SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission File Number 0-16345

(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)

(Registrant's telephone number, including area code)

(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 November 9, 2001, there were 7,971,498 shares of Common Stock, $.01 par value, outstanding.

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 6-9

Item 2 - Management's Discussion and Analysis of

Financial Condition and Results of Operations 10-12

Item 3 - Quantitative and Qualitative Disclosures about

Market Risk 12

PART II. OTHER INFORMATION

Item 1 - Legal Proceedings 13

Item 2 - Changes in Securities and Use of Proceeds 13

Item 3 - Default Upon Senior Securities 13

Item 4 - Submission of Matters to a Vote of Security

Holders 13

Item 5 - Other Information 13

Item 6 - Exhibits and Reports on Form 8-K 13

PART I - FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SED International Holdings, Inc.

And Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, June 30,

ASSETS 2001 2001

(Unaudited)

CURRENT ASSETS:

Cash and cash equivalents $ 2,808,000 $ 4,243,000

Restricted cash 700,000 700,000

Trade accounts receivable, net 37,003,000 40,236,000

Inventories 42,543,000 47,507,000

Deferred income taxes 355,000 355,000

Other current assets 2,318,000 2,349,000

TOTAL CURRENT ASSETS 85,727,000 95,390,000

PROPERTY AND EQUIPMENT, net 5,381,000 5,708,000

INTANGIBLES, net 6,372,000 6,368,000

___________ ____________

$97,480,000 $107,466,000

September 30, June 30,

LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2001

(Unaudited)

CURRENT LIABILITIES:

Trade accounts payable $48,662,000 $ 55,449,000

Accrued liabilities 5,782,000 5,858,000

Short term subsidiary bank debt 3,596,000 3,544,000

TOTAL CURRENT LIABILITIES: 58,040,000 64,851,000

REVOLVING BANK DEBT 500,000

SHAREHOLDERS' EQUITY:

Preferred Stock

129,500 shares authorized, none issued

Common stock, $.01 par value; 100,000,000

shares authorized; 11,126,411 shares

issued; and 7,971,498 (September 30,

2001) and 8,060,954 (June 30, 2001)

shares outstanding 112,000 112,000

Additional paid-in capital 68,413,000 68,361,000

Accumulated deficit (12,361,000) (9,224,000)

Accumulated other comprehensive loss (4,075,000) (3,564,000)

Treasury stock, 3,154,913 (September 30,

2001) and 3,065,457 (June 30, 2001)

shares, at cost (12,757,000) (12,612,000)

Unearned compensation - stock awards (392,000) (458,000)

38,940,000 42,615,000

See notes to condensed consolidated financial statements.

(Unaudited)

(1) Comprehensive losses for the three months ended September 30, 2001 and 2000 were $3,648,000 and $144,000, respectively.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

2. Bank Debt

C. Segment Information

Net sales by product category is as follows:

Net sales decreased 7.3%, or $9.8 million, to $123.8 million in the first quarter ended September 30, 2001 compared to $133.6 million in the first quarter ended September 30, 2000. Information concerning the Company's domestic and foreign sales is summarized below:

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 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 95.6% of the Company's first quarter net sales compared to 90.9% for the same period last year. Sales of wireless telephone products accounted for approximately 4.4% of the Company's first quarter net sales compared to 9.1% for the same period last year.

Gross profit decreased to $6.5 million in the first quarter ended September 30, 2001 compared to $8.2 million in the first quarter ended September 30, 2000. Gross profit as a percentage of net sales decreased to 5.3% in the first quarter ended September 30, 2001 from 6.1% in the first quarter ended September 30, 2000. 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, increased $1.5 million to $9.4 million in the first quarter ended September 30, 2001, compared to $7.9 million in the first quarter ended September 30, 2000. These expenses as a percentage of net sales were 7.6% in the first quarter ended September 30, 2001 compared to 5.9% in the first quarter ended September 30, 2000. The increase resulted primarily from an increase in allowance for doubtful accounts and currency devaluation expense in foreign subsidiary operations.

Net interest expense was $0.2 million in the first quarter ended September 30, 2001 compared to interest expense of $0.1 thousand in the first quarter ended September 30, 2000.

Income tax expense was $0.1 million in the first quarter ended September 30, 2001 and 2000. 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.

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 $1.2 million in the three months ended September 30, 2001. The Company's reduction of $3.2 million in accounts receivable and $5.0 million in inventories provided sources of operating cash. The Company used sources of cash to reduce accounts payable by $6.8 million. Also, the Company's net loss of $3.1 million less non-cash charges of $.6 million used cash. Operating activities used $1.6 million in the three months ended September 30, 2000. The use of cash resulted primarily from increases of $3.4 million in accounts receivable and $3.8 million in inventory, offset by a $5.9 million increase in accounts payable.

Investing activities used $0.3 million in the three months ended September 30, 2001 and 2000 to purchase equipment and computer software.

Financing activities provided $0.5 million and $0.3 million in the three months ended September 30, 2001 and 2000, respectively, resulting from net bank borrowings.

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.

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 profitability, 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. 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 currency risks.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Default Upon Senior Securities

None

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits

Exhibit

Number Description

None

b) Reports on Form 8-K

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.

(Registrant)

November , 2001 By: /s/ Gerald Diamond

Gerald Diamond

Chief Executive Officer and

Chairman of the Board

(Principal Executive Officer)

November , 2001 By:/s/ Larry G. Ayers

Larry G. Ayers

Vice President-Finance and

Treasurer

(Principal Accounting Officer)