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 September 30, 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
Incorporation or Organization)                  No.)


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 /X/ No /_/

      There were  4,933,900  shares of Common Stock,  par value $0.01 per share,
outstanding as of October 31, 1998.


<PAGE>



                         EUROPEAN MICRO HOLDINGS, INC.


PART I


FINANCIAL INFORMATION


ITEM 1.      FINANCIAL STATEMENTS.

                   Index to Consolidated Financial Statements

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

Consolidated Condensed Statements of Earnings for the three
   months ended September 30, 1998 and 1997.............................4

Consolidated Statement of Changes in Shareholders' Equity
   for the three months ended September 30, 1998........................5

Consolidated Condensed Statements of Cash Flows for the three months
   ended September 30, 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)
                                                  Sept. 30,    June 30,
                                                       1998        1998
        ASSETS
CURRENT ASSETS:
  Cash                                            $ 3,579      $ 5,012
  Trade receivables, net                            9,141        7,985

  Discounted trade receivables                        550           -- 
  Due from related parties                          1,340          898
  Inventories, net                                  5,447        1,715
  Deferred tax asset                                   32           26
  Prepaid expenses                                    524          304
  Other current assets                                105        2,459
                                                  -------      -------

      TOTAL CURRENT ASSETS                         20,718       18,399
  Property and equipment, net                         622          611
  Investments                                         166          194
                                                  -------      -------

      TOTAL ASSETS                                $21,506      $19,204
                                                  =======      =======

        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Discount creditor                               $   468           $-
  Trade payables                                    2,537        1,638
  Other current liabilities                         1,324          987
  Due to related parties                                9          238
  Income taxes payable                              2,518        2,577
                                                  -------      -------

      TOTAL CURRENT LIABILITIES                     6,856        5,440
  Long-term borrowings under capital
   leases                                              70           84
                                                  -------      -------

      TOTAL LIABILITIES                             6,926        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
   September 30 and June 30, 1998,
   shares issued and outstanding,
   4,933,900 at September 30 and
   June 30, 1998                                       49           49
  Additional paid in capital                        8,818        8,802
  Retained earnings                                 5,495        4,773
  Cumulative foreign currency
   translation adjustment                             218           56
                                                  -------      -------


      TOTAL SHAREHOLDERS' EQUITY                   14,580       13,680
                                                  -------      -------

      TOTAL LIABILITIES AND
        SHAREHOLDERS' EQUITY                      $21,506      $19,204
                                                  =======      =======


                                       3
<PAGE>


                CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                   ($ In thousands, except per share data)

                                           (Unaudited)
                                        Three months ended
                                          September 30,   
                                          1998      1997
SALES:
Net sales                         $ 27,781       $ 14,767
Net sales to related parties         1,516          9,340
                                  --------       --------

      Total net sales               29,297         24,107
                                  --------       --------

COST OF GOODS SOLD:
Cost of goods sold                 (24,854)       (13,022)
Cost of goods sold to
  related parties                   (1,498)        (9,246)
                                  --------       --------

       Total cost of goods
          sold                     (26,352)       (22,268)
                                  --------       --------

GROSS PROFIT                         2,945          1,839

OPERATING EXPENSES:
Selling, general and
  administrative expenses           (1,717)        (1,057)

Expenses attributable to
  related parties                       (0)           (25)
                                  --------       --------
      Total operating
       expenses                     (1,717)        (1,082)
                                  --------       --------
OPERATING PROFIT                     1,228            757

Interest expense, net                  (46)          (101)
Equity in net income (loss)
  of unconsolidated affiliate          (28)            35
                                  --------       --------

INCOME BEFORE INCOME TAXES           1,154            691

  Income taxes                        (432)          (206)
                                  --------       --------

NET INCOME                        $    722       $    485
                                  ========       ========

NET INCOME PER SHARE - BASIC      $   0.15       $   0.12
                                  ========       ========

NET INCOME PER SHARE -
DILUTED                           $   0.15       $   0.12
                                  ========       ========


                                       4
<PAGE>
<TABLE>
<CAPTION>


                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
               ($ in thousands, except share and per share data)

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

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

Net income                                --             --             --             722             --            722

Additional Initial Public
   Offering Expenses                      --             --            (25)             --             --            (25)

Compensation charge in
   relation to share options
   issued to non-employees                --             --             41              --             --             41

Other comprehensive
   income, net of tax and
   foreign currency
   translation adjustment                 --             --             --              --            162            162
                                   ---------      ---------      ---------       ---------      ---------      ---------

Balance at September 30, 1998      4,933,900      $      49          8,818           5,495            218      $  14,580
                                   =========      =========      =========       =========      =========      =========

</TABLE>

                                        5
<PAGE>


                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                ($ in thousands)

                                                     (Unaudited)
                                                Three months ended
                                                   September 30,
                                               1998          1997
OPERATING ACTIVITIES:
Net income                                  $   722       $   485
ADJUSTMENTS TO RECONCILE NET INCOME
  TO NET CASH (USED IN) PROVIDED BY
  OPERATING ACTIVITIES
  Depreciation and other                         65            66
  Provision for deferred taxes                   (6)          (54)
  Equity in net loss (income) of
      unconsolidated affiliate                   28           (35)
  Compensation charge for non-employee
      stock options                              41            -- 
CHANGES IN ASSETS AND LIABILITIES
  Trade and discounted receivables           (1,706)       (3,464)
  Due from related parties                     (442)         (791)
  Inventory                                  (3,732)          402
  Other current assets                        2,134          (882)
  Trade payables                                899           840
  Due to related parties                       (229)        1,416
  Taxes payable                                 (59)          161
     Other net                                  341           249
                                            -------       -------

NET CASH USED IN OPERATING ACTIVITIES        (1,944)       (1,607)
                                            -------       -------

INVESTING ACTIVITIES:
  Purchase of fixed assets                      (54)          (20)
  Sale of fixed assets                           --            12
                                            -------       -------

NET CASH USED IN INVESTING ACTIVITIES           (54)           (8)
                                            -------       -------

FINANCING ACTIVITIES:
Dividends paid                                   --           (55)
Additional initial public offering
   expenses                                     (25)           -- 
Repayment of capital leases, net                (18)          (42)
Change in bank line of credit                    --        (1,034)
Change in discount creditor                     468         3,712
                                            -------       -------

NET CASH PROVIDED BY FINANCING
ACTIVITIES                                      425         2,581
                                            -------       -------

Exchange rate changes                           140           (50)
                                            -------       -------

NET (DECREASE) INCREASE IN CASH              (1,433)          916
Cash at beginning of period                   5,012           288
                                            -------       -------

CASH AT END OF PERIOD                       $ 3,579       $ 1,204
                                            =======       =======


Interest paid                               $    65       $   223
                                            =======       =======

Taxes paid                                  $   391       $   257
                                            =======       =======


                                       6
<PAGE>


       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):

                                      SEPT. 30,    JUNE 30,
                                           1998        1998

Finished goods and goods for resale      $5,454      $1,724
Less: Allowance for inventory                                               
obsolescence                                 (7)         (9)                
                                        --------    --------
                                         $5,447      $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 September
30, 1998, the carrying value was $5,447,000.

Obsolescence comprise ($ in thousands):

                                      SEPT. 30,    JUNE 30,
                                           1998        1998

Beginning balance                            $9         $35
Provision for obsolescence                   39         248
Amounts written off                         (41)       (274)
                                        --------    --------
Ending balance                               $7          $9
                                        ========    ========

                                       7
<PAGE>


      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

3  OTHER CURRENT ASSETS

Other current assets comprise ($ in thousands):

                                      SEPT. 30,    JUNE 30,
                                           1998        1998
Amounts paid in advance for                                                 
inventories                                  $-      $2,015                 
Advanced Corporation Tax                                                    
  recoverable                                 -         145                 
Other                                       105         299
                                           ----      ------

                                           $105      $2,459
                                           ====      ======


4  OTHER CURRENT LIABILITIES

Other current liabilities comprise ($ in thousands):

                                        
                                          SEPT. 30,   JUNE 30,               
                                               1998       1998
Accrued expenses                                $561      $710
Value Added Tax payable                          502        41
Accrued Payroll Taxes & National Insurance       130        98
Current portion of capital leases                 69        70
Others                                            62        68
                                              ------       ---

                                              $1,324       987
                                              ======       ===


5  EARNINGS PER SHARE

The number of shares of common stock  outstanding at the beginning and ending of
the  period  was  4,933,900.  The  weighted  average  number of shares for basic
earnings  per share and diluted  earnings  per share was  4,933,900.  Options to
purchase 294,000 shares of common stock at $10 per share were outstanding during
the quarter,  but were not included in the  computation of diluted  earnings per
share because the options'  exercise  price was greater than the average  market
price of the common  shares.  The weighted  average number of shares used in the
1997 period  reflects a retroactive  adjustment  to assume the 4,000,000  shares
issued in January  1998 in exchange  for the shares of  European  Micro plc were
outstanding for the complete period in 1997.

6  RELATED PARTY TRANSACTIONS

European  Micro Plc has  belonged to a group of related  companies  called Micro
Computer  Center Group (the  "GROUP").  The Group is comprised of European Micro
Plc,  Technology  Express  Inc.   located in Nashville,  Tennessee  ("TECHNOLOGY
EXPRESS"),  American  Surgical Supply Corp. 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 Plc, John B. Gallagher  and/or Harry
D. Shields and their families.


                                       8
<PAGE>


      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

6  RELATED PARTY TRANSACTIONS (CONTINUED)

The rates  charged on related  party  sales are lower than they would be in arms
length transactions. There are bulk buying arrangements with the related parties
which gives  European  Micro Plc the benefit  that it can buy large  job-lots at
more  competitive  prices  than it would  otherwise  be  possible to do and then
immediately  sell on part of the purchase to the related  parties.  In practical
terms,  the sales to related parties are to the  distributors in a similar trade
to European Micro Plc and these parties would not buy at higher prices.

Related party transactions are summarized as follows ($ in thousands):

                                         Three months ended
                                            September 30,  
                                           1998       1997
      SALES
      American Micro Computer Center        $13     $5,836
      Technology Express                  1,503     $3,504
      Ameritech Argentina                     -          -
      Ameritech Exports                       -          -
                                         ------     ------
                                         $1,516     $9,340
                                         ======     ======

      PURCHASES
      American Micro Computer Center         $-         $-
      Technology Express                 12,439      2,545
      Ameritech Argentina                     -          -
      Ameritech Exports                       -          -
                                         ------     ------
                                        $12,439     $2,545
                                        =======     ======



                                         Three months ended
                                           September 30,
                                           1998       1997
      OPERATING EXPENSES                                                  

      CONSULTANCY FEES PAID TO:                                           
      American Micro Computer Center         $-        $13
      Technology Express                      -         12
                                         ------     ------
                                             $-        $25
                                        =======     ======



                                       9
<PAGE>


      NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

6  RELATED PARTY TRANSACTIONS (CONTINUED)

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


                                     SEPT. 30,    JUNE 30,                
                                          1998        1998

         American Micro Computer                                          
      Center                               $17         $54                
         Technology Express              1,323         844
         Ameritech Argentina                 -           -
         Ameritech Exports                   -           -
                                        ------      ------
                                        $1,340         898
                                        ======      ======



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


                                     SEPT. 30,    JUNE 30,                
                                          1998        1998

         American Micro Computer                                           
           Center                           $-          12                 
         Technology Express                  9         226
         Ameritech Argentina                 -           -
         Ameritech Exports                   -           -
                                        ------      ------
                                            $9         238
                                        ======      ======

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  after  the  Offering)  of
European Micro  Holdings,  Inc. is a president of American Micro Computer Center
and owns 33.3% of the 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  Inacomp  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  39% of the  outstanding  shares  after  the
Offering) of European Micro  Holdings,  Inc. is president of Technology  Express
and owns 100% of the outstanding shares of common stock of that company.


                                       10
<PAGE>


     NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

6  RELATED PARTY TRANSACTIONS (CONTINUED)

AMERITECH ARGENTINA

Ameritech Argentina is 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 owned 50% of the  outstanding
shares of common stock each until its sale on August 1, 1997.


AMERITECH EXPORTS

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

7  SUBSEQUENT EVENTS

On October 28, 1998,  European Micro plc, a wholly-owned  subsidiary of European
Micro Holdings,  Inc. ("EUROPEAN MICRO HOLDINGS"),  completed its acquisition of
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  $1,008,684  in cash and an  earn-out  based on the  attainment  of
certain  performance  criteria.  At European  Micro  Holdings'  discretion,  the
earn-out  will be payable in either  cash or shares of common  stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined  based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro plc. The  acquisition  will be accounted for using the purchase  method of
accounting.

Sunbelt,  formerly privately held, is a distributor of microcomputer products to
dealers,  VARs and mass merchants  throughout Western Europe.  Sunbelt's trading
operations  will be integrated  with and into the  operations of European  Micro
plc.  Sunbelt's business of distributing its Nova brand products will operate 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 U.S. $16.5 million
and pre-tax earnings of approximately U.S. $742,500.

                                       11
<PAGE>



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'   ("EUROPEAN  MICRO  HOLDINGS"  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 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  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  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

                                       12
<PAGE>




"COMMON  STOCK"),  of European Micro  Holdings.  The 4,000,000  shares of Common
Stock of European Micro Holdings has been 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  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
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.

      European Micro UK is the parent of European Micro GmbH (formerly  known as
European Micro Computer Center GmbH) ("EUROPEAN MICRO GERMANY").  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. European Micro UK
has a 50% joint venture  interest in Big Blue Europe,  B.V.  ("BIG BLUE EUROPE")
which was formed in January 1997.  Big Blue Europe was organized  under the laws
of  Holland  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.

      On October 28, 1998, European Micro UK completed its acquisition of all of
the outstanding shares of capital stock of Sunbelt. As a result,  Sunbelt became
a wholly-owned subsidiary of European Micro UK. This relationship is depicted in
the  organizational  chart  below.  See  "Note 7 to the  Consolidated  Financial
Statements" and "Item 5. Other Information."

      European  Micro Holdings was formed in December 1997 to serve as a holding
company  of  the  Subsidiaries.  European  Micro  Holdings  does  not  have  any
operations of its own. Its  headquarters  are located at 6073 N.W. 167th Street,
Unit C-25, Miami, Florida 33015, and its telephone number is (305) 825-2458.


                                       13
<PAGE>


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

[GRAPHIC OMITTED]








                                       14


<PAGE>

RESULTS OF OPERATIONS

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

                         PERCENTAGE OF NET SALES

                                                    (UNAUDITED)
                                                 THREE MONTHS ENDED
                                                   SEPTEMBER 30, 
                                                 1998            1997
                                                 ----            ----

Net sales to third parties                      94.8%           61.3%
Net sales to related parties                     5.2%           38.7%
                                              -------         -------
Total net sales                                100.0%          100.0%
                                              -------         -------
Cost of goods sold to third parties           (84.8%)         (54.0%)
Cost of goods sold to related parties          (5.1%)         (38.4%)
                                              -------         -------
Total cost of goods sold                      (89.9%)         (92.4%)
                                              -------         -------
Total Gross Profit                              10.1%            7.6%

Total operating expenses                       (5.9%)          (4.5%)
                                              -------         -------
Operating profit                                 4.2%            3.1%

Interest expense                               (0.2%)          (0.4%)

Share of (loss) / income in the
  unconsolidated affiliate                     (0.1%)            0.1% 
                                              -------         -------
Income before income taxes                       3.9%            2.8%
Provision for income taxes                     (1.5%)          (0.8%)

                                              -------         -------
Net Income                                       2.4%            2.0%
                                              =======         =======

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1997

      TOTAL NET SALES.  Total net sales increased $5.2 million,  or 21.5%,  from
$24.1  million in the  three-month  period  ended  September  30,  1997 to $29.3
million  in the  comparable  period  in 1998.  Excluding  net  sales to  related
parties,  net sales increased $13.0 million, or 88.1%, from $14.8 million in the
three-month  period ended  September 30, 1997 to $27.8 million in the comparable
period  in  1998.  This  increase  was  attributable  to  general  sales  growth
(accounting for approximately  $6.6 million),  the start-up growth of Nor'easter
which started its operations in February 1998 (accounting for approximately $5.2
million)  and  the  growth  of  the  Premier   Dealers  Club   (accounting   for
approximately $1.2 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.

                                       15
<PAGE>




      Net sales to related  parties  decreased  $7.8 million in the  three-month
period  ended  September  30,  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 September 30,
1997 compared to the same period in 1998. In addition,  the Company's  purchases
from related parties  increased by $9.9 million in the three-month  period ended
September  30, 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 6 to the  Consolidated  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.

      GROSS PROFIT.  Gross profit  increased $1.1 million,  or 60.1 %, from $1.8
million in the  three-month  period ended  September 30, 1997 to $2.9 million in
the comparable period in 1998. Gross profit excluding related party transactions
increased $1.2 million,  or 67.7%,  from $1.7 million in the three-month  period
ended September 30, 1997 to $2.9 million in the comparable  period in 1998. This
increase  is the  result of market  conditions  which  made it  advantageous  to
purchase  from the other  group  members  and sell to third  parties  during the
period.  In the comparable  period in 1997, the Company  supplied product to the
other  group  members  instead  of  purchasing  product.  This  shift in  market
conditions is due to currency fluctuations,  product availability and changes in
geographic  pricing  strategies  of  the  manufacturers  and  suppliers  of  the
Company's products.  As discussed above, the mark-up on sales to related parties
is  typically  one percent  over cost.  Therefore,  the gross profit of sales to
third  parties is  typically  higher  than the gross  profit  earned on sales to
related parties. Gross profit attributable to related party sales was $18,000 in
the  three-month  period ended  September 30, 1998.  This represents a margin of
approximately one percent as discussed above. 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 margin  increased by 2.5% from 7.6% in the three-month  period ended
September 30, 1997 to 10.1% in the comparable period in 1998.  Excluding related
party transactions,  gross margin decreased from 11.8% in the three-month period
ended September 30, 1997 to 10.5% in the comparable  period in 1998. This change
is related to the normal  fluctuations  in  purchasing  opportunities  and sales
demand from quarter to quarter.

      Foreign  exchange  gains and  losses  moved  from a gain of $23,000 in the
three-month  period  ended  September  30,  1997  to a loss of  $132,000  in the
comparable  period in 1998. This loss was  attributable to the  strengthening of
the pound sterling relative to other European currencies.

      OPERATING EXPENSES.  Operating expenses as a percentage of total net sales
increased from 4.5% in the  three-month  period ended September 30, 1997 to 5.9%
in  the  comparable  period  in  1998.  Excluding  related  party  transactions,
operating  expenses  as a  percentage  of net sales  decreased  from 7.2% in the
three-month  period ended September 30, 1997 to 6.2% in the comparable period in
1998.  Operating expenses increased primarily due to the increase in third party
sales and the decrease in related party sales, resulting in higher gross margins
for the period. This resulted in higher commission and bonus compensation during
the period because the Company's  compensation structure rewards employees based
on the  Company's  profitability.  For the reasons set forth above,  the Company
achieved higher gross margins in the period which resulted in higher  commission
and bonus compensation in the period.

      INTEREST  EXPENSE.  Interest expense decreased by $55,000 from $101,000 in
the  three-month  period ended  September 30, 1997 to $46,000 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.

                                       16
<PAGE>




      INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 29.8% in the three-month period ended September 30, 1997 to 37.4%
in the comparable period in 1998. The increase was primarily  attributable to an
increase in the amount of disallowed  expenditures  and higher  corporate income
tax rates in the United  States.  The  Company's  effective  income tax rate may
increase 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 a gain of $35,000 in the  three-month  period ended
September 30, 1997 to a loss of $28,000 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 $5.6
million to assist in the purchase of inventory.

      Long-term  funding is supplied to the Company in the form of hire purchase
and 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
for 80% of the purchase  value of the vehicle.  As of  September  30, 1998,  the
borrowings were $139,000, of which $70,000 was due after more than one year.

      European Micro's typical principal need for additional  working capital in
fiscal 1998 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  three-month  period to
September 30, 1998 amounted to $1.9 million.  Significant  factors in the use of
cash were an increase in trade and discounted receivables of $1.7 million and an
increase in inventory of $3.7 million.  The increase in receivables  was largely
attributable  to the  increase  in net  sales in the  three-month  period  ended
September 30, 1998. The increase in inventory was largely  attributable to large

                                       17
<PAGE>




quantity  purchases of computer products at prices which the Company  considered
to be  favorable.  The  amount of cash  used in the  Company's  operations  were
partially offset by net income in the period of $722,000, cash generated from an
increase in trade  payables of  $899,000,  a reduction in other  current  assets
related to the prepayment of inventory at June 30, 1998 of $2.0 million.

      Cash used in  investing  activities  amounted  to $54,000,  consisting  of
expenditures  on  fixtures  and  fittings  of $11,000  and office  equipment  of
$43,000.

      Cash provided by financing activities was $425,000,  of which $468,000 was
provided by an increase in the Lombard NatWest debt discounting  facility.  Cash
was used by  repayments  of capital  leases of $18,000 and  additional  expenses
associated with the initial public offering of $25,000.

      Overall,  the Company  experienced  a net decrease in cash of $1.4 million
for the three-month period ended September 30, 1998 which is after the impact of
exchange rates of $140,000.

ASSET MANAGEMENT

      INVENTORY.  European  Micro's goal is to achieve high inventory  turns and
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' 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.

      HEDGING AND CURRENCY MANAGEMENT  ACTIVITIES.  European Micro Holdings 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'  main  operating  subsidiary,
European Micro UK, is the United Kingdom pound sterling,  currency  fluctuations
of the pound sterling  relative to the dollar may have a material adverse affect
on the  Company's  business,  financial  condition  and  results of  operations.
European Micro Holdings 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  September  30, 1998,  purchases of inventory by
European Micro UK were in the United Kingdom pound sterling  (17%),  German Mark
(6%), United States dollar (70%) and other (7%). The most significant currencies
in which sales were made,  other than the pound sterling (55%),  were the German
Mark  (19%),   Dutch  guilder   (9%),   French  franc  (7%)  and  others  (10%).
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.

                                       18
<PAGE>




      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 are scheduled to establish fixed  conversion  rates between their existing
sovereign  currencies and a new currency called the "euro." These countries have
agreed to adopt the euro as their common legal  currency on that date.  The euro
will  then  trade  on  currency   exchanges   and  be  available   for  non-cash
transactions.  Thereafter  and 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 are
scheduled to adopt to 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  affect on the  Company's  business,
financial  condition and results of  operations.  However,  the Company does not
expect  the euro to have a  material  affect 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 is evaluating its ability to update its information
technology  to  accommodate  the  adoption of the euro but it does not expect to
incur  material  costs in either  evaluating  or updating  such  technology.  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. The Company has received  informal  assurances  from the
companies   manufacturing  the  computer   applications  used  in  its  business
operations that such computer applications are Year 2000 compliant. Although the
Company believes that its computer applications will not be affected by the Year
2000  problem,  any failure or  erroneous  results  produced  thereby may have a
material  adverse  affect on the  Company's  business,  financial  condition  or
results of operations. 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 and customers,  although the Company expects such evaluation to be
made informally through discussions with customers and suppliers. The failure of
the Company's  suppliers and customers to correct the Year 2000 problem in their
computer  applications  may have a  material  adverse  affect  on the  Company's
business,  financial condition and results of operations. As of the date of this
filing,  the Company cannot accurately  anticipate or quantify the impact on the
Company of its suppliers' and  customers'  failure to correct this problem.  The
Company  is  formulating  contingency  plans  to  implement  in  the  event  its
suppliers' and customers' fail to address the Year 2000 problem.


                                       19
<PAGE>


INTER-GROUP 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-month  period ended  September 30, 1998,  European  Micro UK
benefited from low mark-up purchases from the other members of the group by $9.0
million and Nor'easter by $3.4 million.  European Micro  Holdings'  sales to the
related parties during the three-month period ended September 30, 1998 decreased
$7.8  million from $9.3 million to $1.5  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  1.0%  compared to an average
margin of 10.7% 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 6 to the Consolidated 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.

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

EXCHANGE RATE SENSITIVITY

      The  table  below  summarizes  information  on  foreign  currency  forward
exchange  agreements.  The table  presents  the  notional  amounts and  weighted
average exchange rates by expected (contractual) maturity dates ($ in thousands,
except exchange rates).

                                             Expected                         
                                           maturity or            
                                         transaction date         Fair value
                                         ----------------         ----------

         FORWARD EXCHANGE                                                    
           AGREEMENTS                                                        

         SEPTEMBER 30, 1998
            (Receive $US/Pay(pound))      October 1, 1998
           Contract amount                         $3,500           $3,560
           Average contractual                                               
             exchange rate                 $1.674/(pound)1



                                       20
<PAGE>




      The fair value has been determined by applying the mid-price of the spread
on the buy or sell rates, as appropriate,  of the relevant  foreign  currency at
the  balance  sheet date.  The  mid-price  used is that quoted by the  Financial
Times.

      Income  and  losses  in  respect  of  the  transaction   foreign  exchange
transactions were as follows ($ in thousands):

                                           THREE MONTHS ENDED
                                             SEPTEMBER 30,
                                               1998       1997
                                          ---------------------

      (Loss) income on foreign exchange                        
      transactions                            ($132)      $23
                                              =====       ===



PART II

ITEM 1.     LEGAL PROCEEDINGS.

            None.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

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

         (d) The Company's Registration Statement (the "REGISTRATION STATEMENT")
on Form S-1 filed by the Company on January 16,  1998 (File No.  333-44393)  was
declared  effective by the Securities and Exchange  Commission on April 6, 1998.
As  previously  reported,  European  Micro  Holdings  received  net  proceeds of
$7,159,156 in the offering. European Micro Holdings has used the net proceeds in
the following manner:

                          USE OF NET PROCEEDS
NET PROCEEDS                                                  $7,159,156
   Loaned to Subsidiaries for                                            
   Operations:                                                           
   European Micro UK                         $3,500,000
   Nor'easter                                 3,659,156
                                      ------------------
PROCEEDS UTILIZED IN THE PERIOD                                7,159,156
                                                        -----------------
NET PROCEEDS STILL AVAILABLE                                          $0
                                                        =================

         European  Micro UK used the $3.5 million of the proceeds  received from
European  Micro Holdings to pay down  approximately  $3.5 million its short-term
indebtedness. European Micro Holdings has loaned an aggregate of $3.7 million of
the net  proceeds to  Nor'easter,  all of which has been used by  Nor'easter  to
purchase inventory. None of the payments of net proceeds were made to directors,
officers or persons owning ten percent or more of the  outstanding  Common Stock
of European Micro Holdings.

         European Micro Holdings  indicated in its  Registration  Statement that
$1.0 million would be used to fund the operations and provide working capital to
Nor'easter  and $2.4 million  would be used for  expansion  purposes,  including
mergers and acquisitions.  As indicated above, European Micro Holdings used $3.7
million to fund the operations of Nor'easter. This change in the anticipated use
of proceeds  resulted from the  availability  of product at prices in the United
States more favorable than other sources of supply.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

                                       21
<PAGE>

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

         None.

ITEM 5.     OTHER INFORMATION.

      On October 28, 1998, European Micro UK completed its acquisition of all of
the  outstanding  shares of capital  stock of Sunbelt from the  shareholders  of
Sunbelt  for  $1,008,684  in cash and an  earn-out  based on the  attainment  of
certain  performance  criteria.  At European  Micro  Holdings'  discretion,  the
earn-out  will be payable in either  cash or shares of common  stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined  based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro UK. The  acquisition  will be accounted  for using the purchase  method of
accounting.

      Sunbelt,  formerly  privately  held,  is a  distributor  of  microcomputer
products  to  dealers,  VARs  and  mass  merchants  throughout  Western  Europe.
Sunbelt's trading  operations will be integrated with and into the operations of
European Micro plc.  Sunbelt's  business of distributing its Nova brand products
will  operate 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  U.S.
$16.5 million and pre-tax earnings of approximately U.S.
$742,500.

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

(A)   EXHIBITS.

Exhibit
  No.    Description                        Location 
------   -----------                        -------- 

  2.01   Agreement for the Acquisition of   Provided herewith
         Sunbelt (UK) Limited by European 
         Micro Plc dated October 26, 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 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


                                       22
<PAGE>

         with National Westminster Bank Plc Exhibit No. 10.01 to the 
                                            Registration Statement. 

 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 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 Agreement   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    

                                       23
<PAGE>

         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                                   

 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. 10.17 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          Provided herewith 
         September 10, 1998 by and between        
         European Micro Holdings, Inc. and  
         The Equity Group                   

 10.20   Service Agreement dated October    Provided herewith 
         28, 1998 by and between European    
         Micro Holdings, Inc. and Michael    
         Gesner                             

 10.21   Service Agreement dated October    Provided herewith  
         28, 1998 by and between European  
         Micro Plc and Gerard O'Rourke      

 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.

      None.


                                       24
<PAGE>


                                  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:  November 13, 1998                  EUROPEAN MICRO HOLDINGS, INC.


                                          By:  /s/ John B. Gallagher
                                               ---------------------
                                                John B. Gallagher, Co-President

                                       25