EUROPEAN MICRO HOLDINGS, INC.


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

(MARK ONE)

     |X|  Quarterly Report Pursuant to Section 13 or 15(d) of Securities 
          Exchange Act of 1934 (Fee Required)

                For the quarterly period ended December 31, 1998

     |_|  Transition report under Section 13 or 15(d) of the Securities Exchange
          Act of 1934 (No Fee Required)

               For the transition period from _______ to _______.

                          Commission File No. 333-44393

                          EUROPEAN MICRO HOLDINGS, INC.
                          -----------------------------
                (Name of Registrant as Specified in Its Charter)

Nevada                                      65-0803752
------                                      ----------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

6073 N.W. 167th Street, Unit C-25,          
Miami, Florida                              33015
----------------------------------          -----
(Address of Principal Executive             (Zip Code)
Offices)

                                 (305) 825-2458
                (Issuer's Telephone Number, Including Area Code)


      Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange  Act during the past 12 months,  and (2) has
been subject to such filing requirements for the past 90 days. Yes |_| No |X|

      There were  4,933,900  shares of Common Stock,  par value $0.01 per share,
outstanding as of January 31, 1999.


<PAGE>


                          EUROPEAN MICRO HOLDINGS, INC.

PART I


FINANCIAL INFORMATION
---------------------

ITEM 1.   FINANCIAL STATEMENTS.
          ---------------------

                   Index to Consolidated Financial Statements

Consolidated Condensed Balance Sheets as of December 31, 1998 and
June 30, 1998...........................................................3

Consolidated Condensed Statements of Earnings for the three
 and six months ended December 31, 1998 and 1997........................4

Consolidated Statement of Changes in Shareholders' Equity
 for the six months ended December 31, 1998.............................5

Consolidated Condensed Statements of Cash Flows for the six months
 ended December 31, 1998 and 1997.......................................6

Notes to Consolidated Condensed Financial Statements....................7


                                       2
<PAGE>

                          EUROPEAN MICRO HOLDINGS, INC.


                      CONSOLIDATED CONDENSED BALANCE SHEETS
                ($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)
                                                     DEC. 31,  JUNE 30,
                                                         1998      1998

              ASSETS
CURRENT ASSETS:
  Cash                                                 $5,271    $5,012
  Restricted cash                                         400         -
  Trade receivables, net                                5,876     7,985
  Discounted trade receivables                          5,419         -
  Due from related parties                                557       898
  Inventories, net                                      5,356     1,715
  Deferred tax asset                                       37        26
  Prepaid expenses                                        526       304
  Other current assets                                    871     2,459
                                                       ------    ------
      TOTAL CURRENT ASSETS                             24,313    18,399
  Property and equipment, net                             736       611
  Excess of cost over acquired net assets, net          1,524         -
  Investments                                             147       194

      TOTAL ASSETS                                    $26,720   $19,204
                                                      =======   =======

              LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Discount creditor                                    $4,606    $    -
  Trade payables                                        2,723     1,638
  Other current liabilities                             1,768       987
  Due to related parties                                   58       238
  Income taxes payable                                  2,723     2,577
                                                       ------     -----
      TOTAL CURRENT LIABILITIES                        11,878     5,440
  Long-term borrowings under capital leases                54        84
  Other liabilities                                       283         -
                                                       ------     -----
      TOTAL LIABILITIES                                12,215     5,524
                                                       ------     -----
Commitments & contingencies                                 -         -

SHAREHOLDERS' EQUITY:
  Preferred stock $0.01 par value shares: 
   1,000,000 authorized, no shares issued 
   and outstanding                                          -         -
  Common stock $0.01 par value shares: 
   20,000,000 authorized at December 31
   and June 30, 1998, shares issued
   and outstanding,4,933,900 at
   December 31 and June 30, 1998                           49        49
  Additional paid in capital                            8,871     8,802
  Retained earnings                                     5,519     4,773
  Cumulative foreign currency  translation
   adjustment                                              66        56
                                                       ------    ------
     TOTAL SHAREHOLDERS' EQUITY                        14,505    13,680

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $26,720   $19,204
   



                                       3
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

                  CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

                                         (Unaudited)          (Unaudited)
                                      Three months ended    Six months ended
                                          December 31,        December 31,
                                         1998      1997      1998     1997
SALES:
Net sales                              $27,939   $17,347    $55,720  $32,114
Net sales to related parties             1,072     4,655      2,588   13,995
                                       -------   -------    -------  -------

      Total net sales                   29,011    22,002     58,308   46,109

COST OF GOODS SOLD:
Cost of goods sold                     (25,685)  (14,997)   (50,539) (28,019)

Cost of goods sold to related
 parties                                (1,068)  ( 4,464)    (2,566) (13,710)
                                      --------  --------    ------- --------
      Total cost of goods sold         (26,753)  (19,461)   (53,105) (41,729)

GROSS PROFIT                             2,258     2,541      5,203    4,380

OPERATING EXPENSES:
Selling, general and administrative
 expenses                              ( 2,150)  ( 1,366)   ( 3,867) ( 2,423)
Expenses attributable to related
  parties                                  ( 0)     ( 19)       ( 0)    ( 44)
                                       --------   -------   -------- --------

      Total operating expenses          (2,150)  ( 1,385)   ( 3,867) ( 2,467)
                                       -------   --------   -------- --------

OPERATING PROFIT                           108     1,156      1,336    1,913

Interest expense, net                     ( 27)     (122)      ( 73)    (223)
Equity in net income (loss)
 of  unconsolidated affiliate              (19)      (14)       (47)      21
                                       --------   -------   --------  -------

INCOME BEFORE INCOME TAXES                  62     1,020      1,216    1,711

 Income taxes                             ( 38)     (351)     ( 470)    (557)
                                       --------   -------   --------  -------

NET INCOME                                 $24      $669       $746   $1,154
                                       ========   =======   ========  =======

NET INCOME PER SHARE - BASIC              $.00      $.17       $.15     $.29
                                      ========   =======   ========  =======
NET INCOME PER SHARE - DILUTED            $.00      $.17       $.15     $.29
                                      ========   =======   ========  =======

                                       4
<PAGE>

                          EUROPEAN MICRO HOLDINGS, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                ($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>


                                                                                  ACCUMULATED
                                                   ADDITIONAL                       OTHER              TOTAL
                                                     PAID IN     RETAINED       COMPREHENSIVE       SHAREHOLDERS'
                              COMMON STOCK           CAPITAL     EARNINGS           INCOME             EQUITY
                              SHARES  AMOUNT
<S>                         <C>           <C>        <C>          <C>                <C>               <C>

Balance at June 30, 1998    4,933,900     $49        8,802        4,773              56                $13,680

Net income                          -       -            -          746               -                    746

Additional initial public
 offering expenses                  -       -          (25)           -               -                    (25)

Compensation charge in
 relation to share options
  issued to non-employees           -       -           94            -               -                     94

Other comprehensive
 income, net of tax, for
 foreign currency
 translation adjustment             -       -            -            -              10                     10
                             --------    ----        -----        -----            -----               -------

Balance at December         4,933,900     $49        8,871        5,519              66                $14,505
 31, 1998                   =========    ====        =====        =====            =====               =======

</TABLE>

                                       5
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                ($ IN THOUSANDS)

                                                       (UNAUDITED)
                                                    SIX MONTHS ENDED
                                                       DECEMBER 31,
                                                    1998          1997
OPERATING ACTIVITIES:
Net income                                          $746         $1,154
ADJUSTMENTS TO RECONCILE                                      
 NET INCOME TO NET CASH USED IN                               
 OPERATING ACTIVITIES                                         
 Depreciation and amortization                       143            103
 Provision for deferred taxes                        (11)           (63)
 Equity in net loss (income) of                               
  unconsolidated affiliate                            47            (21)
 Compensation charge for non-employee                         
  stock options                                       94              -
CHANGES IN ASSETS AND LIABILITIES,                            
 NET OF EFFECTS FROM ACQUISITIONS                             
 Trade and discounted receivables                    884         (2,518)
 Due from related parties                            341            115
 Inventory                                        (3,525)        (3,751)
 Other current assets                              1,366           (966)
 Trade payables                                   (2,059)           768
 Due to related parties                             (180)         2,670
 Taxes payable                                       146            300
 Other current liabilities                        (1,080)           940
 Other net                                          (400)             -
                                                  -------         -------
NET CASH USED IN OPERATING ACTIVITIES             (3,488)        (1,269)
                                                              
INVESTING ACTIVITIES:                                         
 Purchase of fixed assets                           (166)           (88)
 Sale of fixed assets                                  -             24
 Payment for acquisitions, net                                
  of cash acquired                                  (648)             - 
                                                 --------         -------
                                                              
NET CASH USED IN INVESTING ACTIVITIES               (814)           (64)
                                                              
FINANCING ACTIVITIES:                                         
Dividends paid                                         -            (55)
Additional initial public                                     
 offering expenses                                   (25)             -
Repayment of capital leases, net                     (30)           (64)
Change in bank line of credit                          -           (204)
Change in discount creditor                        4,606          1,739
                                                --------         -------
Net cash provided by financing activities          4,551          1,416
                                                --------         -------
Exchange rate changes                                 10           ( 18)
                                                --------         -------
NET INCREASE IN CASH                                 259             65
Cash at beginning of period                        5,012            288
                                                --------         -------
CASH AT END OF PERIOD                             $5,271           $353
                                                --------         -------
Non-cash investing and financing activities:                  
Fair value of assets acquired                     $4,533         $    -
Goodwill                                           1,534              -
Fair value of liabilities assumed                 (4,322)             -
                                                              
                                       6                      
<PAGE>                                                        
                                                              
Notes issued for consideration                      (964)             -
                                                 --------        -------
                                                              
Cash paid for acquisitions                          $781              -
Less cash acquired                                  (133)             -
                                                 --------        -------
                                                              
Net cash paid for acquisitions                      $648          $   -
                                                 ========        =======
Interest paid                                       $129           $223
                                                 --------        -------
Taxes paid                                          $391           $257
                                                 ========        =======
                                                           


                                       7
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.


            NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


1    INTERIM FINANCIAL STATEMENTS

The  accompanying  unaudited  interim  financial  statements  have been prepared
pursuant to the rules and regulations  for reporting on Form 10-Q.  Accordingly,
certain   information  and  notes  required  by  generally  accepted  accounting
principles  for  complete  financial  statements  are not included  herein.  The
interim  statements  should be read in conjunction with the Company's  financial
statements and notes thereto  included in the Company's  latest annual report on
Form 10-K.

In the Company's opinion,  all adjustments  necessary for a fair presentation of
these  interim  statements  have been included and are of a normal and recurring
nature.

2    INVENTORY

Inventories comprise ($ in thousands):

                                              DEC. 31,        JUNE 30,
                                                1998           1998

Finished goods and goods for resale            $5,388         $1,724
Less: Allowance for inventory obsolescence        (32)            (9)
                                               ------         ------

                                               $5,356         $1,715
                                               ======         ------

The Company insures its inventory against theft and other damage up to a maximum
of the higher of $9,900,000 or the carrying value of the inventory.  On December
31, 1998, the carrying value was $5,356,000.

Obsolescence comprise ($ in thousands):

                                   
                                             SIX MONTHS
                                               ENDED          YEAR ENDED
                                              DEC. 31,         JUNE 30,
                                                1998             1998

Beginning balance                                $9              $35
Provision for obsolescence                      495              248
Amounts written off                           ( 472)            (274)
                                              ------            -----
Ending balance                                  $32               $9
                                              ======            =====
                                                              
                                                             
                                       8                     
<PAGE>                                                       
                          EUROPEAN MICRO HOLDINGS, INC.      
                                                            
      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

3    OTHER CURRENT ASSETS

Other current assets comprise ($ in thousands):

                                               DEC. 31,       JUNE 30,
                                                 1998           1998

Amounts paid in advance for inventories            $-         $2,015
Advanced Corporation Tax recoverable                -            145
Value Added Tax receivable                        719              -
Other                                             152            299
                                                -----         ------
                                                 $871         $2,459
                                                =====         ======

4    OTHER CURRENT LIABILITIES

Other current liabilities comprise ($ in thousands):

                                               DEC. 31,       JUNE 30,
                                                 1998           1998

Accrued expenses                                $ 455           $710
Value Added Tax payable                           305             41
Accrued payroll taxes & national insurance        103             98
Current portion of capital leases                  65             70
Deferred payments on Sunbelt acquisition          711              -
Other                                             129             68
                                              -------          -----
                                              $ 1,768           $987
                                              =======          =====

5    OTHER COMPREHENSIVE INCOME

An  adjustment   for  foreign   currency   translation   has  been  recorded  to
shareholders'  equity as other  comprehensive  income,  net of tax. The exchange
rate changes  recorded for the six months ended December 31, 1998 and 1997, were
approximately $10,000 and $(18,000), respectively.


                                       9
<PAGE>

                          EUROPEAN MICRO HOLDINGS, INC.

      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

6  EARNINGS PER SHARE

The calculation of earnings per share are detailed in the table below:

<TABLE>
<CAPTION>

                                                       Three months ended                      Six months ended
                                                          December 31,                            December 31,
EARNINGS                                               1998           1997                     1998           1997

<S>                                              <C>             <C>                      <C>            <C>
Net income ($ in thousands)                            $24            $669                     $746         $1,154
                                                      ====            ====                     ====         ======

     WEIGHTED AVERAGE NUMBER OF SHARES
Outstanding common stock during the period       4,933,900       4,000,000                4,933,900      4,000,000
                                                 ---------       ---------                ---------      ---------

Effect of dilutive stock options                    17,926               -                    8,963              -
                                                 ---------       ---------                ---------      ---------
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES        4,951,826       4,000,000                4,942,863      4,000,000
                                                 =========       =========                =========      =========
Basic earnings per share                             $0.00           $0.17                    $0.15          $0.29
                                                 =========       =========                =========      =========
Diluted earnings per share                           $0.00           $0.17                    $0.15          $0.29
                                                 =========       =========                =========      =========
</TABLE>


During the  three-month  period  ended  December 31,  1998,  the Company  issued
options to purchase 35,000 shares of its common stock at exercise prices ranging
from  $9.1875 to $11.00.  The above  dilutive  earnings  per share  calculations
exclude  the effect of  options to  purchase  20,000  shares of common  stock at
$11.00 per share in the  three-month  period ended December 31, 1998, due to the
fact they were  anti-dilutive.  The year-to-date period ended December 31, 1998,
reflects   only  a  pro-rata   impact  of  all  options  as  such  options  were
anti-dilutive  in the first  quarter of fiscal 1999.  Also see Note 8 related to
contingently  issuable  shares  related  to an  acquisition.  The effect of such
contingent  shares has been excluded from the above dilutive  earnings per share
calculations as the conditions necessary for such contingent shares to be issued
have not been met as of December 31, 1998, and further that no contingent shares
would  have  been  issuable  if  December  31,  1998,  was  also  the end of the
contingency  period.  The  weighted  average  number of shares  used in the 1997
periods reflect a retroactive  adjustment to assume the 4,000,000  shares issued
in  January  1998 in  exchange  for the shares of  European  Micro Plc that were
outstanding for the complete periods in 1997.

7    RELATED PARTY TRANSACTIONS

European  Micro  Holdings,  Inc.  belongs to a group of related  companies  (the
"GROUP").  The  Group is  comprised  of  Technology  Express,  Inc.  located  in
Nashville,  Tennessee ("TECHNOLOGY EXPRESS"),  American Surgical Supply Corp. of
Florida d/b/a American Micro Computer Center in Miami,  Florida ("AMERICAN MICRO
COMPUTER  CENTER") and, until August 1, 1997,  Ameritech Exports Inc. located in
Miami,  Florida  ("AMERITECH  EXPORTS") and Ameritech  Argentina S.A. located in
Buenos Aires, Argentina ("AMERITECH  ARGENTINA").  All members of the Group were
owned and controlled by either of the two primary shareholders of European Micro
Holdings, Inc., John B. Gallagher and/or Harry D. Shields and their families.


                                       10
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

7    RELATED PARTY TRANSACTIONS (CONTINUED)

The  prices  charged  to  members  of the Group are lower  than they would be in
arms-length transactions.  The members of the Group maintain buying arrangements
which  enables a Group  member to purchase  large  job-lots at more  competitive
prices than would  otherwise be possible and then  immediately  sell part of the
purchase to the other Group members.  In practical  terms,  the sales to related
parties are to the  distributors  in a similar trade as European Micro Holdings,
Inc. and these parties would not buy at higher prices.

Related party transactions are summarized as follows ($ in thousands):
<TABLE>
<CAPTION>

                                                       Three months ended                      Six months ended
                                                          December 31,                            December 31,
                                                       1998           1997                     1998           1997
<S>                                                   <C>             <C>                   <C>            <C>

     SALES TO:
     American Micro Computer Center                    $389           $4,577                   $402        $10,413
     Technology Express                                 683               78                  2,186          3,582
                                                      -----           ------                  -----        -------
                                                     $1,072           $4,655                 $2,588        $13,995
                                                     ======           ======                 ======        =======
     PURCHASES FROM:
     American Micro Computer Center                    $130             $325                   $130           $325
     Technology Express                               1,113              392                 13,552          2,937
                                                      -----           ------                  -----        -------
                                                     $1,243             $717                $13,682         $3,262
                                                     ======           ======                 ======        =======

     OPERATING EXPENSES

     MANAGEMENT AND CONSULTANCY
     FEES PAID TO:
     American Micro Computer Center                      $-               $5                     $-            $18
     Technology Express                                   -               14                      -             26
                                                      -----           ------                  -----        -------
                                                         $-              $19                     $-            $44
                                                     ======           ======                 ======        =======
</TABLE>

Due from related parties comprised the following balances ($ in thousands):

                                                    DEC. 31,       JUNE 30,
                                                      1998           1998

     American Micro Computer Center                   $331            $54
     Technology Express                                226            844
                                                    ------          -----
                                                      $557            898
                                                    ======          =====


                                       11
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

7    RELATED PARTY TRANSACTIONS (CONTINUED)

Due to related parties comprised of following balances ($ in thousands):

                                                    DEC. 30,       JUNE 30,
                                                      1998           1998

     American Micro Computer Center                     $2            $12
     Technology Express                                 56            226
                                                      ----           ----
                                                       $58           $238
                                                      ====           ====


There were no related party  transactions  between,  or balances due to or from,
the Company and Ameritech  Argentina or Ameritech  Exports for the three and six
month periods ended December 31, 1998 and 1997.

The entities listed above are related to the Company in the following manner:

AMERICAN MICRO COMPUTER CENTER

American  Micro Computer  Center is a distributor of computer  hardware based in
Miami, Florida. John B. Gallagher who is Co-Chairman, Co-President, Director and
shareholder  (owning 39% of the outstanding  shares) of European Micro Holdings,
Inc., is the  President of American  Micro  Computer  Center and owns 50% of the
outstanding shares of capital stock in that company.

TECHNOLOGY EXPRESS

Until  1996,  Technology  Express  was a full  service  authorized  reseller  of
computers and related products based in Nashville,  Tennessee, selling primarily
to  end-users.  Technology  Express  was  sold  to  Inacom  Computers  in  1996.
Concurrently  with the sale, Mr. Shields founded a new computer company with the
name Technology Express.  This company is a distributor of computer products and
does not sell to end-users.  Harry D. Shields who is Co-Chairman,  Co-President,
Director  and  shareholder  (owning 32% of the  outstanding  shares) of European
Micro  Holdings,  Inc., is President of Technology  Express and owns 100% of the
outstanding shares of capital stock of that company.

AMERITECH ARGENTINA

Ameritech  Argentina was an authorized  distributor of Compaq,  Hewlett Packard,
IBM and Acer  Computers  and  accessories  in  Argentina.  Messrs.  Shields  and
Gallagher were both  Directors of Ameritech  Argentina and each owned 50% of the
outstanding shares of common stock until its sale on August 1, 1997.

AMERITECH EXPORTS

Ameritech  Exports  was  an  authorized  distributor  of  Compaq  computers  and
accessories  into the Caribbean and certain parts of central and South  America.
Messrs.  Shields and Gallagher were both Directors of Ameritech Exports and each
owned 50% of the outstanding  shares of common stock until its sale on August 1,
1997.


                                       12
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

8    ACQUISITION OF SUBSIDIARIES

On October 26, 1998,  European Micro Plc, a wholly-owned  subsidiary of European
Micro Holdings, Inc. ("EUROPEAN MICRO"),  acquired all of the outstanding shares
of capital stock of Sunbelt (UK) Limited  ("SUNBELT"),  a company  registered in
England  and  Wales,  from the  shareholders  of Sunbelt  for the  consideration
described  below.  As a result of the  acquisition,  Sunbelt  is a  wholly-owned
subsidiary of European  Micro Plc. The Sunbelt  purchase price (to be settled in
pounds  sterling)  is  comprised  of a  guaranteed  portion  and two  contingent
earn-out payments. The guaranteed portion of the purchase price, which was based
upon  Sunbelt's net book value at closing and a multiple of its fiscal year 1998
pre-tax earnings,  was approximately  $1.56 million.  Of this guaranteed amount,
approximately $600,000 was paid in cash at closing.

The unpaid  balance of the guaranteed  consideration  includes a note payable to
the former 40% Sunbelt shareholder in the amount of approximately $400,000 to be
repaid  in  November  2005,  subject  to early  repayment  at the  option of the
noteholder  at any time after June 1,  1999.  Such note  payable is secured by a
cash account  totaling  $400,000 at December 31, 1998.  The note payable and the
cash balances are reflected on the accompanying  consolidated  condensed balance
sheet at December 31, 1998,  in restricted  cash and other current  liabilities,
respectively.

The remainder of the unpaid guaranteed  consideration of approximately $565,000,
plus accrued interest,  is to be paid in equal  installments  within ninety (90)
days of the end of the first and second contingent earn-out periods as discussed
below. The unpaid balance of the guaranteed purchase price is reflected in other
current  liabilities  and other  liabilities  on the  accompanying  consolidated
condensed balance sheet at December 31, 1998.

The purchase agreement also contains contingent  purchase price provisions.  The
maximum  contingent  earn-out  payments  in the  aggregate  are  two  (2)  times
Sunbelt's  fiscal year 1998 pre-tax  earnings of  approximately  424,000  pounds
sterling  (approximately  $1.4 million).  The first contingent  payment of up to
approximately $700,000 will be made if certain financial parameters are attained
during the first contingent  earn-out period which runs from November 1, 1998 to
October 31, 1999,  and if certain of the Sunbelt  executives  are still employed
with the Company at the end of the first earn-out period.  The second contingent
payment  of up to  approximately  $700,000  will be made  if  certain  financial
parameters are attained during the second contingent  earn-out period which runs
from November 1, 1999 to October 31, 2000. That portion of the first  contingent
earn-out payment related to employee retention, approximately $175,000, is being
recognized  by the  Company  over the  course of the first  contingent  earn-out
period as compensation  expense.  The remaining  portion of the first contingent
earn-out payment of approximately  $525,000 and the second  contingent  earn-out
payment have not been  recognized  in the  accompanying  consolidated  condensed
financial  statements  as the payment of such amounts are not, in the opinion of
management, determinable beyond a reasonable doubt.

Within  ninety  (90) days of the end of first  and  second  contingent  earn-out
periods,  the first and second purchase price installment payments will be made.
Such  installment  payments  will each  include  one-half of the  remaining  40%
guaranteed  purchase  price  amounts,  plus any  amounts due under the first and
second contingent earn-out payment provisions. The amounts due to the former 40%
shareholder  of Sunbelt will be satisfied by the issuance of a convertible  loan
note due six years after the date of issue,  and subject to early  prepayment at
the option of the  noteholder  on any date after  eight  months from the date of
issuance.  The  Company  has the option of paying all future  amounts due to the
former Sunbelt shareholders in common stock of European Micro Holdings, Inc. The
Company also entered into employment agreements with the two former shareholders
of Sunbelt.

The acquisition of Sunbelt was accounted for as a purchase.  The purchase price,
subject to adjustment as described above and inclusive of transaction  costs, of
approximately  $1.66  million  exceeded the  estimated  fair market value of net
assets acquired by  approximately  $1.48 million,  which is being amortized on a
straight-line  basis over 25 years. The allocation of the purchase price and the
determination of the estimated life of goodwill are preliminary.  The results of
operations  of  Sunbelt  have  been  included  in  the  accompanying   financial
statements from the date of acquisition.

Sunbelt,  formerly privately held, is a distributor of microcomputer products to
dealers,  value-added  resellers and mass merchants  throughout  Western Europe.
Sunbelt's  trading  operations  were  integrated with and into the operations of
European Micro Plc.  Sunbelt's  business of distributing its Nova brand products
operates as a separate  business entity  consistent with past practice.  Sunbelt
was established in 1992 and is based in Wimbledon,  England. For the fiscal year
ended June 30, 1998, Sunbelt had total sales of approximately  $16.5 million and
pre-tax earnings of approximately $742,500.


                                       13
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

8    ACQUISITION OF SUBSIDIARIES (CONTINUED)

On November  12,  1998,  European  Micro Plc  acquired the assets of H&B Trading
International  BV  ("H&B").   Based  in  Holland,  H&B  was  a  privately  held,
independent,  focused  distributor  of  microcomputer  products  to the  BENELUX
countries - Belgium,  Holland and  Luxembourg.  H&B had 1997 annual  revenues of
approximately  $2  million.  The  acquisition  of  H&B  was  accounted  for as a
purchase.  The base purchase  price,  subject to  adjustment,  of  approximately
$79,000  exceeded the estimated  value of net assets  acquired by  approximately
$58,000,  which is being amortized on a straight-line  basis over 25 years.  The
allocation of the purchase price and the  determination of the estimated life of
goodwill are preliminary.  If certain financial performance criteria are met for
the fiscal  years  ended June 30,  1999 and 2000,  additional  consideration  of
approximately  $66,000  will be paid (to be  settled  in Dutch  guilders).  Such
contingent consideration has not been reflected in the accompanying consolidated
condensed  financial  statements.  The  results of  operations  of H&B have been
included in the accompanying financial statements from the date of acquisition.

The following summarized  unaudited pro forma financial  information assumes the
acquisition  of Sunbelt  occurred  on July 1, 1997 ($ in  thousands,  except per
share data):

                                                  Six Months Ended

                                   December 31, 1998          December 31, 1997
                                   -----------------          -----------------

Total net sales                         $64,162                    $52,990
                                        =======                    =======

Net earnings                               $803                     $1,152
                                           ====                     ======

Earnings per share:
   Basic                                  $0.16                      $0.29
                                          =====                      =====
   Diluted                                $0.16                      $0.29
                                          =====                      =====

The amounts are based on certain  assumptions and estimates,  and do not reflect
any  benefits  from  economies   which  might  be  achieved  from  the  combined
operations.  The pro forma results do not  necessarily  represent  results which
would have  occurred if the  acquisition  had taken  place on the basis  assumed
above, nor are they indicative of the results of future operations.


                                       14
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS.

INTRODUCTORY STATEMENTS

      Forward-Looking  Statements and Associated  Risks.  This Quarterly  Report
contains forward-looking statements, including statements regarding, among other
things, (a) European Micro Holdings,  Inc.'s ("EUROPEAN MICRO" or the "COMPANY")
projected sales and  profitability,  (b) the Company's  growth  strategies,  (c)
anticipated trends in the Company's industry, (d) the Company's future financing
plans and (e) the Company's  anticipated needs for working capital. In addition,
when  used  in this  Quarterly  Report,  the  words  "believes,"  "anticipates,"
"intends," "in  anticipation  of,"  "expects," and similar words are intended to
identify certain forward-looking  statements.  These forward-looking  statements
are based largely on the Company's  expectations  and are subject to a number of
risks and uncertainties,  many of which are beyond the Company's control. Actual
results  could differ  materially  from these  forward-looking  statements  as a
result  of  changes  in  trends  in the  economy  and  the  Company's  industry,
reductions  in the  availability  of  financing  and  availability  of  computer
products on terms as favorable as  experienced  by the Company in prior  periods
and other factors.  In light of these risks and  uncertainties,  there can be no
assurance that the forward-looking statements contained in this Quarterly Report
will in fact occur.  The Company does not undertake  any  obligation to publicly
release the results of any revisions to these  forward-looking  statements  that
may be made to reflect any future events or circumstances.

      Unless the context otherwise  requires and except as otherwise  specified,
references  herein to "European  Micro" or the "Company"  include European Micro
Holdings,  Inc. and its two  wholly-owned  subsidiaries,  European  Micro Plc, a
company  organized under the laws of the United Kingdom  ("EUROPEAN  MICRO UK"),
and Nor'easter Micro, Inc., a Nevada corporation  ("NOR'EASTER")  (collectively,
the two wholly-owned subsidiaries are referred to as the "SUBSIDIARIES").

OVERVIEW

      The  Company is an  independent  distributor  of  microcomputer  products,
including  personal  computers,  memory  modules,  disc  drives  and  networking
products,  to customers  mainly in Western  Europe and to customers  and related
parties in the United States.  The Company's  customers consist of more than 375
value-added  resellers,  corporate  resellers,  retailers,  direct marketers and
distributors.  The Company does not sell to end-users.  Substantially all of the
products sold by the Company are manufactured by  well-recognized  manufacturers
such as IBM, Compaq and Hewlett-Packard, although the Company generally does not
obtain its inventory directly from such manufacturers.  The Company monitors the
geographic pricing strategies  related to such products,  currency  fluctuations
and product  availability in order to obtain  inventory at favorable prices from
other distributors, resellers and wholesalers.

      The Company considers itself to be a focused distributor,  as opposed to a
broadline distributor,  dealing with a limited and select group of products from
a limited and select group of leading  manufacturers.  The Company believes that
being a focused  distributor  enables it to  respond  more  quickly to  customer
requests and gives it greater  availability of products,  access to products and
improved pricing. The Company believes that as a focused distributor it has been
able to develop  greater  expertise in the products which it sells.  The Company
places significant emphasis on market awareness and planning and actively shares
this knowledge with its customers in order to further enhance trading relations.
The Company  strives to monitor and react  quickly to market  trends in order to
enable its  multilingual  sales team to maintain the highest  levels of customer
service.

      European Micro Holdings, Inc. was organized under the laws of the State of
Nevada and is the parent of European  Micro UK and  Nor'easter.  Nor'easter  was
organized under the laws of the State of Nevada on December 26, 1997 to serve as
an  independent  distributor  of  microcomputer  products in the United  States.
European Micro UK was organized  under the laws of the United Kingdom in 1991 to
serve as an independent distributor to customers mainly in Western Europe and to
related  parties in the United  States.  On January  31,  1998,  European  Micro
Holdings, Inc. acquired one hundred percent (100%) of the issued and outstanding
shares of ordinary stock of European Micro UK in consideration  for the issuance
of 4,000,000 newly issued shares of common stock, par value $0.01 per share (the
"COMMON STOCK"), of European Micro Holdings, Inc. The 4,000,000 shares of Common
Stock of  European  Micro  Holdings,  Inc.  was  issued to the  shareholders  of
European  Micro UK on a pro rata  basis in  accordance  with such  shareholders'
respective ownership interest in European Micro UK. As a result of the exchange,
the  shareholders  of European Micro UK together  received all of the issued and
outstanding shares of Common Stock of European Micro Holdings, Inc. prior to the
consummation of its initial public  offering.  These  shareholders  were John B.
Gallagher,  Harry D.  Shields,  Thomas H.  Minkoff,  as trustee of the Gallagher


                                       15
<PAGE>

Family Trust, and Stuart S. Southard and Robert H. True, as Trustees of the 1997
Henry Daniel Shields Irrevocable Educational Trust. In addition,  European Micro
UK became a wholly-owned subsidiary of European Micro Holdings, Inc.

      European Micro UK is the parent of European Micro GmbH (formerly  known as
European Micro Computer Center GmbH) ("EUROPEAN  MICRO  GERMANY"),  Sunbelt (UK)
Limited ("SUNBELT") and European Micro B.V. ("EUROPEAN MICRO HOLLAND") and has a
50% joint  venture  interest  in Big Blue  Europe,  B.V.  ("BIG  BLUE  EUROPE").
European  Micro  Germany  was  organized  under the laws of  Germany in 1993 and
operates as a sales office in Dusseldorf, Germany. All products sold by European
Micro Germany are procured and shipped from the facilities of European Micro UK.
On October 26, 1998,  European Micro UK completed its  acquisition of all of the
outstanding shares of capital stock of Sunbelt.  Sunbelt is a company registered
in England and Wales which was  established  in 1992 and is based in  Wimbledon,
England. Sunbelt operates as a distributor of microcomputer products to dealers,
value-added  resellers and mass merchants throughout Western Europe.  Except for
the distribution of its Nova brand products,  Sunbelt's distribution  operations
were  integrated  with and into the  operations of European  Micro UK, since the
date of acquisition.  Sunbelt  continues to distribute its Nova line of products
in accordance with past practice.  European Micro Holland was formed in 1995 and
recently  acquired  the assets of H&B Trading  International  B.V.  ("H&B") from
European Micro UK. European Micro UK acquired these assets on November 12, 1998.
Big Blue Europe was organized under the laws of Holland in January 1997 and is a
computer parts distributor with offices located near Amsterdam, Holland. Selling
primarily to computer  maintenance  companies,  Big Blue Europe has  experienced
growth in sales and the Company  believes  that Big Blue Europe is positioned to
participate in the relatively high margin parts after-market  industry. Big Blue
Europe has no affiliation with International Business Machines Corporation.

      European  Micro  Holdings,  Inc. was formed in December 1997 to serve as a
holding company of the  Subsidiaries.  Its headquarters are located at 6073 N.W.
167th Street, Unit C-25, Miami, Florida 33015, and its telephone number is (305)
825-2458.

      The following  organizational  chart  summarizes the  relationships  among
European Micro  Holdings,  Inc.,  Nor'easter,  European Micro UK, European Micro
Germany, Big Blue Europe, Sunbelt and European Micro Holland.

[ORGANIZATIONAL CHART OMITTED]




                                       16
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

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
Condensed Statements of Earnings:


                                           PERCENTAGE OF NET SALES

                                  THREE MONTHS ENDED        SIX MONTHS ENDED
                                     DECEMBER 31,             DECEMBER 31,
                                     ------------             ------------

                                   1998        1997         1998        1997
                                   ----        ----         ----        ----

Net sales to third parties         96.3%       78.8%       95.6%       69.6%
Net sales to related parties        3.7%       21.2%        4.4%       30.4%

                                 -------     -------     -------     -------
Total net sales                   100.0%      100.0%      100.0%      100.0%
                                 -------     -------     -------     -------
Cost of goods sold to third
parties                           (88.5%)     (68.2%)     (86.7%)     (60.8%)
Cost of goods sold to related 
parties                            (3.7%)     (20.3%)      (4.4%)     (29.7%)

                                 -------     -------     -------     -------
Total cost of goods sold          (92.2%)     (88.5%)     (91.1%)     (90.5%)
                                 -------     -------     -------     -------
Total gross profit                  7.8%       11.5%        8.9%        9.5%

Total operating expenses           (7.4%)      (6.3%)      (6.6%)      (5.4%)
                                 -------     -------     -------     -------
Operating profit                    0.4%        5.2%        2.3%        4.1%

Interest expense, net              (0.1%)      (0.6%)      (0.1%)      (0.4%)
Equity in income (loss) of
unconsolidated affiliate           (0.1%)      (0.1%)      (0.1%)       0.0% 
                                 -------     -------     -------     -------
Income before income taxes          0.2%        4.5%        2.1%        3.7%
Income taxes                       (0.1%)      (1.6%)      (0.8%)      (1.2%)
                                 -------     -------    --------     -------
Net income                          0.1%        2.9%        1.3%        2.5%
                                 =======     =======    ========     =======

THREE-MONTH PERIOD ENDED DECEMBER 31, 1998 AND 1997

      TOTAL NET SALES. Total net sales increased $7 million,  or 31.9%, from $22
million in the three-month  period ended December 31, 1997 to $29 million in the
comparable  period in 1998.  Excluding net sales to related  parties,  net sales
increased $10.6 million,  or 61.1%, from $17.3 million in the three-month period
ended December 31, 1997 to $27.9 million in the comparable  period in 1998. This
increase was attributable to the addition of Sunbelt's trading sales (accounting
for approximately  $1.3 million),  the additional sales from Sunbelt's Nova line
of products  (accounting  for  approximately  $650,000),  the start-up growth of
Nor'easter  which  started its  operations  in  February  1998  (accounting  for
approximately $7 million) and the growth of the Premier Dealers Club (accounting
for approximately $1.6 million). There can be no assurance that the Company will
be able to maintain the level of sales or sales  growth  achieved in this period
because of  seasonal  variations  in the demand for the  products  and  services
offered  by  the  Company,   the  introduction  of  new  hardware  and  software
technologies and products  offering  improved  features and  functionality,  the
introduction  of new products  and services by the Company and its  competitors,
the loss or consolidation of a significant supplier or customer,  changes in the
level of operating expenses,  inventory adjustments,  product supply constraints
and competitive conditions,  including pricing, interest rate fluctuations,  the
impact of acquisitions, currency fluctuations and general economic conditions.


                                       17
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      Net sales to related  parties  decreased  $3.6 million in the  three-month
period ended December 31, 1998 from the comparable period in 1997. This decrease
is primarily  attributable  to large purchases of computer  peripherals  made on
behalf of related  parties in the  three-month  period  ended  December 31, 1997
compared to the same period in 1998. In addition,  the Company's  purchases from
related  parties  increased  by $0.5  million in the  three-month  period  ended
December  31,  1998 from the  comparable  period in 1997.  The  related  parties
consist of a group of entities in which an ownership  interest is held by either
of the two primary  shareholders  of the Company,  John B. Gallagher or Harry D.
Shields.  See "Note 7 to the Consolidated  Condensed  Financial  Statements." In
order to facilitate fast and efficient international  transactions,  each member
of the group has acted as a supplier for, and purchaser  from, the other members
of the group. The group has attempted to price  inter-group sales at one percent
above the selling  group  member's  cost,  although the group has made  numerous
exceptions  in times of short  supply,  to cover  assembly  costs  and to reward
certain group members for exceptional low-cost purchases. None of the members of
the group are under any legal  obligation  to continue to act as a supplier for,
or purchaser  from, the other members of the group.  If the Company is unable to
sell product to the other members of the group,  the Company's  revenues will be
significantly  reduced  and its  business,  financial  condition  and results of
operations  will be  materially  adversely  affected.  Likewise,  the  Company's
business and results of operations will be materially  adversely affected if the
Company  is unable to  purchase  product  from the  other  members  of the group
(including  Technology  Express) when such product could be purchased from these
group members at prices lower than available from other sources.

      GROSS  PROFIT.  Gross  profit  decreased  $280,000  or 11.1 %, from  $2.54
million in the  three-month  period ended  December 31, 1997 to $2.26 million in
the comparable period in 1998. Gross profit excluding related party transactions
decreased  $96,000,  or 4.1%, from $2.35 million in the three-month period ended
December  31,  1997 to $2.25  million  in the  comparable  period in 1998.  This
decrease is primarily due to unusually  aggressive  pricing  discounts  given by
manufacturers  during  this  period  which  resulted  in the  Company  incurring
approximately $495,000 in inventory obsolescence  provisions.  In addition, this
decrease is partially the result of a shift in market  conditions which produced
a  downward   pressure  on  margins  due  to  currency   fluctuations,   product
availability and changes in geographic  pricing  strategies of manufacturers and
suppliers of the Company's products.

      Gross  profit  attributable  to  related  party  sales  was  $4,000 in the
three-month  period ended December 31, 1998. As discussed  above, the mark-up on
sales to related  parties is  typically  one percent over cost.  Therefore,  the
gross profit on sales to third parties is typically higher than the gross profit
earned  on  sales  to  related  parties.  This  represents  a  gross  margin  of
approximately  0.5%.  This is  lower  than the  normal  one  percent  due to the
currency changes between the pound sterling and the U.S. dollar.

      Gross margin  decreased by 370 basis points from 11.5% in the  three-month
period  ended  December  31,  1997 to 7.8% in the  comparable  period  in  1998.
Excluding related party  transactions,  gross margin decreased from 13.5% in the
three-month  period ended December 31, 1997 to 8.1% in the comparable  period in
1998.  The addition of Sunbelt's  Nova line of products  generally have a higher
margin than other  products which helped offset the decrease in gross margin for
the Company's other products.  During the period, the Nova line produced a gross
margin of 26%.  The  decline  in gross  margin is related to the shift in market
conditions and the inventory write-downs discussed above.

      Foreign  exchange  gains and losses  moved from a loss of  $255,000 in the
three-month  period  ended  December  31,  1997  to a  loss  of  $52,000  in the
comparable  period in 1998.  This  favorable  movement was  attributable  to the
weakening of the pound sterling  relative to other  European  currencies and the
strengthening of the pound sterling against the U.S. dollar.

      OPERATING EXPENSES.  Operating expenses as a percentage of total net sales
increased from 6.3% in the three-month period ended December 31, 1997 to 7.4% in
the comparable period in 1998. Operating expenses increased primarily due to the
increase in administrative  expenses  incurred by European Micro Holdings,  Inc.
which  began   operations  in  January  1998.  Such  expenses   included  legal,
accounting,  public relations and other expenses  typically incurred by a public
company.

      INTEREST  EXPENSE.  Interest  expense,  net,  decreased  by  $95,000  from
$122,000 in the  three-month  period  ended  December 31, 1997 to $27,000 in the
comparable  period in 1998. This was attributable to decreased  borrowing during
the period  because of the  availability  of the net proceeds from the Company's
initial public offering.

      INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 34.4% in the three-month  period ended December 31, 1997 to 61.3%
in the  comparable  period in 1998.  During the  period,  European  Micro UK had
earned  taxable income and accrued income taxes at its effective rate of 37.46%.
European  Micro  Holdings,  Inc.  and  Nor'easter  had a taxable loss during the

                                       18
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

period,  resulting in a tax credit.  On a consolidated  basis, the effect of the
taxes paid by European Micro UK and the tax credit by European  Micro  Holdings,
Inc. and  Nor'easter  resulted in an increase in income taxes as a percentage of
earnings  before  income  taxes.  The  Company's  effective  income tax rate may
increase or decrease in the future as a result of the Company's  product mix and
variations in the countries to which the Company sells its products.

      INTEREST  IN JOINT  VENTURE.  The  Company's  share of loss  from Big Blue
Europe increased from $14,000 in the three-month  period ended December 31, 1997
to $19,000 in the comparable  period in 1998.  While Big Blue Europe's net sales
increased  $65,000 during the quarter,  the reduction in earnings was attributed
to an increased provision for inventory obsolescence.

SIX-MONTH PERIOD ENDED DECEMBER 31, 1998 AND 1997

      TOTAL NET SALES.  Total net sales increased $12.2 million,  or 26.5%, from
$46.1 million in the six-month  period ended  December 31, 1997 to $58.3 million
in the comparable  period in 1998.  Excluding net sales to related parties,  net
sales  increased  $23.6 million,  or 73.5%,  from $32.1 million in the six-month
period ended  December  31, 1997 to $55.7  million in the  comparable  period in
1998.  This increase was  attributable  to general sales growth  (accounting for
approximately  $4.6  million),  the  addition  of  Sunbelt's  trading  sales  of
(accounting for approximately $1.3 million), the additional sales from Sunbelt's
Nova line of products  (accounting  for  approximately  $650,000),  the start-up
growth of Nor'easter  which started its operations in February 1998  (accounting
for  approximately  $14  million),  and the growth of the Premier  Dealers  Club
(accounting for approximately $3.1 million).  There can be no assurance that the
Company will be able to maintain the level of sales or sales growth  achieved in
this period  because of seasonal  variations  in the demand for the products and
services  offered by the Company,  the introduction of new hardware and software
technologies and products  offering  improved  features and  functionality,  the
introduction  of new products  and services by the Company and its  competitors,
the loss or consolidation of a significant supplier or customer,  changes in the
level of operating expenses,  inventory adjustments,  product supply constraints
and competitive conditions,  including pricing, interest rate fluctuations,  the
impact of acquisitions, currency fluctuations and general economic conditions.

      Net sales to related  parties  decreased  $11.4  million in the  six-month
period ended December 31, 1998 from the comparable period in 1997. This decrease
is primarily  attributable  to large purchases of computer  peripherals  made on
behalf of related  parties in the  six-month  period  ended  December  31,  1997
compared to the same period in 1998. In addition,  the Company's  purchases from
related  parties  increased  by $10.4  million  in the  six-month  period  ended
December  31,  1998 from the  comparable  period in 1997.  The  related  parties
consist of a group of entities in which an ownership  interest is held by either
of the two primary  shareholders  of the Company,  John B. Gallagher or Harry D.
Shields.  See "Note 7 to the Consolidated  Condensed  Financial  Statements." In
order to facilitate fast and efficient international  transactions,  each member
of the group has acted as a supplier for, and purchaser  from, the other members
of the group. The group has attempted to price  inter-group sales at one percent
above the selling  group  member's  cost,  although the group has made  numerous
exceptions  in times of short  supply,  to cover  assembly  costs  and to reward
certain group members for exceptional low-cost purchases. None of the members of
the group are under any legal  obligation  to continue to act as a supplier for,
or purchaser  from, the other members of the group.  If the Company is unable to
sell product to the other members of the group,  the Company's  revenues will be
significantly  reduced  and its  business,  financial  condition  and results of
operations  will be  materially  adversely  affected.  Likewise,  the  Company's
business and results of operations will be materially  adversely affected if the
Company  is unable to  purchase  product  from the  other  members  of the group
(including  Technology  Express) when such product could be purchased from these
group members at prices lower than available from other sources.

      GROSS  PROFIT.  Gross  profit  increased  $820,000,  or 18.8 %,  from $4.4
million in the six-month  period ended  December 31, 1997 to $5.2 million in the
comparable  period in 1998.  Gross profit excluding  related party  transactions
increased  $1.1 million,  or 26.5%,  from $4.1 million in the  six-month  period
ended December 31, 1997 to $5.2 million in the comparable  period in 1998.  This
increase is  primarily  due to the general  increase in sales  volume  which was
partially offset by the inventory  write-downs  discussed in the results for the
three-months ended December 31, 1998.

      Gross  profit  attributable  to  related  party  sales was  $22,000 in the
six-month  period ended  December 31, 1998. As discussed  above,  the mark-up on
sales to related  parties is  typically  one percent over cost.  Therefore,  the
gross profit on sales to third parties is typically higher than the gross profit
earned on sales to related  parties.  This represents a margin of  approximately
0.86%.  This is lower than the normal one  percent due to the  currency  changes
between the pound sterling and the U.S. dollar.

                                       19
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      Gross  margin  decreased  by 60 basis  points  from 9.5% in the  six-month
period  ended  December  31,  1997 to 8.9% in the  comparable  period  in  1998.
Excluding related party  transactions,  gross margin decreased from 12.8% in the
six-month  period ended  December 31, 1997 to 9.3% in the  comparable  period in
1998. This change is related to the shift in market conditions and the inventory
write-downs discussed above.

      Foreign  exchange  gains and losses  moved from a loss of  $232,000 in the
six-month period ended December 31, 1997 to a loss of $184,000 in the comparable
period in 1998. This favorable movement was attributable to the weakening of the
pound sterling  relative to other European  currencies and the  strengthening of
the pound sterling against the U.S. dollar.

      OPERATING EXPENSES.  Operating expenses as a percentage of total net sales
increased  from 5.4% in the six-month  period ended December 31, 1997 to 6.6% in
the comparable period in 1998. Operating expenses increased primarily due to the
increase in  administrative  expenses related to European Micro Holdings,  Inc.,
which  began   operations  in  January  1998.  Such  expenses   included  legal,
accounting,  public relations and other expenses  typically incurred by a public
company.

      INTEREST  EXPENSE.  Interest  expense,  net,  decreased  by $150,000  from
$223,000  in the  six-month  period  ended  December  31, 1997 to $73,000 in the
comparable  period in 1998. This was attributable to decreased  borrowing during
the period  because of the  availability  of the net proceeds from the Company's
initial public offering.

      INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 32.5% in the six-month period ended December 31, 1997 to 38.7% in
the comparable period in 1998.  During the period,  European Micro UK had earned
taxable  income and accrued  income taxes.  European  Micro  Holdings,  Inc. and
Nor'easter had a taxable loss during the period, resulting in a tax credit. On a
consolidated  basis,  the effect of the taxes paid by European  Micro UK and the
tax credit by  European  Micro  Holdings,  Inc.  and  Nor'easter  resulted in an
increase in income taxes as a percentage of earnings  before  income taxes.  The
Company's  effective income tax rate may increase or decrease in the future as a
result of the Company's product mix and variations in the countries to which the
Company sells its products.

      INTEREST IN JOINT VENTURE.  The Company's share of income or loss from Big
Blue Europe  decreased  from  income of $21,000 in the  six-month  period  ended
December 31, 1997 to a loss of $47,000 in the  comparable  period in 1998.  This
reduction in earnings is  attributed  to an increased  provision  for  inventory
obsolescence and a reduction in total sales.

SEASONALITY

      European Micro  typically  experiences  variability in its total net sales
and net income on a quarterly basis as a result of many factors.  These include,
but are not limited  to,  seasonal  variations  in demand for the  products  and
services  offered by the Company,  the introduction of new hardware and software
technologies and products  offering  improved  features and  functionality,  the
introduction  of new products  and services by the Company and its  competitors,
the loss or consolidation of a significant supplier or customer,  changes in the
level of operating expenses,  inventory adjustments,  product supply constraints
and competitive conditions,  including pricing, interest rate fluctuations,  the
impact of acquisitions,  currency  fluctuations and general economic conditions.
Historical  operating  results  have  included a  reduction  in demand in Europe
during the summer months.

LIQUIDITY AND CAPITAL RESOURCES

      Short-term  working  capital  requirements  are funded by a combination of
short-term  revolving lines of credit provided by National  Westminster Bank Plc
together  with  accounts  receivable  financing  provided  by  Lombard  NatWest.
Short-term  obligations  must be repaid within one year.  One line of credit and
the accounts receivable  facilities are set and reviewed annually.  The interest
rate on these  facilities is based on a mark-up over the bank  borrowing rate in
the United Kingdom. This line of credit facility was $830,000 in fiscal 1997 and
was  increased  to $2.0 million  during  fiscal  1998.  The accounts  receivable
financing provides  financing for up to 85% of trade receivables.  In June 1998,
the Company obtained a second  short-term line of credit which is secured by the
Company's  inventory.  This  facility  allows  the  Company to borrow up to $5.8
million to assist in the purchase of inventory.

      Long-term  funding is supplied  to the  Company in the form of  automobile
capital lease  agreements.  Long-term  obligations are due for repayment in more
than one year.  These  agreements  are made  through  both Lloyds  Bowmaker  and
NatWest Vehicle Solutions, and are secured by vehicles owned by the Company. The
agreements are usually for 36 months from the date of purchase and are typically


                                       20
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

for 80% of the  purchase  value of the vehicle.  As of December  31,  1998,  the
borrowings were $119,000, of which $54,000 was due after more than one year.

      European Micro's typical principal need for additional  working capital in
fiscal 1999 is  expected  to be for the  purchase  of  additional  inventory  to
support  growth and to take  advantage of cash  discounts  offered by certain of
European  Micro's  suppliers  for early  payment.  Working  capital will also be
needed for expansion purposes, including acquisitions. European Micro expects to
obtain cash for these  purposes  through its internal cash flow and its existing
bank  credit  lines,  but  there  can be no  assurance  that  financing  will be
available on terms  acceptable to European  Micro.  The  unavailability  of such
financing could adversely affect the Company's business, financial condition and
results of operations.

      Net cash used in  operating  activities  during  the  six-month  period to
December 31, 1998  amounted to $3.5 million.  Significant  factors in the use of
cash were a decrease in trade  payables,  net of effects from  acquisitions,  of
$2.1 million and an increase in inventory, net of effects from acquisitions,  of
$3.6 million.  The decrease in payables was largely  attributable to paying down
the large  payables  balance that was acquired in the Sunbelt  acquisition.  The
increase in inventory was largely  attributable  to large quantity  purchases of
computer  products at prices which the Company  considered to be favorable.  The
amount of cash used in the  Company's  operations  was  partially  offset by net
income in the period of $746,000,  cash  generated  from a decrease in trade and
discounted  receivables,  net of effects from  acquisitions  of $900,000,  and a
reduction  in other  current  assets  primarily  related  to the  prepayment  of
inventory at June 30, 1998 of $1.4 million.

      Cash used in  investing  activities  amounted to $800,000,  consisting  of
expenditures  on fixed  assets of  $166,000  and the  acquisition  of Sunbelt of
$570,000 ($700,000 less cash acquired of $130,000) and H&B of $79,000. See "Note
8 to the Consolidated Condensed Financial Statements."

      Cash provided by financing  activities was $4.55  million,  of which $4.61
million was provided by an increase in the Lombard NatWest  accounts  receivable
financing  facility.  Cash was used for  repayments of capital leases of $30,000
and additional expenses associated with the initial public offering of $25,000.

      Overall,  the Company  experienced  a net increase in cash of $259,000 for
the  six-month  period ended  December  31,  1998,  which is after the impact of
exchange rates of $10,000.

ASSET MANAGEMENT

      INVENTORY. European Micro's goal is to achieve high inventory turns and to
maintain a low level of inventory on hand and thereby  reduce  European  Micro's
working capital requirements.  European Micro's strategy to achieve this goal is
to both  effectively  manage its  inventory  and achieve  high order fill rates.
Inventory levels may vary from period to period, due to many factors,  including
increases or  decreases in sales  levels,  European  Micro's  practice of making
large-volume  purchases  when it deems  such  purchases  to be  attractive,  new
products and changes in European Micro's product mix.

      ACCOUNTS  RECEIVABLE.  European Micro sells its products and services to a
customer  base of more  than 375  value-added  resellers,  corporate  resellers,
retailers and direct marketers. European Micro offers credit terms to qualifying
customers and also sells on a pre-pay and  cash-on-delivery  basis. With respect
to credit  sales,  European  Micro  attempts to control its bad debt exposure by
monitoring   customers'   creditworthiness   and,  where  practicable,   through
participation  in  credit  associations  that  provide  customer  credit  rating
information  for certain  accounts.  Substantially  all of  European  Micro UK's
accounts  receivables  are insured and its positive  credit results have allowed
European  Micro UK to enjoy what it believes  to be one of the most  competitive
insurance rates in the industry.

CURRENCY RISK MANAGEMENT

      REPORTING  CURRENCY.  European  Micro  Holdings,  Inc.'s and  Nor'easter's
reporting  and  functional  currency,  as  defined  by  Statement  of  Financial
Accounting  Standards  No.  52, is the  United  States  dollar.  The  functional
currency of European  Micro UK is the United  Kingdom pound  sterling.  European
Micro  UK  translates  into the  reporting  currency  by  measuring  assets  and
liabilities  using the  exchange  rates in effect at the balance  sheet date and
results of operations  using the average  exchange rates  prevailing  during the
period.

                                       21
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      HEDGING AND CURRENCY MANAGEMENT ACTIVITIES.  European Micro Holdings, Inc.
does not engage in hedging  activities  to guard against  currency  fluctuations
between the United Kingdom pound sterling and the United States dollar.  Because
the  functional  currency  of European  Micro  Holdings,  Inc.'s main  operating
subsidiary,  European Micro UK, is the United Kingdom pound  sterling,  currency
fluctuations  of the  pound  sterling  relative  to the U.S.  dollar  may have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of  operations.  European  Micro  Holdings,  Inc.  may engage in hedging
activities  in the  future,  although  no  assurances  can be given that it will
engage  in  such  activities  and if it does so  that  such  activities  will be
successful.

      European  Micro  UK  recognizes   that  it  has  currency   exposure  when
transactions  are  consummated  in currency other than the pound  sterling.  For
example,  for the quarter  ended  December 31,  1998,  purchases of inventory by
European Micro UK were in the United Kingdom pound sterling  (28%),  German Mark
(9%), United States dollar (53%),  Canadian dollar (7%) and other (3%). The most
significant  currencies in which sales were made,  other than the pound sterling
(50%), were the German Mark (17%),  Dutch guilder (10%),  French franc (10%) and
others (13%).  Additionally,  receivables are also significantly spread out over
several  currencies.  Lastly, to the extent that bank balances are maintained in
different  currencies  that would also be subject to  fluctuations  against  the
pound sterling.

      The policy of the Company is not to hedge specifically  against individual
daily transactions.  Instead, the exposure to a currency is determined every two
to three days.  This is done by comparing the bank account  balances and account
receivables  with  accounts  payable,  all in the  same  currency  to  create  a
"natural" hedge.  Thereafter,  to the extent that a bank balance and the account
receivable are not totally offset by the accounts payable, there would be a need
to cover the residual  credit  balance  with a forward  currency  contract.  The
Company  tends to  concentrate  its currency  management  into four  currencies:
United Kingdom pound  sterling,  United States dollar,  Dutch guilder and German
Mark. It normally deems the exposure in other currencies to be minimal. However,
when the  Company  buys  products  in other  currencies,  the  Company  may,  in
conjunction with current market advice, book a forward contract to cover current
and some anticipated future purchases.

ECONOMIC AND MONETARY UNION

      On January 1, 1999, eleven of the fifteen member countries of the European
Union  established  fixed  conversion  rates  between their  existing  sovereign
currencies  and a new currency  called the "euro." These  countries  adopted the
euro as their  common  legal  currency  on that  date.  The euro is  trading  on
currency exchanges and is available for non-cash transactions.  Until January 1,
2002,  the  existing  sovereign  currencies  will remain  legal  tender in these
countries.  On January 1, 2002,  the euro is scheduled to replace the  sovereign
legal  currencies of these  countries.  Through the operations of European Micro
UK, the Company has significant  operations within the European Union, including
many of the  countries  which adopted the euro.  The Company is  evaluating  the
impact  the  euro  will  have  on  its  continuing  business  operations  and no
assurances can be given that the euro will not have a material adverse effect on
the Company's business, financial condition and results of operations.  However,
the  Company  does  not  expect  the  euro  to  have a  material  effect  on its
competitive position as a result of price transparency within the European Union
because the Company does not rely on currency imbalances in purchasing inventory
from  within  the  European  Union.   Moreover,  the  Company  has  updated  its
information  technology  to  accommodate  the  adoption  of the euro.  The costs
incurred  in  evaluating  and  updating  this  information  technology  was  not
material. In addition, the Company cannot accurately predict the impact the euro
will have on currency  exchange  rates or the Company's  currency  exchange rate
risk. The Internal Revenue Service ("IRS") has requested comments on various tax
issues raised by the euro conversion.  The IRS is expected to publish guidelines
on this issue soon and, until such time, the Company cannot predict  whether the
IRS guidelines will have any tax consequences on the Company.

YEAR 2000 ISSUES

      Many existing  computer programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the impact of the  upcoming  change in the Year 2000.  If not  corrected  in the
computer  applications  of the  Company or its  suppliers  and  customers,  this
problem may cause computer  applications to fail or to create erroneous  results
by or at the Year 2000.  In 1998,  the  Company  initiated  a plan  ("Plan")  to
identify,  assess and remediate Year 2000 issues within each of its  significant
computer  programs and certain  equipment  which contain  micro-processors.  The
Company  has  divided the Plan into five major  phases -  assessment,  planning,
conversion,  implementation  and testing.  After  completing  the assessment and
planning  phases in the prior year, the Company is currently in the  conversion,
implementation   and  testing   phases.   The  Plan  addresses  each  subsidiary
differently.   All  computer  equipment,   software  and  other  non-information
technology  equipment owned by Nor'easter was Year 2000 compliant when purchased
and therefore the costs of conversion and remediation are expected to be

                                       22
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

minimal.  European  Micro UK is in the  process  of  obtaining  assurances  from
manufacturers   of  all  of  its   computer   equipment,   software   and  other
non-information technology equipment as to whether they are Year 2000 compliant.
Any non-compliant software or hardware will be upgraded or replaced. The Company
expects  to  complete  the  conversion,  implementation  and  testing  phases by
September  1999. The Company has budgeted an aggregate of $60,000 to cover these
costs.  The Company does not generally sell software  products and therefore the
Company does not expect its products to be affected by the Year 2000 problem.

      The Company is  evaluating  the impact the Year 2000  problem will have on
its suppliers,  customers, financial institutions,  freight carriers and general
economic  infrastructure.  The Company is not highly  dependent  upon any single
supplier or customer and therefore  does not expect the failure of the Company's
suppliers  and  customers  to correct  the Year 2000  problem to have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  The  Company is  dependent  upon  financial  institutions,  freight
carriers and general economic  infrastructure.  The Company has received varying
information  from these outside  parties  regarding their state of readiness for
the Year 2000 problem. The Company is formulating contingency plans to implement
in the event these  parties fail to address the Year 2000  problem.  The Company
expects such plans to be completed in September  1999. 

      The Company's failure to correct a material Year 2000 problem could result
in an interruption  in, or a failure of, certain normal  business  activities or
operations.  Such failures could  materially and adversely  affect the Company's
operations, liquidity and financial condition. The Company's ability to insulate
itself from the Year 2000 problem is limited due to the  Company's  inability to
accurately   gauge  the  readiness  of  its  suppliers,   customers,   financial
institutions, freight carriers and general economic infrastructure. Accordingly,
the Company cannot accurately anticipate or quantify the impact of the Year 2000
problem or  determine  whether the failure to correct the Year 2000 problem will
have a  material  adverse  effect  on the  Company's  operations,  liquidity  or
financial condition.

RELATED PARTY SALES

      In order to achieve attractive prices from suppliers,  a large quantity of
a product must be firmly committed to. European Micro polls the other members of
the group for informal commitments to help distribute that product.  Thereafter,
the  purchasing  member of the group,  would  obtain the  product,  examine  the
product for damage and  authenticity,  and then  supervise  the  shipping to the
other group members.  In such capacity,  the purchasing member of the group acts
as a "purchasing agent" for the other group members.

      In the three- and  six-month  periods  ended  December 31, 1998,  European
Micro UK  benefited  from low mark-up  purchases  from the other  members of the
group by $1.0 million and $10.0  million,  respectively,  and Nor'easter by $0.2
million and $3.6 million,  respectively.  European  Micro's sales to the related
parties  during the  three-month  period ended  December 31, 1998 decreased $3.6
million  from $4.7 million to $1.1  million and for the  six-month  period ended
December 31, 1998  decreased  $11.4  million from $14.0 million to $2.6 million.
The primary  reasons  for this  reduction  in related  party sales is due to the
availability of product at prices in the United States more favorable than other
sources of supply.  While the average margin on these sales was approximately 1%
compared to an average margin of approximately  8.5% on sales to unrelated third
parties  during the same period,  such margin was  sufficient to cover the costs
incurred  by the  Company in  purchasing  such  products on behalf of the group.
Significantly,  European Micro was able to enjoy the marginal  benefits from the
lower  cost  of  the  remaining  product  for  its  sales.  See  "Note  7 to the
Consolidated Condensed Financial Statements."

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The  Company  utilizes  derivative  financial  instruments  in the form of
forward  exchange  contracts for the purpose of economic  hedges of  anticipated
sale and purchase  transactions.  In addition,  the Company enters into economic
hedges  for  the  purpose  of  hedging  foreign  currency  market  exposures  of
underlying assets,  liabilities and other obligations which exist as part of its
ongoing business operations.

      Where the  foreign  currency  exposure  is  covered  by a forward  foreign
exchange contract,  the asset,  liability or other obligation is recorded at the
contracted rate each month end and the resultant mark-to-market gains and losses
are recognized as cost of sales in the current period, generally consistent with
the  period  in  which  the  gain  or  loss  of the  underlying  transaction  is
recognized. Cash flows associated with derivative transactions are classified in
the  statement of cash flows in a manner  consistent  with those of the exposure
being hedged.

                                       23
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      The Company  places all foreign  exchange  forward  contracts  with Global
Financial  Markets,  a division of the National  Westminster Bank Plc, a leading
European bank.


                                       24
<PAGE>

                          EUROPEAN MICRO HOLDINGS, INC.

EXCHANGE RATE SENSITIVITY

      On December 31, 1998,  the Company did not have any open forward  exchange
contracts.  Losses in  respect  of the  foreign  exchange  transactions  were as
follows ($ in thousands):

                                  Three Months                Six Months
                               Ended December 31,          Ended December 31,
                               1998         1997           1998         1997
                            ----------------------------------------------------

Loss on foreign exchange
transactions                  ($52)       ($255)          ($184)       ($232)

                          =========    =========       =========    =========


                                       25
<PAGE>

                          EUROPEAN MICRO HOLDINGS, INC.


PART II

ITEM 1.   LEGAL PROCEEDINGS.

          None.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

          (a), (b), (c) and (d).  None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

          None.

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

      (a) The Company held its 1998 Annual Meeting of  Stockholders  on November
16, 1998.

      (b) At the  annual  meeting,  the  stockholders  re-elected  the  Class  1
directors named in the following table by the vote set forth in such table for a
three-year  term to expire in 2001.  The names of the  directors  whose terms of
office as directors  continued after the meeting were:  John B. Gallagher,  Jr.,
Harry D. Shields, Barrett Sutton and Kyle Saxon.

         NAME:                    FOR:             AGAINST:        WITHHELD:
         -----                    ----             --------        ---------
         Bernadette Spofforth     4,535,574        0               1,000
         Laurence Gilbert         4,535,574        0               1,000

      (c) The only matter voted upon at the Annual Meeting of  Stockholders  was
the election of the directors mentioned in the above table. Such table also sets
forth the number of votes for, against or withheld for such directors.

      (d) None.

      The  foregoing  matters are  described  in detail in the  Company's  Proxy
Statement dated October 30, 1998 for the 1998 Annual Meeting of Stockholders.

ITEM 5.     OTHER INFORMATION.

      On October 26, 1998,  European  Micro UK acquired  all of the  outstanding
shares of capital  stock of Sunbelt  from the  shareholders  of Sunbelt  for the
consideration  described  below.  As a result of the  acquisition,  Sunbelt is a
wholly-owned  subsidiary of European Micro UK. The Sunbelt purchase price (to be
settled  in pounds  sterling)  is  comprised  of a  guaranteed  portion  and two
contingent  earn-out  payments.  The guaranteed  portion of the purchase  price,
which was based upon  Sunbelt's  net book value at closing and a multiple of its
fiscal year 1998 pre-tax  earnings,  was  approximately  $1.56 million.  Of this
guaranteed amount, approximately $600,000 was paid in cash at closing.

      The unpaid balance of the guaranteed consideration includes a note payable
to the former Sunbelt shareholder in the amount of approximately  $400,000 to be
repaid  in  November  2005,  subject  to early  repayment  at the  option of the
noteholder  at any time after June 1,  1999.  Such note  payable is secured by a
cash account  totaling  $400,000 at December 31, 1998.  The note payable and the
cash balances are reflected on the accompanying  consolidated  condensed balance
sheet at December 31, 1998,  in restricted  cash and other current  liabilities,
respectively.

      The  remainder of the unpaid  guaranteed  consideration  of  approximately
$565,000,  plus accrued  interest,  is to be paid in equal  installments  within
ninety (90) days of the end of the first and second contingent  earn-out periods
as discussed  below.  The unpaid  balance of the  guaranteed  purchase  price is
reflected in other current liabilities and other liabilities on the accompanying
consolidated condensed balance sheet at December 31, 1998.

      The purchase agreement also contains contingent purchase price provisions.
The maximum  contingent  earn-out  payments in the  aggregate  are two (2) times
Sunbelt's  fiscal year 1998 pre-tax  earnings of  approximately  424,000  pounds
sterling  (approximately  $1.4 million).  The first contingent  payment of up to
approximately $700,000 will be made if certain financial parameters are attained
during the first contingent  earn-out period which runs from November 1, 1998 to

                                       26
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

October 31, 1999,  and if certain of the Sunbelt  executives  are still employed
with the Company at the end of the first earn-out period.  The second contingent
payment  of up to  approximately  $700,000  will be made  if  certain  financial
parameters are attained during the second contingent  earn-out period which runs
from November 1, 1999 to October 31, 2000. That portion of the first  contingent
earn-out payment related to employee retention, approximately $175,000, is being
recognized  by the  Company  over the  course of the first  contingent  earn-out
period as compensation  expense.  The remaining  portion of the first contingent
earn-out payment of approximately  $525,000 and the second  contingent  earn-out
payment have not been  recognized  in the  accompanying  consolidated  condensed
financial  statements  as the payment of such amounts are not, in the opinion of
management, determinable beyond a reasonable doubt.

      Within ninety (90) days of the end of first and second contingent earn-out
periods,  the first and second purchase price installment payments will be made.
Such  installment  payments  will each  include  one-half of the  remaining  40%
guaranteed  purchase  price  amounts,  plus any  amounts due under the first and
second contingent earn-out payment provisions. The amounts due to the former 40%
shareholder  of Sunbelt will be satisfied by the issuance of a convertible  loan
note due six years after the date of issue,  and subject to early  prepayment at
the option of the  noteholder  on any date after  eight  months from the date of
issuance.  The  Company  has the option of paying all future  amounts due to the
former Sunbelt shareholders in common stock of European Micro Holdings, Inc. The
Company also entered into employment agreements with the two former shareholders
of Sunbelt.

      The  acquisition of Sunbelt was accounted for as a purchase.  The purchase
price,  subject to  adjustment as described  above and inclusive of  transaction
costs, of  approximately  $1.66 million exceeded the estimated fair market value
of net assets acquired by approximately $1.48 million,  which is being amortized
on a straight-line basis over 25 years. The allocation of the purchase price and
the determination of the estimated life of goodwill are preliminary. The results
of  operations  of Sunbelt  have been  included  in the  accompanying  financial
statements from the date of acquisition.

      Sunbelt,  formerly  privately  held,  is a  distributor  of  microcomputer
products to dealers, value-added resellers and mass merchants throughout Western
Europe.   Sunbelt's  trading  operations  were  integrated  with  and  into  the
operations of European Micro UK.  Sunbelt's  business of  distributing  its Nova
brand  products  operates as a separate  business  entity  consistent  with past
practice.  Sunbelt was  established in 1992 and is based in Wimbledon,  England.
For  the  fiscal  year  ended  June  30,  1998,   Sunbelt  had  total  sales  of
approximately $16.5 million and pre-tax earnings of approximately $742,500.

      On November 12, 1998,  European Micro UK acquired the assets of H&B. Based
in Holland,  H&B was a  privately  held,  independent,  focused  distributor  of
microcomputer  products  to  the  BENELUX  countries  -  Belgium,   Holland  and
Luxembourg.  H&B had 1997 annual revenues of approximately U.S. $2 million.  The
acquisition  of H&B was  accounted for as a purchase.  The base purchase  price,
subject to adjustment,  of approximately $79,000 exceeded the estimated value of
net assets  acquired by  approximately  $58,000,  which is being  amortized on a
straight-line  basis over 25 years. The allocation of the purchase price and the
determination  of the  estimated  life of goodwill are  preliminary.  If certain
financial  performance criteria are met for the fiscal years ended June 30, 1999
and 2000, additional  consideration of approximately $66,000 will be paid (to be
settled in Dutch guilders). Such contingent consideration has not been reflected
in the accompanying consolidated condensed financial statements.  The results of
operations of H&B have been included in the  accompanying  financial  statements
from the date of acquisition.


                                       27
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.

      The following summarized unaudited pro forma financial information assumes
the acquisition of Sunbelt occurred on July 1, 1997 ($ in thousands,  except per
share data):

                                              SIX MONTHS ENDED
 
                                  DECEMBER 31,              DECEMBER 31,
                                     1998                       1997
                                     ----                       ----

Total net sales                    $64,162                    $52,990

Net earnings                          $803                     $1,152

Earnings per share:
   Basic                             $0.16                      $0.29

   Diluted                           $0.16                      $0.29

      The amounts are based on certain  assumptions  and  estimates,  and do not
reflect any benefits  from  economies  which might be achieved from the combined
operations.  The pro forma results do not  necessarily  represent  results which
would have  occurred if the  acquisition  had taken  place on the basis  assumed
above, nor are they indicative of the results of future operations.

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

(a)   EXHIBITS.

EXHIBIT
NO.      DESCRIPTION                        LOCATION
-------  -----------                        --------

  2.01   Agreement for the Acquisition of   Incorporated by reference to
         Sunbelt (UK) Limited by European   Exhibit 2.01 to Registrant's 
         Micro Plc dated October 26, 1998   Form 10-Q for the quarter
                                            ended September 30, 1998.

  3.01   Articles of Incorporation          Incorporated by reference to
                                            Exhibit No. 3.01 to
                                            Registrant's Registration
                                            Statement (the "Registration
                                            Statement") on Form S-1
                                            (Registration Number
                                            333-44393).

  3.02   Certificate of Amendment of        Incorporated by reference to
         Articles of Incorporation          Exhibit 3.02 to Registrant's
                                            Form  10-Q  for  the  quarter
                                            ended March 31, 1998.

  3.03   Bylaws                             Incorporated by reference to
                                            Exhibit No. 3.02 to the
                                            Registration Statement.

  4.01   Form of Stock Certificate          Incorporated by reference to
                                            Exhibit No. 4.01 to the
                                            Registration Statement.

  4.02   1998 Stock Incentive Plan          Incorporated by reference to
                                            Exhibit No. 4.02 to the
                                            Registration Statement.

  4.03   1998 Stock Employee Stock          Incorporated by reference to
         Purchase Plan                      Exhibit No. 4.03 to the
                                            Registration Statement.

  4.04   Form of Lock-up Agreement          Incorporated by reference to
                                            Exhibit No. 4.04 to the
                                            Registration Statement.

 10.01   Form of Advice of Borrowing Terms  Incorporated by reference to
         with National Westminster Bank Plc Exhibit No. 10.01 to the
                                            Registration Statement.

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<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.
EXHIBIT
NO.      DESCRIPTION                        LOCATION
-------  -----------                        --------

 10.02   Invoice Discounting Agreement      Incorporated by reference to
         with Lombard NatWest Discounting   Exhibit No. 10.02 to the
         Limited, dated November 21, 1996   Registration Statement.

 10.03   Commercial Credit Insurance,       Incorporated by reference to 
         policy number 60322, with Hermes   Exhibit No. 10.03 to the
         Kreditversicherungs-AG dated       Registration Statement.
         August 1, 1995

 10.04   Commercial Credit Insurance,       Incorporated by reference to 
         policy number 82692, with Hermes   Exhibit No. 10.04 to the
         Kreditversicherungs-AG dated       Registration Statement.
         August 1, 1995

 10.05   Consignment Agreement with         Incorporated by reference to
         European Micro Computer B.V.,      Exhibit No. 10.05 to the
         dated January 1996                 Registration Statement.

 10.06   Distributor Agreement with         Incorporated by reference to
         WatchGuard Technologies, Inc.,     Exhibit No. 10.06 to the
         dated November 5, 1997             Registration Statement.

 10.07   Shareholders' Cross-Purchase       Incorporated by reference to
         Agreement by and between Jeffrey   Exhibit No. 10.07 to the
         Gerard Alnwick, Marie Alnwick,     Registration Statement.
         European Micro Plc and Big Blue
         Europe, B.V. dated August 21, 1997

 10.08   Trusteed Shareholders              Incorporated by reference to
         Cross-Purchase Agreement by and    Exhibit No. 10.08 to the
         between John B. Gallagher, Harry   Registration Statement.
         D. Shields, Thomas H. Minkoff,
         Trustee of the Gallagher Family
         Trust, Robert H. True and Stuart
         S. Southard, Trustees of the
         Henry Daniel Shields 1997
         Irrevocable Educational Trust,
         European Micro Holdings, Inc. and
         SunTrust Bank, Nashville, N.A.,
         as Trustee dated January 31, 1998

 10.09   Executive Employment Agreement     Incorporated by reference to
         between John B. Gallagher and      Exhibit No. 10.09 to the
         European Micro Holdings, Inc.      Registration Statement.
         effective as of January 1, 1998

 10.10   Executive Employment Agreement     Incorporated by reference to
         between Harry D. Shields and       Exhibit No. 10.10 to the
         European Micro Holdings, Inc.      Registration Statement.
         effective as of January 1, 1998

 10.11   Contract of Employment             Incorporated by reference to
         between Laurence Gilbert and       Exhibit No. 10.11 to the
         European Micro UK dated March 14,  Registration Statement.
         1998

 10.12   Contract of Employment between     Incorporated by reference to
         Bernadette Spofforth and European  Exhibit No. 10.12 to the
         Micro UK dated April 30, 1996      Registration Statement.

 10.13   Subscription Agreement by and      Incorporated by reference to
         between John B. Gallagher, Harry   Exhibit No. 10.13 to the
         D. Shields, Thomas H. Minkoff,     Registration Statement.
         Trustee of the Gallagher Family
         Trust, Robert H. True and Stuart
         S. Southard, Trustees of the
         Henry Daniel Shields 1997
         Irrevocable Educational Trust,
         European Micro Holdings, Inc.
         effective as of January 31, 1998

 10.14   Administrative Services Contract   Incorporated by reference to
         by and between European Micro      Exhibit No. 10.14 to the
         Holdings, Inc. and European Micro  Registration Statement.
         Plc effective as of January 1,
         1998

 10.15   Escrow Agreement between European  Incorporated by reference to
         Micro Holdings, Inc., Tarpon       Exhibit No. 10.15 to the
         Scurry Investments, Inc. and The   Registration Statement.
         Chase Manhattan dated as of March
         24, 1998

                                       29
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.
EXHIBIT
NO.      DESCRIPTION                        LOCATION
-------  -----------                        --------

 10.16   Form of Indemnification            Incorporated by reference to
         Agreements with officers and       Exhibit No. 10.16 to the
         directors                          Registration Statement.

 10.17   Form of Transfer Agent Agreement   Incorporated by reference to
         with Chase Mellon Shareholder      Exhibit No. 10.17 to the
         Services, L.L.C.                   Registration Statement.

 10.18   Form of Credit Agreement by and    Incorporated by reference to
         between European Micro UK and      Exhibit No. 10.18 to the
         National Westminster Bank Plc      Annual Report on Form 10-K
                                            for the fiscal year ended June 30,
                                            1998 filed with the Commission on
                                            September 28, 1998.

 10.19   Consulting Contract dated          Incorporated by reference to
         September 10, 1998 by and between  Exhibit 10.19 to Registrant's Form
         European Micro Holdings, Inc. and  10-Q for the quarter ended
         The Equity Group                   September 30, 1998.

 10.20   Service Agreement dated October    Incorporated by reference to 
         28, 1998 by and between European   Exhibit 10.20 to Registrant's Form
         Micro Holdings, Inc. and Michael   10-Q for the quarter ended
          Gesner                            September 30, 1998.

 10.21   Service Agreement dated October    Incorporated by reference to
         28, 1998 by and between European   Exhibit 10.21 to Registrant's Form
         Micro Plc and Gerard O'Rourke      10-Q for  the quarter ended
                                            September 30, 1998.

 11.01   Statement re: Computation of       Provided herewith.
         Earnings

 15.01   Letter re: Unaudited Financial     Not applicable.
         Information

 18.01   Letter re Change in Accounting     Not applicable.
         Principles

 19.01   Report Furnished to Security       Not applicable.
         Holders

 22.01   Published Report Regarding         Not applicable.
         Matters Submitted to Vote of
         Security Holders

 23.01   Consents of experts and counsel    Not applicable.

 24.01   Power of Attorney                  Not applicable.

 27.01   Financial Data Schedule            Provided herewith.


(b)   REPORTS ON FORM 8-K.

      Registrant  filed a Current  Report on Form 8-K dated November 10, 1998 to
disclose  the  acquisition  of Sunbelt  (UK) Ltd.  This Form 8-K was  amended on
January 8, 1999 to delete any reference that the Company  intends to provide any
financial  information required by Item 7 of Form 8-K because it determined that
Sunbelt is not a "significant" business under Rule 11-01(b) of Regulation S-X.

      Subsequent to the amended filing,  the Company's  independent  accountants
determined  that Sunbelt would be deemed to be a  "significant"  business  under
Rule 11-01(b) of  Regulation  SX. The Company  intends to report such  financial
information in an amended Form 8-K.

                                       30
<PAGE>
                          EUROPEAN MICRO HOLDINGS, INC.



                                   SIGNATURES

      In accordance  with the  requirements  of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Date:  February 16, 1999            EUROPEAN MICRO HOLDINGS, INC.


                                    By: /s/ Harry D. Shields
                                        --------------------
                                        Harry D. Shields, Co-President



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