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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

[ ] 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 0-21513

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DXP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

TEXAS 76-0509661
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

7272 PINEMONT
HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)

713/996-4700
(Registrant's telephone number, including area code)

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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 [ ]

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APPLICABLE ONLY TO CORPORATE ISSUERS:

Number of shares outstanding of each of the issuer's classes of common
stock, as of May 15, 2002:

Common Stock: 4,071,685

The unaudited financial statements contained in this filing have not been
reviewed by Arthur Andersen, LLP. DXP Enterprises, Inc. elected to defer the
review of the unaudited financial statements until independent auditors for 2002
have been selected. The selection process is expected to be completed by June
30, 2002. The review of the unaudited financial statements for the quarterly
period ended March 31, 2002 is expected to be completed on or before August 14,
2002.

ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED) (AUDITED)
ASSETS
Current assets:

Cash............................................ $ 1,107 $ 2,260
Trade accounts receivable, net of allowance for
doubtful accounts of $1,815 and $1,784, 19,677 18,757
respectively......................................
Inventories, net................................ 21,889 22,922
Prepaid expenses and other...................... 601 341
Deferred income taxes........................... 1,724 1,714
------- -------
Total current assets.................... 44,998 45,994
Property, plant and equipment, net................ 8,657 8,820
Goodwill, net..................................... -- 2,469
Notes and accounts receivable from officers and 1,545 1,301
employees.........................................
Deferred income taxes............................. 476 --
Other assets...................................... 50 350
------- -------
Total assets............................ 55,726 58,934
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Trade accounts payable and accrued liabilities.. 16,879 16,979
Accrued wages and benefits...................... 1,166 1,033
Current portion of long-term debt............... 2,040 7,273
Other accrued liabilities....................... 1,008 866
----- ------
Total current liabilities............... 21,093 26,151
Long-term debt, less current portion.............. 26,349 22,864
Deferred income taxes.................................. -- 250
Equity subject to redemption:
Series A preferred stock -- 1,122 shares........ 112 112
Shareholders' Equity:
Series A preferred stock, 1/10th vote per share; $1.00
par value; liquidation preference of $100 per share;
1,000,000 shares authorized;
2,992 shares issued and outstanding.......... 2 2
Series B convertible preferred stock, 1/10th vote
per share; $1.00 par value; $100 stated value;
liquidation preference of $100 per share; 1,000,000
shares authorized; 17,700 shares
issued, 15,000 shares outstanding and 2,700 18 18
shares in
treasury stock...............................
Common stock, $.01 par value, 100,000,000 shares
authorized; 4,257,760 shares issued and
4,071,685
shares are outstanding and 186,075 shares in
treasury stock 41 41
Paid-in capital................................. 2,765 2,765
Retained earnings............................... 7,240 8,625
Treasury stock.................................. (1,894) (1,894)
------- -------
Total shareholders' equity.............. 8,172 9,557
------- -------
Total liabilities and shareholders' equity $55,726 $58,934
======= =======

See notes to condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
2002 2001
------- -------

Sales....................................................... $ 37,603 $ 46,890

Cost of sales............................................... 27,976 35,335
----- ------
Gross profit................................................ 9,627 11,555
Selling, general and administrative expenses................ 8,602 10,363
Operating income............................................ 1,025 1,192
----- ------
Other income................................................ 31 25
Interest expense............................................ (419) (784)
----- ------
Income before income taxes.................................. 637 433
Provision for income taxes.................................. 271 239

Net income before cumulative effect of a change in
accounting principle........................................ 366 194
Cumulative effect of a change in accounting principle (1,729) --
------ -----
Net (loss) income.......................................... (1,363) 194
Preferred stock dividend.................................... 23 23
Net (loss) income attributable
to common shareholders...................................... $ (1,386) $ 171
======= ======

Per share and share amounts before cumulative effect
of a change in accounting principle.........................
Basic earnings per common share.......................... $ .08 $ .04
======= ======

Common shares outstanding................................ 4,072 4,072
======= ======
Diluted earnings per share............................... $ .08 $ .04
======= ======
Common and common equivalent shares
outstanding.............................................. 4,549 4,072
======= ======
Cumulative effect of a change in accounting principle
per share - basic and diluted............................... $ (.42) $ --
======= ======
Net (loss) income per share - basic and diluted............. $ (.34) $ .04
======= ======
Common and common equivalent shares
outstanding................................................. 4,072 4,072
======= ======

See notes to condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31,
2002 2001
------- -------
OPERATING ACTIVITIES:

Net (loss) income............................ $ (1,363) $ 194
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Cumulative effect of a change
in accounting principle....................... 1,729 --
Depreciation and amortization............. 297 332
Provision (benefit) for
deferred income taxes..................... 3 132

Loss on disposal of
property and equipment.................... 4 --

Changes in operating assets and liabilities:
Trade accounts receivable.............. (920) 727
Inventories............................ (912) (276)
Prepaid expenses and other............. (204) (167)
Accounts payable and
accrued liabilities.................... 78 1,796
------- ------
Net cash (used in) provided by
operating activities................... (1,288) 2,738

INVESTING ACTIVITIES:
Purchase of property and equipment............ (139) (546)
------- ------
Net cash used in investing activities...... (139) (546)

FINANCING ACTIVITIES:
Proceeds from debt............................ 40,304 41,242

Principal payments on revolving
line of credit, long-term debt,
and notes payable to bank................... (40,007) (45,699)
Dividends paid in cash........................ (23) (23)
------- ------

Net cash used in financing activities...... 274 (4,480)
------- ------

DECREASE IN CASH.............................. (1,153) (2,288)

CASH AT BEGINNING OF PERIOD................... 2,260 2,744
------- ------

CASH AT END OF PERIOD......................... $ 1,107 $ 456
======= ======

See notes to condensed consolidated financial statements.

DXP ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. DXP Enterprises, Inc. (the "Company") believes
that the presentations and disclosures herein are adequate to make the
information not misleading. The condensed consolidated financial statements
reflect all elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.

The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements included in the
Company's 10-K Annual Report for the year ended December 31, 2001, filed with
the Securities and Exchange Commission.

NOTE 2: THE COMPANY

DXP Enterprises, Inc. and subsidiaries (DXP or the Company), a Texas
corporation, was incorporated on July 26, 1996, to be the successor to SEPCO
Industries, Inc. (SEPCO). The Company is organized into two segments:
Maintenance, Repair and Operating (MRO) and Electrical Contractor.

NOTE 3: INVENTORY

The Company uses the last-in, first-out ("LIFO") method of inventory
valuation for approximately 60 percent of its inventories. Remaining inventories
are accounted for using the first-in, first-out ("FIFO") method. An actual
valuation of inventory under the LIFO method can be made only at the end of each
year based on the inventory levels and costs at that time. Accordingly, interim
LIFO calculations must necessarily be based on management's estimates of
expected year-end inventory levels and costs. Because these are subject to many
forces beyond management's control, interim results are subject to the final
year-end LIFO inventory valuation. The reconciliation of FIFO inventory to LIFO
basis is as follows:

MARCH 31, 2002 DECEMBER 31, 2001
(IN THOUSANDS)

Finished goods...... $ 24,080 $25,454
Work in process..... 1,338 921
-------- -------
Inventories at FIFO. 25,418 26,375
Less - LIFO allowance (3,529) (3,453)
-------- -------
Inventories......... $ 21,889 $22,922
======== =======

NOTE 4: LONG-TERM DEBT

On May 13, 2002, the Company finalized the settlement of the dispute
regarding the adjustment of the purchase price paid to the seller for a MRO
business acquired by the Company in 1997. Under the terms of the settlement
agreement, the Company paid $0.1 million to the seller, the Company retained
ownership of the inventory acquired in 1997 remaining on hand, and the $2.0
million subordinated note payable by the Company to the seller was cancelled.
Since September 30, 2000, the balances outstanding under the subordinated note
and a $5.8 million secured line of credit have been in default and included in
current maturities of long-term debt. As of March 31, 2002, the balance
outstanding under the $5.8 million secured line of credit is included in
long-term debt. The balance of the subordinated note, less the $0.1 million
settlement payment, has been recorded as of March 31, 2002, as a reduction of
the cost of the inventory acquired in 1997 remaining on hand.

NOTE 5: EARNINGS PER SHARE DATA

The following table sets forth the computation of basic and diluted
earnings per share before cumulative effect of a change in accounting principle
for the periods indicated.

Three Months Ended March 31,
2002 2001
---- ----
Basic:

Average shares outstanding 4,071,685 4,071,685
========= =========
Net income before cumulative effect of a change
in accounting principle 366,000 194,000
Convertible preferred stock dividend (23,000) (23,000)
--------- ---------
Net income attributable to common shareholders
before cumulative effect of a change in
accounting principle $ 343,000 $ 171,000
========= =========
Per share amount $ .08 $ .04
========= =========

Diluted:
Average shares outstanding 4,071,685 4,071,685
Net effect of dilutive stock options--
based on the treasury stock method 57,384 --
Assumed conversion of convertible preferred stock 420,000 --
--------- ---------
Total 4,549,069 4,071,685
========= =========
Net income attributable to common
shareholders before cumulative effect of a
change in accounting principle $ 343,000 $ 171,000
Convertible preferred stock dividend 23,000 --
--------- ---------
Net income for diluted earnings per share $ 366,000 $ 171,000
========= =========
Per share amount $ .08 $ .04
========= =========

The computation of diluted loss per share after cumulative effect of a change in
accounting principle for the three months ended March 31, 2002, excludes
outstanding stock options and the convertible preferred stock because these
items would be anti-dilutive. For the three months ended March 31, 2001,
outstanding stock options and the convertible preferred stock would be
anti-dilutive and are excluded from the computation of diluted earnings per
share before cumulative effect of a change in accounting principle.

NOTE 6: SEGMENT REPORTING

The MRO Segment is engaged in providing maintenance, repair and
operating products, equipment and integrated services, including engineering
expertise and logistics capabilities, to industrial customers. The Company
provides a wide range of MRO products in the fluid handling equipment, bearing,
power transmission equipment, general mill, safety supply and electrical
products categories. The Electrical Contractor segment sells a broad range of
electrical products, such as wire conduit, wiring devices, electrical fittings
and boxes, signaling devices, heaters, tools, switch gear, lighting, lamps,
tape, lugs, wire nuts, batteries, fans and fuses, to electrical contractors. The
Company began offering electrical products to electrical contractors following
its acquisition of the assets of two electrical supply businesses in 1998.
During August 2001, the Company sold the majority of the assets of one of the
two businesses which comprised the Electrical Contractor segment. Historically,
the business which was sold accounted for approximately two thirds of the sales
of the Electrical Contractor segment.

The high degree of integration of the Company's operations necessitates
the use of a substantial number of allocations and apportionments in the
determination of business segment information. Sales are shown net of
intersegment eliminations. All business segments operate primarily in the United
States.

Financial information relating the Company's segments is as follows:

Electrical
MRO Contractor Total
2002

Sales $ 36,951 $ 652 $ 37,603
Operating income 1,034 (9) 1,025

2001
Sales $ 43,958 $ 2,932 $ 46,890
Operating income 1,317 (125) 1,192

NOTE 7: CHANGE IN ACCOUNTING PRINCIPLE

In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued. SFAS No. 142 changes the treatment of goodwill by no longer amortizing
goodwill, and instead requiring, at least annually, an assessment for impairment
by applying a fair-value based test. However, other identifiable intangible
assets with determinable lives are to be separately recognized and amortized.
The statement is effective for fiscal years beginning after December 15, 2001.

All of the Company's goodwill pertained to one reporting unit as
defined in SFAS 142. The goodwill was tested for impairment during the first
quarter of 2002 as required by SFAS 142 upon adoption based upon the expected
present value of future cash flows approach. As a result of this valuation
process as well as the application of the remaining provisions of SFAS 142, the
Company recorded a transitional impairment loss of $2.5 million before income
taxes ($1.7 million after income taxes). This write-off was reported as a
cumulative effect of a change in accounting principle in the Company's
consolidated statement of income as of January 1, 2002. This adoption of the
statement has resulted in the elimination of approximately $79,000 of annual
goodwill amortization subsequent to December 31, 2001.

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

RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 compared to Three Months Ended March 31, 2001

SALES. Revenues for the quarter ended March 31, 2002, decreased $9.3
million, or 19.8%, to approximately $37.6 million from $46.9 million in 2001.
Sales for the MRO Segment decreased $7.0 million, or 15.9%, primarily due to
slowing of the overall economy. Sales for the Electrical Contractor segment
decreased by $2.3 million, or 77.8%, for the current quarter when compared to
same period in 2001. This decrease is the result of the sale during August 2001
of the majority of the assets of a business in San Antonio, Texas, which
accounted for approximately two thirds of the sales of the Electrical Contractor
segment, combined with a slow down in the construction business for electrical
contractors.

GROSS PROFIT. Gross profit as a percentage of sales increased by
approximately 1.0% for the first quarter of 2002, when compared to the same
period in 2001. This increase can be primarily attributed to increased margins
in fluid handling equipment sold by the MRO segment. Gross profit as a
percentage of sales for the Electrical Contractor segment increased to 42.8% for
the three months ended March 31, 2002, up from 20.1% in the comparable period of
2001. This increase resulted from the sale of the business in San Antonio, Texas
which had lower gross profit margins.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense for the quarter ended March 31, 2002, decreased by
approximately $1.8 million when compared to the same period in 2001. This
decrease is primarily attributed to reduced payroll and payroll related
expenses. As a percentage of revenue, the 2002 expense increased by
approximately 0.8% to 22.9% from 22.1% for 2000. This increase is primarily
attributable to non-variable costs being spread over a smaller revenue amount.

OPERATING INCOME. Operating income for the first three months of 2002
decreased $0.2 million when compared to the same period in 2001. This decrease
is the net of a $0.3 million decrease in operating income for the MRO Segment
and a $0.1 million improvement in operating income for the Electrical Contractor
segment. The reduced operating income for the MRO segment is the result of lower
sales and gross profit partially offset by reduced selling, general and
administrative expenses. The improvement for the Electrical Contractor Segment
is the result of the sale during August 2001 of the majority of the assets of a
business in San Antonio, Texas, which was not profitable.

INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2002
decreased by $0.4 million to $0.4 million from $0.8 million during the same
period in 2001. This decline results from lower interest rates for the first
three months of 2002 when compared to the first quarter of 2001 as well as a
lower average debt balance.

LIQUIDITY AND CAPITAL RESOURCES

General

As a distributor of MRO and Electrical products, we require significant
amounts of working capital to fund inventories and accounts receivable.
Additional cash is required for capital items such as information technology and
warehouse equipment. We also require cash to pay our lease obligations and to
service our debt.

Under the loan agreements with our bank lender, all available cash is
generally applied to reduce outstanding borrowings, with operations funded
through borrowings under the Credit Facility. Our policy is to maintain low
levels of cash and cash equivalents and to use borrowings under our lines of
credit for working capital. We had approximately $2.8 million available for
borrowings under the revolving portion of the Credit Facility at March 31, 2002.
Working capital at March 31, 2002 and December 31, 2001 was approximately $23.9
million and $19.8 million, respectively. During the first three months of 2002
and 2001, we collected trade receivables in approximately 51 and 49 days,
respectively. For the three months ended March 31, 2002 and 2001, we turned our
inventory approximately five and six times, respectively, on an annualized
basis.

The Credit Facility with our bank lender provides for borrowings up to
an aggregate of the lesser of (i) a percentage of the collateral value based on
a formula set forth therein or (ii) $35.0 million, and matures April 1, 2004.
Interest accrues at prime plus 1/2% on the revolving portion of the Credit
Facility and prime plus 1 1/2% on the term portion of the Credit Facility. The
prime rate at March 31, 2002, was 4.75%. The Credit Facility is secured by
receivables, inventory, real estate and machinery and equipment. The Credit
Facility contains customary affirmative and negative covenants as well as
financial covenants that are measured monthly and require that we maintain
certain cash flow and other financial ratios. We have, from time to time, not
been in compliance with certain covenants under the Credit Facility including
the minimum earnings requirement and the fixed charge coverage ratio. At March
31, 2002, we are in compliance with these covenants. In addition to the $1.1
million of cash on hand at March 31, 2002, we had $2.8 million available for
borrowings under the Credit Facility at March 31, 2002. Although we expect to be
able to comply with the covenants, including the financial covenants, of the
Credit Facility, there can be no assurance that in the future we will be able to
do so or that our lender will be willing to waive such non-compliance or further
amend such covenants

We used approximately $1.3 million of cash in operating activities in
the first three months of 2002 as compared to generating approximately $2.7
million of cash during the first three months of 2001. This change is primarily
attributable to increased inventories and accounts receivable in 2002 and to a
$1.8 million increase in accounts payable and accrued liabilities in 2001
compared to a $0.1 million increase in 2002.

Fixed asset purchases of $0.1 during the first quarter of 2002 related
primarily to computer equipment. Capital expenditures of $0.5 million during the
first three months of 2001 were related primarily to computer software.

Our internal cash flow projections indicate our cash generated from
operations and available under our Credit Facility will meet our normal working
capital needs during the next twelve months. However, we may require additional
debt or equity financing to meet our future debt service obligations beyond
March 31, 2003, which may include additional bank debt or the public or private
sale of equity or debt securities. In connection with such financing, we may be
required to issue securities that substantially dilute the interest of our
shareholders. As described above, all of our Credit Facility matures on or
before April 1, 2004. However, we may not be able to renew and extend or replace
the Credit Facility. Any extended or replacement facility may have higher
interest costs, less borrowing capacity, more restrictive conditions and could
involve equity dilution. Our ability to obtain a satisfactory credit facility
may depend, in part, upon the level of our asset base for collateral purposes,
our future financial performance and our ability to obtain additional equity.

We would require additional capital to fund any future acquisitions. At
this time, we do not plan to grow through acquisitions unless the market price
of our common stock rises to levels that will make acquisitions accretive to our
earnings or we generate excess cash flow. We may also pursue additional equity
or debt financing to fund future acquisitions, although we may not be able to
obtain additional financing on attractive terms.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions in
determining 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. The
significant estimates made by us in the accompanying financial statements relate
to reserves for accounts receivable collectibility, inventory valuations and
self-insured medical claims. Actual results could differ from those estimates.

Critical accounting policies are those that are both most important to
the portrayal of a company's financial position and results of operations, and
require management's subjective or complex judgments. Below is a discussion of
what we believe are our critical accounting policies.

Revenue Recognition

We recognize revenues when an agreement is in place, price is fixed,
title for product passes to the customer or services have been provided, and
collecitibility is reasonably assured.

Assurance for Doubtful Accounts

Provisions to the allowance for doubtful accounts are made monthly and
adjustments are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts.

Inventory

Inventory consists principally of finished goods and is priced at lower
of cost or market, cost being determined using both the first-in and first out
(FIFO) and the last-in, first-out (LIFO) method. Reserves are provided against
inventory for estimated obsolescence based upon the aging of the inventory and
market trends.

RECENTLY ISSUED ACCOUNTING STANDARDS

However, other identifiable intangible assets with determinable lives are to be
separately recognized and amortized. The statement is effective for fiscal years
beginning after December 15, 2001. The adoption of the statement has resulted in
the elimination of approximately $79,000 of goodwill amortization, annually,
subsequent to December 31, 2001. The new requirements for assessing whether
goodwill assets have been impaired involve market-based information. Based on
the new standards, we recorded a noncash, pre-tax goodwill impairment charge of
$2.5 million as of January 1, 2002. This charge is reflected as a cumulative
effect of a change in accounting principle.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The purpose of this statement
is to develop consistent accounting for asset retirement obligations and related
costs in the financial statements and provide more information about future cash
outflows, leverage and liquidity regarding retirement obligations and the gross
investment in long-lived assets. This statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
will implement SFAS No. 143 on January 1, 2003. The impact of such adoption is
not anticipated to have a material effect on the Company's financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which is effective for fiscal
years beginning after December 15, 2001. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement also amends Accounting Research Board
No. 51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for subsidiaries for which control is likely to be temporary. The
Company has adopted SFAS No. 144 beginning January 1, 2002. The impact of such
adoption did not have a material effect on the Company's financial statements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our market risk results from volatility in interest rates. This risk is
monitored and managed. Our exposure to interest rate risk relates primarily to
our Credit Facility. Based on our capital structure at March 31, 2002, a 100
basis point change in interest rates would result in an estimated $0.3 million
change in annual interest expense.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is a party to legal proceedings arising in
the ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations or financial condition of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

CAUTIONARY STATEMENTS

Our expectations with respect to future results of operations that may
be embodied in oral and written forward-looking statements, including any
forward-looking statements that may be contained in this Quarterly Report on
Form 10-Q, are subject to risks and uncertainties that must be considered when
evaluating the likelihood of our realization of such expectations. Our actual
results could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below.

Ability to Comply with Financial Covenants of Credit Facility

Our loan agreements with our bank lender (the "Credit Facility")
requires that we comply with certain specified covenants, restrictions,
financial ratios and other financial and operating tests. Our ability to comply
with any of the foregoing restrictions will depend on our future performance,
which will be subject to prevailing economic conditions and other factors,
including factors beyond our control. A failure to comply with any of these
obligations could result in an event of default under the Credit Facility, which
could permit acceleration of our indebtedness under the Credit Facility. From
time to time we have been unable to comply with some of the financial covenants
contained in the Credit Facility (relating to, among other things, the
maintenance of prescribed financial ratios) and have, when necessary, obtained
waivers or amendments to the covenants from our lender. Although we expect to be
able to comply with the covenants, including the financial covenants, of the
Credit Facility, there can be no assurance that in the future we will be able to
do so or that our lender will be willing to waive such non-compliance or further
amend such covenants.

Risks Related to Internal Growth Strategy

Future results for us will depend in part on our success in
implementing our internal growth strategy, which includes expanding our existing
geographic areas and adding new customers. Our ability to implement this
strategy will depend on our success in selling more to existing customers,
acquiring new customers, hiring qualified sales persons, and marketing
integrated supply arrangements such as those being pursued by us through our
SmartSource program. Although we intend to increase sales and product offerings
to existing customers and reduce costs through consolidating certain
administrative and sales functions, there can be no assurance that we will be
successful in these efforts.

Substantial Competition

Our business is highly competitive. We compete with a variety of
industrial supply distributors, some of which may have greater financial and
other resources than us. Although many of our traditional distribution
competitors are small enterprises selling to customers in a limited geographic
area, we also compete with larger distributors that provide integrated supply
programs such as those offered through outsourcing services similar to those
that are offered by our SmartSource program. Some of these large distributors
may be able to supply their products in a more timely and cost-efficient manner
than us. Our competitors include direct mail suppliers, large warehouse stores
and, to a lesser extent, certain manufacturers.

Risks of Economic Trends

Demand for our products is subject to changes in the United States
economy in general and economic trends affecting our customers and the
industries in which they compete in particular. Many of these industries, such
as the oil and gas industry, are subject to volatility while others, such as the
petrochemical industry, are cyclical and materially affected by changes in the
economy. As a result, we may experience changes in demand for our products as
changes occur in the markets of our customers.

Dependence on Key Personnel

We will continue to be dependent to a significant extent upon the
efforts and ability of David R. Little, our Chairman of the Board, President and
Chief Executive Officer. The loss of the services of Mr. Little or any other
executive officer of our company could have a material adverse effect on our
financial condition and results of operations. We do not maintain key-man life
insurance on the life of Mr. Little or on the lives of our other executive
officers. In addition, our ability to grow successfully will be dependent upon
our ability to attract and retain qualified management and technical and
operational personnel. The failure to attract and retain such persons could
materially adversely affect our financial condition and results of operations.

Dependence on Supplier Relationships

We have distribution rights for certain product lines and depend on
these distribution rights for a substantial portion of our business. Many of
these distribution rights are pursuant to contracts that are subject to
cancellation upon little or no prior notice. Although we believe that we could
obtain alternate distribution rights in the event of such a cancellation, the
termination or limitation by any key supplier of its relationship with our
company could result in a temporary disruption on our business and, in turn,
could adversely affect results of operations and financial condition.

Risks Associated With Hazardous Materials

Certain of our operations are subject to federal, state and local laws
and regulations controlling the discharge of materials into or otherwise
relating to the protection of the environment. Although we believe that we have
adequate procedures to comply with applicable discharge and other environmental
laws, the risks of accidental contamination or injury from the discharge of
controlled or hazardous materials and chemicals cannot be eliminated completely.
In the event of such an accident, we could be held liable for any damages that
result and any such liability could have a material adverse effect on our
financial condition and results of operations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

3.1 Restated Articles of Incorporation, as amended (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (Reg. No. 333-61953), filed with Commission
on August 20, 1998)

3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-4 (Reg. No.
333-10021), filed with the Commission on August 12, 1996).

(b) Reports on Form 8-K.

None.

SIGNATURES

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

DXP ENTERPRISES, INC.
(Registrant)

By: /s/ MAC McCONNELL
-----------------------------------
Mac McConnell
Senior Vice-President/Finance and
Chief Financial Officer

Dated: May 15, 2002