e10vkza

Company’s telephone number, including area code:
770-491-8962
Securities registered pursuant to Section 12(b) of the Act:
None

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the Company was approximately $2.8 million as of September 11, 2003 based upon the last sale price of the Common Stock as reported on the Over the Counter Bulletin Board on that day. There were 3,875,155 shares of Common Stock, $.01 par value, outstanding at September 11, 2003.

This Amendment No. 2 on Form 10-K/A is being filed to amend Part II, Item 6 and Item 8 of the Registrant’s Annual report on Form 10-K for the fiscal year ended June 30, 2003, filed on October 7, 2003 (the “Original 10-K”). This Amendment No. 2 does not otherwise alter the disclosures set forth in the Original 10-K and does not reflect events occurring after the filing of the Original 10-K. This Amendment No. 2 is effective for all purposes as of the date of the filing of the Original 10-K.

Subsequent to the issuance of the Company’s consolidated financial statements included in its Annual report on Form 10-K for the fiscal year ended June 30, 2003, management determined that amounts outstanding under the revolving credit facility with Fleet Capital Corporation (“Fleet”) as described in Note 8 of the Company’s consolidated financial statements should have been classified as a current liability rather than long term in accordance with Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-22. Accordingly, the accompanying balance sheets in Item 8 and working capital in Item 6, Selected Financial Data have been restated to reflect the reclassification of the amounts outstanding under the revolving credit facility with Fleet as a current liability. This restatement has no impact on the Company’s results of operations, cash flows or compliance covenants under the Fleet Agreement for the years ended June 30, 2003 and 2002.

Part II Item 6 of the original 10-K is herby amended and restated in its entirety as follows:


		Year ended June 30,

		2003			2002			2001			2000			1999

Statement of operations data:
Net sales		$	413,148,000		$	423,881,000		$	445,580,000		$	530,789,000		$	662,047,000
Cost of sales			393,724,000			403,792,000			420,441,000			500,856,000			638,097,000

Gross profit			19,424,000			20,089,000			25,139,000			29,933,000			23,950,000
Selling, general and admin expenses			24,961,000			20,628,000			24,153,000			23,617,000			39,424,000
Depreciation & amortization expense			1,614,000			2,081,000			2,687,000			2,395,000			3,077,000
Foreign currency transactions loss (gain)			581,000			(9,000	)		220,000			96,000			214,000
(Gain) loss disposal of assets			(3,000	)		13,000			224,000			(3,000	)
Impairment charges			39,000						6,147,000						15,386,000

Operating (loss) income			(7,768,000	)		(2,624,000	)		(8,292,000	)		3,828,000			(34,151,000	)
Interest expense — net			470,000			265,000			60,000			147,000			253,000
Other income — net			10,513,000

Income (loss) before income taxes and before cumulative effect of a change in accounting principle and discontinued operations			2,275,000			(2,889,000	)		(8,352,000	)		3,681,000			(34,404,000	)
Income tax (benefit) expense			613,000			(1,390,000	)		344,000			578,000			(1,407,000	)

Income (loss) from continuing operations			1,662,000			(1,499,000	)		(8,696,000	)		3,103,000			(32,997,000	)
Loss from discontinued operations			(4,742,000	)		(3,009,000	)		(3,149,000	)		(1,414,000	)		(4,911,000	)

(Loss) income before cumulative effect of a change in accounting principle			(3,080,000	)		(4,508,000	)		(11,845,000	)		1,689,000			(37,908,000	)
Cumulative effect of a change in accounting principle, net of income tax benefit of $75,000						6,297,000

Net (loss) income		$	(3,080,000	)	$	(10,805,000	)	$	(11,845,000	)	$	1,689,000		$	(37,908,000	)

Basic and diluted (loss) income per share:
	From continuing operations	$	0.43		$	(0.39	)	$	(2.40	)	$	0.92		$	(7.59	)
	From discontinued operations		(1.24	)		(0.78	)		(0.87	)		(0.42	)		(1.13	)

Before cumulative effect of a change in accounting principle			(0.81	)		(1.17	)		(3.27	)		0.50			(8.72	)
Cumulative effect of a change in accounting principle, net of tax						(1.63	)

Basic and diluted (loss) income per share		$	(0.81	)	$	(2.80	)	$	(3.27	)	$	0.50		$	(8.72	)

Weighted average number of shares outstanding
	Basic		3,816,000			3,862,000			3,618,000			3,364,000			4,349,000
	Diluted		3,816,000			3,862,000			3,618,000			3,386,000			4,349,000

All periods presented have been restated in connection with the February 2003 discontinuance of operations of SED International do Brasil Distribuidora, Ltda. If the non-amortization provisions of SFAS No. 142 had been applied to all periods presented, the 2001, 2000 and 1999 net income would have increased or net loss would have decreased by $433,000, $373,000, and $888,000. 2000 and 1999 have been reclassified in connection with the fiscal 2001 adoption of a new accounting pronouncement.

The Company has restated its Consolidated Balance Sheet as of June 30, 2003 and 2002 to properly classify the revolving credit facility with Fleet Capital Corporation (the “Fleet Agreement”) as a current liability in accordance with Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement (“EITF 95-22”). This restatement has no impact on the Company’s results of operations, cash flows or compliance covenants under the Fleet Agreement for the years ended June 30, 2003 and 2002. The revolving credit facility is classified as a current liability in accordance with EITF 95-22 since the Fleet Agreement contains a subjective acceleration clause and contractual provisions under a lock box arrangement that require the cash receipts of the Company be used to repay amounts outstanding under the revolving credit facility. As a result of the reclassification of the revolving credit facility to a current liability, working capital decreased $12,823,000 and $4,900,000 for the fiscal years ended June 30, 2003 and 2002 respectively.

Part II Item 8 of the original 10-K is hereby amended and restated in its entirety as follows:

We have audited the accompanying consolidated balance sheets of SED International Holdings, Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SED International Holdings, Inc. and subsidiaries as of June 30, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 8, the consolidated balance sheets for the years ended June 30, 2003 and 2002 have been restated to reclassify borrowings under a revolving credit facility form non-current liabilities to current liabilities.

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

Atlanta, Georgia
October 3, 2003, except for Note 8,
as to which the date is
February 12, 2004


			June 30,

			2003			2002

ASSETS
Current assets:
	Cash and cash equivalents		$	4,849,000		$	4,371,000
	Restricted cash						800,000
	Trade accounts receivable, less allowance for doubtful accounts of $2,749,000 (2003) and $1,455,000 (2002)			34,261,000			33,393,000
	Other receivables			10,029,000
	Inventories			33,098,000			36,732,000
	Deferred income taxes			153,000			113,000
	Other current assets			1,578,000			1,364,000

		Total current assets		83,968,000			76,773,000
Property and equipment — net				2,202,000			3,789,000

		Total assets	$	86,170,000		$	80,562,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable			$	37,470,000		$	41,024,000
	Accrued and other current liabilities (including $3,400,000 to a related party in 2003)			8,146,000			4,390,000
Revolving credit facility				12,823,000			4,900,000
	Short term subsidiary bank debt			15,000			2,396,000

		Total current liabilities		58,454,000			52,710,000

		Total liabilities		58,454,000			52,710,000
Shareholders’ equity:
	Preferred stock, $1.00 par value; 129,500 shares authorized, none issued
	Common stock, $.01 par value; 100,000,000 shares authorized, 5,563,206 (2003) and 5,563,206 (2002) shares issued, 3,875,861 (2003) and 3,929,510 (2002) shares outstanding			56,000			56,000
	Additional paid-in capital			68,442,000			68,407,000
	Accumulated deficit			(23,109,000	)		(20,029,000	)
	Accumulated other comprehensive loss			(4,531,000	)		(7,499,000	)
	Treasury stock, 1,687,345 (2003) and 1,633,696 (2002) shares, at cost			(13,052,000	)		(12,861,000	)
	Unearned compensation — stock awards			(90,000	)		(222,000	)

		Total shareholders’ equity		27,716,000			27,852,000

		Total liabilities and shareholders’ equity	$	86,170,000		$	80,562,000


		For the Year Ended June 30,

		2003			2002			2001

Net sales		$	413,148,000		$	423,881,000		$	445,580,000
Cost of sales			393,724,000			403,792,000			420,441,000

Gross profit			19,424,000			20,089,000			25,139,000
Selling, general and administrative expenses			24,961,000			20,628,000			24,153,000
Depreciation and amortization expense			1,614,000			2,081,000			2,687,000
Foreign currency transactions loss (gain)			581,000			(9,000	)		220,000
(Gain) loss disposal of assets			(3,000	)		13,000			224,000
Impairment charges			39,000						6,147,000

Operating loss			(7,768,000	)		(2,624,000	)		(8,292,000	)
Interest expense — net			470,000			265,000			60,000
Other income, net			10,513,000

(Loss) income before income taxes and before cumulative effect of a change in accounting principle			2,275,000			(2,889,000	)		(8,352,000	)
Income tax expense (benefit)			613,000			(1,390,000	)		344,000

(Loss) income from continuing operations			1,662,000			(1,499,000	)		(8,696,000	)
Loss from discontinued operations			(4,742,000	)		(3,009,000	)		(3,149,000	)

Loss before cumulative effect of a change in accounting principle			(3,080,000	)		(4,508,000	)		(11,845,000	)
Cumulative effect of a change in accounting principle, net of income tax benefit of $75,000						6,297,000

Net loss		$	(3,080,000	)	$	(10,805,000	)	$	(11,845,000	)

Basic and diluted (loss) income per share:
From continuing operations		$	0.43		$	(0.39	)	$	(2.40	)
	From discontinued operations		(1.24	)		(0.78	)		(0.87	)

Before cumulative effect of a change in accounting principle			(0.81	)		(1.17	)		(3.27	)
Cumulative effect of a change in accounting principle, net of tax						(1.63	)

Basic and diluted loss per share		$	(0.81	)	$	(2.80	)	$	(3.27	)

Weighted average number of shares outstanding:
	Basic		3,816,000			3,862,000			3,618,000
	Diluted		3,816,000			3,862,000			3,618,000


	Common Stock								Retained			Accumulated
						Additional			Earnings			Other			Treasury Stock						Unearned			Total
				Par		Paid-In			(Accumulated			Comprehensive									Compensation			Stockholders'
	Shares			Value		Capital			Deficit)			Loss			Shares			Cost			Stock Awards			Equity

BALANCE JUNE 30, 2000		5,563,456		$	56,000	$	70,600,000		$	2,621,000		$	(1,583,000	)		1,876,012		$	(15,515,000	)	$	(830,000	)	$	55,349,000
Stock awards issued							(1,241,000	)								(203,978	)		1,687,000			(446,000	)
Amortization of stock awards																						814,000			814,000
Stock awards cancelled		(250	)				(2,000	)														4,000
Treasury shares purchased																770			(2,000	)					(22,000	)
Issuance of common stock for business acquired																9,924			(22,000	)
							(940,000	)								(150,000	)		1,240,000						300,000
Net loss										(11,845,000	)														(11,845,000	)
Translation adjustments													(1,981,000	)											(1,981,000	)

Comprehensive earnings																									(13,826,000	)

BALANCE JUNE 30, 2001		5,563,206			56,000		68,417,000			(9,224,000	)		(3,564,000	)		1,532,728			(12,612,000	)		(458,000	)		42,615,000
Stock awards issued							(99,000	)								(16,000	)		126,000			(27,000	)
Amortization of stock awards																						158,000			158,000
Stock awards cancelled							89,000									23,938			(194,000	)		105,000
Treasury shares purchased																93,030			(181,000	)					(181,000	)
Net loss										(10,805,000	)														(10,805,000	)
Translation adjustments													(3,935,000	)											(3,935,000	)

Comprehensive loss																									(14,740,000	)

BALANCE JUNE 30, 2002		5,563,206			56,000		68,407,000			(20,029,000	)		(7,499,000	)		1,633,696			(12,861,000	)		(222,000	)		27,852,000
Stock awards cancelled							31,000									15,185			(163,000	)		132,000
Stock based compensation							4,000																		4,000
Treasury shares purchased																38,464			(28,000	)					(28,000	)
Net loss										(3,080,000	)														(3,080,000	)
Reclassification of cumulative translation adjustment reclassified to the statement of operations													2,756,000												2,756,000
Translation adjustments													212,000												212,000

Comprehensive loss																									(112,000	)

BALANCE JUNE 30, 2003		5,563,206		$	56,000	$	68,442,000		$	(23,109,000	)	$	(4,531,000	)		1,687,345		$	(13,052,000	)	$	(90,000	)	$	27,716,000


				Year Ended June 30,

				2003			2002			2001

Operating activities:
	Net loss			$	(3,080.000	)	$	(10,805,000	)	$	(11,845,000	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
	Impairment charges for long-lived assets, including cumulative effect of a change in accounting principle in 2002				100,000			6,365,000			6,547,000
	Depreciation and amortization				1,666,000			2,146,000			2,824,000
	Compensation stock awards				4,000			158,000			814,000
	Provision for losses on accounts receivable				2,302,000			1,638,000			4,476,000
	Reclassification of cumulative translation adjustment				2,756,000
	Changes in assets and liabilities
		Restricted cash			800,000			(100,000	)
		Trade accounts receivable			1,158,000			2,661,000			4,471,000
		Other receivable			(10,029,000	)
		Inventories			3,096,000			707,000			(4,774,000	)
		Deferred income taxes						242,000			5,000
		Other assets			(118,000	)		1,661,000			537,000
		Trade accounts payable			(2,636,000	)		(1,562,000	)		373,000
		Accrued and other current liabilities			3,336,000			(2,106,000	)		(1,136,000	)

			Net cash (used in) provided by operating activities		(645,000	)		1,005,000			2,292,000

Investing activities:
	Purchase of equipment				(217,000	)		(349,000	)		(842,000	)
	Purchase of businesses, net of cash acquired										(1,462,000	)

			Net cash used in investing activities		(217,000	)		(349,000	)		(2,304,000	)

Financing activities:
	Net proceeds of revolving credit facility				7,923,000			4,900,000			(2,304,000	)
	Net repayments of short term bank debt of foreign subsidiaries				(2,040,000	)		(174,000	)		(356,000	)
	Purchase of treasury stock				(28,000	)		(181,000	)		(22,000	)

			Net cash provided by (used in) financing activities		5,855,000			4,545,000			(378,000	)
Effect of exchange rate changes on cash					(4,515,000	)		(5,073,000	)		(1,981,000	)

Increase (decrease) in cash and cash equivalents					478,000			128,000			(2,371,000	)
Cash and cash equivalents
	Beginning of year				4,371,000			4,243,000			6,614,000

	End of year			$	4,849,000		$	4,371,000		$	4,243,000

Supplemental Disclosures of Cash Flow Information —
	Cash paid (received) during the year for Interest paid			$	758,000		$	1,133,000		$	514,000
	Income tax (refunds) payments			$	613,000		$	(777,000	)	$	414,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002, 2001

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 International de Colombia Ltda., Intermaco S.R.L., (collectively the “Company”). All intercompany accounts and transactions have been eliminated. The operations of SED International do Brasil, Ltda. were discontinued in the third quarter of fiscal 2003. See Note 19.

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

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

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

•

Continuation of distribution agreements - The Company operates under formal but cancelable distribution agreements with certain of its suppliers. If these agreements were cancelled, the Company would be forced to obtain its products through wholesalers. This would reduce the Company’s profit margin on the affected products.

•

Availability of certain products - From time to time, due to production limitations or heavy demand, the Company may only be able to purchase a limited amount of popular products from its suppliers.

•

Product margins - The Company operates in a very competitive business environment. Accordingly, product margins are continually under pricing pressure.

•

Vendor credit - The Company significantly relies on its suppliers for trade credit. Changes by the suppliers in their credit terms could force the Company to obtain less favorable financing for its purchases.

•

Product obsolescence - The Company offers a broad line of products that are subject to fast technological obsolescence, which increases the risk of inventory markdown. Through its vendor agreements, the Company has certain stock return privileges, which vary from supplier to supplier.

•

Credit decisions and losses - The Company maintains an experienced customer credit staff and relies on customer payment history and third party data to make customer credit decisions. Nevertheless, the Company may experience customer credit losses in excess of its expectations. The Company also maintains credit insurance for customers located in the United States and most Latin American countries (subject to certain terms and conditions).

•

Proportionate control of general and administrative costs - The Company attempts to control its overhead costs to keep such costs in line with its sales volume. As sales volumes fluctuate, the Company must continually monitor its overhead costs and make adjustments timely and appropriately.

•

Uncertain and possibly volatile economic and political environment in Latin America - The general economic and political environment in all of the countries in which the Company operates in Latin America is uncertain and, at times, volatile. As a result of these conditions, the Company could experience unexpected costs from its operations in these countries.

•

Availability of credit facilities - The Company operated under a formal credit facility with a bank for many years that was subject to certain collateral limitations and contained certain covenants. During October 2002 a new credit facility was obtained. The new credit facility provides more flexibility compared to the prior agreement but also includes covenants and other provisions. The Company consistently violated the financial covenants associated with the previous credit agreement, but was successful in negotiating waivers of such violations. No assurance can be given that the Company will be able to maintain compliance with financial covenants, or obtain waivers in the event of non-compliance, in the future. Failure to maintain compliance with the financial covenants could adversely affect the Company’s ability to obtain vendor credit and the overall business operations. The credit facilities are further described in Note 8.

•

Cash flows - While not presently expected, the Company’s continued operation in Latin America may require additional capital infusion (in the form of advance notes from the parent company or other debt borrowings by the subsidiary). The October 2002 credit facility restricts the future funding by the parent company of Latin American operations. Operating needs and regulatory matters restrict the Company’s ability to repatriate cash flows to the United States.

Revenue Recognition - Sales are recorded upon shipment. The Company allows its customers to return product for exchange or credit subject to certain limitations. Returns have historically not been significant. Provision for estimated losses on such returns are recorded at the time of sale. Funds received from vendors for product rebates are accounted for as a reduction of product cost. Shipping and handling revenues are included in net sales and shipping and handling costs are included in cost of sales.

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

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

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

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

Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market and include in-transit inventory of $11,136,000 at June 30, 2003 and $3,383,000 at June 30, 2002. Most of the Company’s vendors allow for either return of goods within a specified period (usually 90 days) or for credits related to price protection. However, for other vendor relationships and inventories, the Company is not protected from the risk of inventory loss. Therefore, in determining the net realizable value of inventories, the Company identifies slow moving or obsolete inventories that (1) are not protected by our vendor agreements from risk of loss, and (2) are not eligible for return under various vendor return programs. Based upon these factors, the Company estimates the net realizable value of inventories and records any necessary adjustments as a charge to cost of sales. If inventory return privileges or price protection programs were discontinued in the future, or if vendors were unable to honor the provisions of certain contracts which protect the Company from inventory losses, the risk of loss associated with obsolete and slow moving inventories would increase.

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

Long-Lived Assets and Impairment - The Company periodically reviews long-lived assets, for impairment based on judgments as to the fair value of such assets primarily based upon future undiscounted cash flows from related operations. Based on the information available, an impaired asset is written down to its estimated fair market value generally measured by discounting estimated future cash flows. See Note 3 and Note 7.

Foreign Currency Translation - The assets and liabilities of foreign operations are translated at the exchange rates in effect at the balance sheet date, with related translation gains or losses reported as a separate component of shareholders’ equity. The results of foreign operations are translated at the weighted average exchange rates for the year. Gains or losses resulting from foreign currency transactions are included in the statement of operations. See Note 17.

Earnings Per Common Share (EPS) - Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed using the weighted-average number of common shares and dilutive potential common shares outstanding. Dilutive potential common shares represent additional common shares assumed to be issued. For the years ended June 30, 2003, 2002, and 2001 (fiscal 2003, 2002, and 2001, respectively) options for approximately 801,000, 969,000, and 321,000 common shares, respectively, were excluded from the diluted EPS calculation due to their antidilutive effect.

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

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

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

In November 2002, the FASB issued FASB Interpretation Number 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 requires an entity to disclose in its interim and annual financial statements information with respect to its obligations under certain guarantees that it has issued. It also requires an entity to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 had no significant effect on the Company.

In January 2003, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (“the Issue”). The Issue addresses accounting and reporting issues related to how a reseller should account for cash consideration received from vendors. Generally, cash consideration received from vendors is presumed to be a reduction of the prices of the vendor’s products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the customer’s income statement. However, under certain circumstances this presumption may be overcome and recognition as revenue or as a reduction of other costs in the income statement may be appropriate. The Issue is effective for fiscal periods beginning after December 15, 2002. While the Company does receive cash consideration from vendors subject to the provisions of the Issue, the adoption of EITF Issue No. 02-16 had no significant impact on the Company.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted SFAS 144 as of July 1, 2002 and the adoption of SFAS 144 has not had a significant impact on the Company’s financial position and results of operations.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity including Certain Costs Incurred in a Restructuring. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF 94-3 had required recognition of the liability at the commitment date to an exit plan. The Company is required to adopt the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 had no material impact on the Company’s financial statements.

Effective July 1, 2002, the Company adopted the fair value method defined in SFAS No. 123, Accounting for Stock-Based Compensation. (“SFAS No. 123”). In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123. For information regarding the adoption of the fair value method defined in SFAS No. 123, refer to Note 11. The adoption of SFAS No. 123 had no significant effect on the Company’s financial statements.

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

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


	Year Ended June 30,

	2002			2001

Reported (loss) earnings before the cumulative effect of a change in accounting principle	$	(4,508,000	)	$	(11,845,000	)
Add: amortization expense		—			433,000

Adjusted (loss) earnings before the cumulative effect of a change in accounting principle, net of taxes	$	(4,508,000	)	$	11,412,000	)

Adjusted net (loss) earnings	$	(10,805,000	)	$	(11,412,000	)

Basic and dilutive (loss) earnings per share: Reported net (loss) earnings before the cumulative effect of a change in accounting principle	$	(1.17	)	$	(3.27	)
Add: amortization expense					0.12

Adjusted (loss) earnings before the cumulative effect of a change in accounting principle, net of taxes	$	(1.17	)	$	(3.15	)

Adjusted net (loss) earnings	$	(2.80	)	$	(3.15	)

Restricted cash at June 30, 2002 consisted of term deposits pledged as collateral to secure letters of credit which expired during the first and second quarters of fiscal year 2003.

In June 2003, the Company recorded income of $10.0 million, plus accrued interest of $29,000 related to proceeds due under two key man life insurance policies held on the life of Gerald Diamond, the Company’s founder and former Chairman and Chief Executive Officer. The insurance proceeds were received in July and August of 2003. In December 2002, the Company entered into a confidential settlement agreement for claims arising out of a disagreement with a former insurance broker. The net proceeds of $512,932 were recorded net of attorneys’ fees of $96,420.

Depreciation expense for property and equipment totalled $1,666,000, $2,006,000, and $2,391,000 for the years ended June 30, 2003, 2002 and 2001, respectively.

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

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

The Company has restated its Consolidated Balance Sheet as of June 30, 2003 and 2002 to properly classify the revolving credit facility with Fleet Capital Corporation (hereafter “Fleet” and the “Fleet Agreement”) as a current liability in accordance with Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement (“EITF 95-22”). This restatement has no impact on the Company’s results of operations, cash flows or compliance covenants under the Fleet Agreement for the years ended June 30, 2003 and 2002. The revolving credit facility is classified as a current liability in accordance with EITF 95-22 since the Fleet Agreement contains a subjective acceleration clause and contractual provisions under a lock box arrangement that require the cash receipts of the Company be used to repay amounts outstanding under the revolving credit facility

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

The Fleet Agreement also contains certain covenants which, among other things, require that if the Company’s availability is less than $5 million at any time during the agreement, the Company must restrict or limit capital expenditures and advances to the Company’s Latin American subsidiaries. Also, if the $5 million threshhold is breached, the Fleet Agreement requires the maintenance of certain levels of earnings before interest, taxes, depreciation, and amortization, requires maintenance of minimum fixed charge coverage ratio beginning in the second quarter of fiscal 2004, and requires the maintenance of minimum tangible net worth, as defined, of negative $5 million. Based upon the Company’s experience in fiscal 2002 and through the date of entering into the Fleet Agreement, the Company has continuously maintained at least $5 million in availability under the Fleet Agreement. The Company’s availability under the Fleet Agreement net of reserves of $2.1 million for outstanding Letters of Credit was $9.6 million on October 3, 2003.

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

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

Subsidiary Bank Debt — The Company’s subsidiary, SED International do Brasil Distribuidora Ltda. (operations of which have been discontinued), operated under line of credit agreements with several Brazilian banks. Interest rates on borrowings were negotiated at the time of borrowing. The credit agreements were secured by an $800,000 certificate of deposit and the subsidiary’s accounts receivable and required the maintenance of certain financial ratios. At June 30, 2003 and 2002, there were $15,000, and $2,396,000 respectively, of outstanding borrowings under these lines of credit. Average borrowings, maximum borrowings and the weighted average monthly interest rate under these loan agreements for fiscal 2003 were $948,000, $2,520,000, and 26%, respectively. Average borrowings, maximum borrowings and the weighted average monthly interest rate under these loan agreements for fiscal 2002 were $2,749,000, $3,685,000, and 1.94%, respectively.

The carrying value of all bank debt at June 30, 2003 approximates its fair value based on the variable market rates of interest on such bank debt.

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:

At June 30, 2003, the Company has gross net operating loss carryforwards for federal and state income tax purposes in the United States of approximately $28.7 million and $34.3 million, respectively, expiring at various dates through 2023 and gross net operating loss carryforwards for income tax purposes in Brazil of approximately $12.0 million which generally do not expire. At June 30, 2003 and 2002, the Company has recorded a valuation allowance for principally all deferred tax assets, except for those relating to Intermaco S.R.L., as there is no assurance that these assets will be realized.

The Company’s effective tax rates for income (loss) from continuing operations differ from statutory rates as follows:

The valuation allowance increased during fiscal 2003, 2002, and 2001 by $3,327,000, $1,804,000, and $1,844,000, respectively.

SED International leases its main office facility under an operating lease with an entity owned by certain minority shareholders and officers of the Company. Rent expense for this facility for the years ended June 30, 2003, 2002, and 2001 was $275,000, $267,000, and $259,000 respectively. This lease, as of October 2003, provides for an annual rent of $277,000 with annual increases of 3% through September 2006. The Company leases additional distribution center and sales office space under other operating leases. Rent expense, net of sublease rental income, under all operating leases for the years ended June 30, 2003, 2002, and 2001 was $1,741,000, $1,505,000, and $1,622,000, respectively.

The Company was obligated under lease agreements for its closed Harrisburg distribution center through March of 2003 and portions of other distribution centers which were not being utilized by the Company. Most of such distribution space has been sublet to third parties. Sublease rental income was $377,000, $494,000, and $738,000 for the years ended June 30, 2003, 2002, 2001, respectively.

As of June 30, 2003, future minimum rental commitments under noncancelable operating leases are:

Common Stock — During fiscal years 2003, 2002, and 2001, the Company repurchased 38,464, 93,030, and 9,924 shares, respectively, of its common stock in open market and private transactions for $28,000, $181,000, and $22,000, respectively.

Stock Options — Effective July, 1, 2002, the Company adopted the fair value method of recording stock-based compensation in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which is considered the preferable accounting method for stock-based employee compensation. Historically, the Company had elected to follow the Accounting Principles Board Opinion No. 25, Accounting for Stock Based Compensation issued to Employees (“APB 25”) and related Interpretations in accounting for its employee stock-based compensation. Accordingly, no compensation expense has been recognized for stock option plans in the past. The Company has elected to follow the prospective method and all employee awards granted, modified or settled after July 1, 2002 will be expensed over the vesting period based on the fair value at the date the stock-based compensation is granted. Stock compensation expense recognized in the year ended June 30, 2003 in connection with the prospective adoption of SFAS No. 123 totaled approximately $4,000. The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.


		Year Ended June 30,

(in thousands, except per share amounts)		2003			2002			2001

Net loss, as reported		$	(3,080	)	$	(10,805	)	$	(11,845	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, less $4,000 recognized in 2003			(361	)		(775	)		(762	)

Pro forma net loss		$	(3,441	)	$	(11,580	)	$	(12,607	)

Loss per share:
	As reported	$	(0.81	)	$	(2.80	)	$	(3.27	)

	Pro forma	$	(0.90	)	$	(3.00	)	$	(3.48	)

Fair Value — The weighted average fair value of options granted in fiscal 2003, 2002, and 2001 was $.62, $1.43, $4.70, respectively, using the Black-Scholes option pricing model with the following assumptions:

The Company maintains stock option plans under which 919,098 shares of common stock have been reserved at June 30, 2003 for outstanding and future incentive and nonqualified stock option grants as well as stock awards to directors, officers, and key employees. Incentive stock options must be granted at not less than the fair market value of the common stock at the date of grant and expire 10 years from the date of grant. Nonqualified stock options may be granted at a price of not less than 85% of the fair market value of the common stock at the date of grant and expire 20 years from the date of grant. Options granted under the plans are exercisable in installments ranging from 20% to 50% per year. Upon the occurrence of a “change of control” (as defined in the Company’s stock option plans), all outstanding options become immediately exercisable.

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


					Weighted
					Average
		Shares			Exercise Price

Shares under options at June 30, 2000			1,326,393		$	10.18
	Granted		83,550			5.45
	Cancelled		(1,088,549	)		8.58

Shares under options at June 30, 2001			321,394			14.14
	Granted		746,500			1.91
	Cancelled		(99,300	)		4.00

Shares under options at June 30, 2002			968,594			3.17
	Granted		37,500			.90
	Cancelled		(205,210	)		3.91

Shares under options at June 30, 2003			800,884			2.87

Options exercisable at June 30:
	2001		103,868		$	6.86
	2002		802,738			2.96
	2003		740,918			2.96

The following table summarizes information pertaining to all options outstanding and exercisable at June 30, 2003:


	Outstanding Options

			Weighted				Exercisable Options
			Average		Weighted
			Remaining		Average				Average
Range of	Number		Contractual		Exercise		Number		Exercise
Exercise Prices	Outstanding		Life (Years)		Price		Exercisable		Price

$0.0000 - $1.0130		32,500		9.0	$	0.9000		—		—
$1.0131 - $2.0260		561,500		8.1	$	1.9377		546,636	$	1.9531
$2.0261 - $3.0390		30,500		7.6	$	2.3439		22,533	$	2.2853
$5.0651 - $6.0780		143,709		5.8	$	5.8800		143,709	$	5.8800
$6.0781 - $7.0910		5,250		6.4	$	6.8200		5,250	$	6.8200
$7.0911 - $8.1040		21,800		6.4	$	7.8856		17,250	$	7.8713
$9.1171 - $10.1300		5,625		3.4	$	10.1061		5,540	$	10.1087

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

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

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

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

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

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

SED International, Inc. maintains the SED International, Inc. 401(k) Plan, a voluntary retirement benefit program. All employees of SED International, Inc. who have attained the age of 21 are eligible to participate after completing one year of service. Employees are immediately vested in their own contributions. Prior to July 1, 2002, SED International, Inc. matched a portion of employee contributions to the plan. Effective July 1, 2002, SED International revised the plan to provide 401K matching for its employees at the discretion of the Board of Directors and is no longer required to match 401K funds. Vesting in SED International, Inc.’s matching contributions, if any, is based on years of continuous service. There were no matching contributions to the 401(k) plan in fiscal 2003. SED International, Inc.’s matching contribution expense for the years ended June 30, 2002 and 2001 was $93,000 and $125,000, respectively.

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

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


			United States			Latin America		Eliminations			Consolidated

Fiscal 2003
Net sales:
	Unaffiliated customers		$	375,485,000		$	37,663,000				$	413,148,000
	Foreign subsidiaries			19,000				$	(19,000	)

		Total	$	375,504,000		$	37,663,000	$	(19,000	)	$	413,148,000

Gross profit			$	14,878,000		$	4,476,000	$	70,000		$	19,424,000
(Loss) income from continuing operations				(9,446,000	)		1,608,000		70,000			(7,768,000	)
Total assets at year-end				107,724,000			9,382,000		(30,987,000	)		86,119,000
Fiscal 2002
Net sales:
	Unaffiliated customers		$	385,911,000		$	37,970,000				$	423,881,000
	Foreign subsidiaries			913,000				$	(913,000	)

		Total	$	386,824,000		$	37,970,000	$	(913,000	)	$	423,881,000

Gross profit			$	14,719,000		$	5,193,000	$	177,000		$	20,089,000
(Loss) income from continuing operations				(4,799,000	)		1,998,000		177,000			(2,624,000	)
Total assets at year-end				145,998,000			8,286,000		(77,832,000	)		76,452,000
Fiscal 2001
Net sales:
	Unaffiliated customers		$	399,733,000		$	45,847,000				$	445,580,000
	Foreign subsidiaries			1,585,000				$	(1,585,000	)

		Total	$	401,318,000		$	45,847,000	$	(1,585,000	)	$	445,580,000

Gross profit			$	19,703,000		$	5,436,000				$	25,139,000
(Loss) income from continuing operations				(9,188,000	)		896,000					(8,292,000	)
Total assets at year-end				98,017,000			17,119,000	$	(20,572,000	)		94,564,000

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.

Approximately 9.1%, 9.0% and 10.3% in the fiscal years ended June 30, 2003, 2002, and 2001, respectively, consisted of sales to customers for export principally into Latin America and direct sales to customers in Colombia and Argentina.

During the years ended June 30, 2003, 2002 and 2001 the Company purchased approximately 52.9%, 50.1% and 39% of its product from two vendors. During the year ended June 30, 2002, the Company sold approximately 11% of its product to one customer.

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

As a result of an ongoing economic crisis, the Argentine government has implemented a number of monetary and exchange control measures including restrictions on the withdrawal of funds deposited with Argentine banks and the practical impossibility of making transfers abroad. On January 6, 2002, the Argentine Congress also approved Law No. 25,561 on Public Emergency and Exchange System Reform that eliminated the pegging of the ARS (Argentine peso) to the US dollar on a one to one basis. In place of the pegged exchange rate the Central Bank of Argentina established an “official” and a “freely floating” exchange market for transactions originating in Argentina. The “official” exchange rate was fixed at ARS (Argentine peso) 1.4 to USD (US Dollar) 1. The “freely floating” exchange for the ARS as compared to the USD decreased from 1.7 pesos to 1 dollar at January 11, 2002 (first day after exchange market was reopened) to 2.8 pesos to 1 dollar at June 30, 2003.

In connection with the de-dollarization of the Argentine peso and other changes enacted by the Argentine government, unfavorable consequences have resulted including, but not limited to, (a) the default on public debt payments, (b) the implementation of restrictions on the withdrawal of funds deposited with financial institutions, (c) the practical impossibility of making fund transfers outside Argentina to serve financial obligations without the approval of the Central Bank of Argentina, (d) raising prices and inflation, (e) limited availability of credit, (f) and declining domestic market demand within Argentina.

Since January 1, 2002, Argentina has experienced annual inflation rate of approximately 10.0%. While Argentina’s government together with the International Monetary Fund are seeking remedies, no assurance can be given that the economic situation in Argentina will stabilize. The devaluation, which commenced in January 2002, could make it more difficult for Argentine companies to service their commercial and financial obligations due in or tied to the USD. Any of the foregoing events and a continuation of the Argentine recession may have a material adverse effect on the Company’s business, results of operations, financial condition, and ability to make payments on the Company’s indebtedness and on the Company’s common stock market price. The information included in the Company’s financial statements, and other documentation, does not contain the potential impact that might arise from the situation described above and, accordingly, should be analyzed considering that circumstance.

The Company carried two key man life insurance policies payable to the benefit of the Company on Gerald Diamond, the Company’s founder and Former Chairman and Chief Executive Officer who passed away in June of 2003. At June 30, 2003, the Company recorded a liability of approximately $3.4 million, which represents the Company’s present estimate of the amounts due as benefits to Mr. Diamond’s surviving spouse under Mr. Diamond’s employment contract. However, the Company may be contingently liable for additional benefit payments depending on the resolution of issues concerning additional death benefits potentially due to Mr. Diamond’s surviving spouse.

In February 2003, the Company resolved to discontinue commercial operations of its Brazilian subsidiary, SED International do Brasil Distribuidora, Ltda. As a result, SED International do Brasil Distribuidora, Ltda. was reported as a disposal of a segment of business in the third quarter of 2003. 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 condensed consolidated balance sheet as of June 30, 2003 in accordance with Accounting Principles Board Opinion No. 30.

The net loss from discontinued operations consists of operating losses incurred in the Brazil Operation and estimated loss on disposal of the business which includes charges for the following: (i) the write-off of foreign currency translation losses of $2.6 million previously recorded as a component of stockholders’ equity, (ii) equipment, (iii) customer accounts receivable, (iv) employee termination costs, (v) inventory, and (vi) facility exit and lease termination costs. As of June 30, 2003, SED International do Brasil Distribuidora, Ltda. had assets of $51,000 and third party liabilities of $848,000. The assets include cash of $22,000 and prepaid taxes of $9,000. Liabilities include accounts payable related to inventory purchases of $751,000, bank obligations of $15,000 and other miscellaneous accrued liabilities of $82,000.

Interest expense for the Brazil operation for the fiscal years 2003, 2002, and 2001 totaled $288,000, $868,000 and $600,000, and was based on the actual borrowings from banks by the Brazil operation.

SED International do Brasil Distribuidora, Ltda. has been transitioned from a commercial operating company into dormancy. During the dormancy period, the Company will incur ongoing operating expenses for attorney fees, statutory bookkeeping and reporting services, document storage and inventory storage cost until liquidation of the inventory. These ongoing expenses during the dormancy period are not expected to be significant.

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.


(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, 2003

		or

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

		For the transition period from to


GEORGIA		22-2715444
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

4916 North Royal Atlanta Drive, Tucker, Georgia		30085
(Address of principal executive offices)		(Zip Code)


(Title of Class)		(Title of Class)
Common Stock, $.01 par value		Common Stock Purchase Rights


PART II
REPORT OF INDEPENDENT AUDITORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART IV
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO


	At June 30,

	2003		2002		2001		2000		1999

Balance sheet data:
Working capital	$	25,514,000	$	24,063,000	$	30,539,000	$	36,506,000	$	45,193,000
Total assets		86,170,000		80,562,000		107,466,000		121,319,000		141,090,000
Long-term obligations less current portion										8,500,000
Shareholders’ equity		27,716,000		27,852,000		42,615,000		55,349,000		52,810,000

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	Future
Year Ending June 30	Rent

2004	$	1,286,000
2005		617,000
2006		396,000
2007		76,000

	$	2,375,000


	Microcomputer		Wireless Telephone		Handling
Year Ended June 30,	Products		Products		Revenue		Total

2003	$	363,343,000	$	48,543,000	$	1,262,000	$	413,148,000
2002		398,536,000		24,014,000		1,331,000		423,881,000
2001		409,851,000		33,827,000		1,902,000		445,580,000


	Balance at		Charged to
	Beginning		Costs and					Balance at
Year Ended June 30,	of Year		Expenses		Deductions (1)			End of Year

2003	$	1,455,000	$	2,302,000	$	(1,008,000	)	$	2,749,000
2002		5,631,000		1,638,000		(5,814,000	)		1,455,000
2001		3,761,000		4,476,000		(2,606,000	)		5,631,000


			SED INTERNATIONAL HOLDINGS, INC

			By:		/s/ PHILIP FLYNT

					Philip Flynt Vice President — Finance, Chief Financial Officer, Secretary and Treasurer (principal financial and accounting officer)


	Year Ended June 30,

	2003			2002			2001

Dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		63.1	%		61.5	%		84.5	%
Risk free interest rate		3.94	%		4.9	%		5.3	%
Expected life, in years		8.0			10.0			10.0


		Year Ended June 30,

		2003			2002			2001

Shares of restricted stock beginning of year			96,988			158,358			204,500
	Issued		0			16,000			203,978
	Vested		(32,866	)		(53,432	)		(249,100	)
	Canceled		(15,185	)		(23,938	)		(1,020	)

Shares of restricted stock end of year			48,937			96,988			158,358