SED INTERNATIONAL HOLDINGS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1999
OR

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

For the transition period from_____________ to ____________

Commission file number 0-16345
SED INTERNATIONAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

GEORGIA 22-271544
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

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

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.01 PAR VALUE
(Title of Class)

COMMON STOCK PURCHASE RIGHTS
(Title of Class)

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 [ ]

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 Registrant'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. [ ]

The aggregate market value of the voting stock held by nonaffiliates
of the Registrant was approximately $20.6 million as of September 24,
1999 based upon the last sale price of the Common Stock as reported on
the Nasdaq National Market on that day.

There were 7,016,453 shares of Common Stock, $.01 par value,
outstanding at September 24, 1999.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates information by reference from the Registrant's
definitive proxy statement for the 1999 annual meeting of shareholders
scheduled to be held on November 9, 1999, which proxy statement will
be filed no later than 120 days after the close of the Registrant's
fiscal year ended June 30, 1999.

PART I

Item 1. BUSINESS

(a) General Development of Business

SED International Holdings, Inc., a Georgia corporation, and
its wholly owned operating subsidiary, SED International, Inc., a
Georgia corporation ("SED International"), were incorporated in 1986
to take over the operations of the business of the Registrant's
predecessor, Southern Electronics Distributors, Inc., which was
engaged in the wholesale distribution of consumer electronics
products. In fiscal 1999, the Registrant, formerly a Delaware
corporation, reincorporated as a Georgia corporation. As used herein,
the term "Registrant" or the "Company" means SED International
Holdings, Inc. and its subsidiaries, including SED International,
unless the context otherwise indicates.

The Registrant is an international distributor of
microcomputer products, including processors, printers and other
peripherals and wireless products throughout the United States and
Latin America. The Registrant offers to an active base of over 13,000
reseller customers a broad inventory of more than 3,500 products from
approximately 100 vendors (direct and indirect), including such market
leaders as Hewlett-Packard, Intel, Maxtor, Western Digital, Samsung,
Creative Labs, Acer and Epson, through a dedicated and highly
motivated sales force. The Registrant distributes products in the
United States from its strategically located warehouses in Atlanta,
Georgia; Miami, Florida; City of Industry, California and Harrisburg,
Pennsylvania. The Registrant services Latin America through its
wholly-owned subsidiaries SED International do Brasil Ltda. in Sao
Paulo, Brazil; SED International de Colombia Ltda. in Bogota Colombia
and Intermaco S.R.L. in Buenos Aires, Argentina. The Registrant's net
sales decreased to $707.6 million in fiscal 1999 from $892.6 million
in fiscal 1998, and the Registrant had a net loss of
$37.9 million in fiscal 1999 compared to a net loss of $0.3 million in
fiscal 1998.

The Registrant also distributes wireless telephone products
in the United States and to Latin America. The Registrant is a direct
distributor of wireless telephone products for Audiovox, and an
indirect distributor for other leading wireless telephone product
vendors such as Motorola, Nokia, and Ericsson. In fiscal 1999, the
Registrant's net sales of microcomputer products generated
approximately 86.6% of the Registrant's total net sales and wireless
telephone products represented the remaining 13.4%.

(b) Financial Information about Industry Segments

The Registrant operates in only one business segment.

(c) Narrative Description of Business

Products and Vendors

The Registrant offers its customers a broad inventory of
more than 3,500 products from approximately 100 vendors (direct and
indirect), including such market leaders as Hewlett-Packard, Intel,
Maxtor, Western Digital, Samsung, Creative Labs, Acer and Epson. The
Registrant is a direct distributor of wireless telephone products for
Audiovox, and an indirect distributor for other leading wireless
telephone product vendors such as Motorola, Nokia and Ericsson.
Microcomputer related products, which include mass storage products,
printers and other imaging products, microprocessing and memory chips,
monitors, modems, networking products, notebook and personal computers
and accessories, accounted for $612.8 million or 86.6% of the
Registrant's net sales for fiscal 1999, $785.5 million or 88.0% of net
sales in fiscal 1998, and $588.2 million or 91.0% of net sales in
fiscal 1997. Approximately $94.7 million or 13.4% of the Registrant's
net sales for fiscal 1999, $107.1 million or 12.0% of net sales for
fiscal 1998, and $58.2 million or 9.0% of net sales for fiscal 1997
consisted of wireless telephone products such as handheld cellular
telephones and accessories. The Registrant continually evaluates its
product mix and inventory levels and maintains flexibility by
adjusting its product offerings based on demand. The Registrant's
vendors generally warrant the products distributed by the Registrant
and allow the return of defective products.

Generally, the Registrant's authorized distributor
agreements with its microcomputer and wireless telephone products
vendors permit the Registrant to sell these vendors' products in the
United States and in designated countries in Latin America. The
Registrant will continue to seek to expand the geographical scope of
its distributor arrangements, which may include acquiring or
partnering with companies that already have the distribution rights of
a particular vendor in a specified country.

As a distributor, the Registrant incurs the risk that the
value of its inventory will be affected by industry-wide forces. Rapid
technological change is commonplace in the microcomputer and wireless
industries and can quickly diminish the marketability of certain
items, whose functionality and demand decline with the appearance of
new products. These changes, coupled with price reductions by vendors,
may cause rapid obsolescence of inventory and corresponding valuation
reductions in that inventory. Accordingly, the Registrant seeks
provisions in its vendor agreements common to industry practice which
provide price protections or credits for declines in inventory value
and the right to return unsold inventory. No assurance can be given,
however, that the Registrant can negotiate such provisions in each of
its contracts or that such industry practice will continue.

The Registrant purchases goods from approximately 100
vendors (direct and indirect) and has negotiated favorable terms from
certain vendors by purchasing a substantial volume of those vendors'
products. In fiscal 1999, products purchased from Hewlett-Packard
accounted for 21% of the Registrant's total purchases.
Hewlett-Packard has not renewed the Registrant's U.S. direct sourcing
relationship for Hewlett-Packard products for fiscal 2000. The Registrant
has, however, established relationships with other distributors from
which it sources Hewlett-Packard products under the Registrant's
Virtual Vendor Model program. The

Registrant remains an authorized direct distributor of Hewlett-Packard
products for export into Latin America and for "in-country" purchases
through the Registrant's Latin American subsidiaries. The loss of
Hewlett-Packard as a virtual vendor could materially adversely affect
the financial condition of the Registrant. The percentage of goods
purchased during fiscal 1998 by the Registrant from Hewlett-Packard
and Seagate was 19.1% and 11.1%, respectively. During fiscal 1999,
the Registrant and Seagate no longer operated under a direct
distribution agreement.

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

Product orders typically are processed and shipped from the
Registrant's distribution facilities on the same day an order is
received or, in the case of orders received after 6:00 p.m., on the
next business day. The Registrant relies almost entirely on
arrangements with independent shipping companies for the delivery of
its products to United States customers. Products distributed to the
Latin American markets are delivered to the foreign purchasers or
their agents or representatives at the Registrant's Sao Paulo, Brazil;
Bogota, Colombia and Buenos Aires, Argentina facilities. Generally,
the Registrant's inventory level of products has been adequate to
permit the Registrant to be responsive to its customers' purchase
requirements. From time to time, however, the Registrant experiences
temporary shortages of certain products as its vendors experience
increased demand or manufacturing difficulties with respect to their
products, resulting in smaller allocations of such products to the
Registrant.

Sales and Marketing

The Registrant's sales are generated by a telemarketing
sales force, which consisted of approximately 162 persons at June 30,
1999 in sales offices located in Atlanta, Georgia; Miami, Florida;
Carlsbad, California; City of Industry, California; Sao Paulo, Brazil;
Bogota, Colombia and Buenos Aires, Argentina. Of the total number of
salespersons at June 30, 1999, 67 persons focused on sales to
customers for export to Latin America and on sales in Brazil, Colombia
and Argentina, substantially all of whom are fluent in Spanish or
Portuguese. The Registrant's Atlanta sales office maintains a separate
telemarketing sales force for the sale of wireless telephone products
to retailers and wireless telephone carriers and their authorized
agents located throughout the United States and Latin America.

Members of the sales staff are trained through intensive
in-house sales training programs, along with vendor-sponsored product
seminars. This training allows sales personnel to provide customers
with product information and to use their marketing expertise to
answer customers' questions about important new product
considerations, such as compatibility and capability,

while offering advice on which products meet specific performance and
price criteria. The Registrant's salespeople are able to analyze
quickly the Registrant's extensive inventory through a sophisticated
management information system and recommend the most appropriate
cost-effective systems and hardware for each customer--whether a
full-line retailer or an industry-specific reseller.

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

Compensation incentives are provided to the Registrant's
salespeople, thus encouraging them to increase their product knowledge
and to establish long-term relationships with existing and new
customers. Customers can telephone their salespersons using a
toll-free number provided by the Registrant. Salespeople initiate
calls to introduce the Registrant's existing customers to new products
and to solicit orders. In addition, salespeople seek to develop new
customer relationships by using targeted mailing lists, vendor leads
and telephone directories of various cities.

The telemarketing salespersons are supported by a variety of
marketing programs. For example, the Registrant regularly sponsors
shows for its resellers where it demonstrates new product offerings
and discusses industry developments. Also, the Registrant's in-house
marketing staff prepares catalogs that list available microcomputer
and wireless telephone products and routinely produces marketing
materials and advertisements. In addition, the in-house marketing
staff publishes other direct mail pieces promoting specials and new
products, which can be ordered directly through salespeople or through
the Registrant's Internet web page providing 24-hour access to on-line
order entry. The Registrant's web page provides customers secured
access to place orders and review product specifications at times that
are convenient to them. Customers also can determine inventory
availability and pricing on a real-time basis and in the near future
verify the status of previously placed orders through hyperlinks to
certain independent shipping companies.

The Registrant prides itself on being service oriented and
has a number of on-going value-added services intended to benefit both
the Registrant's vendors and reseller customers. For example, the
Registrant is committed to training its salespeople to be technically
knowledgeable about the products they sell. This core competency
supplements the sophisticated technical support and configuration
services also provided by the Registrant. Salespeople who are
knowledgeable about the products they sell often can assist in the
configuration of microcomputer systems according to specifications
given by the resellers. The Registrant believes that its salesperson's
ability to listen to a reseller's needs and recommend a cost-efficient
solution strengthens the relationship between the salesperson and his
or her reseller and promotes customer loyalty to a vendor's products.
In addition, the Registrant provides such other value-added services
as new product demonstrations and technical education programs for
resellers, order fulfillment and electronic ordering, and
informational assistance through the Registrant's web page.

Management continually evaluates the Registrant's product
mix and the needs of its customers in order to minimize inventory
obsolescence and carrying costs. The Registrant's rapid delivery terms
are available to all of its customers, and the Registrant seeks to
pass through its shipping and handling costs to its customers. The
Registrant offers various credit terms including open account, prepay,
credit card and COD to qualifying customers. The Registrant closely
monitors customers' creditworthiness through its on-line computer
system, which contains detailed information on each customer's payment
history and other relevant information. In addition, the Registrant
participates in national and international credit associations that
exchange credit rating information on customers. The Registrant
establishes reserves for estimated credit losses in the normal course
of business.

Customers

The Registrant serves an active, nonexclusive customer base
of over 13,000 resellers of microcomputer and wireless telephone
products. Resellers include value-added resellers, corporate resellers
and retailers. The Registrant believes the multi-billion dollar
microcomputer and wireless telephone wholesale distribution industries
serve customers primarily on a nonexclusive basis, which provides the
Registrant with significant growth opportunities. During fiscal 1999,
no single customer accounted for more than 3.0% of the net sales of
the Registrant. The Registrant believes that most of its customers
rely on distributors as their principal source of microcomputer and
wireless telephone products.

Competition

The microcomputer and wireless telephone distribution
industries are highly competitive, both in the United States and in
Latin America. Competition in these industries is typically
characterized by pricing pressures, product availability and potential
obsolescence, speed and accuracy of delivery, effectiveness of sales
and marketing programs, credit availability, ability to tailor
specific solutions to customer needs, quality of product lines
and services, and availability of technical support and product
information. Additionally, the Registrant's ability to compete
favorably is principally dependent upon its ability to control
inventory and other operating costs, react timely and appropriately to
short-and long-term trends, price its products competitively,
increase its net sales and maintain economies of scale. In the early
1990s, the United States microcomputer industry moved toward open
sourcing pursuant to which vendors authorized multiple distributors to
sell to resellers on equal terms rather than relying on exclusive
relationships. As a result, the competitive environment has become
more intense, leading to accelerating industry consolidation and
declining gross margins.

The Registrant's competitors include regional, national and
international microcomputer and wireless distributors, many of which
have substantially greater technical, financial and other resources
than the Registrant, as well as vendors that sell directly to
resellers and large resellers that sell to other resellers. Major
competitors include Ingram Micro, Inc., Merisel, Inc. and Tech
Data Corporation in the United States, and CHS Electronics, Inc. in
Latin America.

Seasonality

The Registrant's sales currently are not subject to material
seasonal fluctuations although no assurance can be given that seasonal
fluctuations will not develop, especially during the holiday season in
the United States and Latin America. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Data; Seasonality."

Employees

As of June 30, 1999, the Registrant had 462 full-time
employees, 162 of whom were engaged in telemarketing and sales, 173 in
administration and 127 in shipping. The Registrant also utilized 18
part-time employees at such date. Management believes the
Registrant's relations with its employees are good and the Registrant
has never experienced a strike or work stoppage. There is no
collective bargaining agreement covering any of the Registrant's
employees.

Financial Information about Foreign and Domestic Operations and
Export Sales

For the fiscal year ended June 30, 1997, approximately 45% of
the Registrant's net sales were to customers for export principally
into Latin America. These customers historically have been serviced
through the Registrant's Miami, Florida warehouse facility with sales
denominated in U.S. dollars. During the fiscal year ended June 30,
1998, the Registrant began selling directly to customers in Brazil and
Colombia through the Registrant's facilities in Sao Paulo, Brazil and
Bogota, Colombia. During the fiscal year ended June 30, 1999, the
Registrant also began selling directly to customers in Argentina.
Sales are denominated in the respective local currencies of
these countries. Approximately 41% of the Registrant's net sales in
the fiscal year ended June 30, 1998 consisted of sales to customers
for export principally into Latin America and direct sales to
customers in Brazil and Colombia. Approximately 38% of the
Registrant's net sales in fiscal year ended June 30, 1999 consisted
of sales to customers for export principally into Latin
America and direct sales to customers in Brazil, Colombia and
Argentina. See also note 9 to the consolidated financial statements
of the Registrant for certain additional information concerning
the Registrant's domestic and foreign operations.

Item 2. PROPERTIES

The Registrant maintains its executive offices at 4916 North
Royal Atlanta Drive in Atlanta, Georgia, where 72 of its sales
employees are also located. The Registrant leases its
executive, administrative and sales office from Diamond Chip Group,
L.L.C., a Georgia limited liability company comprised of certain
minority shareholders of the Registrant, previously doing business as
Royal Park Company, a Georgia general partnership. The lease commenced
in April 1999 and expires in September 2006. It supercedes prior
leases originally entered into in 1984 between the Registrant's
predecessor and Royal Park Company. The facility consists
of approximately 30,000 square feet, with an annual rental of
approximately $176,000 through September 1999, increasing to
approximately $253,000 effective October 1, 1999, with

annual increases of three percent through September 30, 2006. The
Registrant has a right of first refusal to purchase the facility
should it be offered for sale. The Registrant believes that the lease
is on terms no less favorable than those available from unaffiliated
parties.

The Registrant maintains warehouse facilities in Atlanta,
Georgia; City of Industry, California; Miami, Florida; Harrisburg,
Pennsylvania; Sao Paulo, Brazil; Bogota, Colombia and Buenos Aires,
Argentina. The Registrant's distribution facility in Atlanta, Georgia
consists of approximately 100,000 square feet subject to a lease
expiring January 31, 2000. Rental payments for this facility are
approximately $282,000 per annum. The Registrant believes there is
sufficient additional warehouse and sales office space available for
lease at reasonable prices near its principal facility in the event
the Registrant's growth plans so require.

The Registrant leases its sales and distribution facility in
Miami, Florida under a lease expiring March 31, 2001. This facility
consists of approximately 31,200 square feet at a monthly rental of
approximately $17,000. On July 24, 1996, the Registrant executed an
amendment to this lease which increased the leased space by
approximately 30,000 square feet (the "Expansion Space"). The monthly
rent for the Expansion Space is approximately $17,000 and the lease
term pertaining thereto expires on March 31, 2001.

On April 1, 1997, the Registrant began leasing an
approximately 50,000 square foot facility in City of Industry,
California. The City of Industry facility serves as a distribution
center for the Registrant. Payments under the lease will total
approximately $18,000 for each of the first 36 months of the lease and
will then increase to $20,000 per month thereafter. Pursuant to
its terms, the lease will expire on March 31, 2002 unless the
Registrant elects to exercise its option to renew the lease for one
additional five-year period.

On April 1, 1998, the Registrant began leasing an
approximately 102,000 square foot distribution facility in Harrisburg,
Pennsylvania. Payments for the lease will total approximately
$33,000 for each of the 24 months during the period beginning April 1,
1998 and ending March 31, 2000, approximately $34,000 for each of the
12 months during the period beginning April 1, 2000 and ending March
31, 2001, approximately $35,000 for each of the 12 months during the
period beginning April 1, 2001 and ending March 31, 2002 and
approximately $36,000 for each of the 12 months beginning April 1,
2002 and ending March 31, 2003. The average amount of payments for
the lease for each of the 60 months during the period beginning April
1, 1998 and ending March 31, 2003 will be approximately $33,000.
Effective December 1, 1998, the Registrant began subleasing
approximately 50,000 square feet of this facility for approximately
$18,000 per month for each of the 16 months during the period
beginning December 1, 1998 and ending March 31, 2000, and
approximately $18,500 for each of the 21 months beginning April 1,
2000 and ending December 31, 2001. The sub-lessee has an option to
extend its sublease to January 31, 2003.

On January 1, 1999 the Registrant began leasing an
approximately 35,000 square foot facility in Sao Paulo, Brazil,
replacing an approximately 12,900 square foot distribution facility
in Tambore, Brazil and an approximately 4,300 square foot
administrative center and sales office in Sao Paulo, Brazil, both of
which the Registrant had leased since December 1, 1997. The new
Sao Paulo facility serves as a sales office, administrative office
and distribution center for SED International do Brasil Ltda., a
wholly owned subsidiary of the Registrant. Monthly payments

for the lease were approximately $8,500 per month in January and
February 1999 and increased to approximately $17,000 per month
effective March 1, 1999. The lease will expire on January 31,
2003.

On December 1, 1997, the Registrant began leasing an
approximately 18,000 square foot administrative center and sales
office in Bogota, Colombia. The Bogota center serves as a sales
office and distribution facility for SED International de Colombia
Ltda., a wholly owned subsidiary of the Registrant. Monthly payments
for the lease totaled approximately $4,000 for the first month of the
lease, after which the rent increased to approximately $6,000 for each
of the remaining 34 months of the lease. Pursuant to its terms, the
lease will expire on November 30, 2000 unless the Registrant elects to
exercise its option to renew the lease for an additional three-year
period.

On November 1, 1998, the Registrant assumed the lease
obligations for several small facilities in Buenos Aires, Argentina.
These facilities consist of various spaces in the Galeria
business complex and are utilized for sales offices, administrative
offices and warehouses by Intermaco S.R.L., a wholly owned subsidiary
of the Registrant. Aggregate space is approximately 5,500 square
feet. Payments total approximately $71,000 annually. The leases
expire at various dates between November 1, 2000 and April 1, 2002.
Additionally, the Registrant rents space in a bonded warehouse in
Buenos Aires, Argentina on a month-to-month basis at an average cost
of $4,500 per month.

Item 3. LEGAL PROCEEDINGS

The Registrant is involved in litigation relating to claims
arising out of its operations in the normal course of business. The
Registrant is not currently engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material
adverse effect on the Registrant.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not appliable.

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS

The following table sets forth the high and low sales
prices for Registrant's common stock as reported for each quarter of
fiscal 1999 and 1998 as reported by the Nasdaq National Market
("Nasdaq"). The quotations are inter-dealer prices without retail
mark-ups, mark-downs or commissions and may not represent actual
transactions.

Sales Price
-------------------
High Low
----- ------
Fiscal year 1999
First $ 9.25 $ 3.75
Second 6.00 3.31
Third 5.50 2.44
Fourth 3.78 2.06

Fiscal year 1998
First $ 20.00 $ 12.88
Second 19.75 8.75
Third 13.94 10.31
Fourth 13.13 8.00

There were 7,016,453 shares of common stock outstanding and
approximately 5,000 beneficial owners of common stock of the Company
(including individual participants in securities position listings) as
of September 24, 1999.

The Registrant has never declared or paid cash dividends on
its common stock. The Registrant currently intends to retain earnings
to finance the growth and development of its business and does not
anticipate paying cash dividends in the foreseeable future. Future
policy with respect to payment of dividends on the common stock will
be determined by the Board of Directors based upon conditions then
existing, including the Registrant's earnings and financial
condition, capital requirements and other relevant factors. SED
International, the earnings of which would be the primary source of
any dividend payments, and the Registrant are parties to a
revolving credit agreement which contains certain financial covenants
that may impact the Registrant's ability to pay dividends should it
choose to do so. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources."

Item 6. SELECTED FINANCIAL DATA

FIVE YEAR FINANCIAL SUMMARY

Year ended June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------

Income statement data:
Net Sales $707,750,000 $892,629,000 $646,336,000 $468,298,000 $398,753,000
Cost of sales, including buying
and occupancy expenses 676,342,000 848,090,000 607,437,000 438,837,000 370,548,000
------------ ------------ ------------ ------------ ------------
Gross profit 31,228,000 44,539,000 38,899,000 29,461,000 28,205,000
Selling, general and
administrative expenses 54,426,000 40,309,000 23,941,000 19,493,000 19,104,000
Impairment charges 15,386,000
Start-up expenses 1,400,000
------------ ------------ ------------ ------------ ------------
Operating income (loss) (38,584,000) 2,830,000 14,958,000 9,968,000 9,101,000
Interest expense-net 731,000 2,728,000 2,128,000 902,000 688,000
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes (39,315,000) 102,000 12,830,000 9,066,000 8,413,000
Income taxes (benefit) (1,407,000) 357,000 4,925,000 3,516,000 3,191,000
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000 $ 5,550,000 $ 5,222,000
============ ============ ============= ============ ============

Net earnings (loss) per common share
Basic $(4.36) $(.03) $1.10 $.77 $.75
============ ============ ============= ============ ============
Diluted $(4.36) $(.03) $1.04 $.76 $.74

============ ============ ============= ============ ============
Weighted average number
of shares outstanding
Basic 8,698,000 9,602,000 7,138,000 7,190,000 6,964,000
============ ============ ============= ============ ============
Diluted 8,698,000 9,602,000 7,634,000 7,280,000 7,069,000
============ ============ ============= ============ ============

At June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------- ------------ ------------
Balance sheet data:
Working capital $ 45,193,000 $107,741,000 $ 79,350,000 $ 40,496,000 $ 41,355,000
Total assets 141,090,000 266,565,000 197,329,000 131,305,000 87,375,000
Long-term obligations
less current portion 8,500,000 31,000,000 56,000,000 10,610,000 11,500,000
Shareholders' equity 52,810,000 106,275,000 48,896,000 41,650,000 34,633,000

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Overview

The Company is an international distributor of microcomputer
products, including personal computers, printers and other peripherals
and networking products throughout the United States and Latin
America. The Company has recently transformed itself from a
regional United States distributor into an international distributor
with leading brand name vendor lines, a nationwide presence in the
United States and a leadership position in Latin America. In fiscal
1999, the Company's net sales to customers in the United States
represented approximately 62.3% of total net sales. Net sales for
export principally into Latin America and in-county net sales, in
Brazil, Colombia and Argentina represented approximately 37.7% of
total net sales for fiscal 1999. Net sales of microcomputer products
generated approximately 86.6% of total net sales and wireless
telephone products represented the remaining 13.4% for fiscal 1999.

For the Company's domestic operations, all purchases and
sales are denominated in United States dollars. For the Company's
operations in Brazil, Colombia and Argentina, in-country
transactions are conducted in the respective local currencies of these
three locations while import purchases are denominated in United
States dollars.

The Company incurred an operating loss of $37.9 million in
fiscal 1999. This loss resulted primarily from two negative trends:
(1) a decision by one of the Company's largest vendors to reduce the
number of distributors, including SED, thereby diminishing sales and
gross profit, and (2) the sharp reductions in our Miami business,
which cut export activity to approximately half of its prior level of
sales primarily due to economic instability in the Latin American
region. Other factors contributing to the year's financial results
included a devaluation loss in Brazil and excess overhead costs in the
U.S. As a result of certain of these trends and events, the loss for
fiscal 1999 included impairment charges of $15.4 million for the
write-down of certain long-lived assets (see note 3 to the
consolidated financial statements.)

During fiscal 2000, the Company expects to experience a
continuation of its highly competitive and difficult business
environment. Evidence of this competitive and difficult
business environment includes the following trends: (1) reduction in
direct vendor relationships as the number of distributors is reduced,
(2) difficulties in receiving vendor incentive support as a
result of vendor profitability problems and (3) difficulties in
pricing channels as the remaining distributors reduce prices in order
to retain market share. This environment could continue to
adversely impact the Company's operating performance.

Results of Operations

The following table sets forth, for the periods presented,
the percentage of net sales represented by certain items in the
Company's Consolidated Statements of Earnings:

Year Ended June 30,
------------------------------------
1999 1998 1997
----- ----- ------

Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy expenses 95.6 95.0 94.0
Gross profit 4.4 5.0 6.0
Selling, general and administrative expenses 7.7 4.5 3.7
Impairment charges 2.2
Start-up expenses 0.2
Operating income (loss) (5.5) 0.3 2.3
Interest expense, net 0.1 0.3 0.3
Earnings (loss) before income taxes (5.6) 2.0
Income taxes (benefit) (.2) 0.8
Net earnings (loss) (5.4)% 0.0% 1.2%

Fiscal 1999 Compared to Fiscal 1998

Net sales decreased 20.7%, or $185.0 million, to $707.6
million in fiscal 1999 compared to $892.6 million in fiscal 1998.
Information concerning the Company's domestic and foreign sales
is summarized below:

Year Ended
June 30, Change
--------------------- -------------------------
1999 1998 Amount Percent
------ ------ -------- -------

United States:
Domestic $440.5 $528.2 $ (87.7) 16.6%
Export 191.6 341.9 (150.3) 44.0%

Latin America 82.9 24.6 58.3 237.0%

Elimination ( 7.4) (2.1) (5.3) N/A
------ ------ ------- -------

Consolidated $707.6 $892.6 $(185.0) 20.7%
====== ====== ======= =======

The overall decline resulted from a decrease in United
States domestic net sales, a decline in net sales to customers for
export principally to Latin America and a net increase in in-country
net sales for Brazil (Magna Distribuidora Ltda. acquired in December
1997 and now operating as SED International do Brasil Ltda.), Colombia
(commenced operations in May 1998 and operating as SED International
de Colombia Ltda.) and Argentina (Intermaco S.R.L. acquired in
November 1998).

The decrease in sales in the United States was primarily due
to lower sales of mass storage products resulting from the loss of a
key vendor. Sales of microcomputer products represented approximately
86.6% of the Company's net sales in fiscal 1999 compared to 88.0% for
fiscal 1998. Sales of wireless telephone products accounted for
approximately 13.4% of the Company's net sales in fiscal 1999 compared
to 12.0% for fiscal 1998.

Gross profit decreased $13.3 million to $31.2 million in
fiscal 1999, compared to $44.5 million in fiscal 1998. Gross profit
for fiscal 1999 was impacted by $7.5 million of inventory
markdowns for slow moving inventory. Overall, total gross profit
dollars have declined with sales. Gross profit as a percentage of net
sales decreased to 4.4% in fiscal 1999 from 5.0% in fiscal 1998. The
change in gross profit as a percentage of sales was due principally to
a combination of lower sales and the change in the mix of products
sold. Overall, the Company continues to experience pricing pressure
in selling products.

Selling, general and administrative expenses (excluding
$15.4 million of impairment charges for fiscal 1999) increased 35.0%
to $54.4 million, compared to $40.3 million in fiscal 1998. These
expenses as a percentage of net sales increased to 7.7% in 1999
compared to 4.5% in fiscal 1998. The dollar increase in these expenses
is primarily due to increased provisions for accounts receivable
losses in fiscal 1999 and the inclusion of operations of Latin
American affiliates.

Net interest expense was $0.7 million in fiscal 1999
compared to interest expense of $2.7 million in fiscal 1998. This net
change resulted primarily from a reduction in working capital
requirements in fiscal 1999.

Income tax benefit was $1.4 million in fiscal 1999 compared
to an income tax expense of $0.4 million in fiscal 1998. The
effective tax rate (benefit) for fiscal 1999 was significantly
reduced as a result of an increase in the valuation allowance. At
June 30, 1999, the Company has gross net operating loss carryforwards
for U.S. federal and state income tax purposes of approximately $23.7
million expiring at various dates through 2019. At June 30, 1999, the
Company has gross net operating loss carryforwards for foreign income
tax purposes of approximately $5.2 million and $1.0 million in Brazil
and Colombia, respectively. The carryforwards in Brazil do not
expire, subject to certain limitations. The carryforwards in
Colombia expire at various dates through 2004. At June 30, 1999, the
Company has recorded a valuation allowance for principally all
deferred tax assets as there is no assurance these assets will
be realized.

Fiscal 1998 Compared to Fiscal 1997
Net sales increased 38.1%, or $246.3 million, to $892.6
million in fiscal 1998 compared to $646.3 million in fiscal 1997. This
growth resulted from an increase in United States net sales, net
sales to customers for export principally into Latin America, and net
sales in-country for Brazil and Colombia. Net sales in the United
States increased approximately 48.5%, or $172.6 million, to $528.2
million in fiscal 1998 compared to $355.6 million in fiscal 1997,
primarily due to increased sales of printer and mass storage products.
Net sales for export and in-country sales in Brazil and Colombia
increased 25.3%, or $73.7 million, to $364.4 million in fiscal 1998
compared to $290.7 million in fiscal 1997, primarily due to the
December 1997 acquisition of Magna Distribuidora Ltda. in Brazil.
Sales of microcomputer products represented approximately
88.0% of the Company's fiscal 1998 net sales compared to 91.0% for
fiscal 1997. Sales of wireless telephone products accounted for
approximately 12.0% of the Company's fiscal 1998 net sales compared to
9.0% for fiscal 1997.

Gross profit increased 14.4%, or $5.6 million, to $44.5
million in fiscal 1998 compared to $38.9 million in fiscal 1997. Gross
profit as a percentage of net sales decreased to 5.0% in fiscal
1998 from 6.0% in fiscal 1997. The dollar increase in gross profit
relates directly to the increase in net sales. The decrease in the
gross profit percentage was primarily due to lower pricing of hard
disc drives, the fourth quarter write-down of certain inventory,
including disc drives, and competitive pricing in general.

Selling, general and administrative expenses (excluding $1.4
million of start-up expenses) increased 68.6%, or $16.4 million, to
$40.3 million in fiscal 1998, compared to $23.9 million in fiscal
1997. These expenses as a percentage of net sales increased to
4.5% in fiscal 1998 compared to 3.7% in fiscal 1997. The dollar
increase in these expenses was primarily due to increased salaries and
commissions for salespeople, new and expanded sales and distribution
facilities, and expenses of operations in Latin America. Additionally,
the Company incurred significantly higher expenses for uncollectible
customer accounts in the fourth quarter.

As a result of a transaction with Globelle, Inc.
("Globelle"), in June 1997, the Company acquired the distribution
rights for certain significant vendor lines in the United States and
subsequently hired 36 experienced salespeople formerly with Globelle.
Because the Globelle transaction was not an acquisition of a going
business concern, a transition period followed the close of that
transaction during which the newly-hired sales people became
acclimated to the Company's policies, procedures and product
offerings, and the inventory of new product lines became stocked at
the Company's warehouses. As a result of this transaction, the
Company incurred $1.4 million of start-up expenses during the fiscal
quarter ended September 30, 1997 reflecting costs associated with the
hiring of new sales people, opening new sales offices and other
transition expenses.

Net interest expense increased 28.2%, or $0.6 million, to
$2.7 million in fiscal 1998 compared to $2.1 in fiscal 1997. Interest
expense as a percentage of net sales was 0.3% both in fiscal 1998 and
in fiscal 1997. The increase in interest expense was primarily due to
borrowing costs associated with funding increased levels of working
capital.

Income tax expense was recorded at an effective annual rate
of 350.0% in fiscal 1998 compared to 38.4% in fiscal 1997. The
increase in the effective rate in fiscal 1998 relates
primarily to non-deductible goodwill amortization expense and
valuation allowances on foreign losses.

Quarterly Data; Seasonality

The following table sets forth certain unaudited quarterly
historical consolidated financial data for each of the Company's last
eight fiscal quarters ended June 30, 1999. This unaudited quarterly
information has been prepared on the same basis as the annual
information presented elsewhere herein and, in the Company's opinion,
includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the selected
quarterly information. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The operating results for any quarter shown are not
necessarily indicative of results for any future period.

Quarter Ended (in thousands, except per share data

Septem- Decem- Septem- Decem-
ber 30, ber 31, March 31, June 30, ber 30, ber 31, March 31, June 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------

Net sales $214,032 $215,772 $243,281 $219,544 $217,013 $171,235 $157,674 $161,648
Gross profit 11,607 13,188 13,521 6,233 11,225 11,220 (1,584) 10,367
Operating income (loss) 3,433 4,958 3,892 (9,543) 1,101 (561) (39,949) 825
Net earnings (loss) 1,409 2,641 1,919 (6,244) 342 (273) (38,859) 882
Earnings (loss) per share:
Basic .20 .26 .18 (.59) .03 (.03) (4.51) .13
Diluted .18 .25 .18 (.59) .03 (.03) (4.51) .13

Liquidity and Capital Resources

The Company's liquidity requirements arise primarily from
the funding of working capital needs, including inventories and trade
accounts receivable. Historically, the Company has financed its
liquidity needs largely through internally generated funds, borrowings
under its credit agreement and vendor lines of credit. The Company
derives all of its operating income and cash flow from its
subsidiaries and relies on payments from its subsidiaries to generate
the funds necessary to meet its obligations. As the Company pursues
its growth strategy and acquisition opportunities both in the United
States and in Latin America, management believes that exchange
controls in certain countries may limit the ability of the Company's
present and future subsidiaries in those countries to make payments to
the Company.

Operating activities provided $45.5 million, used $23.3
million and used $29.0 million of cash in fiscal 1999, 1998 and 1997,
respectively. The source of cash in fiscal 1999 resulted

primarily from decreases of $86.5 million in inventory and $17.6
million in accounts receivable partially offset by a $53.6 million
decrease in accounts payable. The use of cash in fiscal 1998 resulted
primarily from increases of $33.3 million in accounts receivable and
$25.2 million in inventory partially offset by a $29.6 million
increase in accounts payable. The use of cash in fiscal 1997 resulted
primarily from increases of $12.5 million in accounts receivable and
$40.3 million in inventory partially offset by net earnings of $7.9
million and a $12.6 million increase in accounts payable.

Investing activities used $6.8 million, $6.3 million and
$15.5 million of cash in fiscal 1999, 1998 and 1997, respectively.
The significant use of cash in fiscal 1999 was primarily for the
purchase of Intermaco S.R.L. for $4.3 million. The remaining use of
cash in fiscal 1999 was primarily due to the purchase of computer
equipment and software. The Company used $0.7 million in fiscal 1998
to purchase SED International do Brasil Ltda. The significant use of
cash in fiscal 1997 was primarily for the purchase of certain
distribution rights and equipment from Globelle for $13.0 million. The
Company paid $0.9 million in fiscal 1998 for additional distribution
rights benefited from the Globelle transaction. The remaining use of
cash in fiscal 1998, as well as the use of cash in fiscal 1997, was
primarily due to the upgrade of the Company's computer and telephone
systems as well as the expansion of warehouse and other facilities in
each year.

Financing activities used $37.3 million of cash in fiscal
1999 and provided $31.6 million and $44.6 million of cash in fiscal
1998 and 1997, respectively. The net cash used in financing activities
in fiscal 1999 primarily related to net borrowings of $22.5 million
under the Company's credit agreement and the repurchase of 3,946,250
shares of common stock for approximately $14.8 million in open market
and privately negotiated transactions under a stock buy-back
program previously authorized by the Board of Directors. In fiscal
1998, the Company received $54.4 million, net of expenses, from a
public stock offering of 3,000,000 shares of its common
stock. The net proceeds from this stock offering were used to reduce
indebtedness under the Company's credit agreement. Additional
financing activities in fiscal 1998 relate to the exercise
of stock options for $1.6 million and net borrowings of $25.0 million
under the Company's credit agreement. In fiscal 1997, the Company
repurchased 200,000 shares of common stock for approximately $1.3
million in an open market transaction under a stock buy-back program
previously authorized by the Board of Directors. Net borrowings under
the Company's credit agreement in fiscal 1997 were $45.4 million.

The Company's credit agreement with Wachovia Bank N.A.
("Wachovia"), as amended in August 1999, provides for a line of credit
of up to $50.0 million. At June 30, 1999, the Company had borrowings
of $8.5 million under this facility. Maximum borrowings under the
credit agreement are generally based on eligible accounts receivable
and inventory (as defined in the credit agreement) less a $15.0
million reserve. The $15.0 million reserve can be drawn upon, if
necessary, to finance obligations to Finova Capital Corporation, which
finances the Company's purchases from certain vendors. If this
amended agreement had been in place at June 30, 1999, available
borrowings under this agreement, based on collateral limitations,
would have been $40.0 million at that date ($15.0 million of which
would only have been available to finance obligations due to Finova,
if necessary).

The Wachovia credit agreement is secured by accounts
receivable and inventory and requires maintenance of certain minimum
working capital and other financial ratios and has certain
dividend restrictions. The Company may borrow at the prime rate
offered by Wachovia (8.0% at June 30, 1999) or the Company may fix the
interest rate for periods of 30 to 180 days under various interest
rate options. The credit agreement requires a commitment fee of .25%
of the unused commitment and expires in August 2001. Average
borrowings, maximum borrowings and the weighted average interest rate
for fiscal 1999 were $7.2 million, $32.0 million and 8.12%,
respectively. Average borrowings, maximum borrowings and the weighted
average interest rate for fiscal 1998 were $33.9 million, $80.0
million and 7.87%, respectively. At June 30, 1999 the Company was
not initially in compliance with certain covenants; such covenants
were retroactively amended by the bank effective June 30, 1999 to
permit the Company to be in compliance.

Management believes that the credit agreement together with
vendor lines of credit and internally generated funds, will be
sufficient to satisfy its working capital needs during fiscal
2000.

Inflation and Price Levels

Inflation has not had a significant impact on the Company's
business because of the typically decreasing costs of products sold by
the Company. The Company also receives vendor price protection for a
significant portion of its inventory. In the event a vendor reduces
its prices for goods purchased by the Company prior to the Company's
sale of such goods, the Company generally has been able either to
receive a credit from the vendor for the price differential or to
return the goods to the vendor for a credit against the purchase
price. As the Company pursues its growth strategy to acquire
businesses and assets in foreign countries, the Company may operate in
certain countries that have experienced high rates of inflation and
hyperinflation. At this time, management does not expect that
inflation will have a material impact on the Company's business
in the immediate future.

Year 2000

The Company has evaluated its major computer software and
operating systems to determine their respective date sensitivity in
light of the possible inability of certain computer programs to
handle dates beyond the year 1999 (the "Year 2000 Issue"). The
Company's plans for dealing with the Year 2000 Issue have included the
following phases: inventorying affected technology and
assessing potential impact of the Year 2000 Issue; determining the
need for software and operating system upgrades and replacements;
implementing and testing newly installed software and operating
systems; and developing contingency plans. Many of the Company's
hardware, software and operating systems have already been updated to
the latest versions available.

The Company relies on third-party suppliers for many
systems, products and services including telecommunications and data
center support. The Company may be adversely impacted if these
suppliers have not made the necessary changes to their own
systems and products in a timely manner.

The cost to the Company of software and hardware remediation
was approximately $200,000 during fiscal 1999 and is estimated to be
$50,000 during fiscal 2000. The total cost of updating the Company's
software and operating systems is currently estimated at approximately
$500,000.

Potential risk factors for the Company relating to the Year
2000 Issue may include loss of order processing and order shipment
capabilities, the potential inability to effectively manage
distribution center inventory, and potential complications with
telephone or email communications. The Company currently believes that
the majority of its mission critical systems pose a low risk to the
Company's overall operational abilities, due to the fact that the
Company has updated most of its software and operating systems to
recent versions. Furthermore, the Company has taken measures to ensure
that its systems that pose a potentially higher risk to the Company's
overall operational abilities have been updated.

The Company believes that it is taking the appropriate
measures to develop contingency plans that address the likely worst
case scenarios relating to the Year 2000 Issue. Although the
Company believes that the measures it is currently undertaking and
intends to undertake will adequately address the Year 2000 issue, it
has developed alternative plans should potential complications arise.
Though essential to the operation of the Company's business, the
software and operating systems that the Company currently utilizes may
be supplemented by manual processing and shipment of orders.

Forward-Looking Statements

The matters discussed herein and in the Letter to
Shareholders accompanying this Annual Report on Form 10-K contain
certain forward-looking statements that represent the Company's
expectations or beliefs, including, but not limited to, statements
concerning future revenues and future business plans and
non-historical Year 2000 information. When used by or on behalf of the
Company, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "intend," "plan" and similar expressions are
intended to identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, certain of
which are beyond the Company's control. The Company cautions that
various factors, including the factors described under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's
Registration Statement on Form S-3 (SEC File No. 333-35069) as well as
general economic conditions and industry trends, foreign currency
fluctuations, the level of acquisition opportunities available to
the Company and the Company's ability to negotiate the terms of such
acquisitions on a favorable basis, a dependence upon and/or loss of
key vendors or customers, the transition to indirect distribution
relationships for some products, the loss of strategic product
shipping relationships, customer demand, product availability,
competition (including pricing and availability), concentrations of
credit risks, distribution efficiencies, capacity constraints and
technological difficulties could cause actual results or outcomes to
differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. The
Company undertakes no obligation to update any forward-looking
statement.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

Board of Directors
SED International Holdings, Inc.

We have audited the accompanying consolidated balance sheets
of SED International Holdings, Inc. and subsidiaries as of June 30,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended June 30, 1999. 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 generally
accepted auditing standards. 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, such consolidated financial statements
present fairly, in all material respects, the financial position of
SED International Holdings, Inc. and subsidiaries as of June 30, 1999
and 1998 and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1999 in
conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
September 22, 1999

SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30,
---------------------------------
1999 1998
------------ ------------

ASSETS

Current assets:
Cash and cash equivalents $ 3,266,000 $ 2,693,000
Trade accounts receivable, less allowance for doubtful
accounts of $3,253,000 (1999) and $2,362,000 (1998) 58,085,000 86,298,000
Inventories 57,092,000 141,196,000
Refundable income taxes 3,801,000 3,489,000
Deferred income taxes 290,000 1,827,000
Other current assets 2,439,000 1,528,000
------------ ------------
Total current assets 124,973,000 237,031,000
Property and equipment net 6,994,000 9,490,000
Intangibles-net 9,123,000 20,044,000
------------ ------------
Total assets $141,090,000 $266,565,000
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade accounts payable $ 72,375,000 $122,959,000
Accrued and other current liabilities 7,405,000 6,331,000
Total current liabilities 79,780,000 129,290,000
Revolving bank debt 8,500,000 31,000,000

Commitments (Note 6)
Shareholders' equity:
Preferred stock, $1.00 par value;
129,500 shares authorized, none issued
Common stock, $.01 par value;
100,000,000 shares authorized, 11,158,311 (1999) and
10,862,211 (1998) shares issued, 6,866,453 (1999) and
10,516,603 (1998) shares outstanding 112,000 108,000
Additional paid-in capital 71,712,000 70,659,000
Retained earnings 932,000 38,840,000
Accumulated other comprehensive loss (984,000) (119,000)
Treasury stock, 4,291,858 (1999) and 345,608 (1998) shares, at cost (17,764,000) (2,937,000)
Prepaid compensation stock awards (1,198,000) (276,000)
------------ ------------
Total shareholders' equity 52,810,000 106,275,000
------------ ------------
Total liabilities and shareholders' equity $141,090,000 $266,565,000
============ ============

See notes to consolidated financial statements

SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended June 30,
-----------------------------------------------------
1999 1998 1997
------------ ------------ ------------

Net sales $707,570,000 $892,629,000 $646,336,000
Cost of sales, including buying and
occupancy expenses 676,342,000 848,090,000 607,437,000
------------ ------------ ------------
Gross profit 31,228,000 44,539,000 38,899,000

Selling, general and administrative expenses 54,426,000 40,309,000 23,941,000
Impairment charges 15,386,000
Start-up expenses 1,400,000
------------ ------------ ------------
Operating income (loss) (38,584,000) 2,830,000 14,958,000
Interest expense net 731,000 2,728,000 2,128,000
------------ ------------ ------------
Earnings (loss) before income taxes (39,315,000) 102,000 12,830,000
Income taxes (benefit) (1,407,000) 357,000 4,925,000
------------ ------------ ------------
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000
============ ============ ============

Net earnings (loss) per common share:
Basic $(4.36) $(.03) $1.10
Diluted $(4.36) $(.03) $1.04

Weighted average number of shares outstanding:
Basic 8,698,000 9,602,000 7,183,000
Diluted 8,698,000 9,602,000 7,634,000

See notes to consolidated financial statements

SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Accumulated Prepaid
Other Compens-
Common Stock Additional Compre- ation Total
Par Paid-In Retained hensive Treasury Stock Stock holder's
Shares Value Capital Earnings Loss Shares Cost Awards Equity
---------- -------- ----------- ----------- --------- ------- ----------- --------- ---------

BALANCE,
JUNE 30,
1996 7,444,712 $ 74,000 $12,204,000 $31,190,000 $(999,999) 125,590 $(1,390,000) $(428,000) $41,650,000

Amortiz-
ation of
stock
awards 122,000 122,000

Stock
awards
cancelled (5,000) (28,000) 28,000

Stock
options
exercised 83,074 1,000 396,000 397,000

Tax benefit
of stock
awards and
options 147,000 147,000

Treasury
stock
purchased 200,000 (1,325,000) (1,325,000)

Net earnings
and com-
prehensive
income 7,905,000 7,905,000
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------

BALANCE,
JUNE 30,
1997 7,522,786 75,000 12,719,000 39,095,000 325,590 (2,715,000) (278,000) 48,896,000

Stock
awards
issued to
employees 16,600 199,000 (199,000)

Amortiz-
ation of
stock
awards 108,000 108,000

Stock
awards
cancelled (11,900) (93,000) 93,000

Stock
options
exercised 255,006 2,000 1.576,000 1,578,000

Tax benefit
of stock
awards and
options 818,000 818,000

Sale of
common
stock, net
of offering
costs of
$955,000 3,000,000 30,000 54,395,000 54,425,000

Treasury
stock
purchased 20,018 (222,000) (222,000)

Issuance of
common
stock for
business
acquired 79,719 1,000 1,045,000 1,046,000

Net loss (255,000) (255,000)

Transla-
tion
adjust-
ments (119,000) (119,000)

Compre-
hensive
loss (374,000)
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------
BALANCE,
JUNE 30,
1998 10,862,211 108,000 70,659,000 38,840,000 $(119,000) 345,608 (2,937,000) (276,000) 106,275,000

Stock
awards
issued to
employees 305,000 4,000 1,118,000 (1,122,000)

Amortiz-
ation of
stock
awards 132,000 132,000

Stock
awards
cancelled (9,300) (68,000) 68,000

Stock
options
exercised 400 3,000 3,000

Treasury
stock
purchased 3,946,250 (14,827,000) (14,827,000)

Net loss (37,908,000) (37,908,000)

Transla-
tion
adjust-
ments (865,000) (865,000)

Compre-
hensive
loss (38,773,000)
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------

BALANCE,
JUNE 30,
1999 11,158,311 $112,000 $71,712,000 $ 932,000 $(984,000) 4,291,858 $(17,764,000) $(1,198,000) $52,810,000
========== ======== =========== =========== ========= ========= ============ =========== ===========

See notes to consolidated financial statements

SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30,
---------------------------------------------------
1999 1998 1997
------------ ------------ ------------

Operating Activities:
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Impairment charges for long-lived assets 15,386,000
Depreciation and amortization 3,206,000 2,847,000 1,731,000
Compensation stock awards 132,000 108,000 122,000
Provision for losses on accounts receivable 13,622,000 6,073,000 1,391,000
Changes in assets and liabilities, net of effects of
acquired business in fiscal 1999 and 1998:
Trade accounts receivable 17,639,000 (33,254,000) (12,515,000)
Inventories 86,489,000 (25,248,000) (40,312,000)
Refundable income taxes (312,000) (3,489,000)
Deferred income taxes 1,823,000 (604,000) 7,000
Other current assets (865,000) (129,000) (692,000)
Trade accounts payable (53,582,000) 29,611,000 12,562,000
Income taxes payable (695,000)
Accrued and other current liabilities (92,000) 1,063,000 1,521,000
------------ ------------ ------------
Net cash provided by (used in)
operating activities 45,538,000 (23,277,000) (28,975,000)
------------ ------------ ------------
Investing Activities:
Purchase of equipment (2,470,000) (4,767,000) (3,521,000)
Purchase of businesses, net of cash acquired (4,306,000) (659,000)
Purchase of distribution rights (867,000) (11,992,000)
------------ ------------ ------------
Net cash used in investing activities (6,776,000) (6,293,000) (15,513,000)
------------ ------------ ------------
Financing Activities:
Net proceeds from (payments of) revolving bank debt (22,500,000) (25,000,000) 45,390,000
Net proceeds from issuance of common stock 3,000 56,003,000 397,000

Tax benefit from stock awards and options 818,000 147,000
Purchase of treasury stock (14,827,000) (222,000) (1,325,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities (37,324,000) 31,599,000 44,609,000
------------ ------------ ------------
Effect of exchange rate changes on cash (865,000) (119,000)
------------ ------------ ------------
Increase in cash and cash equivalents 573,000 1,910,000 121,000
Cash and Cash Equivalents
Beginning of year 2,693,000 783,000 662,000
------------ ------------ ------------
End of year $ 3,266,000 $ 2,693,000 $ 783,000
============ ============ ============
Supplemental Disclosures of
Cash Flow Information-
Cash paid during the year for:
Interest $ 956,000 $ 2,765,000 $ 2,167,000
Income taxes 316,000 3,545,000 5,257,000
Liabilities assumed in acquisitions 4,163,000 6,183,000

See notes to consolidated financial statements

SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended June 30, 1999, 1998 and 1997

1. Summary Of Significant Accounting Policies

Principles of Consolidation--The consolidated financial statements
include the accounts of SED International Holdings, Inc. and its
wholly-owned subsidiaries, SED International, Inc. (formerly
Southern Electronics Distributors, Inc.), SED International do Brasil
(formerly SED Magna Distribuidora Ltda.), SED Magna (Miami), Inc., SED
International de Colombia Ltda., and Intermaco S.R.L. (collectively
the "Company"). All intercompany accounts and transactions have
been eliminated.

Description of Business--The Company is an international wholesale
distributor of microcomputers, computer peripheral products and
wireless telephone products, serving value-added resellers and
dealers.

Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles 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.

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

Inventories--Inventories are stated at the lower of cost (first-in,
first-out method) or market and include in-transit inventory of
$10,313,000 at June 30, 1999 and $26,171,000 at June 30, 1998.

Property and Equipment--Property and equipment are recorded at cost.
Depreciation is computed principally by the straight-line method over
the estimated useful lives, three to seven years, of the related
assets or the lease term, whichever is shorter.

Intangible Assets--Intangible assets consist primarily of goodwill and
distribution rights. Goodwill represents the excess of the cost of
acquired businesses over the fair value of net identifiable assets
acquired and is amortized using the straight-line method principally
over 30 years. Distribution rights have been amortized using the
straight-line method over 25 to 30 years.

Impairment--The Company periodically reviews property and equipment and
intangible assets for impairment based on judgments as to the future
undiscounted cash flows from related operations. An impaired asset is
written down to its estimated fair market value based on the
information available; estimated fair market value is generally
measured by discounting estimated future cash flows.

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 earnings.

Earnings Per Common Share--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
are additional common shares assumed to be exercised.

The Company's diluted EPS differs from basic EPS solely from the
effect of dilutive stock options and restricted stock awards. For the
years ended June 30, 1999, 1998 and 1997 options for approximately
1,678,000, 1,602,000 and 53,000 common shares, respectively, were
excluded from the diluted EPS calculation due to their antidilutive
effect.

Recently Issued Accounting Pronouncements--In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This
statement requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a
hedge transaction and, if so, the type of the hedge transaction. The
ineffective portion of all hedge transactions will be recognized in
the current-period earnings. SFAS 133, as now amended, is effective
for fiscal years beginning after June 15, 2000. The Company has not
yet fully evaluated the impact of this new standard.

Effective for the year ended June 30, 1999 (fiscal 1999) the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the Company's consolidated
financial statements. Comprehensive income is defined as the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. The Company's balance of other comprehensive income is
comprised exclusively of changes in the net cumulative translation
adjustment.

Effective for the year ended June 30, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The segment information presented herein is in
accordance with this new disclosure standard and closely aligns with
geographic information presented by the Company in previous years.

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 fair
value.

2. Acquisitions

Business--In November 1998, the Company acquired Intermaco S.R.L.
("Intermaco"), a Buenos Aires based distributor of Hewlett-Packard
products and other computer peripherals in Argentina, for
approximately $4,417,000 in cash. The Company is required to pay
additional amounts (either in cash or in Company common stock at the
Company's option) to the sellers of Intermaco based on a multiple of
Intermaco's net earnings, as defined, for the two succeeding twelve
month periods commencing November 1, 1998. If paid, such amounts will
be recorded as additional goodwill.

In December 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of Magna Distribuidora Ltda., a
Brazilian distributor of microcomputers and related products
("Magna"), for approximately $1,802,000, consisting of 79,719
shares of common stock valued at $1,045,000 and cash of $757,000. The
Company is required to pay additional amounts to the sellers of Magna
based on a multiple of Magna's net earnings, as defined, for the two
succeeding twelve month periods commencing December 1997. If paid,
such amounts will be recorded as additional goodwill. No additional
amount was paid based on results for the initial 12 month period.

These acquisitions have been accounted for using the purchase method
of accounting. The allocation of purchase price for Intermaco
(November 1998) and Magna (December 1997) resulted in $2,495,000 and
$758,000 of goodwill, respectively. As discussed in note 3, the
Company recorded an impairment charge for the remaining goodwill
related to Magna during the third quarter of fiscal 1999.

The operating results of the acquired businesses are included in the
Company's consolidated statements of earnings from their respective
acquisition dates. The pro forma impact of business acquisitions on
operations for fiscal 1999, 1998 and 1997 was not material.

Distribution Rights--On June 30, 1997, as a result of a transaction
with Globelle, a wholesale distributor of microcomputers and related
products, the Company acquired certain domestic distribution rights
(principally for certain Hewlett-Packard products) and equipment for
$12,992,000 in cash. The Company paid Globelle an additional $867,000
in fiscal 1998 for certain other domestic distribution rights. These
rights were considered impaired and written down during the year ended
June 30, 1999, as discussed in note 3.

3. Long-Term Assets

Long-term assets are comprised of the following:

June 30,
---------------------------
1999 1998
----------- -----------
Property and equipment:
Furniture and equipment $10,709,000 $13,427,000
Leasehold improvements 1,617,000 1,660,000
Other 207,000 150,000
----------- -----------
12,533,000 15,237,000
Less accumulated depreciation 5 ,539,000 5,747,000
----------- -----------
$ 6,994,000 $ 9,490,000
=========== ===========
Intangibles:
Distribution rights $ 226,000 $12,859,000
Goodwill 9,853,000 8,003,000
Non-compete agreements 500,000
----------- -----------
10,072,000 21,362,000
Less accumulated amortization 955,000 1,318,000
----------- -----------
$ 9,123,000 $20,044,000
=========== ===========

Amortization expense of intangibles was $888,000, $749,000 and
$338,000 in the years ended June 30, 1999, 1998 and 1997,
respectively.

The Company recorded impairment charges aggregating $15,386,000 during
the year ended June 30, 1999 for the following:

[BULLET] As a result of declining U.S. sales, the Company reviewed
the intangible assets related to distribution rights
acquired in June 1997 from Globelle for possible impairment.
This evaluation resulted in a $11,994,000 writedown of these
rights to their estimated fair value (based on estimated
future associated cash flows).
[BULLET] In response to the poor operating performance realized at
SED Magna Distribuidora Ltda. in Brazil since its December
1997 acquisition and risks inherent in its future
operations, the Company recorded an impairment charge of
$738,000 for the write-off of the goodwill related to this
entity (as this goodwill does not appear to be recoverable).
[BULLET] Property and equipment was reviewed and written down by
$2,654,000 primarily for computer equipment and capitalized
software costs.

4. Revolving Bank Debt

The Company's credit agreement with Wachovia Bank N.A. ("Wachovia"),
as amended in August 1999, provides for a line of credit of up to
$50.0 million. At June 30, 1999, the Company had borrowings of $8.5
million under this facility. Maximum borrowings under the credit
agreement are generally based on eligible accounts receivable and
inventory (as defined in the credit agreement) less a $15.0 million
reserve. The $15.0 million reserve can be drawn upon, if necessary,
to finance obligations to Finova Capital Corporation, which
finances the Company's purchases from certain vendors. If this
amended agreement had been in place at June 30, 1999,

available borrowings under this agreement, based on collateral
limitations, would have been $40.0 million at that date ($15.0 million
of which would only have been available to finance obligations
due to Finova, if necessary).

The Wachovia credit agreement is secured by accounts receivable and
inventory and requires maintenance of certain minimum working capital
and other financial ratios and has certain dividend restrictions. The
Company may borrow at the prime rate offered by Wachovia (8.0% at
June 30, 1999) or the Company may fix the interest rate for periods of
30 to 180 days under various interest rate options. The credit
agreement requires a commitment fee of .25% of the unused commitment
and expires in August 2001. Average borrowings, maximum borrowings
and the weighted average interest rate for fiscal 1999 were $7.2
million, $32.0 million and 8.12%, respectively. Average borrowings,
maximum borrowings and the weighted average interest rate for fiscal
1998 were $33.9 million, $80.0 million and 7.87%, respectively. At
June 30, 1999 the Company was not initially in compliance with certain
covenants; such covenants were retroactively amended by the bank
effective June 30, 1999 to permit the Company to be in compliance.

The carrying value of revolving bank debt at June 30, 1999
approximates its fair value based on interest rates that are believed
to be available to the Company for debt with similar provisions.

5. Income Taxes

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income
tax purposes. The tax effects of significant items comprising the
Company's current deferred tax assets are as follows:

June 30,
----------------------------
1999 1998
----------- ----------
U.S. federal and state operating
loss carryforwards $ 9,240,000
Foreign operating loss carryforwards 2,046,000 $ 166,000
Reserves not currently deductible 1,819,000 1,317,000
Inventory valuation 418,000 683,000
Other 170,000 (10,000)
Valuation allowance (13,403,000) (329,000)
----------- -----------
$ 290,000 $ 1,827,000
=========== ===========

At June 30, 1999, the Company has gross net operating loss
carryforwards for U.S. federal and state income tax purposes of
approximately $23.7 million expiring at various dates through 2019.
At June 30, 1999, the Company has gross net operating loss
carryforwards for foreign income tax purposes of approximately $5.2
million and $1.0 million in Brazil and Colombia, respectively.
The carryforwards in Brazil do not expire, subject to certain
limitations. The carryforwards in Colombia expire at various dates
through 2004. At June 30, 1999, the Company has recorded a
valuation allowance for principally all deferred tax assets as there
is no assurance these assets will be realized.

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

Year Ended June 30,
-----------------------------------------------
1999 1998 1997
----------- --------- ----------

Current:
Federal $(2,795,000) $ 914,000 $4,380,000
State (252,000) 47,000 538,000
Foreign 128,000
----------- --------- ----------
(2,919,000) 961,000 4,918,000
----------- --------- ----------

Deferred:
Federal 1,203,000 (552,000) 6,000
State 313,000 (52,000) 1,000
Foreign (4,000)
----------- --------- ----------
1,512,000 (604,000) 7,000
----------- --------- ----------
$(1,407,000) $ 357,000 $4,925,000
============ ========= ==========

Income tax benefits relating to the exercise of employee stock awards
and options reduce taxes currently payable and are credited to
additional paid-in capital. Such amounts approximated
$818,000 and $9,700 for fiscal 1998 and 1997, respectively.

The Company's effective tax rates differ from statutory rates as
follows:

Year Ended June 30,
-----------------------------------------
1999 1998 1997
------ ---- ----

Statutory federal rate (benefit) (34.0)% 34.0% 34.2%
State income taxes net of
federal income tax benefit 0.1 28.4 3.3
Non-deductible goodwill
amortization 1.0 82.4 1.9
Valuation allowance 24.7 163.7 --
Other 4.6 41.5 (1.0)
---- ----- ----
(3.6)% 350.0% 38.4%
==== ===== ====

6. Lease Obligations

SED International leases its main office facility under an operating
lease with an entity owned by certain minority shareholders of the
Company. The lease currently provides for an annual rent of
$176,000 through September 1999, increasing to approximately $253,000
effective October 1999, with annual increases of three percent through
September 2006.

The Company leases additional distribution center and sales office
space under operating leases. Rent expense under all operating leases
for the years ended June 30, 1999, 1998 and 1997 was $2,573,000,
$2,090,000 and $949,000, respectively.

As of June 30, 1999, future minimum rental commitments under
noncancelable operating leases are:

Year Ending June 30,
2000 $1,900,000
2001 1,703,000
2002 1,183,000
2003 555,000
2004 283,000
2005 and thereafter 667,000
----------

$6,291,000
==========

7. Shareholders' Equity

Common Stock--In October 1997 the Company issued 3,000,000 shares of
its common stock for proceeds of $54,395,000, net of offering costs of
$955,000. During fiscal years 1999, 1998 and 1997, the Company
repurchased 3,946,250, 20,018 and 200,000 shares, respectively, of its
common stock in open market and private transactions for $14,827,000,
$222,000 and $1,325,000, respectively.

Stock Options--The Company maintains stock option plans under which
1,796,146 shares of common stock have been reserved at June 30, 1999
for outstanding and future incentive and nonqualified stock option
grants and stock grants to 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 10 years from the date of grant. Options granted
under the plans are exercisable in installments ranging from 10% to
50% per year. Upon the occurrence of a "change of control" (as
defined), all outstanding options become immediately exercisable.

Stock option activity and related information under these plans is as
follows:

Weighted
Average
Shares Exercise Price
--------- --------------

Shares under options June 30, 1996 1,195,600 $5.24
Granted 401,200 8.21
Exercised (83,074) 8.21
Canceled (85,940) 6.77
---------
Shares under options June 30, 1997 1,427,786 6.02
Granted 318,700 13.94
Exercised (193,506) 5.70
Canceled (32,945) 8.46
---------
Shares under options June 30, 1998 1,520,035 7.66
Granted 225,550 4.10
Exercised (400) 7.50
Canceled (178,350) 4.89
---------
Shares under options June 30, 1999 1,566,835 4.87
=========

Exercisable at June 30: 1997 903,396 5.30
1998 932,039 5.72
1999 848,615 4.96

Additionally, since 1992, the Board of Directors has granted
nonqualified options to purchase 183,000 shares of common stock to
certain directors of the Company at an exercise price from
$5.00 to $15.25 (fair market value of the Company's common stock
at date of grant). Options to purchase 10,000 shares of common
stock by a director were canceled during fiscal 1997. Options to
purchase 61,500 shares of common stock were exercised by certain
directors at a weighted average price of $7.73 during fiscal 1998. At
June 30, 1999, 111,500 options granted to directors of the
Company were outstanding and exercisable at a weighted average
exercise price of $5.05; such options expire 10 years from the date of
grant.

The following table summarizes information pertaining to all options
outstanding and exercisable at June 30, 1999:

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

$3.56-$4.56 175,150 3.89 $3.88
4.89- 5.06 1,503,185 1.99 5.00 848,615 $4.96

In July 1999, the Company's directors approved a broadly-based stock
benefit plan under which non-qualified stock options and awards for up
to an aggregate of 1,400,000 shares of common stock may be issued.
Stock options for the purchase of 988,000 shares of the Company's
stock at a price

of $2.94 per share and stock awards for 150,000 shares were issued in
July 1999. The information described previously in this note does not
include the effect of stock options and awards issued subsequent to
June 30, 1999 under this plan.

Fair Value--The weighted average fair value of options granted in
fiscal 1999, 1998 and 1997 was $2.52, $3.61 and $4.45, respectively,
using the Black-Scholes option pricing model with the following
assumptions:

1999 1998 1997
---- ---- ----

Dividend yield 0.0% 0.0% 0.0%
Expected volatility 58.4% 55.5% 49.2%
Risk free interest rate 5.1% 5.9% 6.3%
Expected life, in years 6.6 6.8 7.6

Had compensation cost for grants under the Company's stock option
plans in fiscal 1999, 1998 and 1997 been determined based on the fair
value at the date of grant consistent with the method of
SFAS 123, the Company's pro forma net earnings (loss) and net earnings
(loss) per share would have been as follows:

Year Ended June 30,
---------------------------------------------------
1999 1998 1997
------------ ----------- ----------

Pro forma net
earnings (loss) $(39,027,000) $(1,075,000) $7,446,000
Pro forma net
earnings (loss)
per common share:
Basic (4.49) (.11) 1.04
Diluted (4.49) (.11) .98

Restricted Stock--In 1988, the Company's directors established a
restricted stock plan which permits the granting of restricted stock
awards to officers, key employees and directors. The individual awards
vest generally after three to ten years. At June 30, 1999, 5,000
shares of common stock are reserved for issuance under this plan.
Restricted stock activity is as follows:

Year Ended June 30,
-----------------------------------------------
1999 1998 1997
------- ------- ------

Shares of restricted stock
beginning of year 67,200 92,500 97,500
Issued 280,000 16,600
Vested (30,000)
Canceled (9,300) (11,900) (5,000)
------- ------- ------
Shares of restricted stock
end of year 337,900 67,200 92,500
======= ======= ======

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.

8. Employee Benefit Plan
SED International maintains a voluntary retirement benefit program,
the Southern Electronics Distributors, Inc. 401(k) Plan. All employees
of SED International who have attained the age of 21 are eligible to
participate after completing one year of service. SED International
matches a portion of employee contributions to the plan. Employees are
immediately vested in their own contributions. Vesting in SED
International's matching contributions is based on years of
continuous service. SED International's matching contribution expense
for the years ended June 30, 1999, 1998 and 1997 was $142,000,
$114,000 and $90,000, respectively.

9. Segment Information

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

United States Latin America Eliminations Consolidated
------------ ----------- ------------- ------------

Fiscal 1999
Net sales:
Unaffiliated customers $624,690,000 $82,880,000 $707,570,000
Foreign subsidiaries 7,362,000 $ (7,362,000)
------------ ----------- ------------- ------------
Total $632,052,000 $82,880,000 $ (7,362,000) $707,570,000
============ =========== ============= ============

Gross profit $ 23,090,000 $ 8,138,000 $ 31,228,000
Income (loss) from operations (32,058,000) (5,850,000) (37,908,000)
Total assets 128,379,000 28,882,000 $ (16,171,000) 141,090,000

Fiscal 1998
Net sales:
Unaffiliated customers $867,986,000 $24,643,000 $892,629,000
Foreign subsidiaries 2,129,000 $ (2,129,000)
------------ ----------- ------------- ------------
Total $870,115,000 $24,643,000 $ (2,129,000) $892,629,000
============ =========== ============= ============

Gross profit $ 41,587,000 $ 2,969,00 $ (17,000) $ 44,539,000
Income (loss) from operations 3,237,000 (390,000) (17,000) 2,830,000
Total assets 254,626,000 15,326,000 (3,387,000) 266,565,000

The Company operated in one geographic region (United States) in
fiscal 1997. Sales of products between the Company's geographic
regions are made at market prices. All corporate overhead is
included in the results of U.S. operations.

Net sales by product category is as follows:

Microcomputer Wireless Telephone
Year Ended June 30, Products Products Total
- ------------------- ------------- ------------------ ------------

1999 $612,847,000 $ 94,723,000 $707,570,000
1998 785,514,000 107,115,000 892,629,000
1997 588,166,000 58,170,000 646,336,000

Approximately 38% of the Company's net sales in the United States in
the fiscal year ended June 30, 1999 consisted of sales to customers
for export principally into Latin America and direct sales to
customers in Brazil, Colombia and Argentina. For the years ended June
30, 1998 and 1997 approximately 41% and 45%, respectively, of the
Company's net sales in the United States were to customers for export
principally into Latin America.

10. Significant Vendors

During the year ended June 30, 1999, the Company purchased
approximately 21% of its product from one vendor. During the years
ended June 30, 1998 and 1997, the Company purchased approximately
39% and 43%, respectively, of its product from three vendors.

11. Supplemental Disclosures

Analysis of Allowances for Doubtful Accounts:

Balance at Charged to Charged to Balance at
Beginning Costs and to Other End
of Period Expenses Deduction(1) Account(2) of Period
---------- ----------- ------------ -------- ---------

Year ended June 30,
1999 $2,362,000 $13,622,000 $(13,091,000) $360,000 $3,253,000
1998 1,102,000 5,911,000 (4,813,000) 162,000 2,362,000
1997 1,141,000 1,391,000 (1,430,000) 1,102,000

(1) Deductions represent actual write-offs of specific accounts
receivable charged against the allowance account, net of amounts
recovered.
(2) Represents balances of acquired business.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information regarding the Registrant's directors is
incorporated herein by reference to the section of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders scheduled for
November 9, 1999 (the "Proxy Statement") entitled "Proposal 1 -
Election of Directors."

The executive officers of the Registrant, their ages and
their present positions are as follows:

Name Age Position

Gerald Diamond 61 Chairman of the Board, Chief Executive
Officer and Director of the Registrant
and SED International
Ray D. Risner 54 President, Chief Operating Officer and
Director of the Registrant and SED
International
Larry G. Ayers 53 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer of the
Registrant and SED International
Mark Diamond 34 Executive Vice President and Director of
the Registrant and SED International
Jean Diamond 58 Vice President of SED International
Ronell Rivera 36 President of SED International do Brazil
Ltda and Senior Vice President of SED
International Latin America

Gerald Diamond. Mr. Diamond has been a director of the
Registrant or its predecessor, Southern Electronics Distributors,
Inc., since 1980 and currently serves as Chairman of the Board and
Chief Executive Officer of the Registrant and SED International. He
was elected President and Chairman of the Board of the Registrant and
SED International in June 1986 and has served in two or more
capacities as Chairman of the Board, Chief Executive Officer and
President of the Registrant and SED International from that time up
until May 1995. Mr. Diamond founded the predecessor to the
Registrant and served as its President and Treasurer from July 1980
through July 1986. Mr. Diamond has been in the electronics-related
business for over 35 years. Mr. Diamond is the husband of Jean
Diamond and the father of Mark Diamond.

Ray D. Risner. Mr. Risner has been a director of the
Registrant since November 1994 and has served as President and Chief
Operating Officer of the Registrant since May 1995. Mr. Risner served
as Executive Vice President-Administration from February 1995 to May
1995. He has served as President and Chief Operating Officer of SED
International since May 1995. Mr. Risner served as Vice Chairman
of RJM Group, Inc., a private investment advisory firm, from 1989 to
1994. From 1987 to 1989, he served as Vice President, Financial
Administration of RJR Nabisco, Inc. Mr. Risner is also a trustee and
Vice Chairman of The National Faculty and a member of the Board of
American Red Cross Chapter, Atlanta, Georgia.

Larry G. Ayers. Mr. Ayers was elected Vice President-Finance,
Secretary and Treasurer of the Registrant in August 1986 and Chief
Financial Officer in November 1989. He was elected Vice President-
Finance and Treasurer of SED International in June 1986, Secretary in
August 1986 and Chief Financial Officer in November 1989. Mr. Ayers
served as Vice President-Finance of the predecessor to the
Registrant from May 1986 through July 1986, and as an independent
financial consultant from September 1985 through May 1986. Mr. Ayers
served as the Treasurer of Aaron Rents, Inc., a furniture rental and
sales company, from 1982 through September 1985 and as an accountant
with Touche Ross & Co., a national accounting firm, from 1970 through
1982.

Mark Diamond. Mr. Diamond has been a director of the
Registrant since October 1996. He has been employed by the Registrant
in various capacities since January 1987. In June 1995, Mr. Diamond
was elected Executive Vice President of the Registrant and in August
1995 was elected Executive Vice President of SED International. Mark
Diamond is the son of Gerald Diamond and Jean Diamond.

Jean Diamond. Ms. Diamond was elected Vice President of SED
International in August 1994. From 1986 to August 1994, she served as
Manager of Credit of SED International. Jean Diamond is the wife of
Gerald Diamond and the mother of Mark Diamond.

Ronell Rivera. Mr. Rivera has served as President of SED
International do Brasil Ltda. since June of 1999 and as Senior Vice
President of SED International Latin America since March 1997 and
as Vice President-Sales for Latin America from December 1995, when the
Company acquired U.S. Computer, to February 1977. From May 1991 to
December 1995, Mr. Rivera served in various capacities
with U.S. Computer, most recently as Vice President-Sales.

Item 11. EXECUTIVE COMPENSATION

Information regarding the Registrant's compensation of its
executive officers and directors is incorporated herein by reference
to the sections of the Proxy Statement entitled "Proposal 1-Election
of Directors" and "Executive Compensation."

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information regarding the security ownership of certain
beneficial owners and management of the Registrant is incorporated by
reference to the section of the Proxy Statement entitled "Ownership of
Shares."

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related
transactions is incorporated herein by reference to the section of the
Proxy Statement entitled "Compensation Committee Interlocks and
Insider Participation."

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K

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

1. Financial Statements. The following financial
statements and the report of the Registrant's
independent auditors thereon, are filed herewith.

- Independent Auditors' Report

- Consolidated Balance Sheets at June 30, 1998
and 1999

- Consolidated Statements of Operations for the
years ended June 30, 1997, 1998 and 1999

- Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1997,
1998 and 1999

- Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1998 and 1999

- Notes to Consolidated Financial Statements

2. Financial Statement Schedules.
- Schedules:

Schedule II for Valuation and Qualifying
accounts is filed herewith under
"Supplemental Disclosures" in Note 11 of the
Notes to Consolidated Financial Statements

Schedules other than the Schedule presented are
omitted because the information required is not
applicable or the required information is shown in
the consolidated financial statements or notes
thereto.

3. Exhibits Incorporated by Reference or Filed with
this Report.

Exhibit
Number Description

3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles
of Incorporation and Bylaws of the Registrant,
respectively, defining rights of holders of common
stock of the Registrant.

4.2 Form of Rights Agreement, dated as of October 31, 1996
between the Registrant and National City Bank.(1)
10.1 Form of Lease Agreement dated as of January 1, 1991
between Royal Park, Registrant and SED International,
Inc. (Formerly Southern Electronics Distributors, Inc.)
("SED International").(2)
10.2 Lease Agreement dated May 16, 1990 between The
Equitable Life Assurance Society of the United States
and SED International(3), as amended March 20, 1992.(4)
10.3 Southern Electronics Corporation 1986 Stock Option Plan
dated September 3, 1986, together with related forms of
Incentive Stock Option Agreement and NonQualified
Stock Option Agreement.(5)/*/
10.4 Form of First Amendment dated September 14, 1989 to
Southern Electronics Corporation 1986 Stock Option
Plan.(6)/*/
10.5 Second Amendment dated November 7, 1989 to Southern
Electronics Corporation 1996 Stock Option Plan.(7)/*/
10.6 Third Amendment dated July 17, 1992 to Southern
Electronics Corporation 1986 Stock Option Plan.(8)/*/
10.7 Southern Electronics Corporation 1988 Restricted Stock
Plan, together with related form of Restricted Stock
Agreement.(9)/*/
10.8 First Amendment dated November 7, 1989 to Southern
Electronics Corporation 1988 Restricted Stock
Plan.(10)/*/
10.9 Second Amendment dated July 17, 1992 to Southern
Electronics Corporation 1988 Restricted Stock
Plan.(11)/*/
10.10 Form of Southern Electronics Corporation 1991 Stock
Option Plan, together with related forms of Incentive
Stock Option Agreement and NonQualified Stock Option
Agreement. (12) /*/
10.11 First Amendment dated July 17, 1992 to Southern
Electronics Corporation 1991 Stock Option Plan.(13)/*/
10.12 Second Amendment dated August 30, 1996 to Southern
Electronics Corporation 1991 Stock Option Plan.(14)/*/
10.13 Form of NonQualified Stock Option Agreement dated as of
August 28, 1992 between the Registrant and Cary
Rosenthal.(15)/*/
10.14 Employment Agreements dated November 7, 1989, between
the Registrant, SED International and each of Gerald
Diamond and Jean Diamond (16)/*/, each as amended by
form of Amendment No. 1 dated September 24,
1991.(17)/*/
10.15 SED International, Inc. Savings Plan effective as of
January 1, 1991, together with Savings Plan Trust and
Savings Plan Adoption Agreement.(18)/*/
10.16 Lease Agreement dated November 1992 between H.G.
Pattillo and Elizabeth M. Pattillo and SED
International.(19)
10.17 Lease Agreement dated August 9, 1993 between New World
Partners Joint Venture and SED International and
Addendum I thereto ("NWPJV Lease"). (20)
10.18 Second Addendum to NWPJV Lease dated January 10, 1996
among New World Partners Joint Venture, New World
Partners Joint Venture Number Two and SED
International. (21)
10.19 Third Addendum to NWPJV Lease dated July 24, 1996
between New World Partners Joint Venture Number Two and
SED International. (22)
10.20 Amendment to Lease for 4775 N. Royal Atlanta Drive.(23)
10.21 Form of NonQualified Stock Option Agreement dated as of
May 21, 1993 between the Registrant and Cary Rosenthal
(see Exhibit 10.13)./*/

10.22 Form of NonQualified Stock Option Agreement, dated as
of September 13, 1994 between the Registrant and Cary
Rosenthal (see Exhibit 10.13)./*/
10.23 Form of NonQualified Stock Option Agreement for
Directors. (24)./*/
10.24 1995 Formula Stock Option Plan, together with related
form of NonQualified Stock Option Agreement.(25)
10.25 Adoption Agreement for Swerdlin & Registrant Regional
Prototype Standardized 401(k) Profit Sharing Plan and
Trust, as amended. (26)/*/
10.26 Third Amendment dated September 12, 1996 to the
Southern Electronics Corporation Stock Option
Plan.(27)/*/
10.27 Industrial Real Estate Lease (Multi-Tenant Facility)
dated as of March 6, 1997, between Majestic Realty Co.
and Patrician Associates, Inc., as landlord (the
"Landlord"), and SED International, as Tenant, together
with Option to Extend Term dated as of March 26, 1997,
between the Landlord and SED International, as Tenant.
(28)
10.28 Lease Agreement made August 11, 1997, between Gwinnett
Industries, Inc. and SED International. (29)
10.29 Lease Agreement made February 3, 1998, between First
Industrial Harrisburg, L.P. and SED International. (30)
10.30 Second Amendment to Employment Agreement effective July
1, 1998 between SED International and Gerald Diamond.
(31)/*/
10.31 Second Amendment to Employment Agreement effective July
1, 1998 between SED International and Jean Diamond.
(32)/*/
10.32 1999 Stock Option Plan dated July 20, 1999, together
with related forms of Stock Option Agreement and
Restriction Agreement./*/
10.33 Third Amendment to Employment Agreement effective
December 16, 1998 between SED International and Jean
Diamond. (33)/*/
10.34 Third Amendment to Employment Agreement effective July
1, 1999 between SED International and Gerald
Diamond./*/
10.35 Fourth Amendment to Employment Agreement effective July
1, 1999 between SED International and Jean Diamond./*/
10.36 Employment Agreement effective June 1, 1999, between
SED International and Ronell Rivera./*/
10.37 Form of Second Amended and Restated Credit Agreement
dated as of August 31, 1999, among the Registrant and
SED International as Borrowers and Wachovia Bank, N.A.
as Agent./*/
10.38 Form of Indemnification Agreement entered into with
each of the directors of the Registrant and the
Registrant./*/
10.39 Form of Indemnification Agreement entered into with
each of the officers of the Registrant and the
Registrant./*/
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney (see signature page to this
Registration Statement).
27 Financial Data Schedule.
- --------------------

/*/Management contract or compensatory plan or arrangement with one or
more directors or executive officers.

(1) Incorporated herein by reference to Exhibit 7 to the Registrant's
Current Report on Form 8-K dated October 30, 1996.
(2) Incorporated herein by reference to exhibit of same number to
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991 (SEC File No. 0-16345) ("1991 Form 10-K").
(3) Incorporated herein by reference to Exhibit 10.8 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1990 (SEC File No. 0-16345) ("1990 Form 10-K").
(4) Incorporated herein by reference to Exhibit 10.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1992 (SEC File No. 0-16345) ("1992 Form 10-K").
(5) Incorporated herein by reference to Exhibit 10.12 to Registrant's
("Registration Statement") on Form S1, filed September 5, 1986
(Reg. No. 338494).
(6) Incorporated herein by reference to Exhibit 10.22 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988 (SEC File No. 0-16345).
(7) Incorporated herein by reference to Exhibit 10.25 to Registrant's
1990 Form 10-K.
(8) Incorporated herein by reference to Exhibit 10.12 to Registrant's
1992 Form 10-K.
(9) Incorporated herein by reference to Exhibit 10.21 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988 (SEC File No. 0-16345).
(10) Incorporated herein by reference to Exhibit 10.26 to Registrant's
1990 Form 10-K.
(11) Incorporated herein by reference to Exhibit 10.15 to Registrant's
1992 Form 10-K.
(12) Incorporated herein by reference to Annex A to Registrant's
definitive Supplemental Proxy Statement dated October 18, 1991
(SEC File No. 0-16345).
(13) Incorporated herein by reference to Exhibit 10.17 to Registrant's
1992 Form 10-K.
(14) Incorporated herein by reference to Appendix A to Registrant's
Proxy Statement pertaining to Registrant's 1995 Annual Meeting of
Stockholders dated October 1, 1995 (SEC File No. 0-16345).
(15) Incorporated herein by reference to Exhibit 10.18 to Registrant's
1992 Form 10-K.
(16) Incorporated herein by reference to Exhibit 6(a) to Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1989 (SEC File No. 0-16345).
(17) Incorporated herein by reference to Exhibit 10.13 to Registrant's
1991 Form 10-K.
(18) Incorporated herein by reference to Exhibit 10.15 to Registrant's
1991 Form 10-K.
(19) Incorporated herein by reference to Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993 (SEC File No. 0-16345) ("1993 Form 10-K").
(20) Incorporated herein by reference to Exhibit 10.25 to Registrant's
1993 Form 10-K.
(21) Incorporated herein by reference to Exhibit 10.32 to Registrant's
Annual Report on Form l0-K for the fiscal year ended June 30,
1996 (SEC File No. 0-16345) ("1996 Form 10-K").
(22) Incorporated herein by reference to Exhibit 10.33 to Registrant's
1996 Form 10-K.
(23) Incorporated herein by reference to Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1995 (SEC File No. 0-16345) ("1995 Form 10-K").
(24) Incorporated herein by reference to Exhibit 10.29 to Registrant's
1995 Form 10-K.
(25) Incorporated herein by reference to Appendix B to Registrant's
Proxy Statement pertaining to Registrant's 1995 Annual Meeting of
Stockholders dated October 1, 1995 (SEC File No. 0-16345).
(26) Incorporated herein by reference to Exhibit 10.41 to Registrant's
1996 Form 10-K.
(27) Incorporated herein by reference to Appendix A to Registrant's
Proxy Statement pertaining to Registrant's 1996 Annual Meeting of
Stockholders dated October 1, 1996 (SEC File No. 0-16345).
(28) Incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997 (SEC File No. 0-16345).
(29) Incorporated herein by reference to Exhibit 10.40 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997 (SEC File No. 0-16345).

(30) Incorporated herein by reference to Exhibit 10.45 to Registrants
Annual Report on Form 10-K for the fiscal year ended June 30,
1998 (SEC File No. 01-6345) ("1998 Form 10-K").
(31) Incorporated herein by reference to Exhibit 10.48 to Registrant's
1998 Form 10-K.
(32) Incorporated herein by reference to Exhibit 10.49 to Registrant's
1998 Form 10-K.
(33) Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1998 (SEC File No. 0-16345).

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 1999.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SED INTERNATIONAL HOLDINGS, INC.

Date: September 28, 1999 By: /s/ Larry G. Ayers
Larry G. Ayers
Vice President - Finance, Chief
Financial Officer, Secretary and
Treasurer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Gerald Diamond, Ray
D. Risner, and Larry G. Ayers, and any of them, as his true and lawful
attorneys-in-fact, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to the Annual
Report on Form 10-K of SED International Holdings, Inc., and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and other
appropriate agencies, granting unto said attorneys-in-fact, and any of
them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact, or any of them, or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated this 28th day
of September, 1999.

/s/ Gerald Diamond
Gerald Diamond
Chairman of the Board, Chief
Executive Officer and Director
(principal executive officer)

[Signatures continued on following page]

/s/ Larry G. Ayers
Larry G. Ayers
Vice President - Finance,
Chief Financial Officer, Secretary
and Treasurer
(principal financial and
accounting officer)

/s/ Stewart I. Aaron
Stewart I. Aaron
Director

/s/ Joel Cohen
Joel Cohen
Director

/s/ Mark Diamond
Mark Diamond
Director

/s/ Ray D. Risner
Ray D. Risner
Director

/s/ Cary Rosenthal
Cary Rosenthal
Director