SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q/A
Amendment No. 1
(Amending Part I Item 1)

Commission File Number    0-16345

SED International Holdings, Inc.

(770) 491-8962

NOT APPLICABLE

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 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 x

The number of shares outstanding of the Registrant’s common stock, par value $.01 per share, at November 5, 2003 was 3,874,637 shares.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A is being filed to amend Part I, Item 1 and of the Registrant’s report on Form 10-Q for the quarter ended September 30, 2003, filed on November 14, 2003 (the “Original 10-Q”). This Amendment No. 1 does not otherwise alter the disclosures set forth in the Original 10-Q and does not reflect events occurring after the filing of the Original 10-Q. This Amendment No. 1 is effective for all purposes as of the date of the filing of the Original 10-Q.

Subsequent to the issuance of the Company’s consolidated financial statements included in its report on Form 10-Q for the quarter ended September 30, 2003, management determined that amounts outstanding under the revolving credit facility with Fleet Capital (“Fleet”) as described in Note 9 of the Company’s condensed 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 Part I, Item 1 have been restated to reflect the reclassification of the amounts outstanding under the revolving credit facility with Fleet Capital as 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 quarters ended September 30, 2003 and 2002.

Part I Item 1 of the original 10-Q is hereby amended and restated in its entirety as follows:

SED International Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except par values)
(Restated see Note 9)

See notes to condensed consolidated financial statements.

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SED International Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
(Unaudited)

See notes to condensed consolidated financial statements.

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SED International Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See notes to condensed consolidated financial statements.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

1.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of SED International Holdings, Inc. and its wholly-owned subsidiaries, SED International, Inc., SED International do Brasil Distribuidora Ltda. (SED Brasil; formerly SED Magna Distribuidora Ltda.), SED Magna (Miami), Inc., SED International de Colombia Ltda., Intermaco S.R.L., and E-Store.com, Inc. (SED Brasil and E.Store.com, Inc. operations were discontinued during fiscal year 2003 and 2002, respectively), (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain items in the consolidated financial statements for the periods ended September 30, 2002 and June 30, 2003 have been reclassified to conform with the presentation used with respect to the three months ended September 30, 2003. Operating results for the three months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2004, or any other interim period.

For further information, refer to the consolidated financial statements and footnotes thereto included in the SED Holdings, Inc. Annual Report on Form 10-K for the year fiscal year ended June 30, 2003.

2.

Discontinued Operations

In February 2003, the Company approved a plan to discontinue commercial operations of its Brazilian subsidiary, SED Brasil. As a result, SED Brasil was reported as a disposal of a segment of business in the third quarter of fiscal 2003. Accordingly, the operating results of SED Brasil 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 Brasil’s assets at their estimated net realizable values in the Company’s condensed consolidated balance sheet as of September 30, 2003 and June 30, 2003 in accordance with Accounting Principles Board Opinion No. 30.

SED Brasil 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.

For the three months ended September 30, 2002, SED Brazil reported a loss of $874,000 on net sales of approximately $4.7 million. There were no significant activities for the quarter ended September 30, 2003.

At September 30, 2003, SED Brasil had assets of approximately $41,000 and third party liabilities of $655,000. The assets include cash of $21,000 and prepaid taxes of $20,000. Liabilities include accounts payable related to inventory of $569,000, bank obligations of $15,000 and other miscellaneous accrued liabilities of $71,000.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

3.

Accounts Receivable

4.

Other Receivables

In June 2003, the Company accrued 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.

5.

Inventory

6.

Comprehensive Loss

Comprehensive loss was $0.7 million and $1.0 million, respectively, for the three months ended September 30, 2003 and 2002.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

7.

Segment Reporting

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

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

Net sales by product category is as follows:

Approximately 24.4% and 20.6% of the Company’s net sales for the three months ended September 30, 2003 and 2002, respectively, consisted of sales to customers for export principally into Latin America and direct sales to customers in Colombia and Argentina.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

8.

Restricted Stock, Stock Options and Other Stock Plans

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. 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.

9.

Credit Facility and Bank Debt

The Company has restated its Condensed Consolidated Balance Sheet as of September 30, 2003 and 2002 to properly classify the revolving credit facility with Fleet Capital Corporation (hereafter “Fleet” and “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 quarters 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 Capital Corporation (the “Fleet Agreement”). The Fleet Agreement provides for revolving borrowings up to $35 million based upon the Company’s eligible domestic accounts receivable and inventory as defined therein. Borrowings under the Fleet Agreement accrue interest based upon a variety of interest rate options depending upon the computation of availability as defined therein. The interest rates range from the prime rate to the prime rate plus a margin of .5%, or the Federal funds rate plus a margin of .5%, or LIBOR plus a margin ranging from 2% to 2.75%. The Company is also subject to a commitment fee ranging from .25% to .5% on the unused portion of the facility. Interest is payable monthly. Borrowings under the Fleet Agreement are secured by substantially all domestic assets of the Company and 65% of each of the Company’s shares in its foreign subsidiaries, respectively. The Fleet Agreement matures on October 7, 2005.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

Credit Facility and Bank Debt (Continued)

The Fleet Agreement also contains certain covenants which, among other things, requires that if the Company’s availability is less than $5 million at any time during the agreement, the Company must restrict or limit capital expenditures and advances to the Company’s Latin American subsidiaries. Also, if the $5 million threshold 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 $1.8 million at September 30, 2003. The Company’s minimum tangible net worth as defined by the Fleet Agreement was a negative $1.2 million at September 30, 2003. 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. As of November 12, 2003, the Company’s availability under the Fleet Agreement net of reserves for outstanding Letters of Credit of $2.1 million was $12.6 million. Average borrowings, maximum borrowings and the weighted average interest rate for the quarter ended September 30, 2003 were $17.3 million, $20.9 million and 3.40%, respectively.

At September 30, 2003, the Company would not have been in compliance with certain financial covenants under the Fleet Agreement had it breached the $5 million availability threshold. In the future, if the Company were to breach the $5 million threshold and fail to comply with the required financial covenants, Fleet may declare an event of default and could demand repayment of all outstanding borrowings and discontinue the agreement. If Fleet were to declare an event of default, the Company’s liquidity and business operations could be adversely affected. Full details of the Fleet Agreement are reported on Form 10-K for the year ended June 30, 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. The Wachovia credit agreement was secured by accounts receivable and inventory of SED International, Inc. and required maintenance of certain minimum working capital and other financial ratios and had certain dividend restrictions. The Company was able to borrow at Wachovia’s prime rate (5.25% at September 30, 2002) plus .50% or the Company could fix the interest rate for periods of 30 to 180 days under various interest rate options. The credit agreement required a commitment fee of .50% of the unused commitment and expired November 1, 2002. Average borrowings, maximum borrowings and the weighted average interest rate for the quarter ended September 30, 2002 were $6.2 million, $13.6 million and 5.25%, respectively.

The Company’s subsidiary, SED International do Brasil Distribuidora Ltda. has previously operated under line of credit agreements with several Brazilian banks. Interest rates on borrowings are negotiated at the time of borrowing. The credit agreements are secured by the subsidiary’s accounts receivable and require the maintenance of certain financial ratios. The Company had $15,000 in outstanding borrowings under these facilities at September 30, 2003 and June 30, 2003.

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SED International Holdings, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands except per share data)
(Unaudited)

10.

Liabilities Under employment Agreement and Contingent Liabilities

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.

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PART II – OTHER INFORMATION

ITEM 6.    Exhibits and Reports on Form 8-K

      (a)     Exhibits

      (b)     Reports on Form 8-K

      NONE

Items 1, 2, 3, 4 and 5 of Part II are not applicable and have been omitted.

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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.

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