SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549

FORM
10-K

|           |                                                   
|---------- | --------------------------------------------------
|(Mark One) |                                                   
|þ          | ANNUAL REPORT PURSUANT TO SECTION
 13 OR 15(d)    
|           | OF THE SECURITIES EXCHANGE ACT OF
 1934           
|           |                                                   
|           | For the fiscal year ended June 30,
 2009          
|           | or                                                
|           |                                                   
|o          | TRANSITION REPORT PURSUANT TO
 SECTION 13 OR 15(d)
|           | OF THE SECURITIES EXCHANGE ACT OF
 1934           
|           |                                                   
|           | For the transition period from          to        

Commission
file number 0-16345

SED
International Holdings, Inc.(Exact name of Company as
specified in its charter)

|                                                 |                     
|------------------------------------------------ | --------------------
|GEORGIA                                          | 22-2715444          
|(State
 or other jurisdiction                    | (I.R.S.
 Employer   
|of
 incorporation or organization)               | Identification
 No.)
|                                                 |                     
|4916
 North Royal Atlanta Drive, Tucker, Georgia | 30084               
|(Address
 of principal executive offices)        | (Zip
 Code)         

Registrant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)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by
Rule 405 of the Securities Act. Yes oNox

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes oNox

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes xNoo

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes oNoo

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x

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

|                          |                            
|------------------------- | ---------------------------
|Large Accelerated Filer o | Accelerated Filer o        
|Non-accelerated filer o   | Smaller reporting company x

Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes oNox

The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 2008 was (based
upon the closing price on the NASDAQ OTC Bulletin Board of $ 1.48 per share)
approximately $4.8 million.

The
number of shares outstanding of the registrants common stock, $.01 par value,
as of September 1, 2009 was 5,086,811 shares.

DOCUMENTS
INCORPORATED BY REFERENCENone.

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TABLE
OF CONTENTS

|             |                                                                                                                    |  |      | 
|------------ | ------------------------------------------------------------------------------------------------------------------ |  | ---- | 
|             |                                                                                                                    |  | Page
|             |                                                                                                                    |  |     
|             | PART I                                                                                                             |  |      | 
|Item 1.      | Business                                                                                                           |  | 2    | 
|Item 1A.     | Risk Factors                                                                                                       |  | 6    | 
|Item 1B.     | Unresolved Staff Comments                                                                                          |  | 10   | 
|Item 2.      | Properties                                                                                                         |  | 10   | 
|Item 3.      | Legal Proceedings                                                                                                  |  | 11   | 
|Item 4.      | Submission of Matters to a Vote of
 Security Holders                                                               |  | 11   | 
|             |                                                                                                                    |  |      | 
|             | PART II                                                                                                            |  |      | 
|Item 5.      | Market Price of the Companys Common
 Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities |  | 12   | 
|Item 6.      | Selected Financial Data Five Year
 Financial Summary                                                               |  | 12   | 
|Item 7.      | Managements Discussion and Analysis
 of Financial Condition and Results of Operations                             |  | 12   | 
|Item 7A.     | Quantitative and Qualitative
 Disclosures About Market Risk                                                        |  | 22   | 
|Item 8.      | Consolidated Financial Statements
 and Supplementary Data                                                          |  | 23   | 
|             | Report of Independent Registered
 Public Accounting Firm                                                           |  | 23   | 
|             | Consolidated Balance Sheets                                                                                        |  | 24   | 
|             | Consolidated Statements of
 Operations                                                                             |  | 25   | 
|             | Consolidated Statements of
 Shareholders Equity                                                                   |  | 26   | 
|             | Consolidated Statements of Cash
 Flows                                                                             |  | 27   | 
|             | Notes to Consolidated Financial
 Statements                                                                        |  | 28   | 
|Item 9.      | Changes in and Disagreements with
 Accountants on Accounting and Financial Disclosure                              |  | 40   | 
|Item 9A (T). | Controls and Procedures                                                                                            |  | 40   | 
|Item 9B.     | Other Information                                                                                                  |  | 40   | 
|             |                                                                                                                    |  |      | 
|             | PART III                                                                                                           |  |      | 
|Item 10.     | Directors and Executive Officers of
 the Company                                                                   |  | 41   | 
|Item 11.     | Executive Compensation                                                                                             |  | 44   | 
|Item 12.     | Security Ownership of Certain
 Beneficial Owners and Managers                                                      |  | 48   | 
|Item 13.     | Certain Relationships and Related
 Transactions, and Director Independence                                         |  | 50   | 
|Item 14.     | Principal Accounting Fees and
 Services                                                                            |  | 51   | 
|             |                                                                                                                    |  |      | 
|             | PART IV                                                                                                            |  |      | 
|Item 15.     | Exhibits and Financial Statement
 Schedules                                                                        |  | 52   | 
|             |                                                                                                                    |  |      | 
|Signatures   |                                                                                                                    |  | 56   | 

FORWARD LOOKING STATEMENT
INFORMATION

Certain
statements made in this Annual Report on Form 10-K are forward-looking
statements regarding the plans and objectives of management for future
operations. Such statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. Our plans and objectives are based, in part,
on assumptions involving judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond our control. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein particularly in view of the current state of our operations, the
inclusion of such information should not be regarded as a statement by us or
any other person that our objectives and plans will be achieved. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth herein under the headings Business, Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of
Operations. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.

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PART I

|                 | 
|---------------- | 
|Item 1. Business

(a)
General Development of Business

SED
International Holdings, Inc., a Georgia corporation (SED Holdings), and its
wholly-owned operating subsidiary, SED International, Inc., a Georgia
corporation (SED International) (collectively, SED Holdings and its
subsidiaries, including SED International, are referred to herein as SED,
Company, we, our or us), were both initially incorporated in Delaware
in 1986 to take over the operations of the business of Southern Electronics
Distributors, Inc., a Georgia corporation engaged in the wholesale distribution
of consumer electronic products. In fiscal 1999, both SED Holdings and SED
International, reincorporated as Georgia corporations.

SED
is a distributor of microcomputer products, including mass storage, desktops,
laptops, imaging, display, wireless products and consumer electronics
throughout the United States and Latin America. SED offers an active base of
over 6,500 reseller customers and a broad inventory of more than 3,500 products
from approximately 170 vendors (direct and indirect), including such market
leaders as Acer, Epson, Hewlett-Packard, Microsoft, Seagate and Western
Digital, through a dedicated sales force. SED distributes products in the
United States from its strategically located warehouses in Tucker, Georgia;
Miami, Florida; City of Industry, California; and Plano, Texas. SED services
Latin America through its wholly-owned subsidiaries SED International de
Colombia Ltda. in Bogota, Colombia and Intermaco S.R.L. in Buenos Aires,
Argentina.

In
addition to its current customers, SED offers consumer electronic products
through the rent-to-own, e-commerce and retail channels. SED offers consumer
electronics products from leading vendors including JVC, LG, Pure Digital,
Samsung, Panasonic and Sansui, subject to distribution restrictions.

SED
also distributes wireless handsets and accessories in the United States. SED is
an indirect distributor for leading wireless telephone product vendors such as
Blackberry, LG Infocomm, Motorola, Nokia, Palm and Samsung. In fiscal 2009,
SEDs net sales of microcomputer products, including handling revenue,
generated approximately 88.2% of SEDs total net sales, consumer electronics
products represented 10.5% and wireless telephone products represented the
remaining 1.3%.

In
February 2003, SED approved a plan to discontinue commercial operations of its
Brazilian subsidiary, SED International do Brasil Distribuidora, Ltda.
Accordingly, since the third quarter of fiscal 2003, the operating results of
SED International do Brasil Distribuidora, Ltda. have been classified as a
discontinued operation for all periods presented in SEDs consolidated
statements of operations. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Discontinued Operations and
Note 11 of SEDs Consolidated Financial Statements.

(b)
Financial Information about Industry Segments

As
a smaller reporting company, as defined in Rule 12b-2 of the Securities
Exchange Act of 1934 (the Exchange Act), we are not required to provide the
information required by this item.

2

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(c)
Narrative Description of Business

Products and Vendors

SED
offers its customers a broad inventory of more than 3,500 products from
approximately 170 vendors (direct and indirect), including such market leaders
as Acer, Epson, Hewlett-Packard, Microsoft, Seagate and Western Digital. SED is
a distributor for leading consumer electronics product vendors such as JVC, LG,
Samsung, Panasonic, Pure Digital and Sansui, subject to distribution agreement
restrictions. SED is an indirect distributor for leading wireless telephone
handsets and accessories vendors such as Blackberry, LG Infocomm, Motorola,
Nokia, Palm and Samsung. Microcomputer products, including handling revenue,
accounted for $416.9 million or 88.2% of SEDs net sales for fiscal 2009 and
$441.8 million or 92.3% of SEDs net sales for fiscal 2008. Approximately,
$49.5 million or 10.5% of SEDs net sales for fiscal 2009 and $28.8 million or
6.0% of SED net sales for fiscal 2008 consisted of consumer electronic products.
Approximately, $6.0 million or 1.3% of SEDs net sales for fiscal 2009 and $8.1
million or 1.7% of SEDs net sales for fiscal 2008 consisted of wireless
telephone products. SED continually evaluates its product mix and inventory
levels and maintains flexibility by adjusting its product offerings based on
demand. SEDs vendors generally warrant the products distributed by SED and
allow the return of defective products.

As
a distributor, SED incurs the risk that the value of its inventory will be
affected by industry-wide forces. Rapid technological change is commonplace in
the microcomputer, consumer electronics and wireless industries and can quickly
diminish the marketability of certain inventory, 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, SED 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 SED can
negotiate such provisions in each of its agreements or that such industry
practice will continue.

SED
purchases goods from approximately 170 vendors (directly and indirectly) and
has negotiated favorable terms from certain vendors by purchasing a substantial
volume from those vendors. In fiscal 2009 and 2008, Acer accounted for 19.4%
and 20.6% respectively, Hewlett-Packard accounted for 18.6% and 19.8%,
respectively, and Seagate Technology accounted for 10.9% and 13.6%,
respectively, of SEDs purchases.

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

Product
orders typically are processed and shipped from SED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. SED 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, delivered by the Company or
delivered by independent shipping companies to the customers or their agents
from SEDs Colombia and Argentina facilities. Generally, SEDs inventory level
of products has been adequate to permit SED to be responsive to its customers
purchase requirements. From time to time, however, SED 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 SED.

3

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Sales and Marketing

SEDs
sales are generated by a telemarketing sales force, which, on June 30, 2009
consisted of approximately 145 people in sales offices located in Tucker,
Georgia; Miami, Florida; City of Industry, California; Plano, Texas; Bogota,
Colombia and Buenos Aires, Argentina. Of the total number of salespersons on
June 30, 2009, 85 people focused on sales to customers for export to Latin
America and on sales in Colombia and Argentina. Substantially all of the export
and Latin American-based sales force are fluent in Spanish. SEDs Tucker sales
office maintains a separate telemarketing sales force for the sale of wireless
telephone products to retailers and authorized dealer agents located throughout
the United States.

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
features, such as compatibility and capability, while offering advice on which
products meet specific performance and price criteria. SEDs sales force is
able to analyze quickly SEDs extensive inventory through a sophisticated
management information system and recommend the most appropriate solution for
each customer, whether that customer is a full-line retailer or an
industry-specific reseller.

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

Compensation
incentives are provided to SED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 SED. Customer communication is also conducted via electronic
mail and instant messaging. In addition, salespeople initiate calls to
introduce SED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 various telephone directories.

The
telemarketing salespersons are supported by a variety of marketing programs.
For example, SED regularly sponsors shows for its resellers where it
demonstrates new product offerings and discusses industry developments. Also,
SEDs in-house marketing staff prepares catalogs and flyers that list available
microcomputer, consumer electronics and wireless telephone products and
routinely produces marketing materials and advertisements. In addition, the
in-house marketing staff promotes products and services through SEDs Internet
web page (www.sedonline.com)
providing 24-hour access to on-line order entry. SEDs web page provides
secured access for customers 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.

SED
prides itself on being service oriented and having a number of on-going
value-added services intended to benefit both SEDs vendors and reseller
customers. For example, SED 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 SED. We believe that our 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 SED.

Management
continually evaluates SEDs product mix and the needs of its customers in order
to minimize inventory obsolescence and carrying costs. SEDs rapid delivery
terms are available to all of its customers, and SED seeks to pass through its
shipping and handling costs to its customers. However, SED does have many free
freight customers and sometimes offers free freight to remain competitive.

SED
offers various credit terms including open account, prepay, credit card,
third-party floor plan and cash on delivery (COD) to qualifying customers. SED
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, SED participates in national and
international credit associations that exchange credit rating information on
customers. SED reviews customers credit worthiness based on sales

4

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trends, industry trends
in geography, and other factors. SED establishes reserves for estimated credit
losses in the normal course of business. In addition, we may purchase credit
insurance, subject to limitations, covering certain customers to provide us further
protection in the event of customer default.

Customers

SED
serves an active, nonexclusive customer base of over 6,500 customers of
microcomputer, consumer electronics and wireless handset products. Customers
include value-added resellers, corporate resellers, retailers and etailers. SED
believes the multi-billion dollar microcomputer, consumer electronics and
wireless telephone wholesale distribution industries serve customers primarily
on a nonexclusive basis, which provides SED with significant growth
opportunities. During fiscal 2009, no single customer accounted for more than
10% of the total net sales of SED. SED believes that most of its customers rely
on distributors as their principal source of microcomputer, consumer
electronics and wireless telephone products.

Competition

The
microcomputer, consumer electronics 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, SED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 SED
also requires SED to react quickly and appropriately to short and long-term
trends, price its products competitively, increase its net sales and maintain
economies of scale.

SEDs
competitors include regional, national and international microcomputer,
consumer electronics and wireless distributors, many of which have
substantially greater technical, financial and other resources than SED, 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, Bell Micro, D&H, ASI, Brightpoint, Inc., and Synnex
Information Technologies, Inc. in the United States; and MPS Mayorista in
Colombia and Util-Of S.A.C.I. in Argentina. From time to time, these
competitors may be used as vendors.

Seasonality

SED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.

Employees

As
of June 30, 2009, SED had 367 full-time employees, 145 of whom were engaged in
telemarketing and sales, 128 in administration and 94 in warehouse management
and shipping. Management believes SEDs relations with its employees are good
and SED has never experienced a strike or work stoppage. There are no
collective bargaining agreements covering any of SEDs employees.

(d)
Financial Information about Foreign and Domestic Operations and Export Sales

SED
sells directly to customers in Colombia and Argentina through SEDs facilities
in Bogota, Colombia and Buenos Aires, Argentina. Sales are denominated in the
respective local currencies of these countries. For fiscal years 2009 and 2008,
approximately 39.6% and 41.2 %, respectively, of SEDs net sales were to
customers for export principally into Latin America and direct sales to
customers in Colombia and Argentina. See Item 7 and Notes 9 and 11 to SEDs
Consolidated Financial Statements for additional information concerning SEDs
domestic and foreign operations.

5

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(e)
Available Information

SEDs
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments are available on the U.S. Securities and Exchange
Commissions internet website at www.sec.gov.

A
copy of Form 10-K will be provided upon written request and without charge.
Please send your requests to the attention of Investor Relations, SED
International Holdings, Inc., 4916 North Royal Atlanta Drive, Tucker, Georgia
30084.

The
public may read and copy any materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. As noted above, the SEC also maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers such as us that file electronically with
the SEC.

|                      | 
|--------------------- | 
|Item 1A. Risk Factors

The
following are certain risk factors that could affect our business, financial
position and results of operations. These risk factors should be considered in
connection with evaluating the forward-looking statements contained in this
Annual Report on Form 10-K because these factors could cause the actual results
and conditions to differ materially from those projected in the forward-looking
statements. Before you trade our common stock or other securities, you should
know that making such an investment involves risks, including the risks
described below. The risks that have been highlighted below are not the only
risks of our business. If any of the risks actually occur, our business,
financial condition or results of operations could be negatively affected. In
that case, the trading price of our common stock or other securities could
decline, and you may lose all or part of your investment. Certain risk factors
that could cause actual results to differ materially from our forward-looking
statements include the following:

Risks and Uncertainties  SED has at
various times experienced 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 sales and profit
margins and reducing administrative and overhead costs. There is no assurance
SED will be successful in connection with these efforts. Failure to effectively
improve operating metrics could materially adversely affect SEDs profitability
and financial condition.

Numerous
factors and conditions impact SEDs ability to achieve its profit goals,
including, but not limited to, the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | § | Global Economic Downturn The current
 global economic downturn creates several risks relating to our financial
 results, operations and prospects. We may experience a rapid decline in
 demand for the products we sell resulting in a more competitive environment
 and pressure to reduce the cost of operations. The current global
 economic downturn may also result in changes in vendor terms and conditions,
 such as rebates, cash discounts and cooperative marketing efforts, which may
 result in further downward pressure on our gross margins. Deterioration
 in the financial and credit markets heightens the risk of customer
 bankruptcies and delay in payment. Deterioration in the credit markets in
 Latin America has resulted in reduced availability of credit insurance to
 cover customer accounts. This may result in our reducing the credit lines we
 provide to customers, thereby having a negative impact on our net sales. In
 addition, in this environment, there is a greater possibility of increased
 interest rates on our borrowings and greater uncertainty in the capital
 markets related to our cost of or access to capital to finance our business,
 including the ability of financial institutions to fund their commitments to
 us. Also, volatile foreign currency exchange rates increase our risk
 related to products purchased in a currency other than the currency in which
 those products are sold. The realization of any or all of these risks could
 have a significant adverse effect on our financial results.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | § | Impact of Policy Changes SED may
 implement or modify policies designed to offset certain costs, such as our
 policies concerning freight and handling fees to customers. These policies
 are                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

6

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | designed to help offset
 specific costs that have significantly increased or that can no longer be
 included in the overall price of the products we sell. Given the competitive
 nature of the markets in which SED operates, these policies may result in
 customers seeking alternative sources for their IT, consumer electronics and
 cellular products, and therefore, could have an adverse effect on our
 business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Continuation
 of distribution agreements  SED operates under formal but
 cancelable distribution agreements with certain of its suppliers. If these
 agreements were cancelled, SED would be forced to obtain its products through
 wholesalers. This would reduce SEDs profit margin on the affected products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Availability
 of certain products  From time to time, due to production
 limitations or heavy demand, SED may only be able to purchase a limited
 amount of popular products from its suppliers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Product
 margins  SED operates in a very competitive business
 environment. Accordingly, product margins are continually under pricing
 pressure. From time to time, SED receives price protection and other
 considerations from its vendors. While we have no reason to believe such
 vendor consideration will not continue, no assurance can be given that such
 price protection and other considerations will continue to be received in the
 future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Vendor Credit  SED significantly relies
 on its suppliers for trade credit. Changes by our suppliers in their credit
 terms could force us to obtain less favorable financing for its purchases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Vendor Terms and Conditions  SED relies
 on various rebates, cash discounts, and cooperative marketing programs
 offered by its vendors to support expenses associated with distributing and
 marketing the vendors products. Currently, the rebates and purchase
 discounts offered by vendors are influenced by sales volumes and are subject
 to change. Additionally, certain of SEDs vendors subsidize floorplan
 financing arrangements for the benefit of our customers. Terminations of a
 supply or services agreement or a significant change in vendor terms or
 conditions of sale could negatively affect our operating margins, revenue or
 the level of capital required to fund our operations.                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   | SED receives a
 significant percentage of revenues from products it purchases from relatively
 few manufacturers. A manufacturer may make rapid, significant and adverse
 changes in its sales terms and conditions, such as reducing the amount of
 price protection and return rights as well as reducing the level of purchase
 discounts and rebates they make available to us, or may merge with or acquire
 other significant manufacturers. SEDs gross margins could be negatively
 impacted if we are unable to pass through the impact of these changes to our
 customers or cannot develop systems to manage ongoing vendor programs. In
 addition, SEDs standard vendor distribution agreement permits termination
 without cause by either party upon 30 days notice. The loss of a relationship
 with any of our key vendors, a change in their strategy (such as increasing
 direct sales), the merging of significant manufacturers or significant
 changes in terms on their products may adversely affect our business.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Product
 obsolescence  SED offers a broad line of products that are
 subject to fast technological obsolescence, which increases the risk of
 inventory markdown. Through its vendor agreements, SED has certain stock
 return privileges, which vary from supplier to supplier. We believe that
 stock return programs will continue in the future, but can give no assurance
 about the extent to which these programs will continue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | § | Credit
 decisions and losses  SED maintains an experienced
 customer credit staff and relies on customer payment history and third party
 data to make customer credit decisions. Nevertheless, SED may experience
 customer credit losses in excess of our expectations. SED maintains credit
 insurance policies for certain customers located in the United States and
 select Latin American countries (subject to various terms and conditions).
 However, the terms of the credit insurance agreement require SED to maintain certain
 minimum standards and policies with respect to                                                                                                                                                                                                                                                                                                                                                                                                                                              

7

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | extending credit to
 customers. If SED does not adhere to such policies, the insurance companies
 may not pay claims submitted by SED.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Proportionate
 control of general and administrative costs  SED attempts
 to control its overhead costs to keep such costs in line with its sales
 volume. As sales volumes fluctuate, we must continually monitor our overhead
 costs and make adjustments timely and appropriately. Failure to control
 overhead costs could have an adverse impact on SEDs cash flows, financial
 position and operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Uncertain
 and possibly volatile economic and political environment in Latin America
  The general economic and political environment in Colombia and Argentina
 the countries in which SED operates in Latin America is uncertain and, at
 times, volatile. As a result of these conditions, SED could experience
 unexpected issues in its operations in these countries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Need for Liquidity and Capital Resources; Fluctuations in
 Interest Rates The Companys business requires substantial
 capital to operate and to finance accounts receivable and product inventory
 that are not financed by trade creditors. The Company has historically relied
 upon cash generated from operations, bank credit lines and trade credit from
 its vendors to satisfy its capital needs and finance growth. The Company
 utilizes a US revolving credit facility and line of credit from a bank in
 Columbia to finance its business operations. As the financial markets change
 and new regulations come into effect, the cost of acquiring financing and the
 methods of financing may change. Changes in our credit rating or other market
 factors may increase our interest expense or other costs of capital or capital
 may not be available to us on acceptable terms to fund our working capital
 needs. The inability to obtain such capital could have a material adverse
 effect on the Companys business. The Companys credit facilities contain
 various financial and other covenants that may limit the Companys ability to
 borrow or limit the Companys flexibility in responding to business
 conditions. These financing instruments involve variable rate debt, thus
 exposing the Company to risk of fluctuations in interest rates. Such fluctuations
 in interest rates could have an adverse effect on the Companys business.
 However, the Company attempts to limit its exposure to fluctuations in
 interest rates through an interest rate swap.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Availability
 of credit facilities  SED has operated and continues to
 operate, under a revolving credit facility with a US bank for many years that
 is subject to certain collateral limitations and contains certain covenants.
 No assurance can be given that SED will be able to maintain compliance with
 financial covenants, or obtain waivers in the event of non-compliance, in the
 future. Failure to maintain compliance with the financial covenants could
 adversely affect SEDs ability to obtain vendor credit and the overall
 business operations. Our principal credit facility, which expires in
 September 2011, is further described in Note 4 to SEDs Consolidated
 Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Cash
 flows While not presently expected, SEDs continued
 operations in Latin America may require additional capital infusion (in the
 form of advance notes from the parent company or other debt borrowings by our
 subsidiaries). Our US bank credit facility restricts the future funding by us
 of our Latin American subsidiaries. Operating needs and regulatory matters
 may restrict our ability to repatriate cash flows from these subsidiaries to
 the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Competition SED operates in a highly competitive environment. The
 computer wholesale distribution industry is characterized by intense
 competition, based primarily on product availability, credit availability,
 price, speed of delivery, quality and depth of product lines and training,
 service and support. Weakness in demand in the market intensifies the
 competitive environment in which we operate. SED competes with a variety of
 regional, national and international wholesale electronic distributors, some
 of which have much greater financial resources than SED. We also face
 competition from companies entering or expanding into the logistics and
 product fulfillment and e-commerce supply chain services market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | § | Loss
 of Significant Customers Customers do not have an
 obligation to make purchases from SED. In some cases, SED has made
 adjustments to its systems, vendor offerings, and processes, and made
 staffing decisions, in order to accommodate the needs of a significant
 customer. In the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

8

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | event a significant
 customer decides to make its purchases from another distributor, experiences
 a significant change in demand from its own customer base, becomes financially
 unstable, or is acquired by another company, SEDs receipt of revenues may be
 significantly affected, resulting in an adverse effect on SEDs business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | § | Dependence
 on Information Systems SED is highly dependent upon its
 internal computer and telecommunication systems to operate its business.
 There can be no assurance that SEDs information systems will not fail or
 experience disruptions, that we will be able to attract and retain qualified
 personnel necessary for the operation of such systems, that we will be able
 to expand and improve its information systems, that SED will be able to
 convert to new systems efficiently, or that we will be able to integrate new
 programs effectively with its existing programs. Any of such problems could
 have an adverse effect on SEDs business.                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | § | Dependence
 on Independent Shipping Companies SED relies on
 arrangements with independent shipping companies, such as Federal Express and
 United Parcel Service, for the delivery of its products from vendors and to
 customers. The failure or inability of these shipping companies to deliver
 products, or the unavailability of their shipping services, even temporarily,
 could have a material adverse effect on SEDs business. SED may also be
 adversely affected by an increase in freight surcharges due to rising fuel
 costs and added security. There can be no assurance that we will be able to
 pass along the full effect of an increase in these surcharges to its
 customers.                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | § | Foreign
 Currency Exchange Risks; Exposure to Foreign Markets SED
 conducts business in countries outside of the United States, which exposes
 SED to fluctuations in foreign currency exchange rates. SED may enter into
 short-term forward exchange or option contracts to hedge this risk;
 nevertheless, fluctuations in foreign currency exchange rates could have an
 adverse effect on SEDs business. In particular, the value of our equity
 investment in foreign countries may fluctuate based upon changes in foreign
 currency exchange rates. These fluctuations, which are recorded in a
 cumulative translation adjustment account, may result in losses in the event
 a foreign subsidiary is sold or closed at a time when the foreign currency is
 weaker than when SED initially invested in the country.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   | SEDs international
 operations are subject to other risks such as the imposition of governmental
 controls, export license requirements, restrictions on the export of certain
 technology, political instability, trade restrictions, tariff changes,
 difficulties in staffing and managing international operations, changes in
 the interpretation and enforcement of laws (in particular related to items
 such as duty and taxation), difficulties in collecting accounts receivable,
 longer collection periods and the impact of local economic conditions and
 practices. There can be no assurance that these and other factors will not
 have an adverse effect on SEDs business.                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | § | Changes
 in Income Tax and Other Regulatory Legislation SED
 believes it operates in compliance with applicable laws and regulations. When
 new legislation is enacted with minimal advance notice, or when new
 interpretations or applications of existing laws are made, we may need to
 implement changes in its policies or structure. SED makes plans for its
 structure and operations based upon existing laws and anticipated future
 changes in the law.                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   | SED is susceptible to
 unanticipated changes in legislation, especially relating to income and other
 taxes, import/export laws, hazardous materials and electronic waste recovery
 legislation, and other laws related to trade, accounting, and business
 activities. Such changes in legislation, both domestic and international, may
 have a significant adverse effect on SEDs business.                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | § | Changes
 in Accounting Rules SED prepares its consolidated
 financial statements in conformity with accounting principles generally
 accepted in the United States. These accounting principles are subject to
 interpretation by the Financial Accounting Standards Board, the Securities
 and Exchange Commission, the American Institute of Certified Public
 Accountants and various other bodies formed to interpret and create
 appropriate accounting policies. A change in these policies or a new
 interpretation of an existing policy could have a significant effect on our
 reported results and may affect our reporting of transactions before a change
 is announced.                                                                                                                                         

9

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | § | Exposure to Natural Disasters, War, and
 Terrorism SEDs headquarters facilities and some
 of its logistics centers as well as certain vendors and customers are located
 in areas prone to natural disasters such as floods, hurricanes, tornadoes, or
 earthquakes. In addition, demand for SEDs services is concentrated in major
 metropolitan areas. Adverse weather conditions, major electrical failures or
 other natural disasters in these major metropolitan areas may disrupt our
 business should its ability to distribute products be impacted by such an
 event.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   | SED operates in multiple geographic markets, several of which may be
 susceptible to acts of war and terrorism. Our business could be adversely
 affected should its ability to distribute products be impacted by such
 events.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   | SED and many of its suppliers receive parts and products from Asia
 and operate in many parts of the world that may be susceptible to disease or
 epidemic that may disrupt SEDs ability to receive or deliver products or
 other disruptions in operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | § | Volatility of Common Stock Price
 Because of the foregoing factors, as well as other variables affecting SEDs
 operating results, past financial performance should not be considered a
 reliable indicator of future performance, and investors should not use
 historical trends to anticipate results or trends in future periods. In
 addition, SEDs participation in a highly dynamic industry often results in
 significant volatility in our common stock price. Some of the factors that
 may affect the market price of our common stock, in addition to those
 discussed above, are changes in investment recommendations by securities
 analysts, changes in market valuations of competitors and key vendors,
 changes in our industry, competitive pricing pressures, our ability to obtain
 working capital or project financing, additions or departures of key
 personnel, limited public float in the hands of a small number of persons
 whose sales or lack of sales could result in positive or negative pricing
 pressure on the market price for our common stock, sales of our common stock,
 our ability to execute our business plan, operating results that fall below
 expectations, loss of any strategic relationship, economic, political and
 other external factors, period-to-period fluctuations in our financial
 results and fluctuations in the overall stock market, but particularly in the
 technology sector. In addition, the securities markets have from time to time
 experienced significant price and volume fluctuations that are unrelated to
 the operating performance of particular companies. These market fluctuations
 may also materially and adversely affect the market price of our common
 stock.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | § | Our Common Stock Has Been Thinly Traded,
 Liquidity Is Limited Our common stock is now
 traded on the NASDAQ Over-The-Counter Bulletin Board (OTCBB), which
 provides significantly less liquidity than a securities exchange (such as the
 New York Stock Exchange or the Nasdaq Stock Market, Inc.). Often there is a
 limited volume of trading in our common stock, and on many days there has
 been no trading activity at all. Purchasers of shares of our common stock may
 find it difficult to resell their shares at prices quoted in the market or at
 all. If we are not able to continue to meet the requirements for the OTCBB,
 trading of our stock could be removed from the OTCBB and that might have an
 adverse impact on the market price of our common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | § | Experience and Continued Services of Our
 Senior Management the loss of senior management or
 an inability to attract or retain other key individuals, could materially
 adversely affect us. We seek to compensate and motivate our executives, as
 well as other employees, through competitive salaries and other benefits, but
 there can be no assurance that these programs will allow us to retain key
 employees or hire new key employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments

None.

|        |           
|------- | ----------
|Item 2. | Properties

SED
maintains its executive offices and Atlanta sales and warehouse facility, at
4916 North Royal Atlanta Drive in Tucker, Georgia. Since 1999, SED leases its
executive, administrative, sales and warehouse office from Diamond Chip Group,
LLC, a Georgia limited liability company which is an affiliated entity (see
Item 13). On August 6, 2009, the lease was extended through September 30, 2011.
The facility consists of

10

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approximately 30,000 square feet. SED has a right of first refusal to
purchase the facility should it be offered for sale.

SED
maintains additional warehouse facilities in City of Industry, California;
Miami, Florida; Plano, Texas; Bogota, Colombia and Buenos Aires, Argentina.

SED leases
its sales and distribution facility in Miami, Florida under a lease agreement.
This facility consists of approximately 31,300 square feet. Pursuant to its
terms, the lease will expire in March 2012.

SED also
leases an approximately 23,100 square foot facility in City of Industry,
California. The City of Industry facility serves as a distribution and sales center
for SED. Pursuant to its terms, the lease will expire in April 2010.

SED has
lease obligations for several small facilities in Buenos Aires, Argentina.
These facilities consist of various spaces in the Galeria business complex and
are utilized as sales offices, administrative offices and warehouses by
Intermaco S.R.L., a wholly-owned subsidiary of SED. Aggregate space is
approximately 5,300 square feet. The leases expire at various dates through May
2010.

In December
1997, SED began leasing an approximately 20,000 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 SED. The lease will expire in October 2011.

In July
2009, SED began leasing an approximately 25,519 square feet facility in Plano,
Texas. The facility serves as a sales office and distribution center to service
SEDs customers in the Midwest. The lease will expire in October 2014.

|                         | 
|------------------------ | 
|Item 3.Legal Proceedings

On
September 5, 2008, pursuant to a Settlement Agreement and General Release (the
Agreement) the Company settled all of the lawsuits brought by Mark Diamond,
son of Jean Diamond, the Chairman and CEO of the Company, against the Company, its domestic subsidiaries and
certain of its directors. The
Agreement covers and fully resolves all claims that have been or could have
been brought in the preceding litigations and also covers all appeals and
proceedings related thereto. Under the Agreement, the Company: (i)
paid Mark Diamond the sum of $2.1 million, of which $325,000 was recovered from
its insurance carriers; and (ii) issued 200,000 shares of restricted common
stock to an irrevocable trust established by Mark Diamond on June 1, 2009. All of these lawsuits have been dismissed with
prejudice.

On
    February 2, 2009, the Company settled the lawsuit it filed on June 19, 2006,
    in the Superior Court of Fulton County, State of Georgia captioned SED International,
Inc. vs. Michael Levine with no material impact to the Company (the Levine Suit).

On
February 5, 2009, pursuant to a binding arbitration proceeding between the
Company and Archbrook Laguna, LLC (Archbrook), Archbrook was ordered
by the Arbitrator to dismiss, with prejudice, SED International from the lawsuit
Archbrook had filed in March 2008 in the United States District Court, District
of New Jersey (the New Jersey Archbrook Laguna Suit).

|                                                            | 
|----------------------------------------------------------- | 
|Item 4.Submission of
 Matters to a Vote of Security Holders

No matters
were submitted to a vote of SEDs shareholders during the fourth quarter of
fiscal 2009.

11

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PART II

|                                                                                                                      | 
|--------------------------------------------------------------------------------------------------------------------- | 
|Item 5.Market for the
 Companys Common Stock, Related Shareholder Matters and Issuer Purchases of
 Equity Securities

SEDs
common stock is not listed on any stock exchange. SEDs common stock is
currently quoted on the OTCBB under the symbol SECX. The following table sets
forth the high and low close bid information for the common stock for each
quarter within the last two fiscal years. The bid information reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.

|                 |  |           |      |     |  |   |      | 
|---------------- |  | --------- | ---- | --- |  | - | ---- | 
|                 |  | Bid Price
|                 |  |          
|                 |  | High      |      | Low
|                 |  |           |      |     |  |  
|Fiscal year 2009 |  |           |      |     |  |   |      | 
|First            |  | $         | 1.67 |     |  | $ | 1.31 | 
|Second           |  |           | 1.75 |     |  |   | 1.25 | 
|Third            |  |           | 1.75 |     |  |   | .85  | 
|Fourth           |  |           | 1.21 |     |  |   | .80  | 
|                 |  |           |      |     |  |   |      | 
|Fiscal year 2008 |  |           |      |     |  |   |      | 
|First            |  | $         | 1.68 |     |  | $ | 1.01 | 
|Second           |  |           | 1.52 |     |  |   | 1.21 | 
|Third            |  |           | 1.63 |     |  |   | 1.03 | 
|Fourth           |  |           | 1.75 |     |  |   | 1.25 | 

As of
September 1, 2009, the closing bid price per share for SED common stock, as
reported on the OTCBB was $1.28 and SED had approximately 500 shareholders of
record.

SED has
never declared or paid cash dividends on its common stock. SED 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 SED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 SED are parties to a revolving credit agreement which
contains certain financial covenants that may impact SEDs ability to pay
dividends in the event SED 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.

Information
concerning SEDs equity compensation plans required by Item 201(d) of
Regulation S-K appears in Part III, Item 12 hereof and in Note 7 to SEDs
Consolidated Financial Statements.

|                                                            | 
|----------------------------------------------------------- | 
|Item 6.Selected Financial
 Data Five Year Financial Summary

As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this item.

|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|Item 7.Managements
 Discussion and Analysis of Financial Condition and Results of Operations

The
following discussion should be read in conjunction with SEDs Consolidated
Financial Statements and the notes thereto included elsewhere herein.
Historical operating results are not necessarily indicative of trends in
operating results for any future period.

Overview

During
fiscal 2009, SEDs consolidated net sales decreased approximately 1.3% when
compared to fiscal 2008. This decline can be attributed to a 1.4% increase in
domestic sales offset by a 5.1% decrease in Latin America and export sales from
the United States after eliminations. Sales in Latin America and export sales
from the United States represented 39.6% of sales in fiscal 2009 compared to
41.2% in fiscal 2008.

12

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Gross
profit margin increased $536,000 to $25.9 million for fiscal 2009, compared to
$25.4 million for fiscal 2008. Gross profit as a percentage of net sales was
5.5% for fiscal 2009 compared with 5.3% for fiscal 2008. The increase in gross
profit margin was primarily due to higher margins on sales in Latin America due
to the raising of selling prices to partially offset the devaluation in Latin
American currencies. Overall, SED continues to experience pricing pressure in
selling products.

Favorable
product mix changes and currency devaluation in Latin America resulted in an
increase in gross profit during fiscal 2009.

Selling,
general and administrative expenses, excluding litigation settlement expense
and excluding depreciation and amortization expense, increased to $23.2 million
or 4.9% of net sales in 2009 compared to $22.6 million or 4.7% in fiscal 2008.

SED had a
net loss of $1.1 million in fiscal 2009, compared to a net loss of $2.0 million
in fiscal 2008. Included in this net loss for fiscal 2008 was $2.1 million
which was related to the Diamond settlement as described in Item 3., Legal
Proceedings, above. Operating income in Latin American subsidiaries was $.9
million in fiscal 2009 and $1.5 million in fiscal 2008 while operating loss in
the United States was $.5 million in fiscal 2009 and $1.5 million in fiscal
2008.

SED
experienced a decrease in net sales in fiscal 2009 compared to fiscal 2008.
Company management is continuing to focus on increasing sales and profit
margins and reducing administrative and overhead costs. There is no assurance
SED will be successful in its efforts. Failure to improve margins and reduce
overhead would adversely affect SEDs profitability and financial condition.

Numerous
factors and conditions impact SEDs ability to adequately achieve its profit
goals, including, but not limited to, the following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|§ | Global Economic Downturn The current
 global economic downturn creates several risks relating to our financial
 results, operations and prospects. We may experience a rapid decline in
 demand for the products we sell resulting in a more competitive environment
 and pressure to reduce the cost of operations. The current global
 economic downturn may also result in changes in vendor terms and conditions,
 such as rebates, cash discounts and cooperative marketing efforts, which may
 result in further downward pressure on our gross margins. Deterioration
 in the financial and credit markets heightens the risk of customer
 bankruptcies and delay in payment. Deterioration in the credit markets in
 Latin America has resulted in reduced availability of credit insurance to
 cover customer accounts. This may result in our reducing the credit lines we
 provide to customers, thereby having a negative impact on our net sales. In
 addition, in this environment, there is a greater possibility of increased
 interest rates on our borrowings and greater uncertainty in the capital
 markets related to our cost of or access to capital to finance our business,
 including the ability of financial institutions to fund their commitments to
 us. Also, volatile foreign currency exchange rates increase our risk
 related to products purchased in a currency other than the currency in which
 those products are sold. The realization of any or all of these risks could
 have a significant adverse effect on our financial results.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|§ | Continuation of distribution agreements
  SED operates under formal but cancelable distribution agreements with
 certain of its suppliers. If these agreements were cancelled, we would be
 forced to obtain its products through wholesalers. This would reduce SEDs
 profit margin on the affected products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|§ | Availability of certain products
  From time to time, due to production limitations or heavy demand, SED may
 only be able to purchase a limited amount of popular products from its
 suppliers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|§ | Product margins 
 SED operates in a very competitive business environment. Accordingly, product
 margins are continually under pricing pressure. From time to time, we receive
 price protection and other considerations from our vendors. While SED has no
 reason to believe such vendor consideration will not continue, no assurance
 can be given that such price protection and other considerations will
 continue to be received in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

13

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|§ | Vendor credit 
 SED significantly relies on its suppliers for trade credit. Changes by our
 suppliers in their credit terms could force us to obtain less favorable
 financing for its purchases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Vendor Terms and Conditions  SED relies on
 various rebates, cash discounts, and cooperative marketing programs offered
 by its vendors to support expenses associated with distributing and marketing
 the vendors products. Currently, the rebates and purchase discounts offered
 by vendors are influenced by sales volumes and are subject to change.
 Additionally, certain of SEDs vendors subsidize floorplan financing
 arrangements for the benefit of our customers. Terminations of a supply or
 services agreement or a significant change in vendor terms or conditions of
 sale could negatively affect our operating margins, revenue or the level of
 capital required to fund our operations.                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | SED receives a significant percentage of revenues from products it
 purchases from relatively few manufacturers. A manufacturer may make rapid,
 significant and adverse changes in its sales terms and conditions, such as
 reducing the amount of price protection and return rights as well as reducing
 the level of purchase discounts and rebates they make available to us, or may
 merge with or acquire other significant manufacturers. SEDs gross margins
 could be negatively impacted if we are unable to pass through the impact of
 these changes to our customers or cannot develop systems to manage ongoing
 vendor programs. In addition, SEDs standard vendor distribution agreement
 permits termination without cause by either party upon 30 days notice. The
 loss of a relationship with any of our key vendors, a change in their
 strategy (such as increasing direct sales), the merging of significant manufacturers
 or significant changes in terms on their products may adversely affect our
 business.                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Product obsolescence
  SED offers a broad line of products that are subject to fast technological
 obsolescence, which increases the risk of inventory markdown. Through our
 vendor agreements, we have certain stock return privileges, which vary from
 supplier to supplier. We believe stock return programs will continue in the
 future, but we can give no assurance as to whether these programs will
 continue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Credit decisions and losses
  SED maintains an experienced customer credit staff and relies on customer
 payment history and third party data to make customer credit decisions.
 Nevertheless, SED may experience customer credit losses in excess of its
 expectations. From time to time, depending on credit risk assessment and
 coverage costs, SED purchases credit insurance to cover receivables from
 customers located in the United States and in many Latin American countries
 (subject to certain terms and conditions). However, the terms of the credit
 insurance agreement require SED to maintain certain minimum standards and
 policies with respect to extending credit to customers. If we do not adhere
 to such policies, the insurance companies may not pay claims submitted by
 SED.                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Proportionate control of general and
 administrative costs  SED attempts to control its
 overhead costs to keep such costs in line with its sales volume. As sales
 volumes fluctuate, we must continually monitor our overhead costs and make
 timely and appropriate adjustments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Uncertain and possibly volatile economic
 and political environment in Latin America  The
 general economic and political environment in the countries in which SED
 operates in Latin America is uncertain and, at times, volatile. As a result
 of these conditions, we could experience unexpected losses from operations in
 these countries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|§ | Availability of credit facilities
  SED operates under a revolving credit facility with Wachovia Bank (now
 owned by Well Fargo Bank) initially entered into September 2005 and a one
 year line of credit with Banco de Credito of Bogotá, Colombia, first entered
 into in February 2009. The Wachovia Agreement was amended in March 2007 to
 extend its maturity to September 2011. This credit facility is subject to
 certain collateral limitations and certain covenants. Under the current
 Wachovia credit agreement, SED only has the covenants tested if minimum
 availability, as defined, is 10% of the formula borrowing base ($3.9 million
 at June 30, 2009). No assurance can be given that SED will be able to
 maintain compliance with financial covenants, or obtain waivers in the event
 of non-compliance, in the future. Failure to maintain compliance with the
 financial covenants could adversely affect SEDs ability to obtain vendor
 credit and the overall business operations. The Wachovia Credit facility is
 further described in Note 4 to SEDs Consolidated Financial Statements. As of
 June 30,

14

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | 2009, SED was in compliance with the requirements of the Wachovia
 Agreement and has no reason to believe it will not remain in compliance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|§ | Cash flows  While
 not presently anticipated, SEDs operations in Latin America may require
 capital infusions in the form of loans from us or other borrowings by the
 subsidiary. The Wachovia facility places certain restrictions on the future
 funding of Latin American operations (see Note 4 to SEDs Consolidated
 Financial Statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|§ | Competition SED
 operates in a highly competitive environment. The computer wholesale
 distribution industry is characterized by intense competition, based
 primarily on product availability, credit availability, price, speed of
 delivery, quality and depth of product lines and training, service and
 support. Weakness in demand in the market intensifies the competitive
 environment in which we operate. SED competes with a variety of regional,
 national and international wholesale electronic distributors, some of which
 have much greater financial resources than SED. We also face competition from
 companies entering or expanding into the logistics and product fulfillment
 and e-commerce supply chain services market.                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|§ | Loss of Significant Customers
 Customers do not have an obligation to make purchases from SED. In some
 cases, SED has made adjustments to its systems, vendor offerings, and
 processes, and made staffing decisions, in order to accommodate the needs of
 a significant customer. In the event a significant customer decides to make
 its purchases from another distributor, experiences a significant change in
 demand from its own customer base, becomes financially unstable, or is
 acquired by another company, SEDs receipt of revenues may be significantly
 affected, resulting in an adverse effect on SEDs business.                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|§ | Foreign Currency Exchange Risks; Exposure
 to Foreign Markets SED conducts business in
 countries outside of the United States, which exposes SED to fluctuations in
 foreign currency exchange rates. SED may enter into short-term forward
 exchange or option contracts to hedge this risk; nevertheless, fluctuations
 in foreign currency exchange rates could have an adverse effect on SEDs
 business. In particular, the value of our equity investment in foreign
 countries may fluctuate based upon changes in foreign currency exchange
 rates. These fluctuations, which are recorded in a cumulative translation
 adjustment account, may result in losses in the event a foreign subsidiary is
 sold or closed at a time when the foreign currency is weaker than when SED
 initially invested in the country.

All United
States domestic purchases and sales are denominated in United States dollars.
For SEDs operations in Colombia and Argentina, in-country transactions are
conducted in the respective local currencies of these two nations while import
purchases are generally denominated in United States dollars.

15

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Results of
Continuing Operations

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

|                                                                                      |  |                      |        |      |  |  |        |   
|------------------------------------------------------------------------------------- |  | -------------------- | ------ | ---- |  |  | ------ | --
|                                                                                      |  | Year Ended
 June 30,
|                                                                                      |  |                     
|                                                                                      |  | 2009                 |        | 2008
|                                                                                      |  |                      |        |     
|                                                                                      |  |                      |        |      |  |  |        |   
|Net sales                                                                             |  |                      | 100.00 | %    |  |  | 100.00 | % 
|Cost of
 sales, including buying and occupancy expense                                |  |                      | 94.51  | %    |  |  | 94.69  | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Gross profit                                                                          |  |                      | 5.49   | %    |  |  | 5.31   | % 
|Operating
 expenses:                                                                  |  |                      |        |      |  |  |        |   
|Selling, general and administrative
 expense, excluding litigation settlement expense |  |                      | 4.90   | %    |  |  | 4.71   | % 
|Litigation settlement expense                                                         |  |                      |       |      |  |  | .44    | % 
|Depreciation and amortization expense                                                 |  |                      | .10    | %    |  |  | .10    | % 
|Foreign currency transaction loss                                                     |  |                      | .40    | %    |  |  | .05    | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Total operating expenses                                                              |  |                      | 5.40   | %    |  |  | 5.30   | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Operating
 income                                                                     |  |                      | .09    | %    |  |  | .01    | % 
|Interest (income) expense:                                                            |  |                      |        |      |  |  |        |   
|Interest income                                                                       |  |                      | (.02   | )%   |  |  | (.03   | )%
|Interest expense                                                                      |  |                      | .26    | %    |  |  | .37    | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Interest, net                                                                         |  |                      | .24    | %    |  |  | .34    | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Loss before income taxes                                                              |  |                      | (.15   | )%   |  |  | (.33   | )%
|Income tax expense                                                                    |  |                      | .08    | %    |  |  | .08    | % 
|                                                                                      |  |                      |        |      |  |  |        |   
|Net loss                                                                              |  |                      | (.23   | )%   |  |  | (.41   | )%
|                                                                                      |  |                      |        |      |  |  |        |   

Fiscal 2009 Compared
To Fiscal 2008

Revenues.Net
sales decreased 1.3%, or $6.2 million, to $472.5 million in fiscal 2009 as
compared to $478.7 million in fiscal 2008. Microcomputer product sales,
excluding handling revenue decreased 5.7% to $415.9 million in fiscal 2009
compared to $440.9 million in fiscal 2008. This was primarily due to a decrease
in laptop computers, consumables, hard drives and related computer product
sales. Consumer electronics sales increased 72.2% to $49.5 million in fiscal
2009 compared to $28.8 million in fiscal 2008. This was primarily due to an increase
in television sales and electronics sales from e-commerce. Wireless revenues
for fiscal 2009 decreased 26.1% to $6.0 million compared to $8.1 million for
fiscal 2008.

16

---



Information
concerning SEDs domestic and international sales is summarized below:

|               |  |                                                  |       |        |  |        |       |         |  |   |       |   |  |  |       |    | 
|-------------- |  | ------------------------------------------------ | ----- | ------ |  | ------ | ----- | ------- |  | - | ----- | - |  |  | ----- | -- | 
|               |  | Year Ended
 June 30,                             |       | Change | 
|               |  |                                                  |       |        | 
|               |  | 2009                                             |       | 2008   |  | Amount |       | Percent | 
|               |  |                                                  |       |        |  |        |       |         | 
|               |  | (Amounts
 in millions except percentage amounts) |      
|United
 States |  |                                                  |       |        |  |        |       |         |  |   |       |   |  |  |       |    | 
|Domestic       |  | $                                                | 285.4 |        |  | $      | 281.5 |         |  | $ | 3.9   |   |  |  | 1.4   | %  | 
|Export         |  |                                                  | 86.8  |        |  |        | 97.7  |         |  |   | (10.9 | ) |  |  | (11.2 | )% | 
|Latin
 America |  |                                                  | 103.2 |        |  |        | 103.5 |         |  |   | (.3   | ) |  |  | (.3   | )% | 
|Elimination    |  |                                                  | (2.9  | )      |  |        | (4.0  | )       |  |   | 1.1   |   |  |  | 27.5  | %  | 
|               |  |                                                  |       |        |  |        |       |         |  |   |       |   |  |  |       |    | 
|Consolidated   |  | $                                                | 472.5 |        |  | $      | 478.7 |         |  | $ | (6.2  | ) |  |  | (1.3  | )% | 
|               |  |                                                  |       |        |  |        |       |         |  |   |       |   |  |  |       |    | 

Domestic
revenues were $285.4 million and $281.5 million in fiscal 2009 and fiscal 2008,
respectively. The increase was due to an increase in computer sales. Export
revenues, net of eliminations, were $83.9 million and $93.7 million in fiscal
2009 and fiscal 2008, respectively. The decrease was due to a decrease in sales
of computer products, printers and consumable printer products due to declining
economic conditions. Latin America sales as measured in local currencies
increased 12.3%, due to an increase in sales of computer products, printers and
consumable printer products as compared to a decrease of .3% as measured in U.S.
dollars. After translation into U.S. dollars, Latin America sales were $103.2
million and $103.5 million in fiscal 2009 and fiscal 2008, respectively.

Sales of
microcomputer products, including handling revenue, represented approximately
88.2% of net sales for fiscal 2009 compared to 92.3% for fiscal 2008. Sales of
consumer electronics products accounted for approximately 10.5% of net sales
for fiscal 2009 compared to 6.0% for fiscal 2008. Sales of wireless telephone
products accounted for approximately 1.3% of net sales for fiscal 2009 compared
to 1.7% for fiscal 2008.

Gross
Profit Margins. Gross profit margin increased $536,000
to $25.9 million for fiscal 2009, compared to $25.4 million for fiscal 2008.
Gross profit as a percentage of net sales was 5.5% for fiscal 2009 compared
with 5.3% for fiscal 2008. The increase in gross profit margin was primarily
due to higher margins on sales in Latin America due to the raising of selling
prices to partially offset the devaluation in Latin American currencies.
Overall, SED continues to experience pricing pressure in selling products.

Selling,
General and Administrative Expenses. Selling, general
and administrative expenses, excluding litigation settlement expense,
depreciation and amortization expense and foreign currency transaction losses,
for fiscal 2009 increased 2.7% to $23.2 million, compared to $22.6 million for
fiscal 2008. The increase was primarily due to several factors including (i) a
net increase of approximately $530,000 for professional fees and settlement
cost related to (a) negotiations with a group of shareholders, (b) the Levine
Suit, and (c) the New Jersey Archbrook Laguna Suit; (ii) an increase of
approximately $400,000 in Board of Directors cost related to an expanded board
and increased compensation; (iii) a decrease of approximately $100,000 in
building security cost and rents; (iv) an increase of approximately $150,000 in
Latin America employee expenses mostly related to mandated government salary
increases, a decrease of $280,000 in employee expenses related to a one time
expense in the prior year for a departed executive and a decrease of
approximately $65,000 mostly related to company staffing reductions.

Depreciation
and Amortization. Depreciation and amortization was
$474,000 and $473,000 for fiscal 2009 and 2008, respectively.

Foreign
Currency Transaction. SED has significant U.S. Dollar
denominated liabilities recorded in its Latin American subsidiaries. The
devaluation of the Columbian and Argentine currencies vs. the U.S. Dollar
resulted in a foreign currency transaction loss totaling $1.9 million for
fiscal 2009 as compared to a loss of $257,000 for fiscal 2008.

Interest
Income. Interest income was $115,000 for fiscal year
2009 and $123,000 for fiscal 2008. This is related to bank interest and
customer past due interest earned in the Companys Latin American subsidiaries.

17

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Interest
Expense. Interest expense was $1.3 million and $1.7
million for fiscal 2009 and 2008, respectively. This change resulted primarily
from declining interest rates and lower average loan balances.

Provision
for Income Taxes.Income tax expense was $378,000 for
fiscal 2009 as compared to an income tax expense of $397,000 for fiscal 2008.
The provision is primarily related to income generated by SEDs Latin American
subsidiaries. The provision for income taxes differs from the amount which
would result from applying the statutory Federal income tax rate due to the
taxes imposed on the foreign subsidiaries as well as the fact that SED is not
fully valuing a tax asset and benefit of the net operating loss carry forward.
At June 30, 2009, SED has a total net operating loss carried forward for U.S.
federal tax purposes of approximately $ 63.7 million and state tax purposes of
approximately $53.4 million; expiring at various dates through 2029. At June
30, 2009 and 2008, SED has recorded valuation allowances principally for all
deferred tax assets, except for those relating to Intermaco S.R.L. (Intermaco)
and SED International de Colombia Ltda. (SED Colombia), as it is not considered
more likely than not that these assets will be realized.

Discontinued Operations

In February
2003, SED resolved to discontinue commercial operations of its Brazilian
subsidiary, SED International do Brasil Distribuidora, Ltda. (the Brazil
Operation). SED International do Brasil Distribuidora Ltda. has various
litigations related to additional income taxes and social taxes allegedly due
from the fiscal years 1998 through 2004. These legal claims were filed during
the years 2002 and 2003. The legal claims range from $3,000 to $219,000 each or
$522,000 in the aggregate. After recording this cost, SED maintains an accrued
liability of $270,000 at June 30, 2009 and 2008 to cover potential losses
related to these claims.

Off-Balance Sheet Arrangements

An
off-balance sheet arrangement is any contractual arrangement involving an
unconsolidated entity under which a company has (a) made guarantees, (b) a
retained or a contingent interest in transferred assets, (c) any obligation
under certain derivative instruments or (d) any obligation under a material
variable interest in an unconsolidated entity that provides financing,
liquidity, market risk, or credit risk support to SED, or engages in leasing,
hedging, or research and development services within SED.

SED does
not have any off-balance sheet financing arrangements or unconsolidated special
purpose entities.

Liquidity and Capital Resources

Overview. At June 30, 2009, SED had cash and cash equivalents totaling $3.6 million and working
capital of approximately $18.0 million. At June 30, 2009, SEDs availability
under the credit facilities was approximately $13.3 million, after deducting
$1.8 million in reserves for outstanding Letters of Credit. SEDs principal
source of liquidity is its cash, cash equivalents, trade receivables,
inventories and amounts available for use under its revolving credit facility
with Wachovia Bank, National Association and Banco de Credito. SEDs accounts receivable and inventories
collateralize SEDs borrowings. The Wachovia credit facility provides SED with
a $50.0 million line of credit through September 2011. During February 2009,
SED Colombia signed a $2.5 million unsecured, one-year line of credit with
Banco de Credito. SED is using the line to reduce the effect of local currency
devaluation by converting the loan to USD and taking advantage of vendor early
pay cash discounts with certain vendors. Historically, SED has financed
its liquidity needs largely through internally generated funds, borrowings
under the Wachovia credit facility,
subsidiary bank credit agreements, and vendor lines of credit. As of June 30,
2009, SED was in compliance with the requirements of the Wachovia credit
facility agreement and has no reason to believe that it will not remain in
compliance.

While
SED had historically derived a material portion of its operating
income and cash flows from its foreign subsidiaries, management believes if
the deteriorating economic conditions in Latin America and the
devaluation of certain Latin American currencies continue there may be a
negative effect on net income and the foreign subsidiaries ability
to generate cash flows from operations. Domestic banking
agreements and international monetary restrictions may
also limit SEDs ability to transfer cash between
its foreign and domestic subsidiaries.

18

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Operating
Activities.Cash
used by operating activities was approximately $6.4 million for fiscal year
ended June 30, 2009 as compared to
cash provided by operating activities of approximately $6.7 million provided
for the fiscal year ended June 30, 2008. Changes in operating assets and
liabilities during fiscal 2009 are as follows.

Net trade
receivables were $50.1 million at June
30, 2009 and $44.8 million at June 30, 2008. The increase in trade receivables
is a result of increased sales in June 2009 as compared to June 2008. Average
days sales outstanding at June 30,
2009 were approximately 36.0 days as compared to 35.4 days at June 30, 2008.

Net
inventories increased $2.4 million to $38.5 million at June 30,
2009 from $36.1 million at June 30, 2008.
SED continues to monitor and adjust inventory levels according to current and
projected sales volumes.

Other
current assets decreased to $5.7 million at June 30, 2009 from $7.6 million at
June 30, 2008. This decrease was due to conversion of tax receivables in Latin
America to savings bonds.

Trade
accounts payable increased by approximately $1.4 million to $47.4 million at June 30, 2009 compared to $46.0 million
at June 30, 2008 due to a net increase in inventories.

Accrued and
other current liabilities decreased to $7.7 million at June 30, 2009 compared
to $8.9 million at June 30, 2008.

As
disclosed under Item 3. Legal Proceedings, SED paid $1.8 million, net of
$300,000 recovered from insurance, in August 2008, to settle the Diamond cases
against SED. We did not breach any loan covenants as a result of this
settlement payment.

SEDs cash
flows in fiscal 2009 were negatively affected by the changes in exchange rates
in the Latin American countries in which SED does business. The exchange rate
changes had the effect of using approximately $1.9 million in cash for the year
ended June 30, 2009 as compared to using $300,000 in fiscal 2008.

Financing
Activities. Net
borrowings under the credit facilities increased by approximately $6.3 million
to $25.1 million at June 30, 2009
compared to $18.8 million at June 30, 2008.

Borrowings
under the Wachovia 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 LIBOR, plus a margin ranging from 1.25% to 2.00%,
and the prime rate. SED is also subject to a commitment fee of .25% on the
unused portion of the facility. Interest is payable monthly. Borrowings under
the Wachovia Agreement are collateralized by substantially all domestic assets
of SED and 65% of each of SEDs shares in its foreign subsidiaries,
respectively.

The
Wachovia Agreement contains certain covenants which, among other things,
require that SED maintain availability of $5.0 million or more during the term
of the Agreement to make advances to SEDs Latin American subsidiaries. SEDs
advances to its Latin American subsidiaries are restricted. The Wachovia
Agreement also contains a covenant which requires that if SEDs availability is
less than 10% of the formula borrowing base ($3.9 million at June 30, 2009) at
any time during the term of the Agreement, then maintenance of a minimum fixed
charge coverage ratio, as defined, is required. The Wachovia Agreement also
restricts SEDs ability to distribute dividends.

During
February, 2009, SED Colombia signed a one-year $2.5 million unsecured line of
credit with Banco de Credito that bears interest at a fixed rate of 13.7% per
annum. SED is using the line to reduce the effect of devaluation by converting
the loan to US Dollars and taking vendor early pay cash discounts with certain
vendors.

Available
borrowings under these credit facilities at June 30, 2009 were $13.3 million
under the Wachovia Agreement, excluding $1.8 million in reserves for our
outstanding letters of credit, and $2.5 million under the Banco de Credito line
of credit. Under both facilities the average borrowings, maximum borrowings and
weighted average interest rate for fiscal 2009 were $22.1 million, $32.7
million and 5.3%, respectively. The

19

---



weighted average interest rate on outstanding borrowings under the
credit facilities was 4.5% at June 30, 2009. Average borrowings, maximum
borrowings and weighted average interest rate for fiscal June 30, 2008 were
$24.1 million, $34.7 million and 6.2%, respectively.

The
carrying value of all bank debt at June 30, 2009 approximates its fair value
based on the variable market rates of interest on such bank debt.

On January
26, 2007, the Company entered into a three-year interest rate swap
contract to reduce the impact of the fluctuations in the interest rates on $5.0
million notional amount of the revolving credit facility under the
Wachovia Agreement. The contract effectively converted the variable rate
to a fixed rate of 5.20%. On March 5, 2008, the three-year swap agreement
was further amended to a notional amount of $15.0 million with a fixed rate of
4.54%. On March 26, 2009, the swap agreement was amended to provide for an
extension to January 26, 2013 and an interest rate modification to 2.95%. The
fixed rates cited do not include Wachovias markup of 1.5% as of June 30, 2009.

The Company
utilizes derivative financial instruments to reduce interest rate risk. The
interest rate swap agreement is accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which establishes
accounting and reporting standards for derivative instruments and hedging
activities. As required by SFAS No. 133, the Company recognizes all
derivatives as either assets or liabilities on its balance sheet and measures
those instruments at fair value. The Company has designated its interest rate
swap agreement as a cash flow hedge. Accordingly, the gains and losses
associated with changes in the fair value of the interest rate swap are
reported in other comprehensive income (loss) as the hedge is highly effective
in achieving offsetting changes in the fair value of cash flows of the asset or
liability hedged. The fair value, not in the Companys favor, of the interest
rate swap was $345,000 and $320,000 at June 30, 2009 and 2008, respectively,
and is included in accrued expenses. The Company does not hold or issue
derivative financial instruments for trading purposes.

There have
been no material changes to obligations and/or commitments since the end of the
last fiscal year. Purchase orders or contracts for the purchase of inventories
and other goods and services are not included in our estimates because SED is
not able to determine the aggregate amount of such purchase orders or contracts
that are binding obligations. Our purchase orders are based on its current
distribution needs and are fulfilled by its vendors within short time horizons.
As of June 30, 2009, SED did not have any significant agreements for the
purchase of inventories or other goods specifying minimum quantities or set
prices that exceeded its expected requirements.

The current
global economic downturn creates several risks relating to our financial
results, operations and prospects. We may experience a rapid decline in demand
for the products we sell resulting in a more competitive environment
and pressure to reduce the cost of operations. The benefits from cost
reductions may take longer to fully realize and may not fully mitigate the
impact of the reduced demand. The current global economic downturn may also
result in changes in vendor terms and conditions, such as rebates, cash
discounts and cooperative marketing efforts, which may result in further
downward pressure on our gross margins. Deterioration in the financial and credit
markets heightens the risk of customer bankruptcies and delay in payment.
Deterioration in the credit markets in Latin America and the United States have
resulted in reduced availability of credit insurance to cover customer
accounts. This may result in our reducing the credit lines we provide to
customers, thereby having a negative impact on our net sales. Also, volatile
foreign currency exchange rates increase our risk related to products purchased
in a currency other than the currency in which those products are sold. The
realization of any or all of these risks could have a significant adverse
effect on our future financial results.

Historically,
SED has financed its liquidity needs largely through internally generated
funds, borrowings under the Wachovia credit
facility, subsidiary bank credit agreements, and vendor lines of credit.
There can be no assurance that all of the aforementioned sources of capital
will be available to SED when needed. For example, SEDs creditors may tighten
their lending standards and SED may find it necessary to tighten credit
availability standards to its customers due to the general weakening of the
economic environment. However, SED believes
that funds generated from operations, together with its Wachovia credit
facility, subsidiary bank credit agreements, vendor credit lines, and current
cash and cash equivalents will be sufficient to support its working capital and
liquidity requirements for at least the next 12 months.

20

---



Critical Accounting
Policies and Estimates

Allowance for Doubtful Accounts

An
allowance for uncollectible accounts has been established based on collection
experience and an assessment of the collectability of specific accounts.
Management evaluates the collectability 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. The overall determination of the allowance also
considers credit insurance coverage and deductibles, which SED has maintained
from time to time. SED maintains credit insurance, which protects us from
credit losses exceeding certain deductibles for certain domestic sales and
certain export shipments from the United States. SED maintains credit insurance
in many Latin American countries (subject to certain terms and conditions). We
maintain a policy of writing off the accounts receivable deemed to be
uncollectable against the allowance for doubtful accounts in our fourth fiscal
quarter.

Inventories  Slow Moving, Obsolescence, and
Lower of Cost or Market

Certain SED
vendors allow for either return of goods within a specified period (usually
45-90 days) or for credits related to price protection. However, for other vendor
relationships and inventories, SED 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 contract, which protect SED from inventory
losses, including price protections, the risk of loss associated with obsolete,
slow moving or impaired inventories would increase. SEDs reserve for obsolete
and slow moving inventories was approximately $705,000 at June 30, 2009 or 1.8%
of gross inventories.

Revenue Recognition

Revenue is
recognized once four criteria are met: (1) SED must have persuasive
evidence that an arrangement exists; (2) delivery must occur, which
generally happens at the point of shipment (this includes the transfer of both
title and risk of loss, provided that no significant obligations remain);
(3) the price must be fixed or determinable; and (4) collectability
must be reasonably assured. Shipping revenue is included in net sales while the
related costs, including shipping and handling costs, are included in the cost
of products sold. SED allows its customers to return product for exchange or
credit subject to certain limitations. A provision for such returns is recorded
based upon historical experience.

Financial
Instruments

SEDs
principal financial instruments consist of cash, accounts receivable, accounts
payable and revolving credit facilities. The carrying value of these financial
instruments approximate fair value based upon the short-term nature of the
instruments, and the variable rates on credit facilities.

The functional
currency for SED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
stockholders equity as a component of accumulated other comprehensive loss. It
is SEDs policy not to enter into derivative contracts for speculative trading
purposes.

SEDs
revolving credit facility is currently a variable rate facility. SED has into
an interest rate swap contract to reduce the impact of the fluctuations in the
interest rate on $15.0 million notional amount of the obligation under its
revolving credit facility with Wachovia, which expires on January 26, 2013.

21

---



Inflation and Price
Levels

Inflation
has not had a significant impact on SEDs overall business because of the
typically decreasing costs of products sold by SED and the fact that we also
receive vendor price protection for a significant portion of its inventory. In
the event a vendor or competitor reduces its prices for goods purchased by SED
prior to SEDs sale of such goods, we 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 credit.

The Latin
American countries in which SED operates have experienced high rates of
inflation and hyperinflation from time to time in the past. At this time,
management believes that inflation may have a material impact on SEDs Latin
American business operations in the immediate future.

|                                                                    | 
|------------------------------------------------------------------- | 
|Item 7A. Quantitative and Qualitative Disclosures about Market
Risk

As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this item.

22

---



|                                                                 | 
|---------------------------------------------------------------- | 
|Item 8. Consolidated
Financial Statements and Supplementary Data

Report of Independent
Registered Public Accounting Firm

The Board of Directors and Shareholders
SED International Holdings, Inc.

We have audited the consolidated balance sheets of SED International
Holdings, Inc. and Subsidiaries as of June 30, 2009 and 2008, and the related
consolidated statements of operations, shareholders equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SED
International Holdings, Inc. and Subsidiaries as of June 30, 2009 and 2008, and
their results of operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States
of America.

| |                   
| | ------------------
| | /s/ J.H.
 Cohn LLP

Roseland, New
Jersey
September 24, 2009

23

---



SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                          |  | June 30, |            
|                                                                                                                                                                          |  |          |             |   |      |  
|                                                                                                                                                                          |  | 2009     |             |   | 2008 |  
|                                                                                                                                                                          |  |          |             |   |      |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|ASSETS                                                                                                                                                                    |  |          |             |   |      |   |             |  
|Current assets:                                                                                                                                                           |  |          |             |   |      |   |             |  
|Cash and cash equivalents                                                                                                                                                 |  | $        | 3,570,000   |   |      | $ | 4,086,000   |  
|Trade accounts receivable, less allowance
 for doubtful accounts of $584,000 (2009) and $753,000 (2008)                                                                   |  |          | 50,128,000  |   |      |   | 44,839,000  |  
|Inventories, net                                                                                                                                                          |  |          | 38,532,000  |   |      |   | 36,116,000  |  
|Deferred tax assets, net                                                                                                                                                  |  |          | 286,000     |   |      |   | 260,000     |  
|Other current assets                                                                                                                                                      |  |          | 5,653,000   |   |      |   | 7,615,000   |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Total current assets                                                                                                                                                      |  |          | 98,169,000  |   |      |   | 92,916,000  |  
|Property and equipment, net                                                                                                                                               |  |          | 720,000     |   |      |   | 1,044,000   |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Total assets                                                                                                                                                              |  | $        | 98,889,000  |   |      | $ | 93,960,000  |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|LIABILITIES
 AND SHAREHOLDERS EQUITY                                                                                                                                     |  |          |             |   |      |   |             |  
|Current liabilities:                                                                                                                                                      |  |          |             |   |      |   |             |  
|Trade accounts payable                                                                                                                                                    |  | $        | 47,417,000  |   |      | $ | 45,986,000  |  
|Accrued and other current liabilities                                                                                                                                     |  |          | 7,670,000   |   |      |   | 8,865,000   |  
|Revolving credit facility                                                                                                                                                 |  |          | 25,093,000  |   |      |   | 18,837,000  |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Total liabilities                                                                                                                                                         |  |          | 80,180,000  |   |      |   | 73,688,000  |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Commitments and contingencies                                                                                                                                             |  |          |             |   |      |   |             |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Shareholders equity:                                                                                                                                                     |  |          |             |   |      |   |             |  
|Preferred stock, $1.00 par value; 129,500shares authorized, none issued                                                                                                   |  |          |            |   |      |   |            |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Common stock, $.01 par value; 100,000,000
 sharesauthorized, 6,781,302 (2009) and 6,278,347 (2008)shares issued,
 5,086,811 (2009) and4,583,856 (2008) shares outstanding |  |          | 68,000      |   |      |   | 63,000      |  
|Additional paid-in capital                                                                                                                                                |  |          | 69,525,000  |   |      |   | 68,681,000  |  
|Accumulated deficit                                                                                                                                                       |  |          | (33,531,000 | ) |      |   | (32,443,000 | )
|Accumulated other comprehensive loss                                                                                                                                      |  |          | (4,266,000  | ) |      |   | (2,942,000  | )
|Treasury stock, 1,694,491 shares, at cost                                                                                                                                 |  |          | (13,087,000 | ) |      |   | (13,087,000 | )
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Total shareholders equity                                                                                                                                                |  |          | 18,709,000  |   |      |   | 20,272,000  |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  
|Total liabilities and shareholders equity                                                                                                                                |  | $        | 98,889,000  |   |      | $ | 93,960,000  |  
|                                                                                                                                                                          |  |          |             |   |      |   |             |  

See notes to consolidated financial
statements.

24

---



SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                  |  |                     |             |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                  |  | Year Ended June 30, |            
|                                                                                                                                  |  |                     |            
|                                                                                                                                  |  | 2009                |             |   | 2008 |  
|                                                                                                                                  |  |                     |             |   |      |  
|                                                                                                                                 
|Net sales                                                                                                                         |  | $                   | 472,478,000 |   |      | $ | 478,690,000 |  
|Cost of sales                                                                                                                     |  |                     | 446,534,000 |   |      |   | 453,282,000 |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Gross profit                                                                                                                      |  |                     | 25,944,000  |   |      |   | 25,408,000  |  
|Selling, general and administrative
 expenses, excluding litigation settlement expense and depreciation and
 amortization expense |  |                     | 23,151,000  |   |      |   | 22,552,000  |  
|Litigation settlement expense                                                                                                     |  |                     |            |   |      |   | 2,075,000   |  
|Depreciation and amortization expense                                                                                             |  |                     | 474,000     |   |      |   | 473,000     |  
|Foreign currency transactions loss                                                                                                |  |                     | 1,894,000   |   |      |   | 257,000     |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Operating income                                                                                                                  |  |                     | 425,000     |   |      |   | 51,000      |  
|Interest income                                                                                                                   |  |                     | (115,000    | ) |      |   | (123,000    | )
|Interest expense                                                                                                                  |  |                     | 1,250,000   |   |      |   | 1,741,000   |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Loss income before income taxes                                                                                                   |  |                     | (710,000    | ) |      |   | (1,567,000  | )
|Income tax expense                                                                                                                |  |                     | 378,000     |   |      |   | 397,000     |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Net loss                                                                                                                          |  | $                   | (1,088,000  | ) |      | $ | (1,964,000  | )
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Basic and diluted loss per common share                                                                                           |  | $                   | (.27        | ) |      | $ | (.51        | )
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|                                                                                                                                  |  |                     |             |   |      |   |             |  
|Weighted average number of common shares
 outstanding:                                                                            |  |                     |             |   |      |   |             |  
|Basic and diluted                                                                                                                 |  |                     | 4,020,000   |   |      |   | 3,879,000   |  

See notes to consolidated financial
statements.

25

---



SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------ |  | ------------ | --------- | -------------------------- | --------- | ------------------- | ------ | ------------------------------------ |  | -------------- | ---------- | -------------------------- | ---- | - | ----------- | - |  | - | ---------- | - |  |  | --------- |  |  | - | ----------- | - |  | - | ---------- | -
|                                                                               |  | Common
Stock |           | Additional
Paid-In
Capital |           | Accumulated
Deficit |        | Accumulated
Other
Comprehensive
Loss |  | Treasury
Stock |            | Total
Shareholders
Equity |     
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |               
|                                                                               |  |              |           |                            |           |                     |        |                                      | 
|                                                                               |  | Shares       |           |                            | Par
Value |                     |        |                                      |  |                | Shares     |                            | Cost |   |             |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           | 
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|BALANCE JUNE 30, 2007                                                          |  |              | 5,573,347 |                            |           | $                   | 56,000 |                                      |  | $              | 68,531,000 |                            |      | $ | (30,479,000 | ) |  | $ | (2,862,000 | ) |  |  | 1,694,491 |  |  | $ | (13,087,000 | ) |  | $ | 22,159,000 |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock awards issued                                                            |  |              | 762,500   |                            |           |                     | 8,000  |                                      |  |                | (8,000     | )                          |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock awards forfeited                                                         |  |              | (57,500   | )                          |           |                     | (1,000 | )                                    |  |                | 1,000      |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock-based compensation                                                       |  |              |           |                            |           |                     |        |                                      |  |                | 157,000    |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | 157,000    |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Net loss                                                                       |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   | (1,964,000  | ) |  |   |            |   |  |  |           |  |  |   |             |   |  |   | (1,964,000 | )
|Foreign currency translation adjustments                                       |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   | 240,000    |   |  |  |           |  |  |   |             |   |  |   | 240,000    |  
|Changes in fair value of interest rate swap contract                           |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   | (320,000   | ) |  |  |           |  |  |   |             |   |  |   | (320,000   | )
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Comprehensive loss                                                             |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | (2,044,000 | )
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|BALANCE JUNE 30, 2008                                                          |  |              | 6,278,347 |                            |           |                     | 63,000 |                                      |  |                | 68,681,000 |                            |      |   | (32,443,000 | ) |  |   | (2,942,000 | ) |  |  | 1,694,491 |  |  |   | (13,087,000 | ) |  |   | 20,272,000 |  
|Stock awards issued                                                            |  |              | 177,975   |                            |           |                     | 2,000  |                                      |  |                | (5,000     | )                          |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | (3,000     | )
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock cancelled                                                                |  |              | (20       | )                          |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock-based compensation                                                       |  |              |           |                            |           |                     |        |                                      |  |                | 463,000    |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | 463,000    |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Stock issued for services and litigation settlement                            |  |              | 325,000   |                            |           |                     | 3,000  |                                      |  |                | 386,000    |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | 389,000    |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Net loss                                                                       |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   | (1,088,000  | ) |  |   |            |   |  |  |           |  |  |   |             |   |  |   | (1,088,000 | )
|Foreign currency translation adjustments                                       |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   | (1,416,000 | ) |  |  |           |  |  |   |             |   |  |   | (1,416,000 | )
|Changes in fair value and related amortization of interest rate swap
 contract |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   | 92,000     |   |  |  |           |  |  |   |             |   |  |   | 92,000     |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|Comprehensive loss                                                             |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   | (2,412,000 | )
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  
|BALANCE JUNE 30, 2009                                                          |  |              | 6,781,302 |                            |           | $                   | 68,000 |                                      |  | $              | 69,525,000 |                            |      | $ | (33,531,000 | ) |  | $ | (4,266,000 | ) |  |  | 1,694,491 |  |  | $ | (13,087,000 | ) |  | $ | 18,709,000 |  
|                                                                               |  |              |           |                            |           |                     |        |                                      |  |                |            |                            |      |   |             |   |  |   |            |   |  |  |           |  |  |   |             |   |  |   |            |  

See notes to consolidated financial
statements.

26

---



SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                                                           |  |                     |            |      |  |   |            |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                           |  | Year Ended June 30, |           
|                                                                                           |  |                     |           
|                                                                                           |  | 2009                |            | 2008 | 
|                                                                                           |  |                     |            |     
|Operating activities:                                                                      |  |                     |            |      |  |   |            |  
|Net loss                                                                                   |  | $                   | (1,088,000 | )    |  | $ | (1,964,000 | )
|Adjustments to reconcile net loss to net cash provided by (used in)
 operating activities: |  |                     |            |      |  |   |            |  
|Depreciation and amortization                                                              |  |                     | 474,000    |      |  |   | 473,000    |  
|Deferred tax assets                                                                        |  |                     | (26,000    | )    |  |   | (237,000   | )
|Stock compensation                                                                         |  |                     | 463,000    |      |  |   | 157,000    |  
|Provision for losses on trade accounts receivable                                          |  |                     | 398,000    |      |  |   | 419,000    |  
|Changes in operating assets and liabilities:                                               |  |                     |            |      |  |   |            |  
|Trade accounts receivable                                                                  |  |                     | (6,961,000 | )    |  |   | (3,053,000 | )
|Inventories, net                                                                           |  |                     | (3,784,000 | )    |  |   | 5,820,000  |  
|Other current assets                                                                       |  |                     | 1,372,000  |      |  |   | (2,606,000 | )
|Trade accounts payable                                                                     |  |                     | 3,232,000  |      |  |   | 5,388,000  |  
|Accrued and other current liabilities                                                      |  |                     | (480,000   | )    |  |   | 2,288,000  |  
|                                                                                           |  |                     |            |      |  |   |            |  
|Net cash (used in) provided by operating activities                                        |  |                     | (6,400,000 | )    |  |   | 6,685,000  |  
|                                                                                           |  |                     |            |      |  |   |            |  
|Investing activities: Purchase of equipment                                                |  |                     | (157,000   | )    |  |   | (409,000   | )
|                                                                                           |  |                     |            |      |  |   |            |  
|Financing activities: Net borrowings (repayments) under revolving
 credit facility         |  |                     | 6,256,000  |      |  |   | (5,707,000 | )
|                                                                                           |  |                     |            |      |  |   |            |  
|Effect of exchange rate changes on cash and cash equivalents                               |  |                     | (215,000   | )    |  |   | 161,000    |  
|                                                                                           |  |                     |            |      |  |   |            |  
|(Decrease) increase in cash and cash equivalents                                           |  |                     | (516,000   | )    |  |   | 730,000    |  
|Cash and cash equivalents:                                                                 |  |                     |            |      |  |   |            |  
|Beginning of year                                                                          |  |                     | 4,086,000  |      |  |   | 3,356,000  |  
|                                                                                           |  |                     |            |      |  |   |            |  
|End of year                                                                                |  | $                   | 3,570,000  |      |  | $ | 4,086,000  |  
|                                                                                           |  |                     |            |      |  |   |            |  
|Supplemental Disclosures of Cash Flow Information  cash paid during
 the year for:        |  |                     |            |      |  |   |            |  
|Interest paid                                                                              |  | $                   | 1,187,000  |      |  | $ | 1,643,000  |  
|Income taxes                                                                               |  | $                   | 643,000    |      |  | $ | 1,283,000  |  

See notes to consolidated financial statements.

27

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SED INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years ended June 30, 2009 and 2008

1. Description of Business

SED
International Holdings, Inc., the parent company incorporated in Georgia, and
its wholly-owned operating subsidiary, SED International, Inc., a Georgia
corporation, are engaged in the wholesale distribution of microcomputer
products, including mass storage, imaging, display, consumer electronics and
wireless products throughout the United States and Latin America. SED
International Holdings, Inc. services Latin America through its wholly-owned
subsidiaries SED International de Colombia Ltda. (SED Colombia) in Bogotá,
Colombia and Intermaco S.R.L. (Intermaco) in Buenos Aires, Argentina.

2. 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, Ltda. (formerly
SED Magna Distribuidora Ltda.), SED Magna (Miami), Inc., SED Colombia and
Intermaco, (collectively the Company). All intercompany accounts and
transactions have been eliminated in consolidation. The operations of SED
International do Brasil, Ltda. were discontinued during the third quarter of
fiscal 2003. See Note 11.

Revenue
Recognition  Revenue is recognized once four criteria
are met: (1) SED must have persuasive evidence that an arrangement exists; (2)
delivery must occur, which generally happens at the point of shipment (this
includes the transfer of both title and risk of loss, provided that no
significant obligations remain); (3) the price must be fixed or determinable;
and (4) collectability must be reasonably assured. Shipping revenue is included
in net sales while the related costs, including shipping and handling costs,
are included in the cost of sales. SED allows its customers to return product
for exchange or credit subject to certain limitations. A provision for such
returns is recorded based upon historical experience.

Concentrations
of Credit Risk  Financial instruments that
potentially subject the Company to significant concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts receivable.
The Company places its cash and cash equivalents with high credit quality
financial institutions. At times, such amounts exceed the current insured
amount under the Federal Deposit Insurance Corporation. At June 30, 2009
approximately $3.3 million of SEDs cash and cash equivalents were not
available for Federal Deposit Insurance. The funds held in Latin American
banks, which represent 57% of the Companys cash and cash equivalents at June
30, 2009, are generally not available for use domestically without withholding
taxes. The Company has no single customer that represents a significant portion
of total net sales or accounts receivable and we generally do not require
collateral from our customers.

Use
of Estimates  The preparation of financial statements
in conformity with accounting principles generally accepted in the United
States of America 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 differences could be significant.

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

Accounts
Receivable  Accounts receivable are carried at the
amount owed by customers less an allowance for doubtful accounts.

Allowance for Doubtful Accounts An allowance for
uncollectible accounts has been established based on collection experience and
an assessment of the collectability of specific accounts. Management evaluates
the collectability of accounts receivable based on a combination of factors.
Initially, management

28

---



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. The
overall determination of the allowance also considers credit insurance coverage
and deductibles, which SED has maintained from time to time. SED maintains
credit insurance, which provides protection from credit losses exceeding
certain deductibles for certain domestic sales and certain export shipments
from the United States. SED maintains credit insurance in many Latin American
countries (subject to certain terms and conditions). SED maintains a policy of
writing off the accounts receivable deemed to be uncollectable against the
allowance for doubtful accounts in the fourth fiscal quarter.

Inventories
 Inventories consist of finished goods and are stated at the lower of cost
(first-in, first-out method) or market and include in-transit inventory of
$5,525,000 at June 30, 2009 and $4,626,000 at June 30, 2008. Certain SED
vendors allow for either return of goods within a specified period (usually 45
- 90 days) or for credits related to price protection. However, for certain
other vendors 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 were discontinued in the future, or if vendors were unable to honor
the provisions of certain contract, which protect SED from inventory losses,
including price protections, the risk of loss associated with obsolete, slow
moving or impaired inventories would increase. The reserve for obsolete and
slow moving inventories was approximately $705,000 at June 30, 2009 and
$697,000 at June 30, 2008 or 1.8% and 1.9% of gross inventories, respectively.

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.

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, net of any
deferred income taxes. As of June 30, 2009 and 2008, the amount of deferred
income taxes recorded against cumulative translation losses is zero, because
the related deferred tax asset has been offset in full by a valuation
allowance. The results of foreign operations are translated at the average
exchange rates for the year. Gains or losses resulting from foreign currency
transactions are included in the consolidated statement of operations.

Income
Taxes 
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred tax assets relate primarily to differences in the financial reporting
basis and the tax basis of reserves, translation losses and depreciation of
fixed assets, in addition to net operating loss and tax credit carry-forwards.
Deferred tax liabilities relate to U.S. taxes on unremitted foreign earnings.
As the likelihood of the full realization of the net operating losses, reserves
and translation losses is uncertain, the Company has provided a valuation
allowance for the future tax benefits that are not expected to be utilized.
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48), which became effective on July 1, 2007, prescribed the minimum threshold
a tax position is required to meet before being recognized in the consolidated
financial statements and provided guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
transition and disclosures. See Note 5, Income Taxes, for additional
discussion.

Loss
Per Common Share (EPS)  Basic loss per common share
is computed on the basis of the weighted average number of shares of common
stock outstanding during that period. Diluted earnings per common share is
computed on the basis of the weighted-average number of common shares plus the
effect of dilutive potential common shares outstanding during the period using
the treasury stock method.

29

---



Potentially dilutive common shares represent additional common shares
assumed to be issued. For the fiscal years 2009 and 2008, options for
approximately 504,000 common shares were excluded from the diluted EPS
calculation due to their anti-dilutive effect. Also excluded from the diluted
EPS calculation, due to their anti-dilutive effect, for fiscal years 2009 and
2008 were approximately 883,000 and 705,000 shares of unvested restricted
stock.

Share-Based
Compensation The Company accounts for share-based
compensation under the provisions of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment. The Company recognizes compensation
expense on a straight-line basis over the requisite service period for the
entire award.

Comprehensive
(Loss) Income  Comprehensive (loss) income is defined
as the change in equity (net assets) of a business enterprise during a period
from transactions or other events and circumstances from non-owner sources, and
is comprised of net (loss) income and other comprehensive (loss) income. SEDs
other comprehensive (loss) income is comprised of changes in SEDs foreign
currency translation adjustments and changes in fair value of an interest rate
swap contract, including income taxes attributable to those changes.
Accumulated other comprehensive loss included in shareholders equity totaled
$4,266,000 and $2,942,000 and consisted of $4,038,000 and $2,622,000 of net
foreign currency translation adjustments and $228,000 and $320,000 of fair
value liability of an interest rate swap contract at June 30, 2009 and 2008,
respectively.

Reclassifications
Certain reclassifications have been made to in the
June 30, 2008 Consolidated Financial Statements to conform with the June 30,
2009 presentation.

Subsequent
Events In May 2009, the FASB issued Statement
of Financial Accounting Standards No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
SFAS No. 165 sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity should make about events
or transactions that occurred after the balance sheet date. The requirements of
SFAS No. 165 are applied on a prospective basis to interim or annual financial
periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have a
material effect on our consolidated financial statements.

In
preparing these condensed consolidated financial statements, we have evaluated
events and transactions for potential recognition or disclosure through the
issuance of the consolidated financial statements on September 24, 2009.

Recent
Accounting Pronouncements In December 2007, the FASB
issued SFAS No. 141 (Revised), Business Combinations (SFAS No. 141R) and
SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements
(SFAS No. 160). SFAS No. 141(R) and SFAS No. 160 revise the method of
accounting for a number of aspects of business combinations and non-controlling
interests, including acquisition costs, contingencies (including contingent assets,
contingent liabilities and contingent purchase price), the impacts of partial
and step-acquisitions (including the valuation of net assets attributable to
non-acquired minority interests), and post acquisition exit activities of
acquired businesses. SFAS No. 141(R) and SFAS No. 160 will be effective for the
Company during our fiscal year beginning July 1, 2009.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133 (SFAS No.
161). SFAS No. 161 requires enhanced disclosures about an entitys derivative
and hedging activities and thereby seeks to improve the transparency of
financial reporting. Under SFAS No. 161, entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial
position, financial

30

---



performance, and cash flows. SFAS No. 161 became effective for the
Company on January 1, 2009. Early application is encouraged. SFAS No. 161 also
encourages, but does not require, comparative disclosures for earlier periods
at initial adoption. The adoption of SFAS No. 161 did not have a material
impact on the disclosures in the Companys consolidated financial statements.

In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principlesa replacement of
FASB Statement No. 162 SFAS No. 168. SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 168 is effective for the Companys interim reporting
period ending on September 30, 2009. The Company does not expect SFAS No. 168
to have a material impact on our consolidated financial statements.

3. Property and Equipment

Property
and equipment are comprised of the following:

|                                                |  |          |             |      |  |   |             |  
|----------------------------------------------- |  | -------- | ----------- | ---- |  | - | ----------- | -
|                                                |  | June 30, |            
|                                                |  |          |            
|                                                |  | 2009     |             | 2008 | 
|                                                |  |          |             |      | 
|                                               
|Furniture
 and equipment                        |  | $        | 9,490,000   |      |  | $ | 9,513,000   |  
|Leasehold
 improvements                         |  |          | 2,394,000   |      |  |   | 2,359,000   |  
|Other                                           |  |          | 187,000     |      |  |   | 196,000     |  
|                                                |  |          |             |      |  |   |             |  
|                                                |  |          | 12,071,000  |      |  |   | 12,068,000  |  
|Less
 accumulated depreciation and amortization |  |          | (11,351,000 | )    |  |   | (11,024,000 | )
|                                                |  |          |             |      |  |   |             |  
|                                                |  | $        | 720,000     |      |  | $ | 1,044,000   |  
|                                                |  |          |             |      |  |   |             |  
|                                                |  |          |             |      |  |   |             |  

Depreciation
and amortization expense for property and equipment totaled $474,000 and $473,000
for the years ended June 30, 2009 and 2008, respectively.

4. Credit Facilities

On March 1,
2007, SED signed a three-year extension of a credit facility with Wachovia
Bank, National Association (the Wachovia Agreement) which extended the maturity
to September 21, 2011. The Wachovia Agreement was originally entered into on
September 21, 2005 with a term of three years. On January 10, 2008, SED elected
to increase the Wachovia line of credit to $50.0 million. The Wachovia
Agreement provides for revolving borrowings based on SEDs eligible accounts
receivable and inventories as defined therein. Wachovia Bank was recently
acquired by Wells Fargo Bank but the Company does not anticipate any negative
effects due to the acquisition.

Borrowings
under the Wachovia Agreement accrue interest based upon a variety of interest
rate options depending upon the computation of availability as defined therein.
The per annum interest rates available are LIBOR, plus a margin ranging from
1.25% to 2.00%, and the prime rate. SED is required to pay a commitment fee of
..25% on the unused portion of the facility and interest is payable monthly.
Borrowings under the Wachovia Agreement are collateralized by substantially all
domestic assets of SED and 65% of SEDs shares in its foreign subsidiaries.

The
Wachovia Agreement contains certain covenants which, among other things,
require that SED maintain unused availability of $5.0 million or more during
the term of the Wachovia Agreement before SED is permitted to make advances to
SEDs Latin American subsidiaries. SEDs advances to its Latin American
subsidiaries are restricted. The Wachovia Agreement also contains a covenant
which requires that if SEDs unused availability is less than 10% of the formula
borrowing base ($3.9 million at June 30, 2009) at any time during the extension
term of the Agreement, then maintenance of a minimum fixed charge coverage
ratio is required. The Wachovia Agreement also restricts SEDs ability to
distribute cash dividends. As of June 30, 2009, SED determined that it was in
compliance with the Wachovia Agreement.

31

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During
February, 2009, SED Colombia signed a one-year $2.5 million unsecured line of
credit with Banco de Credito that bears interest at a fixed rate of 13.7% per
annum. SED is using the line to reduce the effect of devaluation by converting
the loan to U S dollars and taking vendor early pay cash discounts with certain
vendors.

Available
borrowings under these credit facilities at June 30, 2009 were $13.3 million
under the Wachovia Agreement, after deducting $1.8 million in reserves for
outstanding letters of credit, and $2.5 million under the Banco de Credito line
of credit. Average borrowings, maximum borrowings and weighted average interest
rate for fiscal 2009 were $22.1 million, $32.7 million and 5.3%, respectively.
The weighted average interest rate on outstanding borrowings under the credit
facilities was 4.5% at June 30, 2009. Average borrowings, maximum borrowings
and weighted average interest rate for fiscal June 30, 2008 were $24.1 million,
$34.7 million and 6.2%, respectively.

The
carrying value of all bank debt at June 30, 2009 approximates its fair value
based on the variable market rates of interest on such bank debt.

On January
26, 2007, the Company entered into a three-year interest rate swap contract to
reduce the impact of the fluctuations in the interest rates on $5.0 million
notional amount of the revolving credit facility under the Wachovia Agreement.
The contract effectively converted the variable rate to a fixed rate of 5.20%.
On March 5, 2008, the three-year swap agreement was amended to a notional
amount of $15.0 million with a fixed rate of 4.54%. On March 26, 2009, the swap
agreement was further amended to provide for an extension to January 26, 2013
and an interest rate modification to 2.95%. The fixed rates cited do not
include Wachovias markup of 1.5% as of June 30, 2009.

The Company
utilizes derivative financial instruments to reduce interest rate risk. The
interest rate swap agreement is accounted for in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133), which establishes accounting and
reporting standards for derivative instruments and hedging activities. As
required by SFAS No. 133, the Company recognizes all derivatives as either
assets or liabilities in the balance sheet and measures those instruments at
fair value. The Company has designated its interest rate swap agreement as a
cash flow hedge. Accordingly, the gains and losses associated with changes in
the fair value of the interest rate swap are reported in other comprehensive
income (loss) as the hedge is highly effective in achieving offsetting changes
in the fair value of cash flows of the asset or liability hedged. The fair
value, not in the Companys favor, of the interest rate swap was $345,000 at
June 30, 2009 and $320,000 at June 30, 2008 and is included in accrued expenses.
The Company does not hold or issue derivative financial instruments for trading
purposes.

As of June
30, 2009, approximately $400,000 in pre-tax losses related to cash flow hedges
that are currently deferred in Accumulated Other Comprehensive Loss are
expected to be reclassified to expense through January 26, 2010. Approximately
$200,000 was reclassified to expense during fiscal 2009.

32

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5. 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, |            
|                                                      |  |          |            
|                                                      |  | 2009     |             | 2008 | 
|                                                      |  |          |             |      | 
|                                                      |  |          |             |      |  |   |             |  
|Deferred tax assets:                                  |  |          |             |      |  |   |             |  
|U.S. federal and state operating loss
 carry-forwards |  | $        | 23,785,000  |      |  | $ | 22,801,000  |  
|Foreign currency translation adjustments              |  |          | 1,533,000   |      |  |   | 996,000     |  
|Depreciation and amortization                         |  |          | 216,000     |      |  |   | 169,000     |  
|Allowance for accounts receivable                     |  |          | 165,000     |      |  |   | 223,000     |  
|Inventories                                           |  |          | 380,000     |      |  |   | 373,000     |  
|Allowance for sales returns                           |  |          | 20,000      |      |  |   | 13,000      |  
|Employee benefits and compensation                    |  |          | 15,000      |      |  |   | 16,000      |  
|Reserves and accruals                                 |  |          | 381,000     |      |  |   | 1,191,000   |  
|Sales and city tax                                    |  |          | 213,000     |      |  |   | 185,000     |  
|Share-based compensation                              |  |          | 286,000     |      |  |   | 110,000     |  
|Available tax credits                                 |  |          | 322,000     |      |  |   | 328,000     |  
|Interest rate swap                                    |  |          | 129,000     |      |  |   | 121,000     |  
|Other                                                 |  |          | 3,000       |      |  |   | 11,000      |  
|                                                      |  |          |             |      |  |   |             |  
|Net deferred tax assets                               |  |          | 27,448,000  |      |  |   | 26,537,000  |  
|Valuation allowance                                   |  |          | (23,900,000 | )    |  |   | (23,181,000 | )
|                                                      |  |          |             |      |  |   |             |  
|                                                      |  |          | 3,548,000   |      |  |   | 3,356,000   |  
|                                                      |  |          |             |      |  |   |             |  
|Deferred tax liabilities:                             |  |          |             |      |  |   |             |  
|Unremitted foreign earnings                           |  |          | (3,262,000  | )    |  |   | (3,096,000  | )
|                                                      |  |          |             |      |  |   |             |  
|Deferred tax assets, net                              |  | $        | 286,000     |      |  | $ | 260,000     |  
|                                                      |  |          |             |      |  |   |             |  

The net
deferred tax assets at June 30, 2009 and June 30, 2008 all are related to SED
Colombia and Intermaco and were classified as current assets and liabilities on
the balance sheet. At June 30, 2009, the Company has total net operating loss
carry-forwards for federal and state income tax purposes in the United States
of approximately $63.7 million and $53.4 million, respectively, expiring at
various dates through 2029. In addition, as of June 30, 2009 the Company has
alternative minimum tax credit carry-forwards of approximately $322,000, which
carry over until they are used. At June 30, 2009 and 2008, the Company has
recorded a valuation allowance for principally all deferred tax assets only to the
extent not offset by deferred tax liaibilities, except for those relating to
Intermaco and SED Colombia, as there is no assurance that these assets will be
realized.

The
components of loss before income taxes consist of the following:

|               |  |                     |            |      |  |   |            |  
|-------------- |  | ------------------- | ---------- | ---- |  | - | ---------- | -
|               |  | Year Ended June 30, |           
|               |  |                     |           
|               |  | 2009                |            | 2008 | 
|               |  |                     |            |      | 
|United
 States |  | $                   | (1,603,000 | )    |  | $ | (3,113,000 | )
|Foreign        |  |                     | 993,000    |      |  |   | 1,546,000  |  
|               |  |                     |            |      |  |   |            |  
|Total          |  | $                   | (610,000   | )    |  | $ | (1,567,000 | )
|               |  |                     |            |      |  |   |            |  

33

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

|          |  |                     |         |      |  |   |          |  
|--------- |  | ------------------- | ------- | ---- |  | - | -------- | -
|          |  | Year Ended June 30,
|          |  |                     |        
|          |  | 2009                |         | 2008
|          |  |                     |         |      |  |  
|Current:  |  |                     |         |      |  |   |          |  
|State     |  | $                   | 23,000  |      |  | $ | 22,000   |  
|Foreign   |  |                     | 381,000 |      |  |   | 612,000  |  
|          |  |                     |         |      |  |   |          |  
|          |  |                     | 404,000 |      |  |   | 634,000  |  
|          |  |                     |         |      |  |   |          |  
|Deferred: |  |                     |         |      |  |   |          |  
|Foreign   |  |                     | (26,000 | )    |  |   | (237,000 | )
|          |  |                     |         |      |  |   |          |  
|          |  | $                   | 378,000 |      |  | $ | 397,000  |  
|          |  |                     |         |      |  |   |          |  

The
Companys income taxes payable at June 30, 2009 and 2008 were $191,000 and
$339,000, respectively, and are included in accrued and other current
liabilities on the consolidated balance sheets. Prepaid income taxes of
$433,000 and $494,000 were included in other current assets on the consolidated
balance sheets as of June 30, 2009 and 2008, respectively.

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

|                                                                |  |                     |       |      |  |  |       |   
|--------------------------------------------------------------- |  | ------------------- | ----- | ---- |  |  | ----- | --
|                                                                |  | Year Ended June 30,
|                                                                |  |                    
|                                                                |  | 2009                |       | 2008
|                                                                |  |                     |       |     
|                                                                |  |                     |       |      |  |  |       |   
|Statutory
 federal (benefit) rates                              |  |                     | (34.0 | )%   |  |  | (34.0 | )%
|State income
 taxes net of federal income tax expense (benefit) |  |                     | 11.7  |      |  |  | (3.6  | ) 
|Non-deductible
 items                                           |  |                     | 10.0  |      |  |  | 0.8   |   
|US tax on
 foreign earnings                                     |  |                     | 30.5  |      |  |  | 25.4  |   
|Valuation
 allowance                                            |  |                     | 30.8  |      |  |  | 12.3  |   
|Adjustment
 to unused net operating losses                      |  |                     |      |      |  |  | 34.9  |   
|Foreign
 taxes (less than) in excess of federal statutory rate  |  |                     | 2.5   |      |  |  | (9.6  | ) 
|Other                                                           |  |                     | 1.7   |      |  |  | (0.8  | ) 
|                                                                |  |                     |       |      |  |  |       |   
|Total                                                           |  |                     | 53.2  | %    |  |  | 25.4  | % 
|                                                                |  |                     |       |      |  |  |       |   

The
valuation allowance increased during fiscal 2009 and 2008 by $719,000 and
$223,000, respectively.

Effective
July 1, 2007, the beginning of fiscal year 2008, the Company adopted the
provisions of Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes, and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition requirements.

The
adoption of FIN 48 resulted in no change to the Companys consolidated
accumulated deficit as of July 1, 2007. As of the adoption date and as of June
30, 2009 and 2008, the Company had no unrecognized tax benefits. There are no
tax positions where it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly increase or decrease in the next
twelve months from June 30, 2009.

The Company recognizes penalties and interest
accrued related to unrecognized tax benefits in income tax expense. There have
been no income tax related penalties or interest assessed or recorded.

The
Company conducts business principally in North and South America. As a result,
one or more of its subsidiaries files income tax returns in the U.S. federal,
various state, local and foreign tax jurisdictions. In the normal course of
business, the Company is subject to examination by taxing authorities,
including such major jurisdictions as the United States, Argentina and Colombia.
The

34

---



Company is no
longer subject to income tax examinations for tax years before June 30, 2006 in
the U.S., and for tax years before December 31, 2008 in Colombia, but remains
subject to examination in Argentina for tax years ending June 30, 2004 and
later.

6. Lease Obligations

SED
International, Inc. leases its main office facility under an operating lease
expiring in September 2011 with an affiliated entity (see Item 13). Rent
expense for this facility for the fiscal years ended June 30, 2009 and 2008 was
$328,000 and $321,000, respectively. The Company leases additional distribution
center and sales office space and office equipment under other operating leases
expiring through April 2012. Rent expense under all operating leases for the years
ended June 30, 2009 and 2008 was $1,205,000 and $1,165,000, respectively.

As
of June 30, 2009, future minimum rental commitments under non-cancelable
operating leases are:

|                      |  |   |           |  | 
|--------------------- |  | - | --------- |  | 
|Year
 Ending June 30, |  |   |           |  | 
|                      |  |   |           |  | 
|2010                  |  | $ | 799,000   | 
|2011                  |  |   | 538,000   | 
|2012                  |  |   | 482,000   | 
|2013                  |  |   | 294,000   | 
|2014                  |  |   | 122,000   | 
|2015 and
 thereafter  |  |   | 41,000    | 
|                      |  |   |           | 
|                      |  | $ | 2,276,000 | 
|                      |  |   |           | 

7. Shareholders Equity

Stock Option Plans  The Company maintains four
stock option plans, one which is currently active and under which 801,841
shares of common stock have been reserved at June 30, 2009 for 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 in the Companys stock
option plans), all outstanding options become immediately exercisable. There
was no compensation cost charged against income for these stock option plans
for fiscal 2009 and 2008 as all stock options were fully vested prior to fiscal
2008. No income tax benefit was recognized in the income statement for
stock-based compensation arrangements as we have large net operating loss carry
forwards with full valuation allowances. None of the expense related to
stock-based compensation arrangements for stock option plans was capitalized
during fiscal 2009 and 2008.

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

|                                             |  |        |         |                                    |  |                                                 |       |                             |  |     |  |  |         | 
|-------------------------------------------- |  | ------ | ------- | ---------------------------------- |  | ----------------------------------------------- | ----- | --------------------------- |  | --- |  |  | ------- | 
|                                             |  | Shares |         | Weighted
 Average
 Exercise
 Price |  | Weighted
 Average
 Remaining
 Contractual
 Term |       | Aggregate
 Intrinsic
 Value | 
|                                             |  |        |         |                                    |  |                                                 |       |                             | 
|Outstanding at June 30, 2008                 |  |        | 503,909 |                                    |  |                                                 | $2.50 |                             |  |     |  |  |         | 
|Forfeited or expired                         |  |        | (250    | )                                  |  |                                                 | $5.88 |                             |  |     |  |  |         | 
|                                             |  |        |         |                                    |  |                                                 |       |                             |  |     |  |  |         | 
|Outstanding at June 30, 2009                 |  |        | 503,659 |                                    |  |                                                 | $2.50 |                             |  | 2.4 |  |  | $43,000 | 
|                                             |  |        |         |                                    |  |                                                 |       |                             |  |     |  |  |         | 
|                                             |  |        |         |                                    |  |                                                 |       |                             |  |     |  |  |         | 
|Vested and expected to vest at June 30, 2009 |  |        | 503,659 |                                    |  |                                                 | $2.50 |                             |  | 2.4 |  |  | $43,000 | 
|Exercisable at June 30, 2009                 |  |        | 503,084 |                                    |  |                                                 | $2.49 |                             |  | 2.4 |  |  | $43,000 | 
|Available for grant at June 30, 2009         |  |        | 801,841 |                                    |  |                                                 |       |                             |  |     |  |  |         | 

There
were no options exercised during fiscal year 2009 and 2008.

35

---



Restricted
Stock  The Companys stock option plan established in 1999 (the
1999 Plan) also permits the grant of restricted stock awards. No restricted
stock awards were granted or forfeited under the 1999 Plan during fiscal 2009
or 2008. Also, no restricted stock awards were outstanding under the 1999 Plan
at June 30, 2009. SED established the 2007 Restricted Stock Plan (the 2007
Plan) during fiscal 2008. A total of 750,000 shares of the Companys
authorized and unissued shares of common stock were reserved for grants under
the 2007 Plan. Generally, the awards are subject to forfeiture prior to vesting
and begin vesting in equal amounts on the second, third and fourth
anniversaries of the grant date; provided, however, that at the time of vesting
the holder is an employee of the Company. During fiscal 2008, the Company
issued 762,500 restricted shares under the 2007 Plan of which 57,500 shares
were forfeited, leaving 705,000 shares outstanding at June 30, 2008. The value
of the 2007 Plan awards issued in fiscal 2009 and 2008 was determined using the
market price of the Companys common stock on the grant date. The total
compensation cost of the restricted stock awards over the four year vesting period
is expected to be $940,000, net of $62,000 estimated forfeitures. The
compensation cost of the restricted stock issued in fiscal 2008 is being
amortized and expensed over a vesting period of four years. During 2009, 10,000
shares were granted to an employee using the market price of the Companys
common stock on the grant date of $.85. There were no restricted
shares forfeited by employees during fiscal 2009. At June 30, 2009, 715,000
shares of restricted stock were outstanding under the 2007 Plan and the related
unrecognized compensation cost was $552,000 which SED expects to be recognized
ratably over the next 28 months.

On
July 1, 2008, the Company issued 22,857 shares of restricted common stock to
each of its then five non-employee directors in accordance with the Companys
Board compensation plan. On January 1, 2009, the Company issued 26,845 shares
of restricted common stock to each of its two newly elected non-employee
directors in accordance with the Companys Board compensation plan. Each of the
non-employee directors entered into a restricted stock agreement with respect
to his respective shares of restricted common stock (the Restricted Stock
Agreement). The value of the directors restricted stock awards was determined
using the market price of the Companys common stock on the grant date of $1.75
for the July 1, 2008 shares and $1.49 for the January 1, 2009 shares. The
shares issued to the non-employee directors will be subject to forfeiture prior
to vesting and vest in equal amounts on the first and second anniversary dates
of the issuance date. At June 30, 2009, 167,975 shares were outstanding and
un-vested under the non-employee directors Restricted Stock Agreement. The
total compensation cost of the restricted common stock over the two year
vesting periods is expected to be $280,000 with zero estimated forfeiture. The
unrecognized compensation cost was $160,000 at June 30, 2009 which SED expects
to be recognized over the next 18 months.

Effective
January, 2009, non-employee Board of Directors base compensation was set at a
per annum rate of $60,000 of which 50% shall be paid by an annual award of
restricted shares of Common Stock. The independent directors shall only be
entitled to the stock portion of their compensation after serving on the Board
for the full calendar year. The Company charged a pro-rata portion of the
director stock compensation amounting to $105,000, representing $15,000 per
director, to expense during fiscal 2009. The number of shares to be issued to
the directors will be determined on January 1, 2010 based upon the market price
of the Companys Common Stock as of that date. An assumption has been made that
all seven independent directors will be eligible for the stock compensation.

On
July 1, 2008, the Company issued 125,000 shares of restricted common stock at a
value of $117,000 to a vendor, an accredited investor, for services which
vested immediately.

36

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Restricted
stock activity is as follows:

|                                              |  |                     |          |      |  |  |         |  
|--------------------------------------------- |  | ------------------- | -------- | ---- |  |  | ------- | -
|                                              |  | Year Ended June 30,
|                                              |  |                     |         
|                                              |  | 2009                |          | 2008
|                                              |  |                     |          |      |  | 
|                                              |  |                     |          |      |  |  |         |  
|Shares of
 restricted stock-beginning of year |  |                     | 705,000  |      |  |  |        |  
|Issued                                        |  |                     | 302,975  |      |  |  | 762,500 |  
|Vested                                        |  |                     | (125,000 | )    |  |  |        |  
|Forfeited                                     |  |                     |         |      |  |  | (57,500 | )
|                                              |  |                     |          |      |  |  |         |  
|Shares of
 restricted stock-end of year       |  |                     | 882,975  |      |  |  | 705,000 |  
|                                              |  |                     |          |      |  |  |         |  

Share-based
compensation expense recognized during fiscal years ended June 30, 2009 and
2008 totaled approximately $463,000 and $157,000, respectively. At June 30,
2009, there was $817,000 of unrecognized compensation cost related to un-vested
stock awards compensation arrangements which SED expects to be recognized over
the next 28 months. At June 30, 2008, there was $783,000 of unrecognized
compensation cost related to un-vested stock awards compensation arrangements
to be recognized over 40 months.

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 a vesting period
of four years. During fiscal 2009, the weighted average grant-date fair value
of shares issued was $1.34 and vested was $.93. The weighted average grant-date
fair value of shares outstanding at the end of fiscal 2009 was $1.46. The
weighted average grant-date fair value of shares issued and forfeited during
fiscal 2008 and outstanding at the end of fiscal 2008 was $1.42.

8. 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. SED International may provide matching contributions for its
employees at the discretion of the Board of Directors. Vesting in matching
contributions, if any, is ratable over 7 years based on years of continuous
service. There were no matching contributions for fiscal years 2009 and 2008.

37

---



9. Segment Information

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

Financial
information for continuing operations by geographic region is as follows:

|                                    |  |               |             |               |   |              |   |              |             |   |   |             |  
|----------------------------------- |  | ------------- | ----------- | ------------- | - | ------------ | - | ------------ | ----------- | - | - | ----------- | -
|                                    |  | United States |             | Latin America |   | Eliminations |   | Consolidated |            
|                                    |  |               |             |               |   |              |   |              |            
|Fiscal 2009                         |  |               |             |               |   |              |   |              |             |   |   |             |  
|Net sales to unaffiliated customers |  | $             | 372,195,000 |               | $ | 103,195,000  |   | $            | (2,912,000  | ) | $ | 472,478,000 |  
|Gross profit                        |  | $             | 17,192,000  |               | $ | 8,752,000    |   |              |             |   | $ | 25,944,000  |  
|Operating (loss) income             |  | $             | (506,000    | )             | $ | 931,000      |   |              |             |   | $ | 425,000     |  
|Interest income                     |  | $             |             |               | $ | (115,000     | ) |              |             |   | $ | (115,000    | )
|Interest expense                    |  | $             | 1,197,000   |               | $ | 53,000       |   |              |             |   | $ | 1,250,000   |  
|Income tax expense                  |  | $             | 23,000      |               | $ | 355,000      |   |              |             |   | $ | 378,000     |  
|Net (loss) income                   |  | $             | (1,726,000  | )             | $ | 638,000      |   |              |             |   | $ | (1,088,000  | )
|Total assets at year-end            |  | $             | 83,872,000  |               | $ | 27,561,000   |   | $            | (12,544,000 | ) | $ | 98,889,000  |  
|                                    |  |               |             |               |   |              |   |              |             |   |   |             |  
|Fiscal 2008                         |  |               |             |               |   |              |   |              |             |   |   |             |  
|Net sales to unaffiliated customers |  | $             | 379,204,000 |               | $ | 103,510,000  |   | $            | (4,024,000  | ) | $ | 478,690,000 |  
|Gross profit                        |  | $             | 18,028,000  |               | $ | 7,380,000    |   |              |             |   | $ | 25,408,000  |  
|Operating (loss) income             |  | $             | (1,498,000  | )             | $ | 1,549,000    |   |              |             |   | $ | 51,000      |  
|Interest income                     |  | $             |             |               | $ | (123,000     | ) |              |             |   | $ | (123,000    | )
|Interest expense                    |  | $             | 1,615,000   |               | $ | 126,000      |   |              |             |   | $ | 1,741,000   |  
|Income tax expense                  |  | $             | 22,000      |               | $ | 375,000      |   |              |             |   | $ | 397,000     |  
|Net (loss) income                   |  | $             | (3,135,000  | )             | $ | 1,171,000    |   |              |             |   | $ | (1,964,000  | )
|Total assets at year-end            |  | $             | 78,417,000  |               | $ | 27,997,000   |   | $            | (12,454,000 | ) | $ | 93,960,000  |  

Sales
of products between the Companys geographic regions are made at market prices
and are eliminated in consolidation. All corporate overhead is included in the
results of U.S. operations.

Net
sales by product category for continuing operations is as follows:

|                    |  |                         |  |                                 |  |                               |  |                   |  |              |  |  |  |  |  | 
|------------------- |  | ----------------------- |  | ------------------------------- |  | ----------------------------- |  | ----------------- |  | ------------ |  |  |  |  |  | 
|Year Ended June 30, |  | Microcomputer
 Products |  | Consumer
 Electronics
 Products |  | Wireless
 Telephone
 Products |  | Handling
 Revenue |  | Total        | 
|                    |  |                         |  |                                 |  |                               |  |                   |  |              | 
|2009                |  | $415,923,000            |  | $49,539,000                     |  | $6,021,000                    |  | $995,000          |  | $472,478,000 | 
|2008                |  | $440,869,000            |  | $28,776,000                     |  | $8,144,000                    |  | $901,000          |  | $478,690,000 | 

Approximately
39.6% and 41.2% in the fiscal years ended June 30, 2009 and 2008, respectively,
consisted of sales to customers for export principally into Latin America and
direct sales to customers in Colombia and Argentina.

10. Significant Vendors

During
the year ended June 30, 2009, the Company purchased approximately 48.9% (19.4%,
18.6%, 10.9%) of its product from three vendors. During the year ended June 30,
2008, the Company purchased approximately 54.0% (20.6%, 19.8%, 13.6%) of its
product from two vendors.

11. Discontinued Operations

In
February 2003, the Company resolved to discontinue commercial operations of its
Brazilian subsidiary, SED International do Brasil Distribuidora, Ltda.
Accordingly, the operating results of SED International do Brasil
Distribuidora, Ltda. (the Brazil Operation) have been classified as a
discontinued operation for all periods presented in the Companys consolidated
statements of operations. Additionally, the Company has reported all of SED
International do Brasil Distribuidora, Ltda. assets at their estimated net
realizable values in the Companys consolidated balance sheets as of June 30,
2008 and 2007. As of

38

---



June 30, 2008 and 2007, the assets of SED International do Brasil
Distribuidora, Ltda. had no net realizable value.

SED
International do Brasil Distribuidora Ltda. has various litigations related to
additional income taxes and social taxes allegedly due from the fiscal years
1998 through 2004. These legal claims were filed during the years 2002 and
2003. The legal claims range from $3,000 to $219,000 each or $522,000 in the
aggregate. After recording this cost, SED maintains an accrued liability of
$270,000 at June 30, 2009 and 2008 to cover potential losses related to these
claims.

12. Fair Value of
Financial Instruments

Effective
July 1, 2008, the Company adopted the provisions of SFAS No. 157
Fair Value Measurements (SFAS No. 157) which applies to financial assets
and liabilities that are being measured and reported on a fair value basis and
expands disclosures about fair value measurements. SFAS No. 157 establishes a
fair value hierarchy that prioritized the inputs to valuation techniques used
to measure fair value. The three levels of the fair-value hierarchy include:
Level 1  quoted market prices in active markets for identical assets and
liabilities; Level 2  inputs other than quoted market prices included in Level
1 above that are observable for the asset or liability, either directly or
indirectly; and, Level 3  unobservable inputs for the asset or liability. The
implementation of SFAS No. 157 for financial assets and financial
liabilities, effective July 1, 2008, did not have a material impact on our
consolidated financial position and results of operations. We have not applied
the provisions of SFAS No. 157 to non-financial assets and liabilities, such as
our property and equipment, which is measured at fair value for impairment
assessment. We will apply the provisions of SFAS No. 157 to these assets and
liabilities, beginning July 1, 2009, in accordance with Financial Accounting
Standards Board Staff Position No. 157-2, Effective Date of FASB
Statement No. 157.

The
carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of the short maturity of these items.
The carrying amount of debt outstanding pursuant to revolving debt and similar
bank credit agreements approximates fair value as interest rates on these
instruments approximate current market rates.

We are
exposed to market risks from changes in interest rates, which may affect our
operating results and financial position. We reduce our risks from
interest rate fluctuations through the use of an interest rate swap (see Note
4.). This derivative financial instrument is used to manage risk and is not
used for trading or speculative purposes. We endeavor to utilize the best
available information in measuring the fair value of the interest rate swap.
The interest rate swap is classified in its entirety based on the lowest level
of input that is significant to the fair value measurement. We have determined
that our interest rate swap is a Level 2 liability in the fair value hierarchy
as it is valued using a valuation model that has inputs other than quoted
market prices that are both observable and unobservable. The fair value, not in
the Companys favor, of the interest rate swap was $345,000 at June 30, 2009.

13. Legal Proceedings

On
September 5, 2008, pursuant to a Settlement Agreement and General Release (the
Agreement) the Company settled all of the lawsuits brought by Mark Diamond,
son of Jean Diamond, the Chairman and CEO of the Company, against the Company, its domestic subsidiaries and
certain of its directors. The
Agreement covers and fully resolves all claims that have been or could have
been brought in the preceding litigations and also covers all appeals and
proceedings related thereto. Under the Agreement, the Company (i)
paid Mark Diamond the sum of $2.1 million, of which $325,000 was recovered from
its insurance carriers; and (ii) on June 1, 2009, issued 200,000 shares of
restricted common stock to an irrevocable trust established by Mark Diamond for
the benefit of his children. All of these
lawsuits have been dismissed with prejudice.

On February
2, 2009, the Company settled the lawsuit it filed on June 19, 2006, in the
Superior Court of Fulton County, State of Georgia captioned SED International,
Inc. vs. Michael Levine with no material impact to the Company.

39

---



On
February 5, 2009, pursuant to a binding arbitration proceeding between the
Company and Archbrook Laguna, LLC (Archbrook), Archbrook was ordered by the
Arbitrator to dismiss, with prejudice, SED International from the lawsuit
Archbrook had filed in March 2008 in the United States District Court, District
of New Jersey.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure


None.


Item 9A (T). Controls and
Procedures.

(a) Evaluation
of Disclosure Controls and Procedures          Our
management, with the participation of our chief executive officer and chief
financial officer, carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report
(the Evaluation Date). Based upon that evaluation, our chief executive
officer and chief financial officer concluded that as of the Evaluation Date,
our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act
(i) is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms and (ii) is accumulated and communicated
to our management, including our chief executive officer and chief
financial officer, as appropriate
to allow timely decisions regarding required disclosure.

Our
management, including our chief executive officer and chief financial officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected.

(b)
Managements Report on Internal Control over Financial Reporting          Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our management assessed the effectiveness of our internal
control over financial reporting as of June 30, 2009. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Our management has concluded that, as of June 30,
2009, our internal control over financial reporting is effective based on these
criteria. This annual report does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Our internal control over financial reporting was not
subject to audit by our independent registered public accounting firm pursuant
to temporary rules of the SEC that permit us to provide only managements
report in this annual report.

(c) Changes in
Internal Control over Financial ReportingThere were
no changes in our internal controls over financial reporting that occurred
during the
quarter ended June 30, 2009 that have materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

Item 9B. Other Information          None.

40

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PART III

Item 10. Directors, Executive Officers and Corporate
Governance

DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY

The
following table sets forth the names, ages and principal positions of the
Companys directors and executive officers as of September 23, 2009.

|                            |  |     |  |                                                
|--------------------------- |  | --- |  | -----------------------------------------------
|Name                        |  | Age |  | Position
 with the Company                     
|                            |  |     |  |                                                
|Jean Diamond*               |  | 67  |  | Chairman of Board, Chief Executive Officer     
|Jonathan Elster*            |  | 37  |  | President and COO                              
|Barry Diamond*              |  | 67  |  | Vice President  Product Management &
 Wireless
|Mark DiVito                 |  | 50  |  | Vice President of Operations                   
|Lyle Dickler                |  | 40  |  | CFO, Vice President of Finance                 
|Stewart I Aaron (2)(4)      |  | 69  |  | Director                                       
|Melvyn I Cohen (1)          |  | 69  |  | Director                                       
|Arthur Goldberg (1) (3)     |  | 70  |  | Director                                       
|Stephen Greenspan (3)(4)(5) |  | 68  |  | Director                                       
|J. K. Hage, III (3)(4)      |  | 58  |  | Director                                       
|Samuel Kidston (1)(2)       |  | 34  |  | Director                                       
|Joseph Segal (2)            |  | 66  |  | Director                                       

| |                            |                                                              | 
| | -------------------------- | ------------------------------------------------------------ | 
| |                           
| | *Named
 Executive Officers
| | (1)                        | Member of
 the Audit Committee.                             
| | (2)                        | Member of
 the Compensation Committee.                      
| | (3)                        | Member of
 the Legal Affairs Committee                      
| | (4)                        | Member of
 the Nominating and Corporate Governance Committee
| | (5)                        | Lead
 independent Director                                  

The
principal occupation and business experience for at least the last five years
for each director and executive officer is set forth below.

Stewart I. Aaron has been a director of the Company
since November 1994. Mr. Aaron currently serves as the President of, LABS,
Inc.; a silk plant manufacturer based in Atlanta, Georgia, and has held that
position over the last 20 plus years. Additionally, he also currently
serves as the President of Stewart Aaron and Associates, Inc, a real estate
development company.

Melvyn I. Cohen has been a
director of the Company since November 1999. Mr. Cohen has been the sole member
of M. Cohen and Company LLC, a certified public accounting firm in the State of
New Jersey, since December 1994. Mr. Cohen has been a member of the American
Institute of Certified Public Accountants and a member of the New Jersey
Society of Certified Public Accountants since 1968. Mr. Cohen has been a
Certified Public Accountant for over 35 years.

Barry Diamond has been
Vice-President of the Company since 1987. Mr. Diamond currently serves as
Vice-President of Product Management and responsible for the management of the
Wireless business within the Company. Mr. Diamond has been in the Wireless and
Electronics Business for over thirty years. Mr. Diamond was Vice-President of
Purchasing for All Brands/Brands Mart from 1970-1980. Mr. Diamond was President
of Great Sounds of New York, a consumer electronics business, from 1980-1987.
Barry Diamond is Jean Diamonds brother-in-law.

Jean A.
Diamond
was appointed to the Board in January of 2003, and was appointed Chairman of
the Board of the Company on July 2, 2003. Mrs. Diamond was appointed Chief
Executive Officer of the

41

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Company on June 21, 2005.
Mrs. Diamond is a co-founder of the Company and has been an integral part of
the Company since its inception. She also serves as Chief Executive Officer,
with operational responsibilities in SED International, Inc., a Georgia
corporation and a wholly-owned subsidiary of the Company (SED International).

Lyle Dickler joined the
Company in June 2005 as Corporate Controller and assumed the positions as
Secretary and Treasurer effective August 11, 2005. Mr. Dickler was appointed Vice
President of Finance on July 1, 2006 and Chief Financial Officer on May 13,
2008. Prior to joining the Company Mr. Dickler served from May 2003 to June
2005 as Controller for Okabashi Brands, Inc. From 2001 to 2003 Mr. Dickler
served as Controller for PAI Industries, Inc.

Mark DiVito joined the
Company in September 1996 as Director of Corporate Security. In July 1998, he
was appointed to the position of Director of Human Resources. Mr. DiVito was
appointed Vice-President of Human Resources in August 1999 and in January 2005
he was appointed Vice-President of Operations.

Jonathan Elster has been
with the Company since 1995. Mr. Elster has been serving as our President and
Chief Operating Officer since his promotion in June 2, 2009. Elster began his
career with the Company as a sales representative in 1995. He has served as a
Sales Manager from 1997 to 1999 and as Vice President-Sales from 1999 to 2000.
In 2000, Mr. Elster was promoted to Senior Vice-President of Sales and
Marketing and in 2004, Executive Vice President. He is responsible for sales
and marketing operations of the Company. Jonathan Elster is Jean Diamonds
son-in-law.

Arthur
Goldberghas been a director of the Company since May
2008. He is currently the Chief Financial Officer of Clear Skies Solar, Inc.
(OTCBB: CSKH). Prior to that he served as interim CFO of Milestone Scientific,
Inc. (OTCBB: MLSS) from August 2007 to January 2008. From July 2006 to June
2007, Mr. Goldberg served as CAO and CFO of St. Lukes School, a non-sectarian
college prep school. From December 2005 to July 2006, Mr. Goldberg was a
private accounting and business consultant. From February 1999 to November
2005, Mr. Goldberg was a partner in the firm of Tatum CFO Partners LLP, serving
as an interim CFO for both public and private companies. Prior to 1999, Mr.
Goldberg held several senior executive positions, including CFO and COO of a
number of public companies. Mr. Goldberg received his B.B.A. from the City
College of New York, his M.B.A. from the University of Chicago and his J.D. and
LL.M. from New York University School of Law. Mr. Goldberg is also a Certified
Public Accountant.

Stephen
Greenspan has been a director of the Company since May
2008. He was the Founder, Chairman, President and Chief Executive Officer of K&G
Mens Center, Inc. a formerly publicly traded mens apparel retailer. Mr.
Greenspan retired in 2002 and presently sits on the board of Floor and Décor
Outlets of America, Inc., and works with a number of charities both personally
as well as through his family foundation and charitable trust.

J.K. Hage III joined
the Board in January 2009. He is the Managing partner of the law firm of Hage
& Hage LLC., where he has practiced law since 1978. Mr. Hage is a founder
of the Griffiss Institute, a nonprofit organization dedicated to research,
training and services in information security. From November 2004 to May 2006,
he served as its General Counsel and from February 2003 to November 2004, he
served as its first Executive Director. Mr. Hage earned a B.A. from Hamilton
College and a J.D. from Albany Law School and is admitted to both the, New York
and the Alaska Bars. Mr. Hage sits on the Nomination and Corporate Governance
and the Legal Affairs Committees.

Samuel A. Kidston
joined the Board in January 2009. He is the founder and Chief Investment
Officer of North & Webster, LLC, an investment management and advisory firm
and sits on the board of Sport-Haley, Inc. Prior to founding North &
Webster, LLC, Mr. Kidston served as an equity analyst at BlackRock, Inc., from
December 2001 to March 2006. Mr. Kidston earned a B.A. from Wesleyan University
and received his Charter as an Investment Analyst from the CFA Institute. Mr.
Kidston sits on the Audit and Compensation Committees.

42

---



Joseph Segal was appointed to the Board in September 2005. Since
1998, Mr. Segal has served as managing partner in Cornerstone Capital Partners,
LLC, a real estate investment firm operating in Georgia and Florida. Mr. Segal
previously served as Chairman of the Board and Chief Operating Officer of
Phoenix Communications, a commercial printing and publishing firm, until
December 1997.

Board
Committees

The
Board has the following standing committees: Audit (the Audit Committee),
Compensation (the Compensation Committee), Nominating and Corporate
Governance (the Nominating and Governance Committee) and Legal Affairs (the
Legal Affairs Committee).

Audit Committee

The
members of the Audit Committee are Messrs. Cohen, Goldberg and Kidston. The
Audit Committee met seven times in fiscal 2009, with all members attending all
meetings. The Audit Committee reviews and reports to the Board on
our internal accounting and financial controls and on the accounting principles
and auditing practices and procedures to be employed in preparing and reviewing
our consolidated financial statements. The Audit Committee is also responsible
for engaging and overseeing our independent public auditors, the scope of the
audit to be undertaken by such auditors and the pre-approval of any audit and
permitted non-audit services provided by such auditors. A copy of the Audit
Committee charter is posted on the Companys website at www.sedonline.com.

Audit Committee Financial Expert

The Board
has determined that Arthur Goldberg qualifies as the Companys audit committee
financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K,
and independent under Nasdaqs listing standards and Section 10A(m)(3) of the
Exchange Act.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section
16(a) of the Exchange Act requires our officers and directors, and persons who
own more than ten percent of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than ten-percent stockholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such forms furnished to us, or written representations
that no Forms 5 were required, we believe that all Section 16(a) filing
requirements applicable to our officers, directors and greater than ten-percent
stockholders were complied with during the fiscal year ended June 30, 2009.

Code of Ethics

We
have adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer and other persons performing similar functions, as
well as all of our other employees and directors. The Code of Ethics is posted
on our Web site at www.sedonline.com.

43

---



EXECUTIVE COMPENSATION

Item 11. Executive Compensation

Summary of Compensation

The following table sets forth certain
information with respect to compensation for the fiscal year ended June 30,
2009 earned by or paid to the Companys Chief Executive Officer (principal
executive officer), and two other most highly compensated executive officers
whose total salary exceeded $100,000 in fiscal 2009 (the Named Executive
Officers):

|                              |  |              |  |           |  |              |     |                |        |                                |  |          |  |  |         | 
|----------------------------- |  | ------------ |  | --------- |  | ------------ | --- | -------------- | ------ | ------------------------------ |  | -------- |  |  | ------- | 
|Name and Principal Position   |  | Fiscal
 Year |  | Salary
 $ |  | Cash
 Bonus$ |     | Stock
 Awards$ |        | All
 Other
 Compensation $ (2) |  | Total
 $ | 
|                              |  |              |  |           |  |              |     |                |        |                                |  |          | 
|                             
|Jean A. Diamond               |  | 2009         |  | 316,135   |  |             |     |                | 44,375 |                                |  | 25,200   |  |  | 385,710 | 
|Chairman of the Board         |  | 2008         |  | 288,317   |  |             |     |                | 29,584 |                                |  | 22,216   |  |  | 340,117 | 
|and Chief Executive Officer   |  | 2007         |  | 281,285   |  |             |     |                |       |                                |  | 19,880   |  |  | 301,165 | 
|                              |  |              |  |           |  |              |     |                |        |                                |  |          |  |  |         | 
|Jonathan Elster               |  | 2009         |  | 261,108   |  |             |     |                | 35,500 |                                |  | 14,502   |  |  | 311,110 | 
|President and Chief Operating |  | 2008         |  | 259,990   |  | 15,240       | (1) |                | 23,667 |                                |  | 16,494   |  |  | 315,151 | 
|Officer                       |  | 2007         |  | 259,990   |  | 16,650       |     |                |       |                                |  | 16,406   |  |  | 293,046 | 
|                              |  |              |  |           |  |              |     |                |        |                                |  |          |  |  |         | 
|Barry Diamond                 |  | 2009         |  | 208,644   |  | 5,500        |     |                | 35,500 |                                |  | 3,250    |  |  | 252,894 | 
|Vice President of Wireless    |  | 2008         |  | 199,992   |  | 3,250        |     |                | 23,667 |                                |  | 15,327   |  |  | 242,236 | 
|and Purchasing                |  | 2007         |  | 199,996   |  |             |     |                |       |                                |  | 11,417   |  |  | 211,413 | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                             | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    
| | (1) | This amount
 was paid in fiscal 2009.                                                                                                                                                                                                                                                                                                                                                                      
| | (2) | Auto expense
 reimbursement or auto use benefit                                                                                                                                                                                                                                                                                                                                                            
| | (3) | Reflects the value of the restricted stock that was charged to income
 in the reported period as reported on the Companys financial statements. For
 a description of the assumptions made in the valuation, see the Share-Based
 Compensation section under Note 2, and the Restricted Stock section under
 Note 7, to the Companys Financial Statements included with this Annual
 Report on Form 10-K.

The primary
objective of the Companys executive compensation program is to attract and
retain qualified, energetic managers who are enthusiastic about the Companys
mission and culture. A further objective of the compensation program is to
provide incentives and reward each manager for their contribution. In addition,
the Company strives to promote an ownership mentality among key leadership and
the Board of Directors.

It is the
Companys intention to set total executive cash compensation sufficiently high
to attract and retain a strong motivated leadership team, but not so high that
it creates a negative perception with the Companys shareholders. Each
executives current and prior compensation is considered in setting future
compensation. In addition, the Company reviews the compensation practices of
other companies. To some extent, the Companys compensation plan is based on
the market and the companies we compete against for executive management. The
elements of the Companys plan (e.g., base salary, bonus and stock options) are
similar to the elements used by many companies. The exact base pay, stock
option grant, and bonus amounts are chosen in an attempt to balance the
Companys competing objectives of fairness to all stakeholders and
attracting/retaining executive managers.

44

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Agreements
with Certain Executive Officers

The
Company has employment agreements with Jean Diamond, Jonathan Elster and Barry
Diamond.

The
employment agreement with Jean Diamond has a five-year term currently expiring
on July 1, 2014. Her agreement, as amended to date, (i) provides for an annual
base salary of $316,000 (as of July 1, 2008), increases annually in an amount
equal to the greater of five percent of her then current salary or the
percentage increase in the Consumer Price Index for the month of June relative
to the same prior year period, (ii) provides for an automobile allowance, and
(iii) does not provide for an annual bonus. The agreement also provides that if
a Change of Control (as hereinafter defined) occurs during her employment term
and her employment is terminated (i) by the Company, or by her upon the
occurrence of certain events, or (b) by her in her sole discretion concurrently
with, or within 30 days of, the date of the occurrence of the Change of
Control, she will be entitled to a cash payment in an amount equal to all
annual salary and other benefits owing to her for the period from the date of
termination through the remainder of the term of her employment under the
agreement. However, in no event shall the amount of any such cash payment be
less than the aggregate of her then annual salary plus the value of all other
benefits payable to her on an annualized basis under her employment agreement,
as amended. A Change of Control is deemed to have occurred when, during the
term of Ms. Diamonds employment pursuant to her employment agreement, (i) any
individual, entity, group or association becomes the beneficial owner of
securities of the Company representing 30% or more of the combined voting power
of the Companys or SED Internationals then-outstanding securities entitled to
vote generally in the election of directors; (ii) a change in a majority of
directors of the Board and such new directors were not appointed, approved or
nominated by the Board; (iii) all or substantially all of the assets of the
Company or SED International are sold, conveyed, transferred or otherwise
disposed of, in one or more transactions, without the approval of the Board or
the board of directors of SED International, as the case may be.

The
employment agreement with Jonathan Elster, effective as of July 1, 2004,
originally for a term of five years, has been extended through July 1, 2010.
Mr. Elsters annual compensation includes an annual base salary of $261,700
plus an annual bonus in an amount equal to three percent
(3%) of the Companys Pre-tax Adjusted Annual Income. The Companys Pretax Adjusted Annual
Income means with respect to a given fiscal year (a) the sum of earnings
before taxes as reported on its audited consolidated statement of operations
for such fiscal year, excluding extraordinary non-operational costs and profits.
He is also entitled to participate in all of the Companys employee
benefit programs available to management executives, including health and
long-term disability insurance. The
Company may terminate Mr. Elsters employment for good cause, as defined in
his employment agreement. In addition, upon termination of his employment, Mr.
Elster has agreed not to solicit customers of the Company for a period of a one
(1) year from the date of termination.

The
employment agreement with Barry Diamond, effective November 20, 2008, is for a
term of two years. Mr. Diamonds annual compensation includes an annual base
salary of $215,000. He is also entitled to participate in all of
the Companys employee benefit programs available to management executives,
including health and long-term disability insurance. The Company may terminate Mr.
Diamonds employment for good cause, as defined in his employment agreement.
In addition, upon termination of his employment, Mr. Diamond has agreed not to
solicit customers of the Company for a period of a one (1) year from the date
of termination.

45

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Outstanding
Equity Awards

The
following table sets forth certain information with respect to outstanding
equity awards at June 30, 2009 with respect to the Named Executive Officers.

Outstanding
Equity Awards at Fiscal Year-End

|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|--------------- |  | ------------------------------------------------------------------------------ | ------ | --------------------------- |  | ------------------------ |  | ------------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | ------- | 
|                |  | Option Awards                                                                  |        | Stock Awards                | 
|                |  |                                                                                |        |                             | 
|Name            |  | Number of
 Securities
 Underlying
 Unexercised
 Options (#)
 Exercisable 
 (1) |        | Option
 Exercise Price
 ($) |  | Option
 Expiration
 Date |  | Number of
 Shares or Units
 of Stock that
 have not vested
 (#) (2) |  | Market Value
 of Shares or
 Units of Stock
 that have not
 vested 
 ($)(3) | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Jean Diamond    |  |                                                                                | 50,000 |                             |  | 1.96                     |  | 10/15/2011                                                          |  | 125,000                                                                    |  | 137,500 | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Total           |  |                                                                                | 50,000 |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Jonathan Elster |  |                                                                                | 62,500 |                             |  | 1.96                     |  | 10/15/2011                                                          |  | 100,000                                                                    |  | 110,000 | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Total           |  |                                                                                | 62,500 |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Barry Diamond   |  |                                                                                | 40,000 |                             |  | 1.96                     |  | 10/15/2011                                                          |  | 100,000                                                                    |  | 110,000 | 
|                |  |                                                                                | 50,000 |                             |  | 0.44                     |  | 1/15/2013                                                           |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|Total           |  |                                                                                | 90,000 |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 
|                |  |                                                                                |        |                             |  |                          |  |                                                                     |  |                                                                            |  |         | 

| |     |                                                                                                                                                                                                                                                    | 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    
| | (1) | Represents stock option
 grants at fair market value on the date of grant.                                                                                                                                                                        
| | (2) | The restricted shares of common stock
 are subject to forfeiture prior to vesting and begin vesting in equal amounts
 on the second, third and fourth anniversaries of the grant date pursuant to
 the provisions of a restricted stock agreement.
| | (3) | Based on the closing price per share of $1.10 as reported on the
 OTCBB on June 30, 2009.                                                                                                                                                         

Director Compensation

Beginning in
January 2009, our independent directors receive the following compensation:

| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An annual
 fee of $60,000 of which 50% shall be paid in quarterly installments of cash
 and 50% shall be paid by an annual award of restricted shares of common stock
 which shall immediately vest upon issuance;
| |  | The Chairman
 of the Audit Committee is paid an additional annual fee of $20,000 and each
 committee member is paid an additional annual fee of $5,000 for their
 services on the committee;                      
| |  | The Chairman
 of the Compensation Committee is paid an additional annual fee of $5,000 and
 each committee member is paid an additional annual fee of $2,000 for their
 services on the committee;                
| |  | The Chairman
 of the Legal Affairs Committee is paid an additional annual fee of $5,000 and
 each committee member receives an additional annual fee of $2,000 for their
 services on the committee;              
| |  | The Chairman
 of the Nominating and Corporate Governance Committee is paid an annual fee of
 $5,000 and each committee member receives an additional annual fee of $2,000
 for their services on the committee;   
| |  | The Lead
 Independent Director is paid an additional $5,000 per year.                                                                                                                                             

46

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The
following table sets forth the compensation paid to our independent directors
for the fiscal year ended June 30, 2009.

DIRECTOR COMPENSATION

|                  |  |                                  |  |                      |  |          | 
|----------------- |  | -------------------------------- |  | -------------------- |  | -------- | 
|Name              |  | Fees Earned
 or Paid in
 Cash($) |  | Stock Awards($)
 (1) |  | Total($) | 
|                  |  |                                  |  |                      |  |          | 
|                 
|Stewart I.
 Aaron |  | 51,540                           |  | 35,000               |  | 86,540   | 
|Melvyn I
 Cohen   |  | 59,540                           |  | 35,000               |  | 94,540   | 
|Joe Segal         |  | 46,790                           |  | 35,000               |  | 81,790   | 
|Art Goldberg      |  | 51,540                           |  | 35,000               |  | 86,540   | 
|Steve
 Greenspan  |  | 46,540                           |  | 35,000               |  | 81,540   | 
|J. K. Hage,
 III  |  | 18,154                           |  | 25,000               |  | 43,154   | 
|Samuel
 Kidston   |  | 19,654                           |  | 25,000               |  | 44,654   | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                             | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (1) Reflects the value of
 the restricted stock that was charged to income in the reported period as
 included in the Companys financial statements. For a description of the
 assumption made in the valuation of restricted stock, see the Share-Based
 Compensation under Note 2, and the Restricted Stock Section under Note 7, to
 the Companys Financial Statements included with this Annual Report on Form
 10-K.

47

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|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters

SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS

The
following table sets forth certain information as of September 23, 2009 regarding
the beneficial ownership of our common stock by (i) the Named Executive
Officers, (ii) the Companys directors, (iii) each person we know to
beneficially own more than 5% of our outstanding common stock, and (iv) all
directors and executive officers of the Company as a group. All shares of our
common stock shown in the table reflect sole voting and investment power except as
otherwise noted.

|                                                                      |  |                                             |  |      |                    |       |  | 
|--------------------------------------------------------------------- |  | ------------------------------------------- |  | ---- | ------------------ | ----- |  | 
|Name of Beneficial Owner                                              |  | Amount and Nature 
 of Beneficial Ownership |  |      | Percent 
 of Class |      
|                                                                      |  |                                             |  |      |                    |      
|                                                                      |  |                                             |  |      |                    |       |  | 
|Stewart I. Aaron                                                      |  | 57,857                                      |  | (1)  |                    | 1.13  |  | 
|Melvyn I. Cohen                                                       |  | 105,857                                     |  | (2)  |                    | 2.05  |  | 
|Barry Diamond                                                         |  | 198,255                                     |  | (3)  |                    | 3.83  |  | 
|Jean Diamond                                                          |  | 650,426                                     |  | (4)  |                    | 12.66 |  | 
|Jonathan Elster                                                       |  | 166,000                                     |  | (5)  |                    | 3.22  |  | 
|Arthur Goldberg                                                       |  | 24,857                                      |  | (6)  |                    | *     | 
|Stephen Greenspan                                                     |  | 22,857                                      |  | (6)  |                    | *     | 
|J. K. Hage, III                                                       |  | 140,045                                     |  | (7)  |                    | 2.75  |  | 
|Samuel Kidston                                                        |  | 377,496                                     |  | (8)  |                    | 7.42  |  | 
|Joseph Segal                                                          |  | 22,857                                      |  | (6)  |                    | *     | 
|All current directors and
 executive officers as a group (12) persons |  | 1,446,007                                   |  | (9)  |                    | 35.64 |  | 
|                                                                      |  |                                             |  |      |                    |       |  | 
|5% Shareholders:                                                      |  |                                             |  |      |                    |       |  | 
|FMR Corp.                                                             |  | 480,000                                     |  | (10) |                    | 9.44  |  | 
|Allen R. Earl                                                         |  | 458,402                                     |  | (11) |                    | 9.01  |  | 

| |     |                                                                                                                                                                                                                                                                                                                                                            | 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    
| | *   | Represents less than one
 percent of our outstanding common stock.                                                                                                                                                                                                                                                                                        
| | (1) | The shares include 35,000
 options 22,857 restricted shares of common stock granted on July 1, 2008,
 which are subject to vesting and forfeiture over a two year period pursuant
 to the provisions of a restricted stock agreement, for Mr. Aaron.                                                                                                      
| | (2) | The shares indicated include
 80,000 options and 22,857 restricted shares of common stock granted on July
 1, 2008, which are subject to vesting and forfeiture over a two year period
 pursuant to the provisions of a restricted stock agreement, for Mr. Cohen.                                                                                        
| | (3) | The shares include 90,000
 options and 100,000 restricted shares of common stock granted
 on October 23, 2007 which are subject to vesting and forfeiture over a four
 year period pursuant to the provisions of a restricted stock agreement, for
 Mr. Diamond.                                                                                          
| | (4) | The shares indicated include
 50,000 options 125,000 restricted shares of common stock
 granted on October 23, 2007 which are subject to vesting and forfeiture over
 a four year period pursuant to the provisions of a restricted stock
 agreement, for Mrs. Diamond. The shares include 271,426 shares held by a
 trust for the benefit of Ms. Diamond.
| | (5) | The shares include 62,500
 options and 100,000 restricted shares of common stock granted
 on October 23, 2007 which are subject to vesting and forfeiture over a four
 year period pursuant to the provisions of a restricted stock agreement, for
 Mr. Elster.                                                                                           
| | (6) | The shares include 22,857
 restricted shares of common stock granted on July 1, 2008 which
 are subject to vesting and forfeiture over a two year period pursuant to the
 provisions of a restricted stock agreement, for Messrs. Goldberg, Greenspan
 and Segal.                                                                                         
| | (7) | The shares
 include 26,845 restricted shares of common stock granted January 1, 2009,
 which are subject to vesting and forfeiture over a two year period pursuant
 to the provisions of a restricted stock agreement, for Mr. Hage.                                                                                                                      
| | (8) | The shares
 include 344,383 shares of common stock owned in the aggregate by North &
 Webster Value Opportunities Fund, LP, North & Webster Fund II, LP and
 North & Webster, LLC (collectively, the North & Webster Entities).
 North & Webster, LLC is the general partner of                                                                         

48

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| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | both of North &
 Webster Value Opportunities Fund, LP and North & Webster Fund II, LP. Mr.
 Kidston is a Managing Member of North & Webster, LLC and disclaims
 beneficial ownership of the shares of common stock beneficially owned by the
 North & Webster Entities except to the extent of his pecuniary interest
 therein. The principal business address of Mr. Kidston is c/o North &
 Webster, LLC, 10 Tower Office Park, Suite 420, Woburn, MA 01801. The shares
 include 26,845 restricted shares of common stock granted January 1, 2009
 which are subject to vesting and forfeiture over a two year period pursuant
 to the provision of a restricted stock agreement for Mr. Kidston.
| | (9)  | Includes
 348,000 shares underlying outstanding options and 574,285 restricted
 shares of common stock granted on October 23, 2007 and May 13, 2008
 and 114,285 restricted shares granted on July 1, 2008, which are subject to
 vesting and forfeiture over a four year period pursuant to the provisions of
 a restricted stock agreement.                                                                                                                                                                                                                                                                                                                                                      
| | (10) | All of the shares indicated
 are deemed beneficially owned by Fidelity Management & Research Company,
 a wholly-owned subsidiary of FMR Corp., as a result of its serving as
 investment adviser to Fidelity Low-Priced Stock Fund, the owner of the
 480,000 shares. FMR Corp.s address is 82 Devonshire Street, Boston,
 Massachusetts 02109.                                                                                                                                                                                                                                                                                                                                                   
| | (11) | All of the shares indicated
 are deemed beneficially owned by Allyn R. Earl. Mr. Earls address is 38
 Dwight Avenue, Clinton, New York 13323-1600                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

The
business address and telephone number of each of Jean Diamond, Jonathan Elster,
Barry Diamond, Mark DiVito, Lyle Dickler, Stewart I. Aaron, Melvyn I. Cohen,
Arthur Goldberg, Stephen Greenspan and Joseph Segal are c/o SED International
Holdings, Inc., 4916 North Royal Atlanta Drive, Tucker, Georgia 30084 and (770)
491-8962.

Equity Compensation Plans

The
Company has granted stock options under four Plans (the 1991 Plan, the 1995
Directors Plan, the 1997 Plan, and the 1999 Plan), which are utilized to
promote the long-term financial interest of the Company. The Compensation
Committee of the Board administers the stock option plans. In the aggregate,
the Plans authorize the grant of up to 2,441,500 shares of common stock to
directors, officers and key employees. The shareholders approved all of the
Plans, with the exception of the 1999 Plan or awards.

The
1999 Plan, established on July 20, 1999 for a term of ten years authorizes
the Company to grant up to 1,200,000 shares of its common stock to employees,
Directors and Consultants of the Company and is intended to be a board-based
plan in that, at all times not more than fifty percent (50%) of the optionees
and recipients of the plan shall be officers or affiliates. Under the plan, the
Company may grant both nonqualified options and restricted stock awards and
have an option or award price of the fair market value of the Companys common
stock on the date of grant. Unless otherwise specified by the Compensation
Committee, options and restricted awards vest ratably over a four-year period.
All grants expire no later than 10 years from the date of grant. No stock
options or awards were granted in fiscal 2009.

49

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The
following table sets forth certain information as of June 30, 2009, relating to
all of our equity compensation plans:

Equity Compensation Plans Information

|                                                            |  |                                                                                                       |  |                                                                                    |  |                                                                                                                                                       |      |  |  |         |  | 
|----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  |  | ------- |  | 
|Plan
 Category                                              |  | Number of Securities to be 
 issued upon exercise of 
 outstanding options, 
 warrants and rights (a) |  | Weighted-average exercise
 price of outstanding
 options, warrants and
 rights (b) |  | Number of securities 
 remaining available for
 future issuance under equity
 compensation plans
 (excluding securities reflected
 in column (a)
 (c) |     
|                                                            |  |                                                                                                       |  |                                                                                    |  |                                                                                                                                                       |     
|Equity compensation plans approved by security
 holders     |  | 282,075                                                                                               |  |                                                                                    |  | $                                                                                                                                                     | 2.08 |  |  |         |  | 
|Equity compensation plans not approved by security
 holders |  | 221,584                                                                                               |  |                                                                                    |  | $                                                                                                                                                     | 3.03 |  |  | 801,841 |  | 
|                                                            |  |                                                                                                       |  |                                                                                    |  |                                                                                                                                                       |      |  |  |         |  | 
|Total                                                       |  | 503,659                                                                                               |  |                                                                                    |  | $                                                                                                                                                     | 2.50 |  |  | 801,841 |  | 
|                                                            |  |                                                                                                       |  |                                                                                    |  |                                                                                                                                                       |      |  |  |         |  | 

In
July 2009 the 1999 Plan expired and the remaining 801,841 shares that were
available for future grants under the plan were no longer reserved for grants
thereunder.

On
October 23, 2007, the Board of Directors of the Company adopted the SED
International Holdings, Inc. 2007 Restricted Stock Plan (the Stock Plan) for
the purposes of attracting and retaining the personnel necessary for the
Companys success. The Stock Plan covers employees and others who perform
services for the Company including directors and consultants. A total of 750,000
shares of the Companys authorized and unissued shares of common stock were
reserved for grants under the Stock Plan. The Stock Plan is administered by the
Companys Board and/or Compensation Committee. As of June 30, 2009, 715,000
shares were outstanding under the Stock Plan. No shares had vested under the
Stock Plan as of June 30, 2009.

|         |                                                                          
|-------- | -------------------------------------------------------------------------
|Item 13. | Certain Relationships and Related
 Transactions and Director Independence

Transactions with Related Parties

Lease of
Headquarters

On
August 6, 2009, the Board of Directors of the Company unanimously approved a
two-year extension of SEDs existing headquarter lease with the Diamond Chip
Group LLC which extended the lease term through September 30, 2011. Under the
terms of the extension, beginning on October 2, 2009 through the end of the
extended term of September 30, 2001, the Companys annual rental rate was
reduced by approximately $40,000 per year from approximately $328,000 to
$288,000 and the Company will continue to occupy the premises under the same
existing lease terms and conditions.

The
members of the Diamond Chip Group LLC include the Marital Trust for the benefit
of Jean A. Diamond and Jean A. Diamond, who own respectively 37.5% and 62.5% of
the outstanding interests in the LLC. Jean Diamond is Chairman of the Board and
Chief Executive Officer of the Company.

Director Independence

The
Board has determined that Messrs. Aaron, Cohen, Goldberg, Greenspan, Hage Kidston and
Segal are independent as that term is defined in the listing standards of the
NASDAQ. Messrs. Cohen, Goldberg
and Kidston are the sole members of the Audit Committee, and Messrs. Aaron, Segal and Kidston are
the sole members of the Compensation Committee and are independent for
such purposes. Messrs. Goldberg, Greenspan and Hage are the sole members of the
Legal Affairs Committee. Messrs. Aaron, Greenspan and Hage are the sole members
of the Nomination and Governance Committee. Messrs. Greenspan also serves as
the Companys Lead Independent Director.

50

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|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accounting Fees and Services.

INDEPENDENT PUBLIC
ACCOUNTANTS

The
firm of J. H. Cohn LLP has served as the Companys independent registered
public accounting firm since 2005.

Audit and Non-Audit Fees

The
following table presents fees for professional audit services rendered by J. H.
Cohn LLP for the audit of the Companys annual financial statements for the
fiscal years ended June 30, 2009 and 2008, respectively.

|                   |  |      |         |      |   |         | 
|------------------ |  | ---- | ------- | ---- | - | ------- | 
|                   |  | 2009 |         | 2008 |  
|                   |  |      |         |      |  
|Audit Fees         |  |      |         |      |   |         | 
|J. H. Cohn LLP (1) |  | $    | 210,000 |      | $ | 266,000 | 
|                   |  |      |         |      |   |         | 

|    |                                                    | 
|--- | -------------------------------------------------- | 
|    |                                                   
|(1) | J. H. Cohn LLP fees for fiscal 2009 are estimated.

J.
H. Cohn LLP fees for fiscal 2009 and 2008 include audit of the Companys Annual
financial statements and review of financial statements included in the
Companys Form 10-Q quarterly reports. J. H. Cohn LLP neither billed us any
fees nor provided any services other than the audit services and fees included
above.

The
Audit Committees current practice is to pre-approve all audit services and all
non-audit services to be provided to the Company by its independent auditor.

51

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PART IV

|                                                     | 
|---------------------------------------------------- | 
|Item 15. Exhibits
 and Financial Statement Schedules

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

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

| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | Report of
 Independent Registered Public Accounting Firm (J.H Cohn, LLP-2009 and 2008)     
| |   |                                                                                            
| |  | Consolidated
 Balance Sheets at June 30, 2009 and 2008                                     
| |   |                                                                                            
| |  | Consolidated
 Statements of Operations for the years ended June 30, 2009 and 2008          
| |   |                                                                                            
| |  | Consolidated
 Statements of Shareholders Equity for the years ended June 30, 2009 and 2008
| |   |                                                                                            
| |  | Consolidated
 Statements of Cash Flows for the years ended June 2009 and 2008              
| |   |                                                                                            
| |  | Notes to
 Consolidated Financial Statements                                                

2.
Financial Statement Schedules.

| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedules
 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. (2)                                                                                                                                     
|*3.3            |  | Amendment to
 Articles of Incorporation dated January 21, 2009.                                                                                                                  
|3.4             |  | Bylaws of
 the Company. (3)                                                                                                                                                      
|3.5             |  | Article 1,
 Section 1.2 of the Bylaws of SED International Holdings, Inc., as amended on
 September 18, 2007. (4)                                                                
|*3.6            |  | Article 1,
 Section 11 of the Bylaws of SED International Holdings, Inc., as amended on
 January 21, 2009.                                                                       
|**10.10         |  | Form of
 Southern Electronics Corporation 1991 Stock Option Plan, together with
 related forms of Incentive Stock Option Agreement and Non-Qualified Stock
 Option Agreement. (5)
|**10.11         |  | First
 Amendment dated July 17, 1992 to Southern Electronics Corporation 1991 Stock
 Option Plan. (6)                                                                            
|**10.12         |  | Second
 Amendment dated August 30, 1996 to Southern Electronics Corporation 1991
 Stock Option Plan. (7)                                                                         
|**10.14         |  | Employment
 Agreement dated November 20, 2008, between the Company, SED International Holdings,
 Inc. and Barry Diamond. (8)                                                     
|**10.23         |  | Form of
 Non-Qualified Stock Option Agreement for Directors. (9)                                                                                                                 
|**10.24         |  | 1995 Formula
 Stock Option Plan, together with related form of Non-Qualified Stock Option
 Agreement. (10)                                                                       
|**10.26         |  | Third
 Amendment dated September 12, 1996 to the Southern Electronics Corporation
 1999 Stock Option Plan. (11)                                                                  
|**10.32         |  | 1999 Stock
 Option Plan dated July 20, 1999, together with related forms of Stock Option
 Agreement and Restriction Agreement. (12)                                              
|**10.38         |  | Form of
 Indemnification Agreement entered into with each of the directors of the
 Company and the Company. (13)                                                                 

52

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|                |  |                                                                                                                                                                                                            |             | 
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | 
|Exhibit
 Number |  |                                                                                                                                                                                                            | Description | 
|                |  |                                                                                                                                                                                                            |             | 
|**10.39         |  | Form of
 Indemnification Agreement entered into with each of the officers of the
 Company and the Company. (13)                                                                                           
|10.40           |  | Form of
 Lease Agreement dated as of April 1, 1999 between Diamond Chip Group, L.L.C.
 and SED International. (14)                                                                                        
|**10.42         |  | Amended and
 Restated Employment Agreement between SED International Holdings, Inc. and
 Jean Diamond dated January 15, 2008. (15)                                                                        
|**10.43         |  | Amended and
 Restated Employment Agreement between SED International, Inc. and Jonathan
 Elster dated November 20, 2008. (16)                                                                             
|10.58           |  | First
 Amendment of Lease for 4916 N. Royal Atlanta Drive, Tucker GA 30084 dated
 September 19, 2005. (17)                                                                                                
|10.59           |  | Lease
 Agreement Extension for 4916 N. Royal Atlanta Drive, Tucker, GA 30084, dated
 March 20, 2006. (17)                                                                                                 
|10.60           |  | Loan and
 Security Agreement between SED International, Inc. and Wachovia Bank National
 Association, dated September 21, 2005. (17)                                                                      
|*10.61          |  | Lease
 agreement dated June 10, 2009 between Dexus Industrial SPE Financial
 Portfolio, LLC and SED International, Inc.                                                                                   
|10.62           |  | Seventh
 Addendum to Lease Dated March 13, 2007 for 1729 NW 84th Avenue,
 Doral, Florida 33126. (18)                                                                                                      
|10.63           |  | Third
 Amendment to Wachovia Loan and Security Agreement dated March 1, 2007. (19)                                                                                                                        
|**10.64         |  | 2007
 Restricted Stock Plan. (20)                                                                                                                                                                         
|**10.65         |  | Final Form
 of Restricted Stock Agreement, dated as of October 23, 2007, between the
 Company and each of Barry Diamond, Jean Diamond, Lyle Dickler, Mark DiVito,
 Jonathan Elster and Charles Marsh. (21)
|10.66           |  | Fourth
 Amendment to Wachovia Loan and Security Agreement dated August 23, 2007. (22)                                                                                                                     
|10.67           |  | Fifth
 Amendment to Wachovia Loan and Security Agreement dated January, 21, 2008.
 (22)                                                                                                                   
|10.68           |  | Sixth
 Amendment to Wachovia Loan and Security Agreement dated July 1, 2008. (22)                                                                                                                         
|10.69           |  | Settlement
 Agreement and General Release entered into on September 5, 2008. (22)                                                                                                                         
|10.70           |  | Employment
 Agreement dated August 10, 2009 between SED International Holdings, Inc. and
 Lyle Dickler (23)                                                                                               
|10.71           |  | Employment
 Agreement dated August 10, 2009 between SED International Holdings, Inc. and
 Mark DiVito (23)                                                                                                
|*10.72          |  | Second
 Amendment of Lease for 4916 North Royal Atlanta Drive, Tucker, GA 30084,
 dated August 6, 2009.                                                                                                   
|*10.73          |  | Amendment to
 Wachovia Loan and Security Agreement dated September 9, 2009.                                                                                                                               
|21              |  | Subsidiaries
 of the Company. (24)                                                                                                                                                                        
|*24             |  | Power of
 Attorney (see signature page to this Form 10-K).                                                                                                                                                
|*31.1           |  | Rule
 13a-14(a)/15d-14(a) Certification by Principal Executive Officer.                                                                                                                                   
|*31.2           |  | Rule
 13a-14(a)/15d-14(a) Certification by Principal Financial Officer.                                                                                                                                   
|*32.1           |  | Section 1350
 Certification by Principal Executive Officer.                                                                                                                                               
|*32.2           |  | Section 1350
 Certification by Principal Financial Officer.                                                                                                                                               

|   |                                                                             
|-- | ----------------------------------------------------------------------------
|  
|*  | Filed
 Herewith                                                             
|** | Denotes
 compensatory plan, compensation arrangement or management contract.

|   |  |                                                                                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) |  | Incorporated
 herein by reference to Exhibit 3.1 from the Companys 1999 Form 10-K.                                                                                 
|   |  |                                                                                                                                                                     
|2) |  | Incorporated
 herein by reference to Exhibit 3.2 from the Registrants Revised Definitive
 Proxy Soliciting Materials filed March 26, 2002 (SEC File No. 000-16345).

53

---



|    |  |                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3)  |  | Incorporated
 herein by reference to Exhibit 3.3 from the Companys 1999 Form 10-K.                                                                                                          
|    |  |                                                                                                                                                                                              
|4)  |  | Incorporated
 herein by reference to Exhibit 3.4 from the Companys Current Report on Form
 8-K filed on September 19, 2007.                                                                 
|    |  |                                                                                                                                                                                              
|5)  |  | Incorporated
 herein by reference to Exhibit 10.10 from Companys Definitive Supplemental
 Proxy Statement dated October 18, 1991 (SEC File No. 0-16345).                                    
|    |  |                                                                                                                                                                                              
|6)  |  | Incorporated
 herein by reference to Exhibit 10.11 from Companys 1992 Form 10-K (SEC File
 No. 0-16345).                                                                                    
|    |  |                                                                                                                                                                                              
|7)  |  | Incorporated
 herein by reference to Exhibit 10.12 from Companys Proxy Statement
 pertaining to Companys 1995 Annual Meeting of Stockholders dated October 1,
 1995 (SEC File No. 0-16345).
|    |  |                                                                                                                                                                                              
|8)  |  | Filed as an
 exhibit to the Companys current report on form 8-K filed on November 24,
 2008 and incorporated herein by reference.                                                           
|    |  |                                                                                                                                                                                              
|9)  |  | Incorporated
 herein by reference to Exhibit 10.23 from Companys 1995 Form 10-K (SEC File No.
 0-16345).                                                                                    
|    |  |                                                                                                                                                                                              
|10) |  | Incorporated
 herein by reference to Exhibit 10.24 from Companys Proxy Statement
 pertaining to Companys 1995 Annual Meeting of Stockholders dated October 1,
 1995 (SEC File No. 0-16345).
|    |  |                                                                                                                                                                                              
|11) |  | Incorporated
 herein by reference to Exhibit 10.26 from Companys Proxy Statement
 pertaining to Companys 1996 Annual Meeting of Stockholders dated October 1,
 1996 (SEC File No. 0-16345).
|    |  |                                                                                                                                                                                              
|12) |  | Incorporated
 herein by reference to Exhibit 10.32 from Companys 1999 Form 10-K.                                                                                                            
|    |  |                                                                                                                                                                                              
|13) |  | Incorporated
 herein by reference to Exhibits 10.38 and 10.39 from Companys 1999 Form10-K.                                                                                                  
|    |  |                                                                                                                                                                                              
|14) |  | Incorporated
 herein by reference to Exhibit 10.40 from Amendment No. 1 to the Companys
 Annual Report on Form 10-K/A for the fiscal year ended June 30, 1999 (SEC
 File No. 0-16345).      
|    |  |                                                                                                                                                                                              
|15) |  | Filed as an
 exhibit to the Companys Current Report on Form 8-K filed on January 18,
 2008.                                                                                                 
|    |  |                                                                                                                                                                                              
|16) |  | Filed as an
 exhibit to the Companys Current Report on Form 8-K filed on February 21,
 2008.                                                                                                
|    |  |                                                                                                                                                                                              
|17) |  | Incorporated
 herein by reference to Exhibits 10.58, 10.59 and 10.60 from the Registrants
 (SEC File No. 000-16345) 2006 Form 10-K.                                                         
|    |  |                                                                                                                                                                                              
|18) |  | Incorporated
 by reference to Exhibit 10.62 from the Companys Quarterly Report on Form
 10-Q for the quarterly period ended March 31, 2007 (SED File No. 000-16345)                         
|    |  |                                                                                                                                                                                              
|19) |  | Incorporated
 by reference to Exhibit 10.63 from the Companys Quarterly Report on Form
 10-Q for the quarterly period ended March 31, 2007 (SED File No. 000-16345)                         
|    |  |                                                                                                                                                                                              
|20) |  | Filed as an
 exhibit to the Companys Current Report on Form 8-K filed on October 29, 2007
 and incorporated herein by reference.                                                            
|    |  |                                                                                                                                                                                              
|21) |  | Filed as an
 exhibit to the Companys Current Report on Form 8-K filed on October 29, 2007
 and incorporated herein by reference.                                                            

54

---



|    |  |                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|22) |  | Incorporated
 by reference to Exhibits 10.66, 10.67, 10.68 and 10.69 from the Companys
 2008 Form 10-K (SEC File No. 0-16345).
|    |  |                                                                                                                                
|23) |  | Filed as
 exhibit to the Companys Current Report on Form 8-K filed on August 14, 2009
 and incorporated herein by reference   
|    |  |                                                                                                                                
|24) |  | Incorporated
 herein by reference to Exhibit 21 from the Registrants (SEC File No.
 000-16345) 2006 Form 10-K.                

55

---



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.
| |                                  |                                                                                    
| | By:                              | /s/ LYLE DICKLER                                                                   
| |                                  |                                                                                     | 
| |                                  | Lyle
 Dickler, Chief Financial Officer(principal financial and accounting
 officer)

Date: September
24, 2009

KNOW
ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Jean Diamond, and Lyle Dickler, 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 on this September 24, 2009.

|                         |  |                                                                                           
|------------------------ |  | ------------------------------------------------------------------------------------------
|/s/ JEAN DIAMOND         |  | Chairman of the Board
 Chief Executive Officer and Director
 (Principal Executive Officer)
|                         | 
|Jean Diamond             | 
|                         |  |                                                                                           
|/s/ LYLE DICKLER         |  | Chief Financial Officer
 (Principal Financial and Accounting Officer)                     
|                         | 
|Lyle Dickler             | 
|                         |  |                                                                                           
|/s/ STEWART I. AARON     |  | Director                                                                                  
|                         |  |                                                                                           
|Stewart I. Aaron         |  |                                                                                           
|                         |  |                                                                                           
|/s/ MELVYN I. COHEN      |  | Director                                                                                  
|                         |  |                                                                                           
|Melvyn I. Cohen          |  |                                                                                           
|                         |  |                                                                                           
|/s/ JOSEPH SEGAL         |  | Director                                                                                  
|                         |  |                                                                                           
|Joseph Segal             |  |                                                                                           
|                         |  |                                                                                           
|/s/ ARTHUR L. GOLDBERG   |  | Director                                                                                  
|                         |  |                                                                                           
|Arthur L. Goldberg       |  |                                                                                           
|                         |  |                                                                                           
|/s/ STEPHEN H. GREENSPAN |  | Director                                                                                  
|                         |  |                                                                                           
|Stephen H. Greenspan     |  |                                                                                           

56

---



|                   |  |         
|------------------ |  | --------
|/s/ J. K. HAGE III |  | Director
|                   |  |         
|J. K. Hage III     |  |         
|                   |  |         
|/s/ SAMUEL KIDSTON |  | Director
|                   |  |         
|Samuel Kidston     |  |         

57

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