10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

OR

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

For the transition period from to

Commission File Number 0-16345

SED International Holdings, Inc.

(Exact name of Registrant as specified in its charter)

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

(770) 491-8962

(Registrant's telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

At April 30, 2002, there were 3,929,670 shares of Common Stock, $.01 par value, outstanding.

SED International Holdings, Inc.

And Subsidiaries

INDEX

			Page
PART I.	FINANCIAL INFORMATION
	Item 1 -	Financial Statements:
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Shareholders'
		Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial
		Statements	6-14
	Item 2 -	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	15-19
	Item 3 -	Quantitative and Qualitative Disclosures about	20
		Market Risk
PART II.	OTHER INFORMATION
	Item 1 -	Legal Proceedings	21
	Item 2 -	Changes in Securities and Use of Proceeds	21
	Item 3 -	Default Upon Senior Securities	21
	Item 4 -	Submission of Matters to a Vote of Security
		Holders	21
	Item 5 -	Other Information	21
	Item 6 -	Exhibits and Reports on Form 8-K	21-22

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SED International Holdings, Inc.

And Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,	June 30,
ASSETS	2002 (Unaudited)	2001
CURRENT ASSETS:
Cash and cash equivalents	$ 2,782,000	$ 4,243,000
Restricted cash	844,000	700,000
Trade accounts receivable, net	38,036,000	40,236,000
Inventories	54,099,000	47,507,000
Deferred income taxes	151,000	355,000
Other current assets	1,458,000	2,349,000
TOTAL CURRENT ASSETS	97,370,000	95,390,000
PROPERTY AND EQUIPMENT, net	4,250,000	5,708,000
INTANGIBLES, net		6,368,000
	$101,620,000	$107,466,000

	March 31,	June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY	2002	2001
	(Unaudited)	-
CURRENT LIABILITIES:
Revolving bank debt	$ 13,600,000
Trade accounts payable	53,019,000	$ 55,449,000
Accrued liabilities	4,176,000	5,858,000
Short term subsidiary bank debt	2,479,000	3,544,000
TOTAL CURRENT LIABILITIES:	73,274,000	64,851,000
SHAREHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized, none issued
Common stock, $.01 par value; 100,000,000
shares authorized; 5,563,206 shares
issued; and 3,939,911 (March 31,
2002); 4,030,478(June 30, 2001)
shares outstanding	56,000	56,000
Additional paid-in capital	68,406,000	68,417,000
Accumulated deficit	(19,934,000)	(9,224,000)
Accumulated other comprehensive loss	(7,093,000)	(3,564,000)
Treasury stock, 1,623,295 (March 31,
2002) and 1,532,728 (June 30, 2001)
shares, at cost	(12,839,000)	(12,612,000)
Unearned compensation - stock awards	(250,000)	(458,000)
	28,346,000	42,615,000
	$101,620,000	$107,466,000

SED International Holdings, Inc.

And Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2002	2001	2002	2001
NET SALES	$117,399,000	$142,690,000	$351,462,000	$408,410,000
COST AND EXPENSES
Cost of sales including buying
and occupancy expenses	111,850,000	134,490,000	332,924,000	383,403,000
Selling, general and administrative expenses	5,914,000	7,932,000	21,462,000	23,614,000
Facility Closure	362,000		362,000
Non-cash stock awards compensation expense		590,000		756,000
	118,126,000	143,012,000	354,748,000	407,773,000
OPERATING INCOME (LOSS)	(727,000)	(322,000)	(3,286,000)	637,000
INTEREST EXPENSE, net	282,000	173,000	720,000	568,000
EARNINGS (LOSS) BEFORE INCOME TAXES and cumulative
effect of a change in accounting principle	(1,009,000)	(495,000)	(4,006,000)	69,000
INCOME TAXES	137,000	30,000	407,000	289,000
NET (LOSS) EARNINGS before cumulative effect
of a change in accounting principle	(1,146,000)	(525,000)	(4,413,000)	(220,000)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, net of income tax benefits of $75,000			(6,297,000)
NET (LOSS) EARNINGS	$ (1,146,000)	$ (525,000)	$(10,710,000)	$ (220,000)
Basic and diluted (loss) earnings per share:
(Loss) earnings per share before cumulative
effect of a change in accounting principle	$(.30)	$(.15)	$(1.14)	$(.06)
Cumulative effect of a change in accounting
principle, net of tax benefit			(1.62)
Net (loss) earnings	$(.30)	$(.15)	$ (2.76)	$(.06)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	3,873,000	3,594,000	3,874,000	3,532,000
Diluted	3,873,000	3,594,000	3,874,000	3,601,000

See notes to condensed consolidated financial statements.

SED International Holdings, Inc.

And Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS

OF SHAREHOLDERS' EQUITY

(Unaudited)

					Accumulated
	Common Stock		Additional		Other			Unearned	Total
		Par	Paid-In	Accumulated	Comprehensive	Treasury Stock		Compensation	Shareholders'
	Shares	Value	Capital	Deficit	Loss	Shares	Cost	Stock Awards	Equity
BALANCE, June 30, 2001 (See Note H)	5,563,206	$56,000	$68,417,000	$ (9,224,000)	$(3,564,000)	1 1,532,728	$(12,612,000)	$(458,000)	$42,615,000
Amortization of
stock awards								130,000	130,000
Stock awards issued			(99,000)			(16,000)	126,000	(27,000)
Stock awards cancelled			88,000			23,771	(193,000)	105,000
Treasury shares
purchased						82,796	(160,000)		(160,000)
Net loss				(10,710,000)					(10,710,000)
Translation
adjustments					(3,529,000)				(3,529,000)
Comprehensive loss									(14,239,000)
BALANCE, March 31, 2002	5,563,206	$56,000	$68,406,000	$(19,934,000)	$(7,093,000)	1,623,295	$(12,839,000)	$(250,000)	$28,346,000

(1) Comprehensive losses for the nine months ended March 31, 2002 and 2001 were $(14,239,000) and $(1,685,000), respectively.

Comprehensive losses for the three months ended March 31, 2002 and 2001 were $(2,361,000) and $(1,629,000), respectively.

See notes to condensed consolidated financial statements.

SED International Holdings, Inc.

And Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	March 31,_____
	2002	2001__
OPERATING ACTIVITIES:
Net loss Adjustments to reconcile net loss to net cash (used in) provided by operating activities:	$(10,710,000)	$ (220,000)
Impairment charges for goodwill	6,372,000
Facility closure-loss on disposal fixed assets	53,000
Depreciation and amortization	1,659,000	2,108,000
Compensation - stock awards	130,000	756,000
Decrease in accounts receivable	2,200,000
Decrease in accounts payable	(2,430,000)
Increase in inventory	(6,592,000)
Other, net	(742,000)	(6,340,000)
Net cash used in operating activities	(10,060,000)	(3,696,000)
INVESTING ACTIVITIES:
Purchase of equipment	(250,000)	(660,000)
Purchase of business		(1,452,000)
Net cash used in investing activities	(250,000)	(2,112,000)
FINANCING ACTIVITIES:
Net borrowings of revolving bank debt	13,600,000	3,123,000
Net changes in short term
bank borrowings of foreign subsidiaries	(1,062,000)
Purchase of treasury stock	(160,000)
Net cash provided by
financing activities	12,378,000	3,123,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(3,529,000)	(1,465,000)
NET DECREASE IN CASH
AND CASH EQUIVALENTS	(1,461,000)	(4,150,000)
CASH AND CASH EQUIVALENTS, beginning of period	4,243,000	7,314,000
CASH AND CASH EQUIVALENTS, end of period	$ 2,782,000	$3,164,000

See notes to condensed consolidated financial statements.

A. Interim Financial Statements

The accompanying condensed consolidated financial statements of SED International Holdings, Inc. and its wholly-owned subsidiaries, SED International, Inc., SED International do Brasil Distribuidora Ltda. (formerly SED Magna Distribuidora Ltda.), SED Magna (Miami), Inc., SED International de Colombia Ltda., Intermaco S.R.L., and E-Store.com, Inc. (collectively, the "Company") have been prepared without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany accounts and transactions have been eliminated. The results of operations for the nine months ended March 31, 2002 are not necessarily indicative of the operating results for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and notes contained in the Company's Annual Report on Form 10-K for the year ended June 30, 2001.

The operating results for the nine months ended December March 31, 20021 reflect a restatement of the operating results of the three months ended September 30, 2001 for a non-cash impairment charge related to the cumulative effect of a change in accounting principle as explained in Note D.

Certain March 31, 2001 amounts have been reclassified for comparative purposes.

2. Foreign Currency Translation and Equity For Stock Split

The assets and liabilities of the Company's foreign operations in Colombia, Argentina and Brazil are translated at the exchange rates in effect at the balance sheet date, with related translation gains and losses reported as a separate component of shareholders' equity (comprehensive income or loss). The results of foreign operations are translated at the weighted average exchange rates for the period. Gains or losses resulting from foreign currency transactions are included in the statement of operations.

On February 8, 2002, the Executive Branch of the Argentine Government issued Executive Order 260/02, whereby the foreign exchange regime was amended, replacing it with a free exchange market whereby all of the transactions in foreign currencies should be freely traded. These transactions are subject to the requirements and regulations of the Argentina Central Bank.The transfers abroad for financial loan principal services and profits and dividends made in the consecutive 90 days since February 11, 2002 require the prior consent of the Argentina Central Bank, whatever the payment term may be.

In addition to the above changes, the Argentine government declared a bank and foreign exchange holiday beginning April 22, 2002 for an indefinite period until certain laws were passed related to the conversion of depositors' bank savings accounts into ten year bonds. The bank holidayended on April 29, 2002 and the peso again is available for market trading. The current exchange rate is approximately 2.85 pesos to the US$1. In addition, the Argentine government continues to negotiate with the International Monetary Fund ("IMF") for additional funding. To date, there has been no such agreement. Another IMF delegation is scheduled to visit Argentina in May 2002, however, there can be no assurances that any such agreement will be reached.

For the four months ended April 30, 2002, inflation in Argentina was approximately 30%. If the inflation rate in Argentina reaches a cumulative rate of 100% for a three-year period, Argentina would be considered a highly inflationary economy under Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation." Accounting for the exchange rate effects on the financial statements of entities operating in highly inflationary economies is different than the present "current value method" of translation. If Argentina reaches highly inflationary status, this may result in increased volatility of the Company's reported operating results since the foreign currency financial statement re-measurement translation effects are generally recorded in the statement of operations as opposed to as a component of accumulated other comprehensive loss in the statement of shareholders' equity.

The Company re-measured the balance sheet at the current rate at March 31, 2002, which was 2.85 pesos to US$1.

From December 21, 2001 to January 11, 2002, trading in Argentine pesos (the peso) was suspended. Prior to December 21, 2001, the peso had been linked to the US dollarat an effective exchange rate of 1 to 1. In accordance with the Financial Accounting Standards Board Emerging Issues Task Force Issue D-12, "Foreign Currency Translation-Selection of Exchange Rate When Trading is Temporarily Suspended", the Company should use the rate in effect when trading resumes to translate transactions subsequent to December 20, 2001 and the balance sheet at December 31, 2001. Accordingly,the Company has used the rate of 1.7 pesos per US dollar for such measurements with the exception of the items described in the following paragraph.

On or about February 5, 2002, the Argentine government announced a preliminary ruling that all December 31, 2001 obligations then outstanding and denominated in US dollars to be settled in the country of Argentina should, by law, be settled at the rate of 1 to 1. Accordingly, the Company has assumed certain liabilities with trade vendors will be settled with no transaction currency loss. There can be no assurance that the Company will ultimately settle such losses at the rate of 1 to 1. If such liabilities are settled at rates less favorable than 1 to 1, the Company will realize additional foreign currency transaction losses in the future. In addition, the Company measured certain bank deposits in Argentina at the rate of 1.4 to 1, since such deposits were settled in January 2002 at this rate.

3. Bank Debt

The Company has a credit agreement with Wachovia Bank N.A. ("Wachovia"), as amended on October 12, 2001, which provides for borrowing under a line of credit of up to $25.0 million. At March 31, 2002, the Company had borrowings of $ 13.6 million outstanding under this facility. Maximum borrowings under the credit agreement are generally based on eligible accounts receivable and inventory (as defined in the credit agreement) less a $9.5 million reserve. This reserve can be drawn upon, if necessary, to finance obligations to IBM Credit Corporation, which finances the Company's purchases from certain vendors. Available borrowings under this agreement at March 31, 2002, based on collateral limitations, were $9.5 million ($9.5 million of which would only be available to finance obligations due to IBM, if necessary).

The Wachovia credit agreement is secured by accounts receivable and inventory of SED International, Inc. and requires maintenance of certain minimum working capital and other financial ratios and has certain dividend restrictions. The Company may borrow at Wachovia's prime rate (5.25% at March 31, 2002) plus .50% or the Company may fix the interest rate for periods of 30 to 180 days under various interest rate options. The credit agreement requires a commitment fee of .50% of the unused commitment and expires November 1, 2002. Average borrowings, maximum borrowings and the weighted average interest rate for the quarter ended March 31, 2002 were $6.2 million, $13.6 million and 5.25%, respectively. Average borrowings, maximum borrowings and the weighted average interest rate for the nine months ended March 31, 2002 were $3.2 million, $13.6 million and 5.25%, respectively. At March 31, 2002 the Company was in technical default with certain cov enants under the Wachovia credit agreement; however, Wachovia and the Company subsequently waived the covenant violations and amended the agreement to achieve compliance.

The Company presently projects that it will be in compliance with the financial covenants associated with the Wachovia credit agreement through June 30, 2002. However, for each of the quarters ended September 30, 2001, December 31, 2001, and March 31, 2002, the Company has failed to maintain compliance with financial covenants. Therefore, there can be no assurance that the Company will be in compliance with the amended Wachovia agreement covenants at June 30, 2002. If the Company is not in compliance, Wachovia may declare an event of default and could demand repayment of all outstanding borrowings and discontinue the agreement. If Wachovia were to declare an event of default, the Company's liquidity and business operations could be adversely affected. In addition, the Wachovia agreement expires in November 2002. The Company is presently seeking alternative sources of financing in the United States and anticipates that such an agreement will be completed before September 30, 2002. How ever, no assurance can be given that the Company will be successful in obtaining a new credit facility, or that such a facility, if obtained, will be at rates and terms which are commercially comparable or favorable to the existing Wachovia credit agreement. Failure to obtain a new credit agreement could adversely affect the Company's liquidity and business operations.

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

	March 31,	June 30,
	2002	2001
SED International do
Brasil Distribuidora Ltda.	$2,479,000	$3,261,000
SED International de
Colombia Ltda.		283,000
	$2,479,000	$3,544,000

The weighted average monthly rates for the nine months ended March 31, 2002 were 1.9064% in Brazil.

4. Newly Adopted Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141 ("SFAS 141") "Business Combinations," and Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS 142 requires companies to cease amortizing goodwill that existed at June 30, 2001 and establishes a new method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value.) Any goodwill resulting from acquisitions completed after June 30, 2001 is not amortized. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach.

The Company adopted SFAS 142 as of July 1, 2001. However, the Company did not complete the required transitionalimpairment tests until the second quarter ended December 31, 2001.

During the three month period ended March December 31, 2001, the Company tested goodwill arising from a prior business combination of an enterprise based in Argentina as of July 1, 2001 primarily utilizing a valuation technique relying on the expected present value of future cash flows. As a result of this valuation process as well as the application of the remaining provisions of SFAS 142, the Company recorded a pre-tax transitional impairment loss of $6,372,000, representing the write-off of all of the Company's existing goodwill. This write-off was reported as a cumulative effect of a change in accounting principle, on a net of tax basis, as of July 1, 2001 in the Company's Consolidated Statement of Operations.

Prior to the adoption of SFAS 142 on July 2001, the Company amortized this goodwill over an estimated useful life of 30 years. Had the Company accounted for goodwill consistent with the provisions of SFAS 142 in prior periods, the Company's net income as reported would have been as follows after giving effect to the non-amortization provisions of SFAS 142, net of income taxes:

	Three Months Ended			Nine Months Ended
	March 31,			March 31,
	2002		2001	2002	2001
Reported Loss Earnings before
the cumulative effect of a change
in accounting principle	$(1,146,000)		$(525,000)	$ (4,413,000)	$(220,000)
Add: Amortization Expense			41,000		123,000
Adjusted Loss before
the cumulative effect of a change in
accounting principle, net of taxes	$(1,146,000)		$(484,000)	$(4,413,000)	$ (97,000)
Adjusted Net Loss	$(1,146,000)		$(484,000)	$(10,710,000)	$ (97,000)
	Three Months Ended			Nine Months Ended
	March 31,			March 31,
	2002	2001		2002	2001
Basic and Diluted Loss
Per Share:
Reported Net Loss before
the cumulative effect of a change in
accounting principle	$(.30)	$(.15)		$(1.14)	$(.06)
Add: Amortization Expense		.01			.03
Adjusted Loss before
The cumulative effect of a change in
accounting principle, net of taxes	$(.30)	$(.14)		$(1.14)	$(.03)
Adjusted Net Loss	$(.30)	$(.14)		$(2.76)	$(.03)

E. Segment Information

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

Financial information by geographic region is as follows:

United States Latin America Eliminations Consolidated
For the three months ended
march March 31, 2002
Net sales:
Unaffiliated customers	$103,000,000	$14,399,000		$117,399,000
Foreign subsidiaries
Total	$103,000,000 $14,399,000 $117,399,000
Gross profit	$ 3,578,000	$ 1,971,000		$ 5,549,000
Income (loss) from operations	(1,110,000)	383,000		(727,000)
Total assets	96,309,000	17,165,000	$(11,854,000)		101,620,000
For the three months ended
March 31, 2001
Net sales:
Unaffiliated customers	$111,814,000	$30,876,000		$142,690,000
Foreign subsidiaries	343,000 $ (343,000)					$142,690,000
Total	$112,157,000 $30,876,000 $ (343,000) $142,690,000
Gross profit	$ 5,788,000	$ 2,412,000		$ 8,200,000
Loss from operations	(76,000)	(246,000)		(322,000)
Total assets	105,944,000	32,327,000	(17,016,000)	121,255,000

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

Net sales by product category is as follows:

			Shipping and
For the three months	Microcomputer	Wireless Telephone	Handling
Ended March 31, Products Products Revenue Total
2002	$111,441,000	$5,599,000	$ 359,000	$117,399,000
2001	135,551,000	6,677,000	462,000	142,690,000

Approximately 29.6% and 42.9% of the Company's net sales for the three months ended March 31, 2002 and 2001, respectively, consisted of sales to customers for export principally into Latin America and direct sales to customers in Brazil, Colombia, and Argentina.

United States Latin America Eliminations Consolidated
For the nine months ended
March 31, 2002
Net sales:
Unaffiliated customers	$294,513,000	$56,949,000		$351,462,000
Foreign subsidiaries	441,000 $ (441,000)
Total	$294,954,000 $56,949,000 $ (441,000) 351,462,000
Gross profit	$ 11,784,000	$ 6,754,000		$ 18,538,000
Loss from operations	(2,912,000)	(374,000)		(3,286,000)
Total assets	96,309,000	17,165,000	$(11,854,000)	101,620,000
For the nine months ended
March 31, 2001
Net sales:
Unaffiliated customers	$309,512,000	$98,898,000		$408,410,000
Foreign subsidiaries	1,184,000 $ (1,184,000)
Total	$310,696,000 $98,898,000 $ (1,184,000) $408,410,000
Gross profit	$ 16,158,000	$ 8,849,000		$ 25,007,000
Income from operations	432,000	205,000		637,000
Total assets	105,944,000	32,327,000	$(17,016,000)	121,255,000

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

Net sales by product category is as follows:

			Shipping and
For the nine months	Microcomputer	Wireless Telephone	Handling
Ended March 31, Products Products Revenue Total
2002	$334,346,000	$16,004,000	$1,112,000	$351,462,000
2001	379,823,000	27,064,000	1,523,000	408,410,000

Approximately 32.2% and 44.6% of the Company's net sales for the nine months ended March 31, 2002 and 2001, respectively, consisted of sales to customers for export principally into Latin America and direct sales to customers in Brazil, Colombia, and Argentina.

F. Risks and Uncertainties

The Risks and Uncertainties section contained in Note 1 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended June 30, 2001 continues to be appropriate and should be read in conjunction with this report.

At the beginning of November 2001, The Argentine Government announced that it would attempt to restructure its existing external public indebtedness with its Argentine and internal creditors in order to obtain interest savings and relief from principal repayments in the next several years. The restructuring or default by the Argentine Government of its external public indebtedness may have an adverse effect on the Argentine economy and on the availability of capital flows to companies headquartered or operating in Argentina. In addition, the failure of the Argentine Government to successfully restructure its indebtedness could have an adverse effect on the Argentine economy, including devaluation of the Argentine peso against the U.S. dollar. The devaluation which commenced in January 2002 could make it more difficult for Argentine companies to service their commercial and financial obligations due in U.S. dollars or tied to the U.S. dollar. A ny of the foregoing events and a continuation of theArgentine recession may have a material adverse effect on the Company's business, results of operations, financial condition, ability to make payments on our indebtedness and on the market price of our common stock. The information included in the Company's financial statements, and other related documentation, does not contain the potential impact that might derive from the situation described above and, accordingly, should be analyzed considering that circumstance.

G. Facility Closure

In January 2002, the Company decided to discontinue the computer asset recovery operation of E-Store.com. Following is a summary of the income statement effects associated with the facility closure of E-Store:

Loss on asset disposal $ 53,000

Severance 60,000

Lease and utility termination 249,000

Total $362,000

All inventory-related exit costs have been classified as cost of goods sold in the accompanying consolidated statement of operations. Loss on asset disposal, severance expenses, and the lease and utility termination expenses have been classified as facility closure.

All items were paid in the third quarter. No further liabilities remain.

H. Reverse Stock Split

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

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 Compared to Three Months Ended

March 31, 2001

Net sales decreased 17.7%, or $25.3 million, to $117.4 million in the third quarter ended March 31, 2002 compared to $142.7 million in the third quarter ended March 31, 2001. Information concerning the Company's domestic and foreign sales is summarized below:

	Three Months Ended
	March 31,		Change
	2002	2001	Amount	Percent
United States:
Domestic	$82.6	$81.8	$ .8	1.0
Export	20.4	30.3	(9.9)	(32.7)
Latin America	14.4	30.9	(16.5)	(53.4)
Elimination		(.3)	.3	100.0
Consolidated	$117.4	$142.7	$(25.3)	(17.7)

The decrease in sales in Latin America was principally due to lower sales to customers in Brazil Argentina associated with more stringent credit standards and a change in sales pricing policiesdecline in the Argentine economy as a whole.

The decrease in the U.S. export sales was due primarily to lower sales of printers and printer consumables. Sales of microcomputer products represented approximately 94.9% of the Company's third quarter net sales compared to 95.1% for the same period last year. Sales of wireless telephone products accounted for approximately 4.7% of the Company's third quarter net sales compared to 4.9% for the same period last year.

Gross profit decreased to $5.5 million in the third quarter ended March 31, 2002 compared to $8.2 million in the third quarter ended March 31, 2001. Gross profit as a percentage of net sales decreased to 4.7% in the third quarter ended March 31, 2002 from 5.7% in the third quarter ended March 31, 2001. The change in gross profit as a percentage of sales was due to an increase in lower margin sales in the United States. Although gross revenue increased by $7.2 million over the prior quarter, the Company continues to experience pricing pressures in selling products.

Selling, general and administrative expenses, decreased $2.2 million to $6.3 million (including $.4 million for a facility closure) in the third quarter ended March 31, 2002, compared to $8.5 million (including $.6 million for non-cash stock awards compensation expense) in the third quarter ended March 31, 2001. These expenses as a percentage of net sales were 5.3% in the third quarter ended March 31, 2002 compared to 6.0% in the third quarter ended March 31, 2001. The decrease resulted primarily from the Company's coordinated efforts to reduce employee costs and general overhead expenses.

Net interest expense was $.3 million in the third quarter ended March 31, 2002 compared to interest expense of $.2 million in the third quarter ended March 31, 2001. The additional interest expense was incurred primarily as a result of the Company's election to draw on the revolving credit line to achieve cash discounts from its vendors.

The income tax expense relates to tax on income generated by certain of the Company's Latin America subsidiaries, while the remaining operations contributed losses with no corresponding tax benefits.

Nine Months Ended March 31, 2002 Compared to Nine Months Ended

March 31, 2001

Net sales decreased 13.9%, or $56.9 million, to $351.5 million in the nine months ended March 31, 2002 compared to $408.4 million in the nine months ended March 31, 2001. Information concerning the Company's domestic and foreign sales is summarized below:

	Nine Months Ended
	March 31,		Change
	2002	2001	Amount	Percent
United States:
Domestic	$238.7	$227.5	$ 11.2	4.9%
Export	56.3	83.2	(26.9)	(32.3)%
Latin America	56.9	98.9	(42.0)	(42.5)%
Elimination	(.4)	(1.2)	.8	66.7%
Consolidated	$351.5	$408.4	(56.9)	(13.9)%

The overall decrease resulted from an increase in United States domestic net sales, offset by declines in net sales to customers in Latin America as well as to customers for export principally to Latin America. The decrease in sales in Latin America was principally due to lower sales to customers in Brazil associated with more stringent credit standards and a change in sales pricing policies. In addition, sales to customers in Argentina declined as a result of the recent economic downturn in that country.

The increase in sales in the United States was primarily due to an increase in sales of mass storage products which was offset by lower sales of printers, printer consumables, computer processors, and wireless products. The decrease in the U.S. export sales was due primarily to lower sales of printers and printer consumables. Sales of microcomputer products represented approximately 95.1% of the Company's nine months net sales compared to 93.0% for the same period last year. Sales of wireless telephone products accounted for approximately 4.6% of the Company's nine months net sales compared to 6.6% for the same period last year.

Gross profit decreased to $18.5 million in the nine months ended March 31, 2002 compared to $25.0 million in the nine months ended March 31, 2001. Gross profit as a percentage of net sales decreased to 5.3% in the nine months ended March 31, 2002 from 6.1% in the nine months ended March 31, 2001. The change in gross profit as a percentage of sales was due to an increase in lower margin sales in the United States. Overall, the Company continues to experience pricing pressures in selling products.

Selling, general and administrative expenses decreased $2.5 million to $21.8 million (including $.4 million for a facility closure) in the nine months ended March 31, 2002, compared to $24.3 million (including $.8 million for non-cash stock awards compensation expense) in the nine months ended March 31, 2001. These expenses as a percentage of net sales were 6.2% in the nine months ended March 31, 2002 compared to 6.0% in the nine months ended March 31, 2001.

Net interest expense was $.7 million in the nine months ended March 31, 2002.

The income tax expense relates to tax on income generated by certain of the Company's Latin America subsidiaries, while the remaining operations contributed losses with no corresponding tax benefits.

Liquidity and Capital Resources

The Company's liquidity requirements arise primarily from the funding of working capital needs, including inventories and trade accounts receivable. Historically, the Company has financed its liquidity needs largely through internally generated funds, borrowings under its Wachovia Bank N.A. credit agreement, subsidiary bank credit agreements, and vendor lines of credit. The Company derives all of its operating income and cash flow from its subsidiaries and relies on such cash flows to satisfy its obligations on a consolidated basis. As the Company continues operations in Latin America, management believes that domestic banking agreements may restrict the ability of the Company to make inter-company transfers of cash on a consolidated basis.

Operating activities used $10.1 million in the nine months ended March 31, 2002. The Company's increase of $6.6 million in inventory and reduction of $2.4 million in accounts payable were primary uses of operating cash. The decrease in accounts receivable of $2.2 million provided a source of cash. Also, the Company's net loss of $10.7 million less non-cash charges of $8.2 million used cash.

Investing activities used $.3 million and $2.1 in the nine months ended March 31, 2002 and 2001, respectively, to purchase equipment and computer software.

Financing activities provided $12.4 million and $3.1 million in the nine months ended March 31, 2002 and 2001, respectively, resulting from net bank borrowings and repayments.

Management believes that the Wachovia Bank N.A. credit agreement, subsidiary bank credit agreements together with vendor lines of credit, and internally generated funds will be sufficient to satisfy its working capital needs.

At March 31, 2002 the Company was in technical default with certain covenants under the Wachovia credit agreement; however, Wachovia and the Company subsequently waived the covenant violations and amended the agreement to achieve compliance.

The Company presently projects that it will be in compliance with the financial covenants associated with the Wachovia credit agreement through June 30, 2002. However, for each of the quarters ended September 30, 2001, December 31, 2001, and March 31, 2002, the Company has failed to maintain compliance with financial covenants. Therefore, there can be no assurance that the Company will be in compliance with the amended Wachovia agreement covenants at June 30, 2002. If the Company is not in compliance, Wachovia may declare an event of default and could demand repayment of all outstanding borrowings and discontinue the agreement. If Wachovia were to declare an event of default, the Company's liquidity and business operations could be adversely affected. In addition, the Wachovia agreement expires in November 2002. The Company is presently seeking alternative sources of financing in the United States and anticipates that such an agreement will be completed before September 30, 2002. How ever, no assurance can be given that the Company will be successful in obtaining a new credit facility, or that such a facility, if obtained, will be at rates and terms which are commercially comparable or favorable to the existing Wachovia credit agreement. Failure to obtain a new credit agreement could adversely affect the Company's liquidity and business operations.

Critical Accounting Policies

Allowance for Doubtful Accounts - Methodology

An allowance for uncollectible accounts has been established based on our collection experience and an assessment of the collectibility of specific accounts. We evaluate the collectibility of accounts receivable based on a combination of factors. Initially, we estimate an allowance for doubtful accounts as a percentage of accounts receivable based on historical collections experience. This initial estimate is periodically adjusted when we become 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. We do not believe our estimate of the allowance for doubtful accounts is likely to be adversely affected by any individual customer, since the Company is protected by credit insurance on its significant customers.

Inventories - Slow Moving and Obsolescence

Most of the Company's vendors allow for either return of goods within a specified period (usually 90 days) or for credits related to price protection. However, for other vendor relationships and inventories, we are not protected by our vendor from the risk of inventory loss. Therefore, in determining the net realizable value of inventories, we identify slow moving or obsolete inventories that (1) we 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, we estimate the net realizable value of inventories and record any necessary adjustments as a charge to cost of sales. If our inventory return privileges were discontinued in the future, or if vendors were unable to honor the provisions of certain contracts which protect us from inventory losses, our risk of loss associated with obsolete or slowing moving inventories would increase. Our reserve for obsolete and slowing moving inventori es was approximately $1.4 million and $1.7 million at March 31, 2002 and December 31, 2001 or 2.4% and 4% of gross inventories, respectively.

Forward-Looking Information

This report contains certain statements that are not based on historical facts and which may be considered forward-looking statements as defined in the Private Securities Litigation Act of 1995. These statements may differ materially from actual future events or results, and by their nature they involve substantial risks and uncertainties, certain of which are beyond the Company's control. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect Management's judgment only as of the date hereof. Factors that might cause the Company's actual results to differ from those described in the forward-looking statements are referred to in the sections under the headings "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are contained in the Company's Registration Statement on Form S-3 (SEC File No. 333-35069) and these factors include the Company's ability to maintain pro fitability, cash flow, revenue growth, business prospects, foreign currency fluctuations, a dependence upon and/or loss of key vendors or customers, customer demand, product availability, competition (including pricing and availability). The Company undertakes no obligation to update forward-looking statements contained herein.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company's market risk exposures relating to interest rate risk and foreign currency risk that would significantly affect the quantitative and qualitative disclosures presented in the Company's Form 10-K filing for the year ended June 30, 2001 other than those currency risks which may come about as a result of the events described in the following paragraph. The functional currency for the Company's international subsidiaries is the local currency for the country in which the subsidiaries own their primary assets. The translation of the applicable currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. Any related translation adjustments are recorded directly to shareholders' equity. The Company is not involved in hedging transactions at the current time related to its currenc y risks.

At the beginning of November 2001, The Argentine Government announced that it would attempt to restructure its existing external public indebtedness with its Argentine and internal creditors in order to obtain interest savings and relief from principal repayments in the next several years. The restructuring or default by the Argentine Government of its external public indebtedness may have an adverse effect on the Argentine economy and on the availability of capital flows to companies headquartered or operating in Argentina. In addition, the failure of the Argentine Government to successfully restructure its indebtedness could have an adverse effect on the Argentine economy, including devaluation of the Argentine peso against the U.S. dollar. The devaluation which commenced in January 2002 could make it more difficult for Argentine companies to service their commercial and financial obligations due in U.S. dollars or tied to the U.S. dollar. Any of the foregoing events and a continuati on of the Argentine recession may have a material adverse effect the Company's business, results of operations, financial condition, ability to make payments on our indebtedness and on the market price of our common stock. The information included in the Company's financial statements, and other related documentation, does not contain the potential impact that might derive from the situation described above and, accordingly, should be analyzed considering that circumstance.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

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

Item 3. Default Upon Senior Securities

None

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

A Special Meeting of Shareholders was held April 26, 2002 for the following purpose: (i) to vote on a plan of recapitalization and to amend the Company's Articles of Incorporation to provide for a reverse stock split. The voting results on the foregoing matters, which were approved, were as follows:

Proposal I To consider and vote on a plan of recapitalization and to amend the Company's Articles of Incorporation to provide for a reverse stock split at the Special Meeting of Shareholders.

	No. of	No. of Votes	No. of Votes
	Votes For	Against	Abstained
Reverse Split	7,137,287	141,392	16,604

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

a)	Exhibits
	Exhibit
	Number	Description
	10.41	Sixth Amendment to Second Amended and Restated Credit
		Agreement dated May 14, 2002 between SED International
		Holdings, Inc. and Wachovia Bank, N.A.

b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SED International Holdings, Inc.
	(Registrant)
May 20, 2002	By: /s/ Gerald Diamond
	Gerald Diamond
	Chief Executive Officer and
	Chairman of the Board
	(Principal Executive Officer)
May 20, 2002	By: /s/ Michael P. Levine
	Michael P. Levine
	Vice President-Finance and
	Treasurer
	(Principal Accounting Officer)

EX-1

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is dated and is effective as of May 14, 2002, among SED INTERNATIONAL HOLDINGS, INC. and SED INTERNATIONAL, INC., jointly and severally (collectively, the "Borrowers"), WACHOVIA BANK, N.A., as Agent (the "Agent") and the Banks party to the "Credit Agreement" defined below (collectively, the "Banks");

W I T N E S S E T H:

WHEREAS, the Borrowers, the Agent and the Banks executed and delivered that certain $50,000,000 Second Amended and Restated Credit Agreement, dated as of August 31, 1999 (as amended by the First Amendment thereto dated as of September 30, 2000, as further amended by that certain letter dated February, 2001, as further amended by that certain Second Amendment dated as of March 30, 2001, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated May 2, 2001, as further amended by that certain Fourth Amendment to Second Amended and Restated Credited Agreement dated as of October 12, 2001, and as further amended by that certain Fifth Amendment to Second Amended and Restated Credited Agreement dated as of February 8, 2002, the "Credit Agreement");

WHEREAS, the Borrowers have requested and the Agent and the Banks have agreed to make certain amendments to the Credit Agreement, subject to the terms and conditions hereof;

NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Borrowers, the Agent and the Banks hereby covenant and agree as follows:

1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement from and after the date hereof refer to the Credit Agreement as amended hereby.

2. Waiver. The Borrowers have advised the Agent and the Banks that the Borrowers were in Default under Sections 6.05(c), 6.21, 6.23(a) and (b), and 6.24 of the Credit Agreement during the period from March 31, 2002, through and including the date of this Amendment, which Defaults constitute Events of Default under the Credit Agreement (the "Existing Events of Default"). The Borrowers have requested that the Agent and the Banks waive such Existing Events of Default solely for such relevant periods from March 31, 2002, through and including the date of this Amendment (the "Waiver Period"). The Agent and each of the Banks hereby waive the Existing Events of Default solely for the Waiver Period. Such waiver of the Existing Events of Default granted by the Agent and the Banks under this Amendment shall not extend beyond the Waiver Period and shall thereafter be null and void, and of no force or effect. The waiver of the Existing Events of Default contained in this Amendment shall not extend to any other existing Default or Event of Default or other provision of the Credit Agreement or any of the other Loan Documents, whether now existing or hereafter arising. All other provisions of the Credit Agreement and the other Loan Documents remain in full force and effect.

3. Amendments to Credit Agreement. The following amendments are hereby made to the Credit Agreement:

(a) The following new definitions are added to Section 1.01 of the Credit Agreement in alphabetical order:

"Monthly Consolidated Fixed Charges" for any month, but solely with respect to SEDI, means the sum of (i) Consolidated Interest Expense for such month, and (ii) all payment obligations of SEDI for such month under all operating leases and rental agreements, all determined with respect to SEDI for such month and in accordance with GAAP.

"Monthly EBILTDA" for any month, but solely with respect to SEDI, means the sum of (i) Consolidated Net Income, (ii) taxes on income, (iii) Consolidated Interest Expense, (iv) depreciation expense, (v) amortization expense, (vi) non-cash stock award expenses, and (vii) all payment obligations for such period under all operating leases and rental agreements, all determined with respect to SEDI for such month and in accordance with GAAP.

(b) The definition of "Delinquent Trade Payables Reserve" in Section 1.01 of the Credit Agreement is amended and restated in its entirety as follows:

"Delinquent Trade Payables Reserve" means, at the time of determination, the aggregate amount payable by Borrowers (after deducting any discounts, forgiveness, and allowances actually granted, but including, without limitation, any late fees, charges, and accrued but unpaid interest) under each of the Borrowers' trade payables which, by the original terms of such trade payables, are more than 15 days overdue for payment, without considering any extensions to the time of payment granted by, or on behalf of, the Person to whom such trade payable is due.

(c) Section 6.24 is amended and restated in its entirety as follows:

SECTION 6.24. Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth will as of March 31, 2002, be not less than $28,000,000, and at all times thereafter will not be less than (x) $28,000,000 plus (y) the sum of (i) 75% of the cumulative Reported Net Income of the Borrowers and the Consolidated Subsidiaries during any period after March 31, 2002 (taken as one accounting period), calculated quarterly at the end of each Fiscal Quarter (but excluding from such calculations of Reported Net Income for purposes of this clause (i), any Fiscal Quarter in which the Reported Net Income of the Borrowers and the Consolidated Subsidiaries is negative), and (ii) 100% of the cumulative Net Proceeds of Capital Stock received during any period after March 31, 2002, calculated quarterly at the end of each Fiscal Quarter.

(d) A new Section 6.31 is hereby added to the Credit Agreement as follows:

SECTION 6.31. Monthly Fixed Charge Coverage. Commencing with the month of April 2002, and tested as of the last day of such month and each month after April 2002, the ratio of Monthly EBILTDA to Monthly Consolidated Fixed Charges shall not at any time be less than (a) for April 2002, 0.8 to 1.0; (b) for May 2002, 0.9 to 1.0; and for June 2002 and each month thereafter, 1.0 to 1.0.

The Borrowers agree to deliver to the Agent and the Lenders a Compliance Certificate within 30 days after the end of each month setting forth SEDI's compliance with this Section 6.31, along with their monthly financial statements in accordance with Section 6.01(b).

4. Exhibits and Schedules. The Compliance Certificate attached as Exhibit H to the Credit Agreement is amended and restated in its entirety as set forth on Exhibit A to this Amendment.

5. Effect of Amendment. Except as set forth expressly hereinabove, all terms of the Credit Agreement and the other Loan Documents remain in full force and effect, and constitute the legal, valid, binding and enforceable obligations of the Borrowers. The amendments contained herein will be deemed to have prospective application only, unless otherwise specifically stated herein.

6. Ratification. Each of the Borrowers hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Credit Agreement and the other Loan Documents effective as of the date hereof.

7. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered will be deemed to be an original and all of which counterparts, taken together, will constitute but one and the same instrument.

8. Section References. Section titles and references used in this Amendment have no substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby.

9. No Default; Release. To induce the Agent and the Banks to enter into this Amendment and to continue to make advances pursuant to the Credit Agreement, each of the Borrowers hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, (i) there exists no Default or Event of Default, (ii) there exists no right of offset, defense, counterclaim, claim or objection in favor of the Borrowers arising out of or with respect to any of the Loans or other obligations of the Borrowers owed to the Banks under the Credit Agreement, and (iii) the Agent and each of the Banks has acted in good faith and has conducted its relationships with each of the Borrowers in a commercially reasonable manner in connection with the negotiations, execution and delivery of this Amendment and in all respects in connection with the Credit Agreement, each of the Borrowers hereby waiving and releasing any such claims to the contrary. A default or breach of representation or warrant y by the Borrowers under this Amendment shall constitute an Event of Default under the Credit Agreement.

10. Further Assurances. Each of the Borrowers agrees to take such further actions as the Agent reasonably requests in connection herewith to evidence the amendments herein contained.

11. Governing Law. This Amendment is governed by, and construed and interpreted in accordance with, the laws of the State of Georgia.

12. Conditions Precedent. This Amendment becomes effective only upon the execution and delivery of this Amendment by each of the parties hereto.

[Signatures on Following page]

IN WITNESS WHEREOF, the Borrowers, the Agent and each of the Banks has caused this Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written.

SED INTERNATIONAL HOLDINGS, INC.

By:_________________________ (SEAL)

Title:

SED INTERNATIONAL, INC.

By:_________________________ (SEAL)

Title:

WACHOVIA BANK, N.A.,

as Agent and as the sole Bank

By:_________________________ (SEAL)

Title:

EXHIBIT A

EXHIBIT H TO THE CREDIT AGREEMENT IS AMENDED AND RESTATED

IN ITS ENTIRETY AS FOLLOWS

EXHIBIT H

COMPLIANCE CERTIFICATE

Reference is made to the Second Amended and Restated Credit Agreement dated as of August 31, 1999 (as modified and supplemented and in effect from time to time, the "Credit Agreement") among SED International Holdings, Inc. and SED International, Inc., as Borrowers, the Banks from time to time parties thereto, and Wachovia Bank, N.A., as Agent. Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement.

Pursuant to Section 6.01(c) of the Credit Agreement,

  , the duly authorized   of SED International Holdings, Inc. and , the duly authorized of SED International, Inc., hereby certify to the Agent and the Banks that the information contained in the Compliance Check List attached hereto is true, accurate and complete as of __________________, 200__, and that no Default is in existence on and as of the date hereof.

SED INTERNATIONAL HOLDINGS, INC.

By:_________________________________

Title:______________________________

SED INTERNATIONAL, INC.

By:_________________________________

Title:______________________________

Exhibit "H"

COMPLIANCE CHECK LIST

SED INTERNATIONAL HOLDINGS, INC.

SED INTERNATIONAL, INC.

,

1. Consolidations, Mergers and Sales of Assets. (Section 6.05.)

The Borrowers will not, nor will it permit any Subsidiary to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, or discontinue or eliminate any business line or segment, provided that (a) either Borrower may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) such Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) the Borrowers may merge with one another and Subsidiaries of the Borrowers may merge with one another, and (c) the foregoing limitation on the sale, lease or other transfer of assets and on the discontinuation or elimination of a business line or segment shall not prohibit (A) transfers of Accounts to insurers permitted by Section 6.26 or (B) during any Fiscal Quarter, a transfer of assets or the discontinuance or e limination of a business line or segment (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred or utilized in a business line or segment to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other business lines or segments discontinued, during such Fiscal Quarter and the immediately preceding 3 Fiscal Quarters, either (x) constituted more than 2% of Consolidated Total Assets at the end of the most recent Fiscal Year immediately preceding such Fiscal Quarter, or (y) contributed more than 2% of Consolidated Operating Profits during the 4 Fiscal Quarters immediately preceding such Fiscal Quarter.

(a) Value of assets transferred or business

lines or segments discontinued $___________

(b) Consolidated Total Assets $___________

(c) 2% of (b) $___________

(d) Consolidated Operating Profits - Schedule 1 $___________

(e) 2% of (d) $___________

Limitation (a) not to exceed (c) or (e)

2. Priority Debt (Section 6.18)

None of the Borrowers' nor any Consolidated Subsidiary's property is subject to any Lien securing Debt, except for:

Description of Lien and Property Amount of Debt

subject to same Secured

a. ___________________________ $_____________

b. ___________________________ $_____________

c. ___________________________ $_____________

d. ___________________________ $_____________

e. ___________________________ $_____________

f. ___________________________ $_____________

g. ___________________________ $_____________

Total $_____________

Aggregate Debt secured by purchase

money Liens permitted by

Section 6.18(k) $_____________

Limitation: $1,500,000

3. Leverage Ratio (Section 6.20)

Tested at the end of each Fiscal Quarter, the Leverage Ratio shall not at any time exceed 3.5 to 1.0.

(a) Consolidated Debt - Schedule 3 $______________

(b) Consolidated Tangible Net

Worth - Schedule 4 $______________

Actual Ratio of (a) to (b) ______________

Maximum Ratio 3.5 to 1.0

4. (A) Fixed Charge Coverage (Section 6.21)

Commencing on December 31, 2001, and tested on such date and at the end of each Fiscal Quarter thereafter, the ratio of EBILTDA to Consolidated Fixed Charges shall not at any time be less than the following amounts as of the end of each of the following Fiscal Quarters:

Fiscal Quarter Ending Ratio

March 31, 2002 1.25 to 1.0

June 30, 2002, and each Fiscal Quarter

thereafter 1.5 to 1.0

The foregoing ratio shall be calculated on a cumulative basis for the Fiscal Quarter just ended and the immediately preceding three Fiscal Quarters; provided, however, for the 3 consecutive Fiscal Quarters ending on and after December 31, 2001, the foregoing ratio shall be calculated as follows: (i) for the Fiscal Quarter ending December 31, 2001, times 4, (ii) for the Fiscal Quarters ending December 31, 2001, and March 31, 2002, on a cumulative basis, times 2, and (iii) for the first, second and third consecutive Fiscal Quarters ending on or after December 31, 2001, on a cumulative basis, times 1.3333.

(a) EBILTDA - Schedule 2 $___________

(b) Consolidated Interest

Expense - Schedule 2 $___________

(c) operating leases and rentals - Schedule 2 $___________

(d) sum of (b) plus (c) $___________

Ratio of (a) to (d) to 1.0

Requirement [1.25 to 1.0]

[1.5 to 1.0]

(B) Monthly Fixed Charge Coverage (Section 6.31)

SECTION 6.31. Monthly Fixed Charge Coverage. Commencing with the month of April 2002, and tested as of the last day of such month and each month after April 2002, the ratio of Monthly EBILTDA to Monthly Consolidated Fixed Charges shall not at any time be less than (a) for April 2002, 0.8 to 1.0; (b) for May 2002, 0.9 to 1.0; and for June 2002 and each month thereafter, 1.0 to 1.0.

(a) Monthly EBILTDA - Schedule 2A $___________

(b) Consolidated Interest

Expense - Schedule 2A $___________

(c) operating leases and rentals - Schedule 2A $___________

(d) sum of (b) plus (c) $___________

Ratio of (a) to (d) to 1.0

Requirement [0.8 to 1.0]

[0.9 to 1.0]

[1.0 to 1.0]

5. Current Ratio (Section 6.22)

Tested at the end of each Fiscal Quarter, the Borrower will at all times maintain a Current Ratio greater than 1.25 to 1.0.

(a) Aggregate Accounts Receivable $___________

(b) Aggregate Inventory $___________

(c) sum of (a) and (b) $___________

(d) Principal amount outstanding under

Syndicated Loans $___________

(e) Principal amount outstanding under

Swing Loans $___________

(f) Aggregate outstanding principal amount

of Letter of Credit Obligations $___________

(g) Aggregate accounts payable $___________

(h) sum of (d) plus (e) plus (f) plus (g) $___________

(i) ratio of (c) to (h) _ to 1.0

Limitation 1.25 to 1.0

6. Minimum Profitability (Section 6.23)

(a) Tested at the end of each Fiscal Quarter, the Borrower's EBITDA for such Fiscal Quarter shall be greater than the minimum levels set forth in Section 6.23 of the Credit Agreement.

(a) EBITDA - Schedule 5 $_____________

(b) Requirement (minimum level) $_____________

(b) Tested at the end of each Fiscal Quarter, the EBITDA for such Fiscal Quarter of SEDI and SED E-Store, on a consolidated basis as between them, but otherwise on a non-consolidated basis as to all other members of the consolidated group to which they might otherwise belong (and notwithstanding any reference to the term "consolidated basis" or the like contained in any defined term used in this clause (b)), shall be greater than the minimum level as set forth in Section 6.23 of the Credit Agreement.

(a) EBITDA - Schedule 5 $_____________

(b) Requirement (minimum level) $_____________

7. Minimum Consolidated Tangible Net Worth (Section 6.24)

Consolidated Tangible Net Worth will as of March 31, 2002, be not less than $28,000,000, and at all times thereafter will not be less than (x) $28,000,000 plus (y) the sum of (i) 75% of the cumulative Reported Net Income of the Borrowers and the Consolidated Subsidiaries during any period after March 31, 2002 (taken as one accounting period), calculated monthly at the end of each month (but excluding from such calculations of Reported Net Income for purposes of this clause (i), any month in which the Reported Net Income of the Borrowers and the Consolidated Subsidiaries is negative), and (ii) 100% of the cumulative Net Proceeds of Capital Stock received during any period after March 31, 2002, calculated monthly at the end of each month.

(a) $28,000,000

(b) 75% of positive Reported Net Income

after March 31, 2002 $____________

(c) 100% of cumulative Net Proceeds of Capital

Stock received after March 31, 2002 $____________

Actual Consolidated Tangible

Net Worth - Schedule 4 $____________

Required Consolidated Tangible Net

Worth (sum of (a) plus (b) plus (c)) $____________

Schedule 1

Consolidated Operating Profits

Consolidated Operating Profits

quarter 200 $___________

quarter 200 $___________

quarter 200 $___________

quarter 200 $___________

Total $___________

Schedule 2

EBILTDA

Consolidated Net Income for: Consolidated SEDI

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Income taxes for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Depreciation expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Amortization expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Consolidated Interest Expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Non-cash Stock Award Expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Operating Leases and Rentals for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Total EBILTDA $__________ $__________

Schedule 2A

Monthly EBILTDA for [insert name of Month], 200___

Consolidated Net Income $__________

Income taxes $__________

Depreciation expense $__________

Amortization expense $__________

Consolidated Interest Expense $__________

Non-cash Stock Award Expense $__________

Operating Leases and Rentals $__________

Total Monthly EBILTDA $__________

Schedule 3

Consolidated Debt

INTEREST

RATE MATURITY TOTAL

Secured

$________

$________

$________

$________

$________

Total Secured $_______

Unsecured

$________

$________

$________

$________

Total Unsecured $_______

Guarantees

$________

$________

Total $_______

Redeemable Preferred Stock $________

Total $_______

Other Liabilities

$________

$________

$________

Total Debt $_______

Schedule 4

Consolidated Tangible Net Worth

Stockholders' Equity $_________

Less:

Surplus from write-up of assets subsequent

to , 19 $_________

Intangibles $_________

Loans to stockholders, directors

officers or employees $_________

Capital Stock shown as assets $_________

Deferred expenses $_________

Consolidated Tangible Net Worth $_________

Intangibles Description

(a) $_________

(b) $_________

(c) $_________

Other $_________

Total $_________

Schedule 5

EBITDA

Consolidated Net Income for: Consolidated SEDI

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Income taxes for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Depreciation expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Amortization expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Consolidated Interest Expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Non-cash Stock Award Expense for:

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

quarter 200 $__________ $__________

Total $__________ $__________

Total EBITDA $__________ $__________

EX-2

NEWS RELEASE for May 20, 2002

Contact: SED International Holdings, Inc.

Mark Diamond, President & COO

770-491-8962

SED INTERNATIONAL HOLDINGS, INC.

REPORTS RESULTS OF OPERATIONS

FOR THIRD QUARTER 2002

ATLANTA, GA (May 20, 2002) - SED International Holdings, Inc. (Nasdaq:SECXD and will revert back to SECX once 20 days have passed to reflect the reverse split of issued shares) reports results of operations for the third quarter of fiscal 2002.

Revenues were $117.4 million for the third quarter ended March 31, 2002, compared with $142.7 million for the comparable quarter last year. Net loss for the third quarter of fiscal 2002 totaled $(1.1) million, compared with net loss of $(0.5) million in the year-earlier period. Diluted loss per share for the second quarter of fiscal 2002 was $(.30) compared with diluted loss per share of $(.15) for the same period last year.

Revenues were $351.5 million for the nine months ended March 31, 2002, compared with $408.4 million for the comparable period last year. Net loss for the nine months ended March 31, 2002 totaled $(10.7) million compared with net loss of $(.2) million in the year-earlier period. Diluted loss per share for the nine month period ended March 31, 2002 was $(2.76), including $(1.62) for the cumulative effect of a change in accounting principle pursuant to the adoption of SFAS 142, net of tax benefit, and the termination of activities related to E-Store, compared with diluted net earnings per share of $ (.06) for the year-earlier period. The change in accounting principle related to a non-cash impairment charge of $6.3 million for the write-off of goodwill resulting from a prior business acquisition in Argentina. The company also incurred a one-time charge of $.4 million due to the write-off of activities related to E-Store, one of the Company's subsidiaries. The operating results of the firs t quarter of fiscal 2002 were restated for the impairment charge related to the adoption of a new accounting principle as of July 1, 2001.

Gerald Diamond, Chairman and Chief Executive Officer, commented, "The Company had a negative cash flow of approximately $52,000, not including a one-time charge for the E-Store closure and its operating loss for the quarter.

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SED INTERNATIONAL HOLDINGS REPORTS THIRD QUARTER FISCAL 2002

Page 2-2-2

The Company continues to navigate through difficult times, but management is encouraged by the fact that the Company experienced revenue growth over the previous quarter. Revenue for the quarter ended December 31, 2001 was $110.2 million, and revenue grew to $117.4 million for the quarter ended March 31, 2002. We continue to experience downward pressure on margins, but we have been able to offset that with reductions of overhead. Revenue estimates for the fourth quarter appear to display stability. At this point, we are not anticipating significant growth or deterioration for the quarter ending June 30, 2002."

SED also announced that the Company received a notice from Nasdaq dated May 15, 2002, indicating that the Company has regained compliance with Marketplace Rule 4450(a)(5) (the "Rule"), which requires that the Company must maintain a minimum bid price of $1.00 for a designated number of trading days. As of May 15, 2002, the Company's common stock has been at $1.00 per share or greater for at least 10 consecutive trading days. As a result, the Company has regained compliance with the Rule and this matter is now closed.

About SED International Holdings Inc

SED International, Inc., celebrating twenty-one years in business, is an international distributor and value-added services provider of computer and wireless technology throughout the United States, the Caribbean, and Latin America. The Company has relationships with more than 14,000 value-added resellers, system builders, e-commerce resellers, dealer-agents, and retailers. SED International serves its customers with more than 3,500 products, fulfillment services, finance options, and e-commerce solutions. The Company operates sales and distribution facilities in the U.S., Brazil, Argentina, Colombia, and Puerto Rico. More information about SED International, Inc. can be found at www.sedonline.com.

Statements in this press release regarding the Company's business which are not historical facts are "forward-looking statements" that involve a number of risks and uncertainties. The Company cautions that various factors, including the factors described under the caption forward-looking statements in the Company's annual report on Form 10-K, could cause actual results to differ materially from the statements contained herein. These factors include the following: business conditions and growth in the personal computer, wireless industry, and general economy; competitive factors including compressed gross profit margins; inventory risks due to shifts in market demand; product availability; changes in product mix; reliance on key vendors or customers; labor strikes; fluctuations in foreign currency exchange rates; income tax legislation; and the risk factors listed from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company unde rtakes no obligation to update any forward-looking statement.

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SED INTERNATIONAL HOLDINGS REPORTS THIRD QUARTER FISCAL 2002

Page 3-3-3

SED INTERNATIONAL HOLDINGS, INC.

Condensed Consolidated Statements of Operations

Unaudited

Three Months Nine Months

Ended March 31, Ended March 31,

2002 2001 2002 2001

NET SALES $117,399,000 $142,690,000 $351,462,000 $408,410,000

COSTS AND EXPENSES

Cost of sales, including buying

and occupancy expenses 111,850,000 134,490,000 332,924,000 383,403,000

Selling, general, and administrative expenses 5,914,000 7,932,000 21,462,000 23,614,000

Facility closure 362,000 362,000

Non-cash stock awards compensation expense 590,000 756,000

118,126,000 143,012,000 354,748,000 407,773,000

OPERATING MARGIN (727,000) (322,000) (3,286,000) 637,000

INTEREST EXPENSE, net 282,000 173,000 720,000 568,000

INCOME (LOSS) BEFORE INCOME TAXES

and cumulative effect of a change in

accounting principle (1,009,000) (495,000) (4,006,000) 69,000

INCOME TAXES 137,000 30,000 407,000 289,000

NET LOSS before cumulative effect

of a change in accounting principle (1,146,000) (525,000) ( 4,413,000) (220,000)

CUMULATIVE EFFECT OF A CHANGE IN

ACCOUNTING PRINCIPLE, net of income tax

benefit of $75,000 (6,297,000)

NET LOSS $(1,146,000) $ (525,000) $ (10,710,000) $ (220,000)

Basic and diluted loss per share:

Loss per share before cumulative

effect of a change in accounting principle $ (.30) $(.15) $ (1.14) $(.06)

Cumulative effect of a change in accounting

principle, net of tax benefit (1.62)

Net loss $(.30) $(.15) $(2.76) $(.06)

WEIGHTED AVERAGE SHARES

OUTSTANDING

Basic 3,873,000 3,594,000 3,874 ,000 3,532,000

Diluted 3,873,000 3,594,000 3,874 ,000 3,601,000

* Prior periods have been reclassified in connection with the

fiscal 2001 adoption of a new accounting pronouncement.

Loss per share calculations have been restated for

the Company's one-for-two reverse stock split.

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SED INTERNATIONAL HOLDINGS REPORTS THIRD QUARTER FISCAL 2002

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SED INTERNATIONAL HOLDINGS, INC.

Condensed Consolidated Balance Sheets

	March 31,	June 30,
	2002	2001
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$ 2,782 ,000	$ 4,243,000
Restricted cash	844 ,000	700,000
Trade accounts receivable, net	38,036,000	40,236,000
Inventories	54,099,000	47,507,000
Deferred income taxes	151,000	355,000
Other current assets	1,458,000	2,349,000
TOTAL CURRENT ASSETS	97,370,000	95,390,000
PROPERTY AND EQUIPMENT, net	4,250,000	5,708,000
INTANGIBLES, net		6,368,000
	$101,620,000	$107,466,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving bank debt	$ 13,600,000
Trade accounts payable	53,019,000	$ 55,449,000
Accrued and other
current liabilities	4,176,000	5,858,000
Short term subsidiary bank debt	2,479,000	3,544,000
TOTAL CURRENT LIABILITIES	73,274,000	64,851,000
SHAREHOLDERS' EQUITY:
Common stock	56,000	56,000
Additional paid-in capital	68,406,000	68,417,000
Accumulated deficit	(19,934,000)	(9,224,000)
Accumulated other comprehensive loss	(7,093,000)	(3,564,000)
Treasury stock, at cost	(12,839,000)	(12,612,000)
Unearned compensation-stock awards	(250,000)	(458,000)
TOTAL SHAREHOLDERS' EQUITY	28,346,000	42,615,000
	$101,620,000	$107,466,000

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