro forma net earnings (loss)                                    |  | $                   | (11,580,000 | )    |  | $    | (12,607,000 | ) |  | $ | 143,000 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Pro forma net earnings
(loss) per common share
basic and diluted |  | $                   | (3.00       | )    |  | $    | (3.48       | ) |  | $ | 0.04    | 

Results may vary depending on the assumptions within the model.

Restricted Stock- The Companys stock option plan established in 1999 also
permits the grant of restricted stock awards. Awards which have been granted
under this 1999 plan vest ratably over two years. Restricted stock activity is
as follows:

|                                             |          |  |                     |         |      |  |         |          |   |  |         |         |  
|-------------------------------------------- | -------- |  | ------------------- | ------- | ---- |  | ------- | -------- | - |  | ------- | ------- | -
|                                             |          |  | Year Ended June 30,
|                                             |          |  |                    
|                                             |          |  | 2002                |         | 2001 |  | 2000   
|                                             |          |  |                     |         |      |  |        
|Shares of restricted stock
beginning of year |          |  | 158,358             |         |      |  | 204,500 |          |   |  | 168,950 |        
|                                            
|                                            
|                                            
|                                            
|                                             | Issued   |  |                     | 16,000  |      |  |         | 203,978  |   |  |         | 75,000  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Vested   |  |                     | (53,432 | )    |  |         | (249,100 | ) |  |         | (23,750 | )
|                                            
|                                            
|                                            
|                                            
|                                             | Canceled |  |                     | (23,938 | )    |  |         | (1,020   | ) |  |         | (15,700 | )
|                                             |          |  |                     |         |      |  |         |          |   |  |         |        
|Shares of restricted stock
end of year       |          |  | 96,988              |         |      |  | 158,358 |          |   |  | 204,500 |        
|                                             |          |  |                     |         |      |  |         |          |   |  |         |        

The value of restricted stock awards is determined using the market price of
the Companys common stock on the grant date and is amortized over the vesting
period. The unamortized portion of such awards is deducted from stockholders
equity.

Stockholder Rights
AgreementIn October 1996, the Company adopted a
stockholder rights agreement under which one common stock purchase right is
presently attached to and trades with each outstanding share of the Companys
common stock. The rights become exercisable and transferable apart from the
common stock ten days after a person or group, without the Companys consent,
acquires beneficial ownership of 12% or more of the Companys common stock or
announces or commences a tender or exchange offer that could result in 12%
ownership (the Change Date). Once exercisable, each right entitles the holder
to purchase shares of common stock in number equal to eight multiplied by the
product of the number of shares outstanding on the Change Date divided by the
number of rights outstanding on the Change Date not owned by the person or
group and at a price of 20% of the per share market value as of the Change
Date. The rights have no voting power and, until exercisable, no dilutive
effect on net earnings per common share. The rights expire in October 2006 and
are redeemable at the discretion of the Companys Board of Directors at $.01
per right.

Exchange PlanIn February 2001, the Company made an offer to employees of the
Company to exchange stock options they previously received in exchange for
awards of restricted stock under the Companys 1997 and 1999 Stock Option Plan.
Under the exchange, an employee received one share of restricted common stock
for each option to purchase five shares of common stock surrendered. A
similar option exchange offer was made to non-employee Directors. Based on the
5 for 1 exchange ratio, 1,019,889 options were exchanged for awards of
203,978 shares of restricted common stock. The exchanged options had an
exercise price from $5.25 to $10.13 and the average exercise price for the
exchanged options was $8.78. The total valuation placed on the awards issued
was approximately $446,000, based on the closing price of the common stock of
$2.19 on February 28, 2001. The exchange increased the number of shares of
the Companys common stock outstanding by 5.5%, but reduced potential dilutive
impact on the Companys common stock associated with the 1,019,889 options
exchanged and cancelled. Options returned became available for re-issuance.

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The exchange valuation of $446,000 resulted in non-cash deferred compensation
in the amount of $413,000 for the employees portion of the exchange, and
expense of $33,000 for the immediate vesting of the outside Directors
restricted stock.

Subsequent to the exchange settlement, stock awards issued to certain officers
of the Company and its subsidiary, SED International, Inc., were accelerated
and immediately vested. The accelerated vesting resulted in the recognition of
non-cash awards compensation expense of $462,000 in 2001.

10. Employee Benefit Plan

SED International, Inc. maintains the SED International, Inc. 401(k) Plan, a
voluntary retirement benefit program. All employees of SED International, Inc.
who have attained the age of 21 are eligible to participate after completing
one year of service. Employees are immediately vested in their own
contributions. Prior to July 1, 2002, SED International, Inc. matched a portion
of employee contributions to the plan. Effective July 1, 2002, SED
International revised the plan to provide 401K matching for its employees at
the discretion of the Board of Directors and is no longer required to match
401K funds. Vesting in SED International, Inc.s matching contributions, if
any, is based on years of continuous service. SED International, Inc.s
matching contribution expense for the years ended June 30, 2002, 2001, and 2000
was $93,000, $125,000 and $137,000, respectively.

11. Segment Information

The Company operates in one business segment as a wholesale distributor of
microcomputer and wireless telephone products. The Company operates and
manages in two geographic regions, the United States and Latin America.

Financial information by geographic region is as follows:

|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|------------------------ |  | ------------- | ----------- | ------------- |  | ------------ | ----------- | ------------ |  | - | ----------- | - |  | - | ----------- | -
|                         |  | United States |             | Latin America |  | Eliminations |             | Consolidated
|                         |  |               |             |               |  |              |             |             
|Fiscal 2002              |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|                        
|                        
|                        
|                        
|Net sales:               |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|                        
|                        
|                        
|                        
|Unaffiliated customers   |  | $             | 385,912,000 |               |  | $            | 70,476,000  |              |  |   |             |   |  | $ | 456,388,000 |  
|                        
|                        
|                        
|                        
|Foreign subsidiaries     |  |               | 913,000     |               |  |              |             |              |  | $ | (913,000    | ) |  |   |             |  
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|Total                    |  | $             | 386,825,000 |               |  | $            | 70,476,000  |              |  | $ | (913,000    | ) |  | $ | 456,388,000 |  
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|Gross profit             |  | $             | 14,348,000  |               |  | $            | 8,510,000   |              |  | $ | 177,000     |   |  | $ | 23,035,000  |  
|                        
|                        
|                        
|                        
|Loss from operations     |  |               | (4,302,000  | )             |  |              | (463,000    | )            |  |   |             |   |  |   | (4,765,000  | )
|                        
|                        
|                        
|                        
|Total assets at year-end |  |               | 153,410,000 |               |  |              | 12,199,000  |              |  |   | (77,957,000 | ) |  |   | 80,562,000  |  
|                         |  |               |             |               |  |              |             |              |  |   |             |   | 
|                        
|                        
|                        
|                        
|Fiscal 2001              |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|                        
|                        
|                        
|                        
|Net sales:               |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|                        
|                        
|                        
|                        
|Unaffiliated customers   |  | $             | 399,733,000 |               |  | $            | 125,605,000 |              |  |   |             |   |  | $ | 525,338,000 |  
|                        
|                        
|                        
|                        
|Foreign subsidiaries     |  |               | 1,585,000   |               |  |              |             |              |  | $ | (1,585,000  | ) |  |   |             |  
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|Total                    |  | $             | 401,318,000 |               |  | $            | 125,605,000 |              |  | $ | (1,585,000  | ) |  | $ | 525,338,000 |  
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             |  
|Gross profit             |  | $             | 18,911,000  |               |  | $            | 12,044,000  |              |  |   |             |   |  | $ | 30,955,000  |  
|                        
|                        
|                        
|                        
|Loss from operations     |  |               | (9,188,000  | )             |  |              | (1,653,000  | )            |  |   |             |   |  |   | (10,841,000 | )
|                        
|                        
|                        
|                        
|Total assets at year-end |  |               | 98,017,000  |               |  |              | 30,021,000  |              |  | $ | (20,572,000 | ) |  |   | 107,466,000 |  

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|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             | 
|------------------------ |  | ------------- | ----------- | ------------- |  | ------------ | ----------- | ------------ |  | - | ----------- | - |  | - | ----------- | 
|                         |  | United States |             | Latin America |  | Eliminations |             | Consolidated
|                         |  |               |             |               |  |              |             |             
|                        
|                        
|                        
|                        
|Fiscal 2000              |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             | 
|                        
|                        
|                        
|                        
|Net sales:               |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             | 
|                        
|                        
|                        
|                        
|Unaffiliated customers   |  | $             | 490,061,000 |               |  | $            | 122,079,000 |              |  |   |             |   |  | $ | 612,140,000 | 
|                        
|                        
|                        
|                        
|Foreign subsidiaries     |  |               | 3,528,000   |               |  |              |             |              |  | $ | (3,528,000  | ) |  |   |             | 
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             | 
|Total                    |  | $             | 493,589,000 |               |  | $            | 122,079,000 |              |  | $ | (3,528,000  | ) |  | $ | 612,140,000 | 
|                         |  |               |             |               |  |              |             |              |  |   |             |   |  |   |             | 
|Gross profit             |  | $             | 25,262,000  |               |  | $            | 13,060,000  |              |  |   |             |   |  | $ | 38,322,000  | 
|                        
|                        
|                        
|                        
|Income from operations   |  |               | 1,692,000   |               |  |              | 1,033,000   |              |  |   |             |   |  |   | 2,725,000   | 
|                        
|                        
|                        
|                        
|Total assets at year-end |  |               | 107,716,000 |               |  |              | 35,327,000  |              |  | $ | (21,724,000 | ) |  |   | 121,319,000 | 

Sales of products between the Companys geographic regions are made at
market prices and are eliminated in consolidation. Net sales in Brazil
(included in Latin America net sales in the table above) aggregated
$32,507,000, $79,758,000, and $81,351,000 during fiscal 2002, 2001 and
2000, respectively. All corporate overhead is included in the results of
U.S. operations.

Net sales by product category is as follows:

|                    |  |               |             |                    |  |          |            |       |  |              |           |  |  |   |             | 
|------------------- |  | ------------- | ----------- | ------------------ |  | -------- | ---------- | ----- |  | ------------ | --------- |  |  | - | ----------- | 
|                    |  |               |             |                    |  |          |            |       |  | Shipping and |           |  |  |  
|                    |  | Microcomputer |             | Wireless Telephone |  | Handling |            |       |  |             
|Year Ended June 30, |  | Products      |             | Products           |  | Revenue  |            | Total
|                    |  |               |             |                    |  |          |            |      
|2002                |  | $             | 431,043,000 |                    |  | $        | 24,014,000 |       |  | $            | 1,331,000 |  |  | $ | 456,388,000 | 
|                   
|                   
|                   
|                   
|2001                |  |               | 489,609,000 |                    |  |          | 33,827,000 |       |  |              | 1,902,000 |  |  |   | 525,338,000 | 
|                   
|                   
|                   
|                   
|2000                |  |               | 520,984,000 |                    |  |          | 88,465,000 |       |  |              | 2,691,000 |  |  |   | 612,140,000 | 

Approximately 31.8%, 43.7%, and 44.2% of the Companys net sales in the fiscal
years ended June 30, 2002, 2001, and 2000, respectively, consisted of sales to
customers for export principally into Latin America and direct sales to
customers in Brazil, Colombia and Argentina.

12.     Significant Vendors and Customers

During the years ended June 30, 2002 and 2001, the Company purchased
approximately 49.6% and 38.6% of its product from two vendors. During the year
ended June 30, 2000, the Company purchased approximately 18.7% of its product
from one vendor. During the year ended June 30, 2002, the Company sold
approximately 11% of its product to one customer.

13.     Supplemental Disclosures

An analysis of allowances for doubtful accounts is as follows:

|                    |  |            |           |            |  |               |           |         |  |            |            |   |  |   |           | 
|------------------- |  | ---------- | --------- | ---------- |  | ------------- | --------- | ------- |  | ---------- | ---------- | - |  | - | --------- | 
|                    |  | Balance at |           | Charged to |  |               |           |         |  | Balance at
|                    |  | Beginning  |           | Costs and  |  |               |           |         |  | End       
|Year Ended June 30, |  | of Year    |           | Expenses   |  | Deductions(1) |           | of Year
|                    |  |            |           |            |  |               |           |        
|2002                |  | $          | 5,631,000 |            |  | $             | 1,638,000 |         |  | $          | (5,814,000 | ) |  | $ | 1,455,000 | 
|                   
|                   
|                   
|                   
|2001                |  |            | 3,761,000 |            |  |               | 4,476,000 |         |  |            | (2,606,000 | ) |  |   | 5,631,000 | 
|                   
|                   
|                   
|                   
|2000                |  |            | 3,253,000 |            |  |               | 3,808,000 |         |  |            | (3,300,000 | ) |  |   | 3,761,000 | 



---

|(1) |  | Deductions represent actual write-offs of specific accounts receivable
charged against the allowance account, net of amounts recovered.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

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14. Reverse Stock Split

The shareholders of the Company approved a one-for-two reverse stock split in a
special meeting of shareholders held on April 26, 2002. As a result of the
reverse split, substantially all holders of the Companys common stock returned
their current share certificates and received new certificates which had the
effect of reducing the number of shares held on a 1 for 2 basis. The new
certificates have the same terms as the old certificates, and the holders of
the new certificates have
the same rights under the new certificates. All applicable amounts reflected
herein give retroactive effect to the reverse stock split.

15. Latin America Economic Situation and Devaluation

Argentine authorities have implemented a number of monetary and exchange
control measures that primarily included restrictions on the free disposition
of funds deposited with banks and the practical impossibility of making
transfers abroad. On January 6, 2002, the Argentine Congress approved Law No.
25,561 on Public Emergency and Exchange System Reform that introduced dramatic
changes to the economic model implemented until that date and that amended the
Convertibility Law approved in March 1991.

The Central Bank of Argentina established an official and a freely
floating exchange market for transactions originating in Argentina. The
official exchange rate was fixed at ARS (Argentine peso) 1.4 to USD (US
Dollar) 1, and the freely floating exchange rate as of the close of the first
day after the exchange market reopened (January 11, 2002), which had been
suspended since December 23, 2001, ranged from ARS 1.6 to ARS 1.7 to USD 1
(selling rate).

The exchange rate for the ARS as compared to the USD decreased from 1.7
pesos to 1 dollar at January 11, 2002 to 3.9 pesos to 1 dollar at June 30,
2002.

As a result of the change in currency, the Company recorded foreign
currency translation losses as a component of comprehensive loss of
approximately $3.3 million during the year ended June 30, 2002 in connection
with its Argentina-based subsidiary, Intermaco S.R.L. (Intermaco). The
effect of foreign currency exchange rate fluctuations subsequent to January 11,
2002 have been significant and gave rise to additional negative exchange rate
differences. The exchange rate at October 4, 2002 was approximately ARS 3.8 to
USD 1.

In connection with procuring inventories for resale in Argentina,
Intermaco has USD denominated liabilities from time to time. The Company
recorded transaction losses totaling $11,000 for the year ended June 30, 2002
in connection with these USD liabilities.

In 2002, Argentina has experienced inflation of nearly 60% and interest
rates are presently 36% annually. While the Argentine government together with
the International Monetary Fund are seeking remedies, no assurance can be given
that the economic situation in Argentina will stabilize. The devaluation,
which commenced in January 2002, could make it more difficult for Argentine
companies to service their commercial and financial obligations due in or tied
to the USD. Any of the foregoing events and a continuation of the Argentine
recession may have a material adverse effect on the Companys business, results
of operations, financial condition, and ability to make payments on the
Companys indebtedness and on the Companys common stock market price. The
information included in the Companys financial statements, and other
documentation, does not contain the potential impact that might arise from the
situation described above and, accordingly, should be analyzed considering that
circumstance.

In addition, the Brazilian real, or $R, has declined from $R 2.31 to USD 1
at June 30, 2001 to $R 2.85 to USD 1 at June 30, 2002. Based on this decline,
the Companys Brazilian subsidiary, SED Brasil Distribuidora

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##### Table of Contents



Ltda. (SED
Brazil), realized foreign currency translation losses as a component of
comprehensive loss in the year ended June 30, 2002 totaling approximately USD
$552,000. In connection with procuring inventories for resale in Brazil, SED
Brazil has USD denominated liabilities from time to time. SED Brazil recorded
transaction losses totaling $166,000 for the year ended June 30, 2002 in
connection with these USD liabilities. On October 4, 2002, the Brazilian real
had further declined to $R 3.7 to USD 1. If the October 4, 2002 exchange rate
had been in effect at June 30, 2002, SED Brazil would have recognized
additional translation losses totaling approximately $115,000 and additional
transaction losses on USD liabilities of approximately
$729,000. The information included in the Companys financial statements,
and other documentation, does not contain the potential impact that might arise
from declines in the Brazilian real after June 30, 2002 or those declines which
may occur in the future and, accordingly, should be analyzed considering that
circumstance.




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

Deloitte & Touche LLP (D&T) served as the Companys independent accountant
through the year ended June 30, 2000. On September 7, 2000, D&T notified the
Company that they declined to stand for reappointment as the Companys
independent accountant after completion of their audit of the Companys
consolidated financial statements for the year ended June 30, 2000.

During
the Companys fiscal years ended June 30, 1999 and 2000 (the Past Two Fiscal Years), there were no
disagreements with D&T on any matter of accounting principle or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference to the subject matter of the disagreements in connection with
their report.

D&Ts reports on the Companys
consolidated financial statements for the Past Two Fiscal Years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.

During
the Past Two Fiscal Years there were no reportable events as
defined by Item 304(a)(i)(v) of Regulation S-K.

D&T was required to furnish a letter,
addressed to the Securities and
Exchange Commission, stating whether D&T agreed or disagreed with the
statements made by the Company under this item. D&Ts
letter was included as Exhibit 1.2 to the
Companys Form 8-K dated September 14, 2000 and incorporated
herein by reference to such Form 8-K in accordance with paragraph (a)(3) of Item 304 of
Regulation S-K.

On
October 18, 2000, the Company engaged Ernst & Young LLP as its
independent accountant.

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##### Table of Contents






PART III




Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information called for by this item is incorporated herein by
reference to the section of the Proxy Statement entitled Proposal 1  Election
of Directors contained in the definitive Proxy Statement to be filed with the
Securities and Exchange Commission no later than one hundred twenty (120) days
after the year ended June 30, 2002 and delivered to stockholders in connection
with the annual meeting of stockholders to be held on December 11, 2002.




Item 11. EXECUTIVE COMPENSATION

The information called for by this item is incorporated herein by
reference to the sections of the Proxy Statement entitled Proposal 1 
Election of Directors and Executive Compensation contained in the definitive
Proxy Statement to be filed with the Securities and Exchange Commission no
later than one hundred twenty (120) days after the year ended June 30, 2002 and
delivered to stockholders in connection with the annual meeting of stockholders
to be held on December 11, 2002.




Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this item is incorporated herein by
reference to the section of the Proxy Statement entitled Ownership of Shares
contained in the definitive Proxy Statement to be filed with the Securities and
Exchange Commission no later than one hundred twenty (120) days after the year
ended June 30, 2002 and delivered to stockholders in connection with the annual
meeting of stockholders to be held on December 11, 2002.




Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated herein by
reference to the section of the Proxy Statement entitled Compensation
Committee Interlocks and Insider Participation contained in the definitive
Proxy Statement to be filed with the Securities and Exchange Commission no
later than one hundred twenty (120) days after the year ended June 30, 2002 and
delivered to stockholders in connection with the annual meeting of stockholders
to be held on December 11, 2002.

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##### Table of Contents






PART IV




Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this Report:

1.     Financial Statements. The following financial statements and the report
of the Companys independent auditors thereon, are filed herewith.



| |  |  | Independent Auditors
Report (Ernst & Young LLP  2002 and 2001)                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Independent Auditors Report (Deloitte & Touche LLP  2000)                                                                                                                        
|
| |  |  | Consolidated Balance Sheets at June 30, 2002 and 2001                                                                                                                              
|
| |  |  | Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000                                                                                             
|
| |  |  | Consolidated Statements of Shareholders Equity for the
years ended June 30, 2002, 2001 and 2000 Consolidated Statements
of Cash Flows for the years ended June 2002, 2001 and 2000
|
| |  |  | Notes to Consolidated Financial Statements                                                                                                                                         

2.     Financial Statement Schedules.



| |  |  | Schedules:
| | - |  | ----------



| |  |  | Schedule II regarding Valuation and Qualifying accounts is filed
herewith under Supplemental Disclosures in Note 13 of the notes
to 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.

3.     Exhibits Incorporated by Reference or Filed with this Report.

|        |  |                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                
|3.1     |  | Articles of Incorporation of the Company.(1)                                                                                                                                                   
|       
|       
|       
|       
|3.2     |  | Amendment to Articles of Incorporation(54)                                                                                                                                                     
|       
|       
|       
|       
|3.3     |  | Bylaws of the Company.(2)                                                                                                                                                                      
|       
|       
|       
|       
|4.1     |  | See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation
and Bylaws of the Company, respectively, defining rights of holders of
common stock of the Company.                   
|       
|       
|       
|       
|4.2     |  | Form of Rights Agreement, dated as of October 31, 1996 between the
Company and National City Bank.(3)                                                                                          
|       
|       
|       
|       
|10.1    |  | Form of Lease Agreement dated as of January 1, 1991 between Royal Park,
Company and SED International, Inc. (Formerly Southern Electronics
Distributors, Inc.) (SED International).(4)       
|       
|       
|       
|       
|10.2    |  | Lease Agreement dated May 16, 1990 between The Equitable Life Assurance
Society of the United States and SED International(5), as amended March
20, 1992.(6)                                   
|       
|       
|       
|       
|10.3    |  | Southern Electronics Corporation 1986 Stock Option Plan dated September
3, 1986, together with related forms of Incentive Stock Option Agreement
and NonQualified Stock Option Agreement.(7)/*/
|       
|       
|       
|       
|10.4    |  | Form of First Amendment dated September 14, 1989 to Southern Electronics
Corporation 1986 Stock Option Plan.(8)/*/                                                                             
|       
|       
|       
|       
|10.5    |  | Second Amendment dated November 7, 1989 to Southern Electronics
Corporation 1996 Stock Option Plan.(9)/*/                                                                                      
|       
|       
|       
|       
|10.6    |  | Third Amendment dated July 17, 1992 to Southern Electronics Corporation
1986 Stock Option Plan.(10)/*/                                                                                         
|       
|       
|       
|       
|10.7    |  | Southern Electronics Corporation 1988 Restricted Stock Plan, together
with related form of Restricted Stock Agreement.(11)/*/                                                                  

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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                     
|Number  |  | Description                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                     
|10.8    |  | First Amendment dated November 7, 1989 to Southern Electronics
Corporation 1988 Restricted Stock Plan.(12)/*/                                                                                                                                                                                                                       
|       
|       
|       
|       
|10.9    |  | Second Amendment dated July 17, 1992 to Southern Electronics Corporation
1988 Restricted Stock Plan.(13)/*/                                                                                                                                                                                                                         
|       
|       
|       
|       
|10.10   |  | Form of Southern Electronics Corporation 1991 Stock Option Plan,
together with related forms of Incentive Stock Option Agreement and
NonQualified Stock Option Agreement. (14)/*/                                                                                                                                                   
|       
|       
|       
|       
|10.11   |  | First Amendment dated July 17, 1992 to Southern Electronics Corporation
1991 Stock Option Plan.(15)/*/                                                                                                                                                                                                                              
|       
|       
|       
|       
|10.12   |  | Second Amendment dated August 30, 1996 to Southern Electronics
Corporation 1991 Stock Option Plan.(16)/*/                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.13   |  | Form of NonQualified Stock Option Agreement dated as of August 28, 1992
between the Company and Cary Rosenthal.(17)/*/                                                                                                                                                                                                              
|       
|       
|       
|       
|10.14   |  | Employment Agreements dated November 7, 1989, between the Company,
SED International and each of Gerald Diamond and Jean Diamond (18)/*/,
each as amended by form of Amendment No. 1 dated September 24,
1991.(19)/*/                                                                                                               
|       
|       
|       
|       
|10.15   |  | SED International, Inc. Savings Plan effective as of January 1, 1991,
together with Savings Plan Trust and Savings Plan Adoption
Agreement.(20)/*/                                                                                                                                                                                  
|       
|       
|       
|       
|10.16   |  | Lease Agreement dated November 1992 between H.G. Pattillo and Elizabeth
M. Pattillo and SED International.(21)                                                                                                                                                                                                                      
|       
|       
|       
|       
|10.17   |  | Lease Agreement dated August 9, 1993 between New World Partners Joint
Venture and SED International and Addendum I thereto (NWPJV Lease). (22)                                                                                                                                                                                    
|       
|       
|       
|       
|10.18   |  | Second Addendum to NWPJV Lease dated January 10, 1996 among New World
Partners Joint Venture, New World Partners Joint Venture Number Two and
SED International. (23)                                                                                                                                                               
|       
|       
|       
|       
|10.19   |  | Third Addendum to NWPJV Lease dated July 24, 1996 between New World
Partners Joint Venture Number Two and SED International. (24)                                                                                                                                                                                                   
|       
|       
|       
|       
|10.20   |  | Amendment to Lease for 4775 N. Royal Atlanta Drive.(25)                                                                                                                                                                                                                                                                             
|       
|       
|       
|       
|10.21   |  | Form of NonQualified Stock Option Agreement dated as of May 21, 1993
between the Company and Cary Rosenthal (see Exhibit 10.13)./*/                                                                                                                                                                                                 
|       
|       
|       
|       
|10.22   |  | Form of NonQualified Stock Option Agreement, dated as of September 13,
1994 between the Company and Cary Rosenthal (see Exhibit 10.13)./*/                                                                                                                                                                                          
|       
|       
|       
|       
|10.23   |  | Form of NonQualified Stock Option Agreement for Directors. (26)/*/                                                                                                                                                                                                                                                                  
|       
|       
|       
|       
|10.24   |  | 1995 Formula Stock Option Plan, together with related form of
NonQualified Stock Option Agreement.(27)                                                                                                                                                                                                                              
|       
|       
|       
|       
|10.25   |  | Adoption Agreement for Swerdlin & Company Regional Prototype
Standardized 401(k) Profit Sharing Plan and Trust, as amended. (28)/*/                                                                                                                                                                                                 
|       
|       
|       
|       
|10.26   |  | Third Amendment dated September 12, 1996 to the Southern Electronics
Corporation Stock Option Plan.(29)/*/                                                                                                                                                                                                                          
|       
|       
|       
|       
|10.27   |  | Industrial Real Estate Lease (Multi-Tenant Facility) dated as of March
6, 1997, between Majestic Realty Co. and Patrician Associates, Inc., as
landlord (the Landlord), and SED International, as
Tenant (the Tenant), together with
Option to Extend Term dated as of March 26, 1997, between the Landlord and
the Tenant. (30)
|       
|       
|       
|       
|10.28   |  | Lease Agreement made August 11, 1997, between Gwinnett Industries, Inc.
and SED International. (31)                                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.29   |  | Lease Agreement made February 3, 1998, between First Industrial
Harrisburg, L.P. and SED International. (32)                                                                                                                                                                                                                        
|       
|       
|       
|       
|10.30   |  | Second Amendment to Employment Agreement effective July 1, 1998 between
SED International and Gerald Diamond. (33)/*/                                                                                                                                                                                                               
|       
|       
|       
|       
|10.31   |  | Second Amendment to Employment Agreement effective July 1, 1998 between
SED International and Jean Diamond. (34)/*/                                                                                                                                                                                                                 
|       
|       
|       
|       
|10.32   |  | 1999 Stock Option Plan dated July 20, 1999, together with related forms
of Stock Option Agreement and Restriction Agreement. (35)/*/                                                                                                                                                                                                
|       
|       
|       
|       
|10.33   |  | Third Amendment to Employment Agreement effective December 16, 1998
between SED International and Jean Diamond. (36)/*/                                                                                                                                                                                                             
|       
|       
|       
|       
|10.34   |  | Third Amendment to Employment Agreement effective July 1, 1999 between
SED International and Gerald Diamond. (37)/*/                                                                                                                                                                                                                
|       
|       
|       
|       
|10.35   |  | Fourth Amendment to Employment Agreement effective July 1, 1999 between
SED International and Jean Diamond. (38)/*/                                                                                                                                                                                                                 

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##### Table of Contents



|        |  |                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                              
|Number  |  | Description                                                                                                                                                                  
|        |  |                                                                                                                                                                              
|10.36   |  | Employment Agreement effective June 1, 1999, between SED International
and Ronell Rivera. (39)/*/                                                                            
|       
|       
|       
|       
|10.37   |  | Form of Second Amended and Restated Credit Agreement dated as of August
31, 1999, among the Company and SED International as Borrowers and
Wachovia Bank, N.A. as Agent. (40)
|       
|       
|       
|       
|10.38   |  | Form of Indemnification Agreement entered into with each of the
directors of the Company and the Company. (41)/*/                                                            
|       
|       
|       
|       
|10.39   |  | Form of Indemnification Agreement entered into with each of the officers
of the Company and the Company. (42)/*/                                                             
|       
|       
|       
|       
|10.40   |  | Form of Lease Agreement dated as of April 1, 1999 between Diamond Chip
Group, L.L.C. and SED International. (43)                                                             
|       
|       
|       
|       
|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. (44)                
|       
|       
|       
|       
|10.42   |  | Employment Agreement effective November 11, 1999 between SED
International, Inc. and Barry Diamond. (45)/*/                                                                  
|       
|       
|       
|       
|10.43   |  | First Amendment to Employment Agreement effective June 1, 2001 between
SED International Inc. and Barry Diamond. (46)/*/                                                     
|       
|       
|       
|       
|10.44   |  | Loan and Security Agreement between SED International, Inc. and Fleet
Capital Corporation dated October 7, 2002.                                                             
|       
|       
|       
|       
|10.45   |  | Fifth Amendment to the second amended and restated credit agreement
dated October 12, 2001 between SED International Holdings, Inc.
and Wachovia Bank, N.A. (47)             
|       
|       
|       
|       
|10.46   |  | Sixth Amendment to the second amended and restated credit agreement
dated October 12, 2001 between SED International Holdings, Inc.
and Wachovia Bank, N.A. (48)             
|       
|       
|       
|       
|10.47   |  | Addendum to the Employment Agreement between Gerald Diamond and SED
International, Inc., dated September 1, 1999. This addendum is
effective as of November 1, 2001. (49)/*/ 
|       
|       
|       
|       
|10.48   |  | Addendum to the Employment Agreement between Jean Diamond and SED
International, Inc., dated September 1, 1999. This addendum is
effective as of November 1, 2001. (50)/*/   
|       
|       
|       
|       
|10.49   |  | Addendum to the Employment Agreement between Mark Diamond and SED
International, Inc., dated September 1, 1999. This addendum is
effective as of November 1, 2001. (51)/*/   
|       
|       
|       
|       
|10.50   |  | Addendum to the Employment Agreement between Barry Diamond and SED
International, Inc., dated September 11, 1999. This addendum is
effective as of November 1, 2001. (52)/*/ 
|       
|       
|       
|       
|10.51   |  | Addendum to the Employment Agreement between Ronell Rivera and SED
International, Inc., dated November 28, 1999. This addendum is
effective as of November 1, 2001. (53)/*/  
|       
|       
|       
|       
|10.52   |  | Amendment to Employment Agreement between Gerald Diamond and SED
International, Inc., dated September 11, 2002. This amendment is
effective as of January 1, 2002 /*/        
|       
|       
|       
|       
|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 /*/          
|       
|       
|       
|       
|10.54   |  | Amendment dated October 15, 2002 to the Loan Agreement dated October
7, 2002 between SED International, Inc. and SED Magna (Miami), Inc.
and Fleet Capital Corporation.      
|       
|       
|       
|       
|21      |  | Subsidiaries of the Company.                                                                                                                                                 
|       
|       
|       
|       
|23      |  | Independent Auditors Consent  Ernst & Young LLP                                                                                                                            
|       
|       
|       
|       
|23.1    |  | Independent Auditors Consent  Deloitte & Touche LLP                                                                                                                        
|       
|       
|       
|       
|24      |  | Power of Attorney (see signature page to this Form 10-K)                                                                                                                     



---

|     |  | /*/Management contract or compensatory plan or arrangement with one or more directors or executive officers.                                                                         
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(1)  |  | Incorporated herein by reference to Exhibit 3.1 to the Companys 1999
Form 10-K.                                                                                                     
|    
|    
|    
|    
|(2)  |  | Incorporated herein by reference to Exhibit 3.2 to the Companys 1999
Form 10-K.                                                                                                     
|    
|    
|    
|    
|(3)  |  | Incorporated herein by reference to Exhibit 7 to the Companys Current
Report on Form 8-K dated October 30, 1996 (SEC File No. 0-16345).                                             
|    
|    
|    
|    
|(4)  |  | Incorporated herein by reference to exhibit of same number to
Companys Annual Report on Form 10-K for the fiscal year ended June 30,
1991 (SEC File No. 0-16345) (1991 Form 10-K).
|    
|    
|    
|    
|(5)  |  | Incorporated herein by reference to Exhibit 10.8 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1990 (SEC File No.
0-16345) (1990 Form 10-K).          
|    
|    
|    
|    
|(6)  |  | Incorporated herein by reference to Exhibit 10.5 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1992 (SEC File No.
0-16345) (1992 Form 10-K).          
|    
|    
|    
|    
|(7)  |  | Incorporated herein by reference to Exhibit 10.12 to Companys
(Registration Statement) on Form S1, filed September 5, 1986 (Reg. No.
338494).                                     
|    
|    
|    
|    
|(8)  |  | Incorporated herein by reference to Exhibit 10.22 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No.
0-16345).                            
|    
|    
|    
|    
|(9)  |  | Incorporated herein by reference to Exhibit 10.25 to Companys 1990
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(10) |  | Incorporated herein by reference to Exhibit 10.12 to Companys 1992
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(11) |  | Incorporated herein by reference to Exhibit 10.21 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No.
0-16345) .                           
|    
|    
|    
|    
|(12) |  | Incorporated herein by reference to Exhibit 10.26 to Companys 1990
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(13) |  | Incorporated herein by reference to Exhibit 10.15 to Companys 1992
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(14) |  | Incorporated herein by
reference to Annex A to Companys Definitive
Supplemental Proxy Statement dated October 18, 1991 (SEC File No.
0-16345).                                      
|    
|    
|    
|    
|(15) |  | Incorporated herein by reference to Exhibit 10.17 to Companys 1992
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(16) |  | Incorporated herein by reference to Appendix A to Companys Proxy
Statement pertaining to Companys 1995 Annual Meeting of Stockholders
dated October 1, 1995 (SEC File No. 0-16345).
|    
|    
|    
|    
|(17) |  | Incorporated herein by reference to Exhibit 10.18 to Companys 1992
Form 10-K (SEC File No. 0-16345).                                                                                
|    
|    
|    
|    
|(18) |  | Incorporated herein by reference to Exhibit 6(a) to Companys
Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1989 (SEC File No. 0-16345).                 
|    
|    
|    
|    
|(19) |  | Incorporated herein by reference to Exhibit 10.13 to Companys 1991
Form 10-K (SEC File No. 0-16345).                                                                                

- 45 -



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##### Table of Contents



|(20) |  | Incorporated herein by reference to Exhibit 10.15 to Companys 1991
Form 10-K (SEC File No 0-16345).                                                                                 
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(21) |  | Incorporated herein by reference to Exhibit 10.24 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1993 (SEC File No.
0-16345) (1993 Form 10-K).         
|    
|    
|    
|    
|(22) |  | Incorporated herein by reference to Exhibit 10.25 to Companys 1993
Form 10-K (SEC File No 0-16345).                                                                                 
|    
|    
|    
|    
|(23) |  | Incorporated herein by reference to Exhibit 10.32 to Companys Annual
Report on Form l0-K for the fiscal year ended June 30, 1996 (SEC File No.
0-16345) (1996 Form 10-K).         
|    
|    
|    
|    
|(24) |  | Incorporated herein by reference to Exhibit 10.33 to Companys 1996
Form 10-K (SEC File No 0-16345).                                                                                 
|    
|    
|    
|    
|(25) |  | Incorporated herein by reference to Exhibit 10.26 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 (SEC File No.
0-16345) (1995 Form 10-K).         
|    
|    
|    
|    
|(26) |  | Incorporated herein by reference to Exhibit 10.29 to Companys 1995
Form 10-K (SEC File No 0-16345).                                                                                 
|    
|    
|    
|    
|(27) |  | Incorporated herein by reference to Appendix B to Companys Proxy
Statement pertaining to Companys 1995 Annual Meeting of Stockholders
dated October 1, 1995 (SEC File No. 0-16345).
|    
|    
|    
|    
|(28) |  | Incorporated herein by reference to Exhibit 10.41 to Companys 1996
Form 10-K (SEC File No 0-16345).                                                                                 
|    
|    
|    
|    
|(29) |  | Incorporated herein by reference to Appendix A to Companys Proxy
Statement pertaining to Companys 1996 Annual Meeting of Stockholders
dated October 1, 1996 (SEC File No. 0-16345).
|    
|    
|    
|    
|(30) |  | Incorporated herein by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1997 (SEC File No. 0-16345).                
|    
|    
|    
|    
|(31) |  | Incorporated herein by reference to Exhibit 10.40 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 (SEC File No.
0-16345).                            
|    
|    
|    
|    
|(32) |  | Incorporated herein by reference to Exhibit 10.45 to Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC File No.
01-6345) (1998 Form 10-K).         
|    
|    
|    
|    
|(33) |  | Incorporated herein by reference to Exhibit 10.48 to Companys 1998
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(34) |  | Incorporated herein by reference to Exhibit 10.49 to Companys 1998
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(35) |  | Incorporated herein by reference to Exhibit 10.39 to Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(36) |  | Incorporated herein by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1998 (SEC File No. 0-16345).             
|    
|    
|    
|    
|(37) |  | Incorporated herein by reference to Exhibit 10.34 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(38) |  | Incorporated herein by reference to Exhibit 10.35 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(39) |  | Incorporated herein by reference to Exhibit 10.36 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(40) |  | Incorporated herein by reference to Exhibit 10.37 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(41) |  | Incorporated herein by reference to Exhibit 10.38 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(42) |  | Incorporated herein by reference to Exhibit 10.39 of Companys 1999
Form 10-K.                                                                                                       
|    
|    
|    
|    
|(43) |  | Incorporated herein by reference to Exhibit 10.40 to 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).   
|    
|    
|    
|    
|(44) |  | Incorporated herein by
reference to Exhibit 10.41 to the Registrants (SEC File
No. 000-16345) 2001 Form 10-K.                                                                       
|    
|    
|    
|    
|(45) |  | Incorporated herein by
reference to Exhibit 10.42 to the Registrants (SEC File
No. 000-16345) 2001 Form 10-K.                                                                       
|    
|    
|    
|    
|(46) |  | Incorporated herein by
reference to Exhibit 10.43 to the Registrants (SEC File
No. 000-16345) 2001 Form 10-K.                                                                       
|    
|    
|    
|    
|(47) |  | Incorporation herein by reference to Exhibit 1.2 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(48) |  | Incorporation herein by reference to Exhibit 1.3 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2002 (SEC File No. 000-16345)            
|    
|    
|    
|    
|(49) |  | Incorporation herein by reference to Exhibit 2.3 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(50) |  | Incorporation herein by reference to Exhibit 3.4 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(51) |  | Incorporation herein by reference to Exhibit 4.5 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(52) |  | Incorporation herein by reference to Exhibit 5.6 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(53) |  | Incorporation herein by reference to Exhibit 6.7 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December
31, 2001 (SEC File No. 000-16345)         
|    
|    
|    
|    
|(54) |  | Incorporation herein by reference to Exhibit 1.3 to Registrants
Revised Definitive Proxy Soliciting Materials filed March 26, 2002
(SEC File No. 000-16345)                         



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

The Company filed a current report on Form 8-K under item. 5 on May 2, 2002
regarding the shareholders of the Company approved the reverse stock split as
recommended to them by the Board of Directors. The reverse stock split was
effective April 30, 2002. The filing also announced that its Secretary and
Treasurer, Larry Ayers, resigned effective March 27, 2002. On the same date,
the Company promoted Michael Levine to replace Mr. Ayers, and Michael Levine
shall hold the titles of Vice President-Finance, Treasurer, Secretary, and
Chief Financial Officer.




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.

|                       |  |                                  |  |                                                                                                                   
|---------------------- |  | -------------------------------- |  | ------------------------------------------------------------------------------------------------------------------
|                       |  | SED INTERNATIONAL HOLDINGS, INC.
|                      
|                      
|                      
|                      
|                       |  |                                  |  |                                                                                                                   
|                      
|                      
|                      
|                      
|Date: October 15, 2002 |  | By:                              |  | /s/ Michael P. Levine
Michael P. Levine
Vice President  Finance, Chief Financial Officer,
Secretary and Treasurer

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##### Table of Contents






POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gerald Diamond, Mark Diamond, and Michael P.
Levine, and any of them, as his true and lawful attorneys-in-fact, each acting
alone, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to the Annual Report on Form 10-K of SED International Holdings,
Inc., and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission and other
appropriate agencies, granting unto said attorneys-in-fact, and any of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, or any of them, or their
substitutes, each acting alone, may lawfully do or cause to be done by virtue
hereof.

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
Company and in the capacities indicated this 15th day of October, 2002.

| |  |                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | /s/ Gerald Diamond
Gerald Diamond
Chairman of the Board, Chief Executive Officer
and Director (principal executive officer)                                    
|
| |  | /s/ Michael P. Levine
Michael P. Levine
Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer (principal
financial and accounting officer)
|
| |  | /s/ Stewart I. Aaron
Stewart I. Aaron
Director                                                                                                                 
|
| |  | /s/ Melvyn I. Cohen
Melvyn I. Cohen
Director                                                                                                                   
|
| |  | /s/ Mark Diamond
Mark Diamond
President, Chief Operating Officer and Director                                                                                  
|
| |  | /s/ Cary Rosenthal
Cary Rosenthal
Director                                                                                                                     

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##### Table of Contents






CERTIFICATIONS

I, Gerald Diamond, certify that:

1.     I have reviewed this annual report on Form 10-K of SED International
Holdings, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition and results of operations of SED International
Holdings, Inc. as of, and for, the periods presented in this annual report.

[Items 4, 5 and 6 omitted pursuant to the transition provisions of Release No.
34-46427.]

Dated: October 15, 2002

|                                                                    
|--------------------------------------------------------------------
|/s/ Gerald Diamond                                                  
|                                                                    
|Gerald Diamond
Chief Executive Officer
(Principal Executive Officer)

I, Michael Levine, certify that:

1.     I have reviewed this annual report on Form 10-K of SED International
Holdings, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition and results of operations of SED International
Holdings, Inc. as of, and for, the periods presented in this annual report.

[Items 4, 5 and 6 omitted pursuant to the transition provisions of Release No.
34-46427.]

Dated: October 15, 2002

|                                                                    
|--------------------------------------------------------------------
|/s/ Michael Levine                                                  
|                                                                    
|Michael Levine
Chief Financial Officer
(Principal Financial Officer)

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##### Table of Contents



CERTIFICATION OF CHIEF EXECUTIVE
OFFICER
AND CHIEF FINANCIAL OFFICER OF
SED INTERNATIONAL HOLDINGS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350

Each
of the undersigned, Gerald Diamond and Michael Levine, the Chief
Executive Officer and Chief Financial Officer, respectively, of SED
International Holdings, Inc. certifies that, to his knowledge, this
annual report on Form 10-K of SED International Holdings, Inc.
for the period ending June 30, 2002:

1.     Fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and

2.     The
information contained in this annual report fairly presents, in all
material respects, the financial condition and results of operations
of SED International Holdings, Inc.



|                                       |                                       
|-------------------------------------- | --------------------------------------
|/s/ Gerald Diamond                     | /s/ Michael Levine                    
|                                       |                                       
|Gerald Diamond
Chief Executive Officer | Michael Levine
Chief Financial Officer
|                                      
|October 15, 2002                       | October 15, 2002                      

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